Why Do Hot Pot Trends Shift as Unpredictably as Fast Fashion?

Social media, the favor of capital, and a rush to copy — the lifespan of a hot pot hit keeps getting shorter, and no one knows what comes next.

Will a new hot pot category break out this winter? The whole restaurant industry is probably watching. For people already in the hot pot business, at least for now, there is room to breathe.

Even so-called industry insiders did not expect Chaoshan beef hot pot to take off the way it did last winter, when more than a thousand restaurants seemed to open across Shanghai overnight. The trend spread quickly to Jiangsu and Zhejiang and to Beijing, and a few even appeared in Chengdu and Chongqing. But by the conservative estimate of Wang Jiabin, founder of the hot pot chain Jiuniu Erlu, about 40% of Shanghai's Chaoshan beef hot pot restaurants have already closed this year, many of them at a loss. By his account, the Jiuniu Erlu he opened in September 2014 was Shanghai's first Chaoshan beef hot pot restaurant; his three current locations cannot match last year's business.

Jinri Niushi, which only entered the market last April, grew faster and now has five locations in Shanghai. But its owner, Chen Manqi, says there will be no more expansion this year, because the whole market has been weaker since the first half. "I think we'll go through a shakeout, and this year will be the turning point," she said.

"In fact, hot pot restaurants get reshuffled every year," Zhang Ming, marketing director at Shanghai Longhui Catering, told QDaily. Longhui is the parent company of the hot pot chains Huige and Xiao Huige. Take the more mass-market Xiao Huige: its peak came in 2013, and its first location, in Shanghai's Wujiaochang, opened in December 2012.

Count them off on your fingers: the mutton hot pot chains Little Sheep and Donglaishun; the Cantonese-style Macau Doulao; the single-serving chain Xiabuxiabu; Sichuan-Chongqing chains such as Haidilao and Lafu; even Korean army stew and Japanese sukiyaki — nearly every one has had its turn. In the restaurant business you would be hard pressed to find another category where trends come and go this fast.

And the cycles are getting shorter. A new restaurant category used to stay popular for four or five years; now it may last only two or three. Chaoshan beef hot pot, close to a phenomenon in its day, ran for barely a year. Zhang Ming has studied hot pot restaurants using Dianping data, but he sees no clear pattern in what becomes popular.

Everyone in the industry we spoke to made the same point: hot pot is cheap to get into and easy to copy. It works like fast fashion. Before most people have worked out why something suddenly caught on, most operators simply join in and think later.

Wang Jiabin thinks some restaurants exist only to chase trends. "When summer comes they do crayfish, when winter comes they do lamb spine hot pot — these aren't restaurants with an identity," he said. Of the more than 2,000 Chaoshan beef hot pot restaurants that appeared last year, he reckons half were of this kind.

Hot pot is the easiest Chinese cuisine to standardize: it needs no head chef, the broth and sauces can be made in a factory, and the side dishes are a supply-chain problem. Its barrier to entry is lower than that of other Chinese food, which is why hot pot restaurants are so easy to copy. "As long as I have the money, whatever some small company tries that takes off, I can copy it straight away," Wang Jiabin said.

Overall, hot pot has been rising for several years, Jin Peihua, deputy secretary-general of the Shanghai Catering and Cuisine Association, told QDaily, because it combines low operating costs with high gross margins. Labor at a full-service restaurant usually takes 23 to 24% of revenue; at a hot pot restaurant it is often under 15%.

So people with no restaurant experience pick hot pot as their way in. Celebrities in particular open hot pot restaurants more than any other kind: Joker Xue opened Shangshangqian, a chuanchuanxiang skewer hot pot restaurant, in Shanghai; Ye Yiqian and Chen He opened one together called Xianhezhuang; Rela Yihao has a longer celebrity list still — Huang Xiaoming, Li Bingbing, Ren Quan, Huang Bo, He Jiong and Jing Boran.

Not just celebrities: plenty of amateur owners with spare cash have put up money with friends to open a hot pot restaurant. Little Sheep's founder Zhang Gang and Xiabuxiabu's owner He Guangqi were both outsiders when they started.

