The billionaire entrepreneur who co-founded Haidilao 6862 -1.22% International Holding Ltd. has stepped down as chief executive, as the Chinese chain of hot-pot restaurants tries to move past an ill-timed expansion during the pandemic.
Zhang Yong is being replaced as CEO by his former deputy, Yang Lijuan. The change was announced eight days after Haidilao warned it expected to record an annual loss equivalent to more than $600 million, following its decision to close or suspend its operations at hundreds of restaurants.
Haidilao, whose restaurants are mostly in China, opened more than 600 new locations in the year to June 2021, taking its total outlets to nearly 1,600 globally. But the breakneck expansion was expensive and quality suffered.
In November, the company reversed course, saying it would close or suspend about 300 outlets that weren’t bringing in much money. Ms. Yang, until now the company’s deputy CEO and chief operating officer, was tasked with leading the turnaround, which the company dubbed the “Woodpecker” plan.
The company was “too aggressive to expand during the pandemic, because they thought the pandemic will be over in a very short period, and the rent at the time was very favorable, so they stepped up investment,” said CMB International research analyst Walter Woo.
Another concern has to do with Haidilao’s staff costs, as it said no employee will be laid off despite the store closures, Nomura analyst Emily Lee said. The company’s staff costs as a percentage of revenue are much higher than peers in China, she said.
Haidilao went public in Hong Kong in 2018, raising the equivalent of more than $960 million. It was seen by investors as a good way to bet on the rising purchasing power of the Chinese consumer, and was distinguished by its customer service, with measures such as offering manicures and shoe shines to guests waiting for tables.
At its peak early last year, Haidilao was worth more than $57 billion, making it one of the world’s largest restaurant companies, and Mr. Zhang, a naturalized Singapore citizen, was estimated to be that country’s richest person.
But China’s zero-tolerance approach to the coronavirus, sporadic outbreaks and an aversion to dining in big groups hit its operations hard, and investors have sharply marked down Haidilao stock.
It was the worst performer in Hong Kong’s Hang Seng Index last year, and has lost 74% over the 12 months to Wednesday’s close. Forbes now reckons Mr. Zhang is worth some $6.9 billion, down from $23 billion last April.
Mr. Zhang will remain chairman and guide Haidilao’s long-term strategy, the company said in a filing to the Hong Kong exchange late Tuesday.
On Feb. 21, Haidilao said it expects to record losses of at least 3.8 billion yuan, or the equivalent of $602 million, for 2021, despite an expected surge in revenue of more than 40%, to the equivalent of more than $6 billion. As well as shrinking its branch network, Haidilao cited global public-health measures and “internal management issues” as problems that had affected its results.
Write to Clarence Leong at [email protected]
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