Key Takeaways:
Xiao Noodles' Hong Kong IPO application could attract strong investor interest due to its focus on the lower end of China's restaurant market
The noodle chain's revenue rose 34% in the first half of the year, far faster than its rate of new store openings, as its profit nearly doubled
The rapid rise of "poor man's meals" is providing a feeding frenzy for restaurants at the bottom of China's food chain, as increasingly frugal consumers who still want to dine out search for the cheapest meal options. That trend is providing a boom for noodle chains that typically occupy one of the bottom rungs of the restaurant food ladder due to the low costs of their fare.
One such chain, Guangzhou Xiao Noodles Catering Management Co. Ltd., is hoping to sell investors on its strong positioning in the "cheap eats" dining segment, filing this week for a new listing into one of Hong Kong's hottest IPO markets in years. The company is relatively small, with just 451 restaurants to its name at the end of June.
But many of its metrics look relatively healthy compared with some of its peers that are suffering from falling sales and tumbling profits. Xiao Noodles isn't completely immune from those trends, reporting recent declines in same-store sales, table turnover and average spending per customer.
But the company is defying the market in reporting strong revenue growth in the first half of this year that far outpaced its new store openings, showing more people are buying its food despite spending less per person. And the company's profits are also performing quite well, nearly doubling in the first half of the year.
Here, however, we should point out that one factor that appears to be driving the company's recent strong performance is ongoing subsidy wars by China's takeout dining delivery companies, which is encouraging value-conscious customers to eat more restaurant food at home. Other ...
