According to incomplete statistics, there are already over 500 spicy hot pot brands in China. As an important subcategory of Chinese fast food, the current market scale of spicy hot pot has exceeded one trillion yuan, and there are various veteran players and newcomers entering the market. Due to its small investment scale, high standardization level, and lack of need for chefs, it is favored by catering entrepreneurs. These factors also determine that the spicy hot pot industry mainly operates through franchise chains.
01
The definition and development history of spicy hot pot
Mala Tang is a type of snack originating from Leshan City, Sichuan Province, China, and is popular throughout various regions, mainly found on the streets. Although it is all called 'Mala Tang', the taste of Mala Tang in some areas can differ from the traditional version due to local population preferences.
Spicy hot pot can be presented in various forms. Different forms of spicy hot pot have appeared on the market very early on, including 'Bopopo Chicken', 'Stir-Fried Noodles', and 'Mopai'. The key cooking steps for these spicy hot pots with different forms are to quickly cook the selected ingredients, paired with special sauces of different flavors or served with different soups such as traditional spicy soup base, tomato soup base, beef bone soup base, and dry mix.
Source: Compiled by Frost & Sullivan
02
The industrial chain of the spicy hot pot market
The trend of chain spicy hot pot brands expanding their business into the upstream and midstream of the spicy hot pot industry chain is becoming increasingly evident within the spicy hot pot market. Some chain spicy hot pot restaurants have begun to establish their own supply chains and/or procurement and logistics facilities, further promoting industrialization and standardization of the spicy hot pot market.
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Fresh food suppliers: Harvest and sort fresh food ingredients. One category includes farmers who sell products directly to purchasing institutions at fixed prices or market prices, while the other category consists of agricultural companies that provide a variety of agricultural products; -
Packaging Supplier: Manufacturing various types of packaging for food storage; -
Seasoning supplier: Produces seasonings for seasoning purposes; -
Processed food supplier: Provides processed foods such as frozen ingredients and pasteurized food; -
Equipment Supplier: Manufacturing and cooking, processing, or food storage-related equipment.
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Procurement Organization/Department: Restaurants place direct orders with raw material suppliers or indirectly with procurement organizations that can access a wide range of raw material suppliers; -
Central production kitchen: Aimed at providing food processing services to meet the high-quality standards for dietary ingredients or all dishes required by large-scale procurement needs. Large chain restaurants have their own central production kitchens; -
Distributors (self-operated and third-party): Provide logistics and distribution solutions. Large chain restaurants have their own distribution centers; -
Warehouse: used for storing products to alleviate food shortages or cope with temporary increases in orders; -
Wholesaler: Provides sufficient raw materials for non-chain restaurants.
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Restaurant: Provides catering services to consumers, with some leading operators expanding their business both vertically and horizontally; -
Consumers: They are divided into two types: those for enterprises and those for general consumers. For enterprises, it refers to the establishment of long-term or short-term cooperation between large companies and restaurants to provide catering services. There are mainly three methods for general consumers: takeout, where consumers place orders online through ordering and delivery platforms, with delivery personnel delivering meals offline; online-to-offline, where consumers place orders online through ordering platforms and pick up meals at the restaurant themselves; and dine-in, where consumers place orders inside the restaurant and enjoy food.
Source: Compiled by Frost & Sullivan
03
Raw material cost analysis of spicy hot pot industry
The main raw materials in the food supply chain of China's spicy hot pot market include salad oil, rapeseed oil, tomatoes, dried chili peppers, and Sichuan peppercorns. The average prices of dried chili peppers and tomatoes have remained relatively stable.
The average price of Chinese prickly ash remained relatively stable between 2016 and 2018, but its price increased to 100.4 yuan per kilogram in 2020 mainly due to supply reductions caused by extreme weather. As production continued to grow, the average prices of salad oil and rapeseed oil remained relatively flat with a slight downward trend between 2016 and 2018. In 2019, the average prices of salad oil and rapeseed oil stopped falling due to an increase in the quantity of relatively high-priced imports, and then prices continued to rise due to a reduction in the total production of these two raw materials caused by the outbreak of COVID-19.
Pork, beef, chicken, and vegetables are the main ingredients for spicy hot pot business. From 2016 to 2020, the average wholesale prices of vegetables and chicken remained relatively stable.
From 2016 to 2018, the average wholesale price of pork dropped from RMB 24.9 per kilogram to RMB 18.6 per kilogram, mainly due to an oversupply of pork production. Subsequently, prices soared to RMB 28.8 per kilogram in 2019, mainly due to the closure of small pig farms in response to environmental protection policies, which reduced the number of small pig farms. Later, due to a supply shortage caused by swine fever, pork prices rose to RMB 44.9 per kilogram in 2020.
