Good News on Listing | Frost & Sullivan Assists Little Garden International Holdings Limited on Successful Hong Kong Listing (0999.HK)

Xiao Caiyuan International Holdings Limited (hereinafter referred to as 'Xiao Caiyuan') successfully listed on December 20, 2024. The company plans to issue 101 million shares, including 1,011.84 million shares for sale in Hong Kong, China, and 9,106.24 million shares for sale internationally, with an additional 15% over-allotment rights. The issue price per share is HK$8.5, and the net proceeds from the fundraising are approximately HK$860 million.

During the process of listing in Hong Kong this time, Frost & Sullivan mainly undertook the following tasks: helping the issuer accurately and objectively understand its positioning in the target market, using objective market data to discover, support and highlight the issuer's competitive advantages, assisting the issuer, investment banks and other intermediaries in completing the writing of relevant parts of the prospectus (such as overview, competitive advantages and strategy, industry overview, business and other important chapters), assisting the issuer in communicating with the Hong Kong Stock Exchange and investors, helping investors quickly understand the market ecosystem and competitive landscape, and assisting the issuer in completing feedback on various industry-related issues from the Hong Kong Stock Exchange, etc.

• The company is one of the well-known direct-operated chain restaurants in the popular Chinese public dining market;

   

• The company continuously improves its standardized operation model and management system;

   

• The company has a strong and stable supply chain management system, providing important support for sustainable development and consistent high-quality product control;

   

• The company has an experienced management team and a scientific and reasonable incentive mechanism, laying a foundation for rapid development.

According to a report by Frost & Sullivan,

• Based on 2023 store revenue, the company ranks first among all brands in the Chinese public convenience Chinese cuisine market, with an average customer order value ranging from RMB 50 to RMB 100.

   

• The public convenience Chinese catering market is highly fragmented, and participants face fierce competition;

   

• The catering market scale in China has shown a growth trend over the past five years, increasing from RMB 4271.6 billion in 2018 to RMB 5289 billion in 2023. The compound annual growth rate from 2018 to 2023 was about 4.4%. It is expected to further grow to RMB 8262.7 billion by 2028, with a compound annual growth rate of about 9.3% from 2023 to 2028.

The Chinese catering market can be divided into two sub-markets: the mass catering market for convenience and the mid-to-high-end catering market. According to Frost & Sullivan's data, the mass catering market for convenience is a sub-market within the Chinese catering market, with an average order value of less than RMB 100. On the other hand, the mid-to-high-end catering market is another sub-market within the Chinese catering market, with an average order value of RMB 100 or more. The mass catering market for convenience is the largest segment of the Chinese catering market in 2023, accounting for approximately 88.7% of the total market size. The market size of the mass catering market for convenience (in terms of revenue) increased from RMB 3,010.3 billion in 2018 to RMB 3,618.7 billion in 2023, representing a compound annual growth rate of about 3.8% from 2018 to 2023.

The market scale of the Chinese catering market is expected to reach RMB 6189.7 billion by 2028, with a compound annual growth rate of about 8.7% from 2023 to 2028. As the demand for high-quality, convenient, and affordable products and services continues to grow, the market scale of public convenience Chinese cuisine in China is expected to reach RMB 5587.1 billion by 2028, with a compound annual growth rate of about 9.1% from 2023 to 2028.

