Case Study of Haidilao (HDL) International Holding Co. Limited
Case Study of Haidilao (HDL) International Holding Co. Limited
Case Study of Haidilao (HDL) International Holding Co. Limited
Abstract
Haidilao (HDL) has achieved fairly economical success in recent years. This paper firstly
conducts external and internal business environment analysis of HDL, and then identify
not only HDL’s strenghens to make it being successful but also its weakness. My results
suggest HDL’s human resources are its strenghen by using hypothesis testing, while
limited sources of revenue and relatively high price setting are its weakness. Hence, HDL
should make solutions actively to mitigate the impacts of the weakness. This papers
shows that by cutting 2% price, HDL’s revenue will increase 2.6%. Other theoretical
analysises in this paper also indicate that HDL is supposed to constantly improve its
consumers’ dining experience. For implications, this paper suggests the inefficient for
business operating single-profit business. Moreover, the company who charges more
does not necessary lead to more revennue.
Keywords
Strategic Management; Hypothesis Testing; HDL; Business Environment Analysis;
Competitive Advantages.
1. Introduction
HDL, founded in 1994, is the biggest hotpot business in China currently. The paper highlights
the strategic management process of HDL. Firstly, the business environment analysis is
provided to identify HDL’s strategic goals. Then, a business-level strategy will be selected to
fulfill HDL’s goal. This paper primarily utilizes quantitative method, which are surveys and
questionnaires. Meanwhile, hypothesis testing, line regression and ratio analysis tools are
being used.
132
Frontiers in Economics and Management Volume 1 Issue 12, 2020
ISSN: 2692-7608 DOI: 10.6981/FEM.202012_1(12).0020
HDL has opportunities in the industry environment. HDL has been highly controlling over its
two most significant suppliers. Shuhai supply chain management limited company, the biggest
processed food supplier, above 80% of its stocks are possessed by HDL. Besides, the condiment
supplier, Yihai; is controlled by HDL’s board [3] Therefore, owing to the high control and risk
management, HDL’s supplier bargaining power is low[4]. Hence, HDL has considerable
superiorities in its supply chain. On ascribe to superiorities and the control over the supply
chain; HDL is capable of planning its supply chain. Schroeder and Goldstein indicate that
reliable supply chain management requires the integration of the different components of
suppliers to reduce the total supply chain throughout time[5]. Thus, HDL’s supply chain gives
its edges to be competitive.
2.2. Threats from general and industry environment
The general environment has been producing considerable external threats for HDL. United
Nations forecasts that the world economy in 2020 will shrink by 3.2 percent, compared with 1
percent of the severe world economy crisis in 2008[6]. Hence, a great recession may happen in
the next following years. Brue et al claimed that restaurant meals’ income elasticity coefficient
is +1.4[7]. This connotes that HDL’s dining business will be relatively strongly hitted by the
predicted recessions. Moreover, the industry environment has been producing threats for HDL.
Recently, HDL had attempted to increase the cuisines’ price. However, about 40% of consumers
counterviews were intense. Hence, HDL proclaimed that all the cuisines revert to the previous
price, suggesting consumers relatively strong bargaining power[3]. Hitt et al show that the
bargaining power of buyers is relatively powerful when they purchased extensive percent of
the firm’s sale’s revenues[4]. The vertical analysis supports that the bargaining power of buyers
for HDL’s dining business is robust since either in 2018 or 2019, the supervisory position for
HDL’s dining operation is unchangeable, and other businesses’ profits only consists less than 4%
of HDL’s total income.
Table 2. HDL’s income structure[3]
For the year ended December 31
2019 2018
HDL’s dining operation incomes in percent 93.6 97.2
Delivery business incomes 1.7 1.9
133
Frontiers in Economics and Management Volume 1 Issue 12, 2020
ISSN: 2692-7608 DOI: 10.6981/FEM.202012_1(12).0020
The table connotes that both Xiabuxiabu and HDL regard R & D as a critical aspect, and have a
solid relationship with suppliers. However, HDL’s advantage is its direct-sale store operation
strategy. Holmesclaimed that third-party franchise might lead to a reduction of quality and
decrease consumers satisfaction[9].