In addition, the average wholesale price of beef rose from 53.4 yuan per kilogram in 2016 to 73.2 yuan per kilogram in 2020, mainly due to the rapid increase in demand for high-quality meat driven by consumption upgrading and the substitution effect caused by the soaring average wholesale price of pork.
04
Market scale of spicy hot pot industry
Spicy hot pot has become an important part of the Chinese fast-food market due to its high efficiency, cost-effectiveness, and a variety of flavors. From 2016 to 2022, the market size of spicy hot pot in China increased from RMB 968 billion to over RMB 1200 billion, and it is expected to continue growing in the future.
At the same time, spicy hot pot has achieved large-scale expansion under the chain restaurant model. By 2022, the chain rate of spicy hot pot restaurants in China had increased to over 20%, which is also higher than the overall chain rate of Chinese restaurants.
Image source: Internet
05
Driving factors and future trends of the spicy hot pot industry
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driving factors
In the past few decades, China's urbanization rate has increased significantly. With the acceleration of life rhythms, people place greater emphasis on the speed of catering services than ever before. Consumers are more inclined towards fast food that suits their lifestyle, such as spicy hot pot.
With the advancement of digital technology and its widespread application in food delivery services, practitioners in China's catering market have rapidly developed by providing additional consumption scenarios for customers through online delivery channels. At the same time, the digitization of supply chains and restaurant operations helps catering market practitioners maintain a stable supply of high-quality food, accelerate the industrialization process of food, achieve cost-effectiveness, and obtain customer profiles more accurately.
Most Chinese chain spicy hot pot restaurants operate under a franchise model. Under this model, franchisees have greater flexibility in store location selection and store operation management, and typically the franchise model does not require high capital investment from franchisees. These characteristics encourage chain restaurants to expand from high-tier cities to lower-tier cities to a certain extent. In addition, chain spicy hot pot restaurants usually have a relatively complete supply chain, strictly controlling and managing quality to ensure standardized material supply, including food and other materials involved throughout the supply process.
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Future trends
With the development of society and the increase in per capita disposable income, consumers are no longer satisfied with single or traditional flavors of spicy hot pot and are more willing to try new ones. In the future spicy hot pot market, brands that cater to the taste preferences of different groups are expected to occupy more market share.
Government departments have implemented relevant regulations and a number of policies to encourage enterprises to adopt the chain restaurant model, such as simplifying application and administrative review procedures. The chain restaurant model improves supply chain management and promotes standardization in the catering market. The spicy hot pot market is expected to accelerate growth in the next few years.
For practitioners in the spicy hot pot market that currently use traditional supply chains, the scattered raw material suppliers and even separated supply chains lead to instability, low efficiency, and high costs. However, technology-enabled supply chains provide a comprehensive system that can track every link in the supply chain. In addition, advanced supply chains help standardize food and services, as well as providing a solid foundation for business scalability, ultimately further enhancing brand awareness.
06
Main market entry barriers and challenges in the spicy hot pot industry
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Brand awareness and consumption scenario upgrade
Many leading practitioners in the spicy hot pot market are expanding on a large scale through the chain restaurant model. Subsequently, they increase brand visibility through both online and offline channels. The brand recognition effect strengthens over time, and consumers tend to choose brands they are familiar with. In addition, brands with a good reputation during negotiations with landlords have an advantage and can lease more attractive locations, thereby attracting more customer traffic and greater profitability potential.
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The cumulative advantages of the chain restaurant model
By standardizing the chain restaurant model, leading enterprises can achieve economies of scale that give them greater bargaining power, ensuring food quality and reducing procurement costs. In addition, due to the scalability of the chain restaurant model, these companies can rapidly expand through franchisees, providing stable high-quality catering services and ensuring food safety.
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The efficient supply chain management capabilities of leading brands contribute to enhanced cost-effectiveness
To meet the growing demand of the catering market for food safety, leading market practitioners continuously improve their supply chain management capabilities to ensure production efficiency and food safety. For instance, purchased raw materials are stored through advanced cold-chain logistics to maintain freshness. In addition, applying digital technology to supply chain management can further enhance the ability to better monitor the entire transportation and warehousing process, reduce unnecessary costs, and improve production efficiency.
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The diversification of product portfolios has expanded the business scale.
By producing derivative products, leading companies can better utilize their production capacity, industry experience, familiarity with consumer preferences, and understanding. By offering products such as self-heating pots and compound seasonings, they aim to achieve success in the retail market. A diversified product portfolio covering multiple product lines enables leading companies to acquire a broader and more diverse consumer base.