Source: Frost & Sullivan report

In 2023, chain restaurants contributed about 19.2% to China's public convenience Chinese cuisine market. The increase in the penetration rate of chain restaurants is closely related to urbanization. Since the 1990s, China's rapid economic growth has driven an unprecedented urbanization process, with fast-paced urban residents preferring to dine out in restaurants, while chain restaurants have demonstrated their advantages in terms of stable product quality and strong brand awareness. In 2023, the penetration rates of chain restaurants in the United States and Japan, based on revenue contribution, were 60.1% and 52.4%, respectively, far higher than that in China. China has enormous untapped potential in increasing the proportion of chain restaurants among all public convenience Chinese cuisine restaurants. With the development of technology and management capabilities in the chain public convenience Chinese cuisine restaurant market, its market size (in terms of revenue) has rapidly grown from RMB 494.1 billion in 2018 to RMB 693.7 billion in 2023, with a compound annual growth rate of about 7.0%, far higher than the growth rate of the non-chain restaurant market. Thanks to efficient management capabilities, a complete supply chain, higher standardization levels, and stronger capital support, the chain restaurant market is expected to grow rapidly in the future, increasing at a compound annual growth rate of 15.5% to about RMB 1.424 trillion by 2028. It is expected that chain restaurants will account for about 25.5% (in terms of revenue) of China's public convenience Chinese cuisine market by 2028. The following table lists the market size details of the public convenience Chinese cuisine market by operating model from 2018 to 2028.

Source: Frost & Sullivan report

The public convenience Chinese cuisine catering market can be further divided into two sub-markets: those with a unit price below RMB 50 yuan and those between RMB 50 and RMB 100 yuan. The market size (in terms of revenue) of the sub-market with a unit price below RMB 50 yuan increased from RMB 1,141.4 billion in 2018 to RMB 1,365.8 billion in 2023, representing a compound annual growth rate of about 3.7% from 2018 to 2023. It is expected that the market will grow at a compound annual rate of 9.4% from 2023 to 2028. The market size (in terms of revenue) of the sub-market with a unit price between RMB 50 and RMB 100 yuan increased from RMB 1868.9 billion in 2018 to RMB 2252.9 billion in 2023, with a compound annual growth rate of about 3.8% from 2018 to 2023. It is expected that the market will grow at a compound annual rate of 8.9% from 2023 to 2028.

Source: Frost & Sullivan report

The Chinese public convenience Chinese cuisine catering market can be divided into two sub-markets: those with a per-order price of less than RMB 50 and those with a per-order price between RMB 50 and RMB 100. In 2023, by revenue, the market segment with a per-order price between RMB 50 and RMB 100 accounted for about 62% of the total public convenience Chinese cuisine catering market. By 2023, in terms of store revenue, Little Garden ranked first among all brands in the Chinese public convenience Chinese cuisine catering market with a per-order price between RMB 50 and RMB 100.

Economic development and increasing urbanization rateThe development of the Chinese economy and the continuous increase in urbanization have driven the growth of China's catering industry. China's urbanization rate increased from 59.6% in 2018 to 66.2% in 2023, leading to more people moving to urban areas and increasing demand for catering services. The per capita disposable income of urban residents in China increased from RMB 39,300 in 2018 to RMB 51,800 in 2023, with a compound annual growth rate of 5.7% from 2018 to 2023. In addition, China's per capita food consumption expenditure increased from RMB 5,600 in 2018 to RMB 8,000 in 2023, with a compound annual growth rate of 7.4% from 2018 to 2023.

With the continuous increase in urbanization rates in China, according to Frost & Sullivan's data, the urban population of second-tier cities has steadily grown, from 1.425 billion in 2018 to 1.693 billion in 2023, accounting for 18.2% of China's total urban population in 2023. The per capita annual disposable income of urban residents in second-tier cities has also increased from RMB 44,300 in 2018 to RMB 58,600 in 2023, with a compound annual growth rate of 5.8%, exceeding the national average compound annual growth rate of 5.7% for per capita annual disposable income during the same period. Therefore, the purchasing power of residents in second-tier cities has been continuously improving, making consumers more capable and willing to dine out. From 2018 to 2023, the per capita food consumption expenditure in second-tier cities increased at a compound annual growth rate of 8.1%, exceeding the national average compound annual growth rate of 7.4% for per capita food consumption expenditure during the same period.