Both chains are now past their peak. Just as people were guessing that Little Sheep might be sold again, Yum China CEO Micky Pant said at the company's listing press conference on November 1 that it would speed up Little Sheep's expansion, with 40 new locations planned this year.

That is a little surprising. If you live in a first- or second-tier city, you will have noticed how rarely you see China's former top hot pot brand now; it is down to 250 locations, including those overseas. At its peak, around 2004, it had more than 700 across the country.

Little Sheep was born in Baotou in 1999, and its early rise rode the boom in restaurant chains. Founder Zhang Gang noticed that few mutton hot pot restaurants set themselves apart through the broth, so he bought the recipe from a hot pot restaurant called No Dipping Sauce Needed, improved it with Chinese herbs, and named the result Little Sheep. Within two months he had three locations in Inner Mongolia. By 2002, revenue reached 2.5 billion yuan. Young people once saw it as a fashionable hot pot brand.

Zhang Gang has said he intended Little Sheep to be a chain from early on. He brought in Mengniu vice president Sun Xianhong and Sun's subordinate Lu Wenbing, among others, to spread the equity around, and used a franchise model that let the chain expand fast. That also planted the trouble. Growth was too unruly, and Little Sheep had to spend heavily to bring franchisees into line, closing nearly half its restaurants and ending up with just over three hundred.

When Yum bought Little Sheep outright in 2011 for close to HK$4.5 billion, the problems had already surfaced: cold-chain logistics had not kept up with the fast-growing store network. Revenue and net profit were still rising, but same-store sales and gross margin were falling. Same-store growth was 1.7% in 2009 and 6% in 2010, down from 10.7% in 2008, the year it listed. Gross margin fell 2.7% in 2010.

During those years, Little Sheep's competitors surfaced one after another. This time it was not up against scattered, unbranded street stalls.

Also in 2011, a post on Tianya titled 《Haidilao, Unbeatable by Humankind!!!!! All Those Haidilao Stories!! Come Dish If You've Eaten There》 suddenly caught fire. It drew more than 400,000 clicks and over 2,700 replies. Haidilao was already popular in Beijing, Shanghai, Xi'an and other cities before that, and its name kept rising inside the industry: in 2007, Yum sent more than 200 of its regional managers from around the country to study Haidilao.

Haidilao founder Zhang Yong started out running a small malatang stall. It struck him that most customers could not taste the difference between one spicy hot pot restaurant and another, and that when location, price and surroundings were alike, service decided a hot pot restaurant's fate. On the strength of attentive service taken to an almost absurd degree, Haidilao spread from Jianyang in Sichuan to Xi'an and Zhengzhou, and reached Beijing in 2004.

"Haidilao doesn't sell dishes, it sells service" — that is more or less the consensus, and it is what sets the chain apart. Free snacks while you wait for a table, manicures, surprises from the staff on your birthday, an attendant in the restroom to pump hand soap for you: all of it was new at the time. Many customers felt treated like royalty, and word of mouth spread fast.

Wang Yuhong, who sells hot pot soup base, believes the category took off nationwide around the end of 2013, above all after an episode of A Bite of China 2 featured Chongqing hot pot and lifted the whole Sichuan-Chongqing market.

Food trends travel differently from other consumer goods — clothes, accessories, cosmetics — and from services. As Huang Zhangjin wrote in 《Poor Man's Palate, Rich Man's Palate: Why Spicy Food Caught On》: "Popular food culture always spreads from labor-exporting regions to labor-importing regions, while the food of labor-importing regions rarely catches on widely in the places the labor comes from."

As people moved around more, first- and second-tier cities with no tradition of eating spicy food took in large numbers of newcomers, who changed what big cities ate. Chili was one result. In the 2010 sixth national census, the seven spice-loving provinces and municipalities — Sichuan, Hunan, Hubei, Chongqing, Jiangxi, Guizhou and Yunnan — sent out 36.842 million migrants, 43% of the national total. Sichuan and Hunan restaurants and Sichuan-style hot pot places sprang up at the time. Haidilao rode exactly that wave.