Solution:
Since confidence level is 95%, so, 95% = 1 − 𝛼,and 29 is the sample numbers.
So:
𝛼 = 5%
𝑛 = 29
Since this sample has large sample size (n = 29<30), and overall standard deviation 𝜎 is
unknown.
So: T Statistics should be applied:
𝑑. 𝑓. = 𝑛 − 1 = 29 − 1 = 28
π is the percentage of how many people regard HDL’s human resources as its strength
Then:
The Null Hypothesis is:
𝐻0 : π ≤ 80%
Alternative Hypothesis is:
𝐻1 : π > 80%
So:
𝑡(α,d.f) = 𝑡(0.05,28) = 1.699
And
𝑥 27
𝑝= = = 0.9310
𝑛 29
So, the T Stat:
134
Frontiers in Economics and Management Volume 1 Issue 12, 2020
ISSN: 2692-7608 DOI: 10.6981/FEM.202012_1(12).0020
Besides, the return on capital employed ratio belongs to profitability ratios in which measures
a company’s ability to gain profits and directly reflects the basic financial situation of the
company[10]. As the table connotes, HDL’s ROCE is more than twice as many as Xiabuxiabu’s,
which indicates its firm profitability. For investors’ perspective, HDL’s earnings per share is
greatly higher than Xiabuxiabu’s, which connotes its sufficient profits and the level of
shareholders’ importance for HDL. In a word, HDL possesses a unique and solid profit
generating systems, which are not easily imitated by general competitors.
3.2. Weaknesses:
The limited sources of revenue are HDL’s first weakness. According to China National Bureau
of Statistic[11], March, April and May’s foodservice compared to the same period of
the previous years. Excel depicts a quasi-liner regression plot.
Figure 2. HDL’s operation revenue compared with that in the same period last year
135
Frontiers in Economics and Management Volume 1 Issue 12, 2020
ISSN: 2692-7608 DOI: 10.6981/FEM.202012_1(12).0020
Then
{𝑎 = 0.2115
𝑏 = 0.0945
Hence, assume y =1, which means the time that foodservices back to the same level compared
with last year:
X=1-0.2115/0.0945 = 8.34
The accumulating loss of catering income:
(1−0.2115)∗8.3/2
Loss in percent = = 39.43%
1∗8.3
Therefore, about the middle of August, China foodservice industry will back to the same level,
and HDL will have to lose 39.43% in revenue. Hence, HDL’s single type of revenue structure is
suffering.
The high price level is another HDL’s weakness. According to China Industry Information
Network, quasi-middle class, emerging middle class, middle class and upper-middle-class
contribute 22%, 25%, 24% and 23% in china’s income structure[12]. According to a survey
from 29 people based on random sampling, 79% of people think HDL’s price-level is to overly
high. A normal distribution is made below:
136
Frontiers in Economics and Management Volume 1 Issue 12, 2020
ISSN: 2692-7608 DOI: 10.6981/FEM.202012_1(12).0020
Thus, all the quasi-middle class, emerging middle class, middle class and 8% upper middle class
think that HDL’s price level is too high. Due to the middle and upper-middle are HDL’s main
consumers[3]. Thus, HDL’s price-level is overly high for target consumers.
4. Strategy Development
4.1. Strategy goal identification
One business environment threat indicates that HDL is supposed to find methods to mitigate
the buyers’ relatively strong bargaining power. Hitt et al claimed that decrease consumers’
buying proportion over a business could somewhat mitigate buyers’ bargaining power[4].
Besides, HDL’s internal weakness also suggests the limitation of a single business model. Hence,
develop new sources of revenue is necessary. Moreover, HDL’s solid supply chain system and
financial structure would strongly support new realms of business as mentioned.
