Xiabu Xiabu – Unique Hot Pot Chain
Ranked 2nd in the fast casual restaurant industry in China and capturing 52% market share within the fast casual hot pot segment, Xiabu Xiabu (XBXB) revamped the entire concept of traditional hot pot cuisine since 1998. It differentiates itself from peers as a pioneer of the do-it-yourself (DIY), bar-style hotpot, offering customers a unique fast casual dining experience. Since inception, XBXB has committed to build a simple and scalable hot pot chain, which offers customers consistently great tasting and healthy food at value-oriented price with hospitable yet efficient services.
Despite fierce competition in the restaurant sector and weaker macroeconomic environment in China, XBXB’s strong operating model allows it to continue to outperform its competitors, including leading international and domestic quick service restaurant chains such as Ajisen, Tsui Wah and Yum!China.
- Simple, standard and scalable model:
- Individual DIY pot: XBXB’s unique store concept flexibly caters to both solo dinners and group dining. Minimal food processing or serving is required, eliminating roles of chefs, central kitchen or complicated in-store kitchen. This significantly lowered capital expenditure per store and facilitated its fast expansion.
- U-shaped bar-style hot pot: allows higher density of seating with flexible space requirement. One caterer can provide attentive yet efficient services for over 10 customers simultaneously, leading to huge labor cost savings. It also enables higher table turnover rate than most of its peers
- Standardized store design: all stores have standardized inner designs and theme color of bright orange, connoting the warmth of home, which is particularly attractive to the growing urban population that works away from home.
The unique model allows XBXB to achieve high operating efficiency with cash breakeven in 3 months and 14-month payback period, one of the best store investment return profiles among peers. Its scalability serves as its major competitive advantage in an industry with traditionally low barrier to entry.
- State-of-the-art supply chain management
- Procurement: XBXB procures key food ingredients through a highly centralized procurement system. Being one of the largest meat purchaser in China and working closely with a few selected suppliers, XBXB is able to assert strong pricing power and ensure high food quality. It also maintains direct-controlled cooperative vegetable farms to ensure stable, cheap and high-quality supply.
- Logistics: XBXB’s logistics operations coordinate the purchasing, storage and delivery of supplies throughout its restaurant network. It has established a three-tier logistics system comprising one central distribution center at Beijing headquarter, one regional distribution center in Shanghai, as well as 3 transit warehouses in the cities where it operates. Each of these logistic facilities has a service radius of approximately 400 km, delivering fresh raw materials to each store on a daily basis.
- Inventory management: On a store level, XBXB employs advanced back-of-house (BOH) system for accurate inventory forecasting, allowing each restaurant manager to devise individual ordering and delivery plan on a daily basis, largely reducing waste and ensuring freshness of food supplies.
- Continuous product and business innovation
- Dipping sauce: XBXB invents and manufactures its proprietary soup bases and dipping sauces at its own food processing plant. These sauces and bases, containing no preservatives and staying fresh for only 2 days, contribute significantly to the popularity of XBXB. In-house production of such materials protects its proprietary recipes, ensures consistency of food quality and achieves economics of scale.
- New businesses: XBXB owns a R&D center, constantly innovating on new food and beverage items, set menus, sauce recipes and other business ideas. In the past year, it rolled out 16 “Beverage Stop” to capture traffic during off-peak hours, launched “summer time” initiatives to extend operating hours of selected highly popular stores, as well as O2O take-away business.
- Recruiting and training
- XBXB gathers an organized, well-incentivized and systematically trained group of employees.
- It offers uniform formulated and staged training modules to promote standardized operation at all stores, including service (detailed to the greetings), operation and customer relationship management.
- It also encourages internal upward mobility which helps with employee retention.
XBXB’s operating model is perfectly tied with its business model, driving it to become one of the most popular restaurants nationwide. It has experienced exponential growth since 2009, with store counts rising 5 folds in the past 6 years, approaching 500 by 1H 2015. Its footprint also expanded from Beijing to 31 cities across the country.
With its unique dining concept, commitment to safety and quality ingredients, mass-market oriented position, scalable and standardized business model, I believe XBXB will continue to thrive in China’s highly competitive restaurant sector.
Sources:
http://xiabuxiabu.todayir.com/attachment/201412050743002_en.pdf
http://xiabuxiabu.todayir.com/attachment/2015081822020100002290470_en.pdf
Credit Suisse equity research reports on Xiabu Xiabu (Aug 2015; Jan 2015)
Qing!