2009 to 2012 were roughly the strongest years for single-serving hot pot: Xiabuxiabu's owner announced plans to go public; Shanghai's upscale chain Huige launched Xiao Huige, a mid-priced single-serving brand; and Doulaofang, owned by another Shanghai restaurant company, Feidelao, opened in Beijing.

Xiabuxiabu was founded in 1998 but stayed lukewarm and never left Beijing. It took the sudden SARS outbreak in 2003 to give this one-pot-per-person company a lift. Xiao Huige, which leads with seafood, was launched earlier than planned because anti-corruption rules were hitting high-end dining. Aimed at young office workers at 120 to 150 yuan a head, it landed in exactly the right niche. "Competition in mid-range hot pot wasn't fierce then, so you could say we opened up the market fast over the next two years, and the profit per restaurant was considerable," Zhang Ming said. Xiao Huige now has 90 locations. The brand is not as hot as it was two years ago; average daily revenue per location this year is about 30,000 yuan — not bad, but below 2013 and 2014.

As for last winter's Chaoshan beef hot pot boom, Zhang Ming, as a fellow operator, thinks it hit at a good moment, and that the product is so simple it is easy to copy — "even easier to copy than us." Restaurants that used to serve other food switched over. Niu Daye on Jiashan Road in Shanghai used to be a Chaoshan restaurant; Beijing's Xiaoniu Haiji Chaoshan Beef Restaurant used to be Chen A'po Fish Hot Pot. Canyin Laoban Neican estimated that 40 billion yuan nationwide had gone into Chaoshan beef hot pot, and that the wages of beef-slicing chefs had quadrupled.

Beijing and Shanghai had Chaoshan restaurants before this, but they never took off. Wang Jiabin believes his restaurants helped push the wave along: he opened his first in September 2014 with the idea of "one cow a day," and, following Chaoshan practice, divided the animal into nine cuts — an adaptation of how it is done in Chaoshan itself.

Jin Peihua thinks Chaoshan beef hot pot caught on because it has one clear theme: fresh beef. That is a form of differentiation too. Chen Manqi, the owner of Jinri Niushi, used to run a Chaoshan restaurant. When she switched to hot pot last year she went back and forth over whether to lead with seafood or beef, and decided beef had more of a hook.

Almost everyone also brings up healthy eating. Unlike Sichuan-Chongqing hot pot, which is spicy and heavy with oil, Chaoshan beef hot pot is mild; the broth is usually simmered from beef bones and beef with white radish and corn. Many restaurants stress that their beef was slaughtered that day rather than frozen, or that it reaches the table within "8 hours." Most have a half-open kitchen where a chef slices the beef in view — another way of insisting on their own freshness and health.

Wang Jiabin used to run a gym, and he thinks healthy food like Chaoshan beef hot pot is a good product with real demand. "First it tastes good, second it's healthy, and you can see the healthiness — an open counter, beef killed fresh." Chen Manqi said much the same: "I get the sense that people now pay a lot of attention to health and wellness, in all sorts of ways."

Hot pot looks easy to copy, but what it really tests is the supply chain. Haidilao founder Zhang Yong once told Harvard Business Review: "Our real strength is actually the supply chain." The company has put 1 billion yuan into it, works with HAVI, the cold-chain logistics company that serves McDonald's, and runs four supply bases, in Beijing, Shanghai, Zhengzhou and Xi'an. Its distribution base at Dahongmen in Beijing has a full set of washing, processing, refrigeration and freezing equipment, and ships food into the city every day. Because that supply chain is sound, Haidilao is one of the few hot pot brands able to operate nationwide.

A maturing supply chain is another reason Chaoshan beef hot pot could play the "fresh and healthy" card far from home and do well. Once the format reached chain scale, Jinri Niushi, with five locations, could put its own people in charge of raising cattle, slaughtering them and delivering to each restaurant. Locations can also pass supplies between them to keep the beef fresh, which a single standalone beef hot pot restaurant can hardly do. In Beijing, several brands including Xianniuji formed the Beijing Chaoshan Beef Hot Pot Association, again to share purchasing, slaughtering and other resources.

