Photo/Dazhong Dianping

Xiaocaiyuan, a Chinese casual dining chain that specializes in traditional Anhui cuisine, filed for an initial public offering (IPO) on the Hong Kong Stock Exchange on January 17, 2024. Huatai and UBS are joint bookrunners.

The company, which is headquartered in the city of Anhui, China, was founded in 2013 by Wang Shugao. Wang is a self-made entrepreneur who started out as a cook and then opened a small restaurant in Anhui. He later expanded his business into the casual dining sector and opened the first Xiaocaiyuan restaurant in 2013.

Xiaocaiyuan has grown rapidly since its inception. As of January 11, 2024, the company has 548 stores in 119 cities across China. In the first nine months of 2023, Xiaocaiyuan generated revenue of RMB 3.4 billion and net profit of RMB 430 million.

The company's success is attributed to a number of factors, including its focus on affordable prices, its commitment to quality ingredients, and its use of social media to reach a wide audience. Xiaocaiyuan's menu features a variety of traditional Anhui dishes.

Xiaocaiyuan is targeting a wide range of customers, including families, young professionals, and students. The company's prices are competitive, with a per-person check of RMB 50-80.

NBD noted that in the third quarter of 2023, the average spending of diners at Small Garden restaurants in third-tier and below cities (including county-level cities and counties) was RMB 63.3, on par with the RMB 66.4 average spending in first-tier cities. The highest average spending was in new-first-tier cities, at RMB 67.4.

Xiaocaiyuan plans to use the proceeds from the IPO to fund its expansion plans, which include opening 160 new stores in 2024, 190 new stores in 2025, and 230 new stores in 2026. The company also plans to invest in its supply chain and digital infrastructure.

Frost & Sullivan data show that the total scale of China's mass convenient Chinese food market increased from 280.71 billion yuan in 2017 to 3024.4 billion yuan in 2022, and is expected to increase to 5,191.4 billion yuan in 2027 at a compound annual growth rate of about 11.4%.

However, Xiaocaiyuan faces some challenges as it expands. The company will need to ensure that it can open new stores profitably and that it can maintain the quality of its food and service. Xiaocaiyuan will also need to compete with other established casual dining chains.