Why Haidilao Is Building an Online Retail Business

Executive Summary#

Haidilao's (海底捞) business rests on its dine-in restaurants, a model that depends on diners at the table. The pandemic showed how far any hotpot operator built on that model relied on foot traffic, most of all during Shanghai's two-month lockdown from April to June 2022.^[1] Its newer lines of business, among them condiment sales and its other restaurant brands, are where the company began building revenue that does not depend on seating capacity.^[2] This analysis looks at the strategy behind Haidilao's expansion into online retail and its aim to move from restaurant operator to food technology company.

A Business Built Around the Dining Table#

Haidilao built its business around the dining table, so its revenue comes mainly from restaurant operations. That structure leaves any restaurant operator open to disruptions that affect foot traffic and seating capacity. It is the starting point for understanding why the company looked for revenue beyond its restaurants.

The pandemic made this risk concrete. China's hotpot operators, whose business model depends on social dining occasions and high table turnover, were affected more severely than quick-service restaurants during rolling lockdowns. When Shanghai entered a two-month lockdown from April to June 2022, operators that depended on foot traffic felt the effect more than those built around delivery or retail.

The same risk applied across the hotpot segment, and for an operator of Haidilao's size it made a strong case for building sales channels that keep working when restaurants cannot open, which is what gave its diversification strategy its urgency.

Three Diversification Pathways#

Haidilao's newer online and retail channels were still small beside its restaurants, but each offered a route to diversification. The first is condiment sales, which carry the brand's hotpot flavours into home kitchens, and the second is its other restaurant brands, through which it began a multi-brand strategy. The third is online retail products such as self-heating hotpot kits, developed under its "Future Food Laboratory" initiative.

Pandemic Economics: Why Diversification Became Urgent#

The strategic case for diversification grew stronger through 2022 as pandemic disruptions persisted. China's broader foodservice industry faced significant headwinds from rolling lockdowns and social distancing measures in major cities. The hotpot dining format, built around communal tables, shared broth and long meals, was particularly exposed to restrictions on gathering size and restaurant operating hours.

The economic argument for diversification went beyond reducing risk, since each online retail sale generated revenue with very different unit economics from restaurant operations:

• Lower fixed costs: no lease obligations, staffing or restaurant build-out costs
• Wider geographic reach: e-commerce distribution reached consumers in cities where Haidilao had no physical presence
• Pantry stocking: consumers bought condiments and self-heating kits for several future occasions as well as for immediate consumption
• Pandemic resilience: online retail channels kept operating through lockdowns that closed dine-in restaurants

These advantages made the online retail opportunity worth pursuing whatever the pandemic conditions, although the pandemic brought the timeline forward.

The Restaurant-to-Retail Transformation#

Haidilao's diversification strategy was part of a wider change in China's foodservice industry. Several restaurant chains, including Haidilao, Xiabu Xiabu (呷哺呷哺) and regional hotpot operators, expanded their retail product portfolios during 2022, driven by the same concentration risk and market opportunity.

This move from restaurant to retail narrowed the gap between foodservice and consumer packaged goods. Consumers who had taken up home cooking during pandemic lockdowns increasingly looked for premium, branded meal solutions that gave them a restaurant-quality meal at home. Industry analysts estimated that the market opportunity this created could be several times larger than China's hotpot dining segment alone.

For Haidilao, the transformation required capabilities outside its traditional strengths. Restaurant operations demand excellence in service, ambience and food prepared at the table, while retail operations demand excellence in packaging, shelf-life management, e-commerce marketing and the distribution of consumer packaged goods. The company's ability to develop these new capabilities while keeping its restaurant standards would determine the success of its diversification strategy.

From Restaurant Operator to Food Technology Company#

The strategic aim behind Haidilao's diversification went beyond adding revenue streams. Management positioned the company for a shift in identity from restaurant operator to food technology company. The "Future Food Laboratory" initiative illustrates this ambition. It serves both as a product development centre and as a signal to investors and consumers that the company's growth need not be limited by restaurant seating capacity.

This repositioning had implications for how the market valued the company. Restaurant operators typically trade at multiples constrained by unit economics, such as lease costs, labour and the pace of physical expansion, while food technology companies with scalable product lines and e-commerce distribution can command higher growth multiples. We believe that if Haidilao's online channels became a larger part of the business, the way the market valued the company could change within two to three years.

The main question was execution. Because the restaurants remained the centre of the business, the task was to invest in diversification without drawing management attention or resources away from the core restaurant operation.

Key Takeaways#

• Haidilao's business is built around dine-in restaurants, which made the pandemic's effect on foot traffic the main reason to build revenue beyond them
• Condiment sales carry the brand's hotpot flavours into home kitchens and are one of the clearest near-term diversification pathways
• The company's other restaurant brands gave it an early start on a multi-brand strategy
• Shanghai's April-June 2022 lockdown underlined the case for reducing dependence on physical restaurant operations
• Haidilao's move from restaurant operator to food technology company could open an addressable market several times larger than hotpot dining

About the Data#

This analysis draws on Moojing Market Intelligence data covering January-November 2022, combined with Haidilao International Holding Ltd. (6862.HK) financial disclosures. Moojing analyses brand and category performance across major Chinese e-commerce platforms. For full methodology and additional insights, see the complete Haidilao Online Market report.