In winter, hot pot is close to a necessity; some Xiao Huige members eat there four times a week. But few people stay with one kind of hot pot. "Hot pot is a very inclusive category — you can put anything in it," Zhang Ming said. Sub-genres keep multiplying — fish hot pot, pork tripe and chicken hot pot — and it seems that whoever holds the ground takes a turn in the spotlight.

Restaurants are also a reasonably good place to put money right now. China Cuisine Association figures put national restaurant revenue at 3.231 trillion yuan in 2015, up 11.7% from the year before. GDP that year grew only 6.9%.

That has to do with how people spend. When GDP per capita sits between US$5,000 and US$10,000, restaurant revenue tends to grow steadily and fairly fast. For the past five years, China's GDP per capita has been right in that band. Above US$10,000, the share of consumer spending that goes to restaurants starts to fall.

Hot pot's customer base is broad. Meituan data counts more than 350,000 hot pot businesses nationwide, a 7.3% penetration rate across all dining, making it China's largest food category. All of this is why capital likes hot pot — one reason KFC's parent company, Yum, bought Little Sheep when it did.

Just as Instagram can turn a dish into a hit, social media — WeChat official accounts above all — has done a lot to manufacture trends. Chaoshan beef hot pot is the clearest case.

Both of the Chaoshan beef hot pot owners we interviewed promoted their restaurants through WeChat official accounts early on. Of five consumers we interviewed at random, four followed food accounts or local eating-and-drinking recommendation accounts. In early 2016, Qi'e Chihe Zhinan ran a piece titled 《We Went to Shantou Just to Show You What Chaoshan Beef Hot Pot Really Looks Like》 that passed 100,000 clicks.

Chen Manqi has views on advertising through these accounts: "I used to buy the top slot on official accounts. Not anymore — now I only pay for ranking lists." Articles with background, comparison and some entertainment value work better now; the old restaurant-visit write-up and video have fallen out of favor.

Besides Qi'e Chihe Zhinan, food accounts including Aige Chibaole, Tiansheng Chihuo, Meishi Gongfang and Beijing Chihuo Xiaofendui have all run pieces on Chaoshan beef hot pot. That can leave consumers with the feeling — or the illusion — that "this is already so hot, I have to try it," and it makes outsiders itch to join in. In Wang Jiabin's words, it "blows the bubble up nice and big."

Haidilao's online search peaks both fall around July 2011, when the Tianya post went up

Looking back at Baidu Index and Google Trends, Haidilao's popularity was amplified by that Tianya post too. The difference now is that almost everyone is on WeChat at every hour, so an article in an official account can take effect faster.

But the bubble bursts just as fast. Chaoshan beef hot pot is cooler this year, and Zhang Ming does not think it is an isolated case. Any single-item category can become a hot topic that consumers chase at first, but the cycle is always very short — dry pot went the same way. "I think beef can only be one item among the things you cook in a hot pot. Asking it to carry a whole brand is very hard."

Wang Jiabin still sees a decent market in concentrating on one category. He plans to add more vegetables, or seafood and other items whose flavors won't clash with the beef, to fill out the menu. Even so, he says, "young people today tire of things and move on so fast — in two or three years the customers and their habits can be completely different from before."

Wei Saijun, from Shaoxing, is a college junior, and she may be a little like the young people Wang Jiabin means. "There was a stretch when I was really into cheese hot pot," she said. "Then I went back to the single-serving hot pot I liked in the first place. Lately I've wanted to try the old charcoal hot pot from when I was small again, but we don't have that where I live."

No one can say what will be popular next. Chen Manqi takes it calmly: "Consumers really find it hard to be loyal to any one kind of food." Wang Jiabin expects Chaoshan beef hot pot to settle into an ordinary cycle of ups and downs; Zhang Ming still thinks carrying the full range is steadier.

There is one thing they are all bullish on for the future: hot pot delivery.

Cover image from Flickr, Wikimedia and the brands