In addition, the urban population of third-tier cities increased from 2.085 billion in 2018 to 2.227 billion in 2023, with a compound annual growth rate of 1.3%, accounting for 23.9% of China's total urban population in 2023. The huge population base of third-tier cities represents tremendous market potential. Moreover, the purchasing power of urban residents in third-tier cities has been steadily growing. The reason is that the per capita annual disposable income of urban residents in third-tier cities increased from RMB 33,700 in 2018 to RMB 44,800 in 2023, with a compound annual growth rate of 5.9%, exceeding the national average compound annual growth rate of per capita annual disposable income of 5.7% during the same period. In addition, the per capita food consumption expenditure in third-tier cities has increased, with a compound annual growth rate of 8.0% from 2018 to 2023, exceeding the national average compound annual growth rate of per capita food consumption expenditure of 7.4% during the same period.

Meanwhile, the per capita annual disposable income of urban residents in first-tier cities, new first-tier cities, and fourth-tier and lower-tier cities also increased from 2018 to 2023, with compound annual growth rates of 5.6%, 5.8%, and 4.1% respectively. The corresponding compound annual growth rates of per capita food consumption expenditure in these cities during the same period were 5.7%, 6.3%, and 6.6%.

Therefore, the significant population size in second-tier and third-tier cities provides catering companies with a broad customer base. The continuous growth of disposable income indicates an increasing demand for catering services, especially in second-tier cities where consumers have higher purchasing power and willingness. In addition, compared with first-tier cities and new first-tier cities, second-tier and third-tier cities usually offer relatively lower rent and labor costs, providing catering companies with a higher cost-effectiveness ratio.

Changes in population structure and shifts in consumer demandThe Chinese catering industry is directly affected by changes in China's population structure, including an increasing proportion of small families, a declining birth rate, and an increasing aging rate, all of which together drive demand for dine-in and takeout catering services. The proportion of two- or three-person families in China's total population increased from 68.4% in 2018 to 75.7% in 2023. In addition, China's birth rate dropped from 10.9 per mil in 2018 to 6.4 per mil in 2023. In large families, elders (such as grandparents) often take on more cooking responsibilities due to having more free time. On the contrary, small families are usually composed of young parents with a fast pace of life, who have limited time for cooking after work. Therefore, compared to large families, small families have a lower willingness to cook at home. With the continuous increase in the number of small families, it may lead to an increased dependence on dining out or using catering takeout services. More and more consumers choose nearby restaurants as an alternative to home cooking, creating huge business opportunities for local catering service providers. This change in population structure and the shift in consumer demand provide a significant new market for participants in China's catering industry.

In addition, today's Chinese consumers have more complex demands and higher expectations for the dishes and services provided by restaurants. Only catering companies that consistently offer high-quality products and services can maintain a high consumer retention rate and loyalty over the long term. The penetration rate of chain restaurants in China is rising. In 2023, the penetration rate of chain restaurants in China's catering industry was 21.5% (by revenue contribution), while this figure in the United States is 60.1%, leaving ample room for development for Chinese chain restaurants. In particular, the penetration rate of chain restaurants in lower-tier cities is lower than that in first-tier cities. In 2023, the penetration rate of chain restaurants in lower-tier cities was generally below 15%, providing favorable conditions for the development of brand chains in these cities.

China's catering industry has a vast consumer base, and leading brands operating under the chain restaurant model are likely to dominate. Several chain restaurant companies, especially leading restaurant brands, have rapidly developed in recent years by applying and replicating the chain restaurant business model. In addition, as Chinese consumers' expectations for food quality and service continue to rise, market participants with strong brand influence are more likely to fully meet consumers' needs, thereby attracting more consumers and increasing their loyalty to the brand. The development of the chain restaurant business model also encourages leading restaurant operators to strengthen brand building and consolidate their advantages, thereby standing out in the highly competitive catering industry.

In addition, the chain restaurant business model has promoted the standardization of the Chinese catering industry and ensured consistency in food quality and service experience across the chain restaurant network. Leading chain restaurant companies have taken various measures to standardize their operations, such as standardizing ingredient procurement, inventory management, and menu preparation processes. As the penetration rate of chain restaurants in the Chinese catering industry gradually increases, it is expected that consumers will show higher loyalty to leading brands under the chain restaurant model, which will further accelerate their expansion and increase their market share. By revenue, the penetration rate of chain restaurants in the Chinese catering industry is expected to reach 25.6% by 2028.

