When China's restaurants shut in January 2020, Haidilao's founder Zhang Yong decided the pandemic would end within months. Rather than wait, he used the closure period to sign leases and expand, betting that competitors' retreat was an opportunity. In 2020, Haidilao opened 544 new restaurants — an average of 1.5 per day, its fastest pace ever. In the first half of 2021 it opened another 299, reaching 1,967 outlets worldwide.
The bet failed. Consumption habits shifted: customers avoided communal dining, chose takeaway, and were deterred by higher prices. Government restrictions limited tables and diners. New restaurants were sited too close together and cannibalised existing stores. Same-store sales growth fell from 6.4 percent in 2018 to negative 17.7 percent in 2020. The table turnover rate — Haidilao's signature metric — dropped from 4.8 times a day in 2019 to 3.0 by mid-2021, and just 2.3 for new stores.
On 5 November 2021, Haidilao filed with the Hong Kong Stock Exchange announcing the closure of 300 underperforming shops within two months — one-fifth of its total. Zhang Yong admitted the company had been 'too confident' in its expansion plan. The stock had already fallen 75 percent from its February 2021 peak, wiping 43 billion dollars off Haidilao's market capitalisation. It was the worst performer on Hong Kong's Hang Seng Index that year.
International expansion was put on hold. The company shifted its stated focus from growth to 'improving operations and profitability of existing stores.' The closure programme cost an estimated 565 million dollars in write-offs and lease penalties.
Closed 300 underperforming stores in two months, costing $565 million in write-offs and lease penalties, after the stock lost 75% and $43 billion in market value.
Zhang Yong's core assumption — that the pandemic would end in months — was wrong, and the entire expansion plan was built on it without a contingency for the alternative
Opening 1.5 stores a day meant site selection quality fell: new restaurants were placed too close together and cannibalised the existing base rather than growing the total
The expansion was funded on the assumption of continued same-store growth; when that turned negative, the new stores' fixed costs amplified losses instead of spreading them
Management's own metric — table turnover — was signalling trouble by mid-2020, but the expansion continued for another eighteen months before the reversal
A contrarian bet during a crisis works only if the thesis is right. Haidilao's wasn't. The expansion assumed a V-shaped recovery and got an L. The cost of being wrong scaled with every lease signed.
Haidilao's stock rose 11 percent on the closure announcement, suggesting investors had been waiting for the admission. The company returned to profitability in subsequent periods by focusing on existing stores. Zhang Yong stepped back from day-to-day management.
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