(Yicai) March 5 -- Haidilao International Holding, a Chinese hotpot chain operator using direct operation, said it will adopt a restaurant franchise model to further speed up the expansion pace of its store network via diversified operations.

Haidilao will use several criteria to select franchisees, including a high level of recognition of the brand and values, vision planning, industry experience, and financial foundation, it said in a filing to the Hong Kong bourse yesterday. Unified operational and quality standards will be implemented across all self-operated and franchised stores, it added.

The franchised restaurants will receive centralized support from Haidilao, including personnel training, supply chain systems, management expertise, food safety control, brand marketing services, performance assessment, and other back-office services, the Jianyang-based company noted.

Haidilao follows a primarily direct operations model and is introducing franchising at an appropriate moment, which will help it achieve further moderate expansion, it said. It has also established a franchise division responsible for formulating detailed models and business cooperation processes related to franchise operations, it added.

Launching franchising is advantageous for Haidilao to rapidly expand under the premise of asset-light strategy, capturing a bigger market share and enhancing brand awareness and influence, according to analysts. However, they added that franchisees' mismanagement or regulatory violations can affect the brand image and undermine consumer trust and loyalty.

Founded in 1994, Haidilao had a significant net loss of CNY4.2 billion (USD580 million) in 2021, but its net profit likely surged 66 percent to at least CNY4.4 billion last year from the previous year, up 72 percent from the pre-pandemic 2019, while its revenue jumped no less than 33 percent to CNY41.4 billion (USD5.8 billion). It operated 1,382 stores as of June 30.

In addition to Haidilao, several brands under Jiumaojiu International Holdings, including Taier Chinese SauerKraut Fish, Naixue, Heytea, and Le Tea, have recently started using a franchise business model.

China's catering chain rate was only 19 percent in 2022, compared with 54 percent in the US, having significant room for improvement, according to a report by online meal delivery giant Meituan and the China Chain Store and Franchise Association.

Editor: Martin Kadiev