The widespread appeal of mass convenient Chinese cuisineOn the demand side, the public convenience Chinese cuisine market caters to the rigid and frequent dining needs of the general public who pursue 'good food at a reasonable price'. Market demand is an important variable affecting industrial development, and there is currently an objective environment where products or services do not adapt well to consumer demand. Therefore, public convenience Chinese cuisine has been widely accepted and favored by consumers with relatively low income and purchasing power through providing affordable dining options. Consumers prefer products and services of high quality and low price, placing higher demands on catering companies. Thus, by meeting the ever-changing consumer demand for a 'good food at a reasonable price', the development of public convenience Chinese cuisine has become an important driving force in the Chinese catering industry.

On the supply side, the public convenience Chinese cuisine market is popular among consumers due to its integration of unique dishes from various regions of China, reflecting China's rich culinary traditions and evoking the taste of home and traditional culture for customers. The public convenience Chinese cuisine market offers a diverse range of dishes, allowing customers to enjoy a variety of choices. In addition, due to its advanced standardized management system and strong supply chain capabilities, the prices of dishes at public convenience Chinese restaurants are usually set at a level that can cover a wider range of consumers. Moreover, its balanced and diverse menu makes it an ideal choice for friends and family leisure gatherings.

Digital technology-powered developmentFor many years, the catering industry has evolved into a complex retail model. In recent years, with the rapid development of the internet and e-commerce industries, market participants in China's catering industry have increasingly emphasized the development of their information technology capabilities. In the internet era, advanced digital technology has blurred the boundaries between online and offline consumption scenarios, allowing consumers to obtain comprehensive services from both online and offline channels. The application of information technology in China's catering industry, such as mobile payment services and online-to-offline retail services, has also diversified the consumption scenarios of restaurants. Leveraging the latest digital technology, leading chain restaurant operators have gradually integrated information technology for daily store operations, membership management, and supply chain management. For example, with the assistance of digital tools, business intelligence platforms have played an important role in decision-making processes.

In addition, various advanced technologies and facilities such as cooking robots, intelligent camera systems, AI self-service checkout machines, and intelligent energy consumption management systems have been widely applied in China's catering industry. Therefore, it is expected that the development empowered by digital technology in the catering industry will further enhance the restaurant's omnichannel operational capabilities.

Frost & Sullivan has extensive research experience in the catering and food and beverage industries, assisting well-known enterprises in successfully listing on capital markets. Recent successful listings include: Rongye Food (NASDAQ: WYHG), Teha International (NASDAQ:HDL), Tea Baidao (2555.HK), Lancang Ancient Tea (6911.HK), Dekang Agriculture and Animal Husbandry (2419.HK), Gouquan (2517.HK), Davis Commodities (NASDAQ:DTCK), Zhenjiu Lidu (6979.HK), Dazhi Shares (1405.HK), Bai Guoyuan (2411.HK), Zhengwei (2147.HK), Weilong (9985.HK), Shuangcai Zhuang (2321.HK), Youran Animal Husbandry (9858.HK), Jiulongwang (1927.HK), Yumart China (9987.HK), Nongfu Spring (9633.HK), Fengxiang Food (9977.HK), Simore (6969.HK), China Feihe (6186.HK), China National Tobacco International (6055.HK), Youpin 360 (2360.HK), Wugu Milling House (1837.HK), Baby Tree (1761.HK), Haidilao (6862.HK), Sustainable Agriculture (8609.HK), Longhui Holdings (1007.HK), Xinrong International (1587.HK), Yiyuan Liquor (8146.HK), Jierong International (2119.HK), Bingshi International (1705.HK), Sainsbury's Food (1475.HK), Asia Grocery (8413.HK), Chowking Duck (1458.HK), COFCO Meat (1610.HK), Yihai International (1579.HK), Zhongdi Dairy (1492.HK), Dalil Food (3799.HK), Manor Ranch (1533.HK), Wanzhou International (0288.HK), and others.