Furthermore, another threat connotes a relatively high possibility that HDL’s dining business
would suffer, casuing loss in income. Due to HDL basically relies on its own operating cash flow
to distribute dividends, and not participate in the financing[3]. Therefore, loss in revenue would
hurt HDL’s ability to pay shareholders’ dividends and the difficulties to pay employees. Finally,
downcast unpaid employees could threaten consumers’ advantages. Therefore, the first
priority for HDL is to assure reliable income via retaining consumers, and continue to enhance
the dining experience to improve the same store sales growth is a prerequisite.
Finally, HDL’s price-level is too high, as mentioned for target consumers. Hence, HDL considers
to cut off 2% of the average price at first. The future policy over the cut in price will be
determined by whether the further cut in price leads to total dining revenues increase or not.
According to Brue et al., (2014), restaurant meals’ 𝐸𝑑 = 2.27
Since
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑓 𝑥
𝐸𝑑 =
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒 𝑜𝑓 𝑥
Other things equal,
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑓 𝑥 = 2.27 × 2% = 4.54%
In 2019, HDL’s average table turn over (ATTO) per day in china is 4.8. Hence, the expected ATTO
in next year would be 4.8*1.0454 = 5.02. In 2018, HDL’s ATTO in china is 5.1>5.02[13]. Thus,
HDL is capable of dealing with a 2% drop in price.
Other things equal, HDL’s dining revenue would increase 2.6%.
5. Conclusion
This paper deals with what HDL’s strategic goals should be based on business environment
analysis. After the analysis of HDL, my results suggest that HDL should continue to enhance its
dining experience, develop new sources of revenue and cut price to increase average table turn-
over rates. However, limitations does exist. Firstly, when caculate the accumlate loss in income,
I apply the straigh line in which conducted by excel, most accruate information will be
137
Frontiers in Economics and Management Volume 1 Issue 12, 2020
ISSN: 2692-7608 DOI: 10.6981/FEM.202012_1(12).0020
genetated if curve line being used. Secondly, the hypothesis testing base on domestic data. Due
to HDL is a global business, the future study could be wider and collect global information.
References
[1] Beijing newspaper (2020) How do you think about HDL’s raise in price. Available at: https// www.
weibo.com.
[2] The People’s Republic of China (2019) Major topics in the National Plan for Medium - and Long-
term Development of Science and Technology 2021-2035. Available at: http://www.gov.cn/
xinwen/2019-08/02/content_5418146.htm.
[3] HDL (2020) Annual report of 2019. Available at: https://www.haidilao.com/zh/2020/04/
2020042317523931479.pdf.
[4] Hitt M.A. et al. (2015) STRATEGIC MANAGEMENT Competitiveness & Globalization Concepts and
Cases, 12th edn, Cengage Learning, Boston.
[5] Schroeder, R & Goldstein S.M (2018). Operations Management in the Supply Chain, 7th edn, Mc-
Graw Hill, New York.
[6] United Nations (2020) Coronavirus ‘grim reality’: World economy to shrink by 3.2 per cent, new UN
report projects. Available at: https://news.un.org/en/story/2020/05/1064032.
[7] Brue S.L. et al. (2014) Essentials of Economics, 3rd edn, Mc-Graw Hill, New York.
[8] Xiabuxiabu (2020) Annual report of 2019. Available at: https://www.solomon-ir.com/00520/
2020042402369_c.pdf.
[9] Holmes, D (2003) THE ADVANTAGES AND DISADVANTAGES OF FRANCHISING. Available at:
http://www.holmeslofstrom.com/z_pdf/articles/franchisors/Fran%20Advantages.pdf.
[10] Dyson, J (2010) ACCOUNTING for non-accounting students, 8th edn, Prentice Hall, Edinburgh.
[11] China National Bureau of Statistic (2020) How to treat the economic situation of the first quarter
comprehensively dialectically. Available at: http:// www. stats. gov. cn/ tjsj/ zxfb/ 202005/
t20200501_1742905.html.
[12] China Industry Information Network (2018) An analysis of Disposable income and the number of
households in various income groups in China in 2018. Available at: http://www.chyxx.com/
industry/ 201807/657981.html.
[13] HDL (2019) Annual report of 2018. Available at: https:// www. haidilao. com/ zh/ 2019/ 08/
2019080617440245464.pdf.
138