One of the things that I miss most about Beijing is Xiabu Xiabu. I used to go to the one in Wudaokou at least once every two weeks.
I think XBXB created a great niche for itself, which has allowed it to be successful in a highly competitive market. It’s for people that want deliciously fresh cooked food (that is non-greasy), but don’t have the time to sit down at a traditional restaurant. Preparing the ingredients is very labor and time intensive, so XBXB has been able to add a lot of value on the convenience side.
The bar-layout really helps cycle through customers and really matches with their young and hip image. You can only really sit with two other friends, which reduces conversation and speeds up eating time. Everything is very clean as well, which improves the customer experience.
Also, high food quality is such an important guarantee in China. I’m glad to learn more about their strong relationships with their suppliers. I also had no idea that they made their own sauces. They need to be careful about customers like me though, who request extra dipping sauces to take home. 🙂
Great post! Do you know about their international franchise opportunities? Shall we start our own Xiabu Xiabu in Cambridge? We can charge half as much as Flame with these operational efficiencies.
Alison
This is a very interesting business model, where many operating and capital costs are minimized due to the do-it-yourself value proposition to the customer. The number of wait staff required is minimized and not requiring a central kitchen must minimize capital and operating costs significantly, while making it a unique dining experience for customers.
I found it very interesting that the company is also backwardly integrated since they have their own facilities for manufacturing their sauces. This must surely help with costs and also helps them to innovate in a highly competitive environment.
I have one question – do you think extending control of the “production” of food to customer can be risky for Xiabu Xiabu? For example, the lack of consistency across various dining experiences since the customers are not experts at cooking.
Qing, this is a very interesting blogpost, awesome job!
It is great to see such an interesting company take advantage of the growing fast casual concept. I have never been to a Xiabu Xiabu but the restaurant settings looks wonderful from the pictures you posted. The environment looks lively and fun, but also offers every individual customer a self-tailored experience. I think the DIY pot model almost makes the customer feel they are cooking at home, but sharing this amazing experience with others. I really appreciate the simple and scalable nature of this business model as I can imagine adding more pots to existing restaurants or opening new restaurants is much easier than traditional restaurants due to simplicity in store design and standardization of layout. I was also very impressed by the XBXB’s supply chain management capabilities – especially the flexibility provided to each restaurant manager allowing himself/herself to devise individual ordering and delivery plan on a daily basis. I wonder how XBXB is able to then aggregate the demand and ensure sufficient supply given the stringent demand on quality and freshness of food supplies for hotpot? I also wonder how each individual XBXB restaurant thinks about managing safety stock to insure against high levels of customer flow on days that exceed anticipated levels?
Qing, this is very interesting business. U-shaped bar reminds me of conveyor-belt sushi bar (http://www.hakodate-factory.com/sushi/news.htm) or beef-on-rice dish restaurant (http://guardian-jp.com/wp-content/uploads/sites/4/2015/01/DSCN0740.jpg) in Japan, but I never seen U-shaped tables for the kind of foods that Xiabu Xiabu is offering. Combining it with the concept of do-it-yourself, I can imagine how efficient the store operations are, by reducing the labor costs and increasing the cycle time of customers.
Also, I was impressed by its supply chain management. Having the logistics capabilities from purchasing to storage and delivery of supplies and the ability to forecast inventory accurately, it sounds that Xiabu Xiabu manages the raw materials with shorter expiration date very well.
I have a two questions:
– Using selected suppliers for exercising bargaining power and securing the quality does make sense. But I imagine that there are some risks because the yields of vegetables depends on the weather in the year. I am afraid if Xiabu Xiabu can secure the enough volume of vegetables in the year with bad weather for vegetables. In that case, can Xiabu Xiabu find the other supplier easily?
– The operation with U-shaped bar and DIY concept is new to me. Xiabu Xiabu was the pioneer of this model? Or the other players had taken similar operation in China?
Thank you very much for sharing great post!
Kohei
Qing-
I really enjoyed your post and remember fondly my many hot pot experiences in China.
It seems Xiabu Xiabu has really perfected its model and has integrated some of the same concepts that we read about in the Benihana case.
I wonder if they have thought about expanding out of China, as I have often found it difficult to find a quality hot pot experience in the US.
I thought this was a great example of when a company’s business model and operating model are in high degree of alignment and you did a very nice job walking the reader through this.
How do you compare Xiabu’s operating model with Haidilao’s? How do they compare in price point, and how do you explain the difference? Do you think their business model is sustainable?