Defying Trends: Hot Pot in China

Hot pot has been an essential part of Chinese dining culture for centuries. Originally consumed in winter to stave off the cold and for other health benefits, hot pot has become an omnipresent format across the country, a go-to for social occasions, and adapted to reflect regional preferences and ingredients. Often consumed together with large parties of friends and family, diners sit around a single pot of boiling broth, seasoned with chili oil and a variety of spices, and actively participate in the cooking process by dipping all manner of raw meats and vegetables in the simmering broth to cook. Diners wait as the ingredients absorb the distinct flavours in the cooking process, then fish out the cooked ingredients and eat them with a variety of dipping sauces. Through this blend of active participation in the cooking process and time available for socialising, the format has long been popular with consumers.

The rather slow, methodical technique of hot pot, however, is confronting changing consumer demographics, preferences, and needs, as China’s rapid urbanisation continues and the market’s rising middle-class swells. Consumers increasingly demand faster, more convenient ways to dine out that can keep pace with their modern, more urbanised lives. Despite this, demand for hot pot is booming. Unlike many other full-service formats, hot pot is highly adaptable, and the fun, social atmosphere offers a much-needed, albeit occasional, outlet for consumers to indulge. Sensing the potential of this distinct format, chains have begun to standardise and replicate the experience in unique ways, taking hot pot to all corners of the market in order to meet the unrelenting demand.

Full-service confronts changing market demographics

Hot pot included, the Chinese foodservice market is dominated by the full-service experience. In 2015, full-service restaurants made up 75% of all foodservice formats by value in China. Cities and rural regions alike are riddled with small, independent full-service restaurants that typically specialise in localised, regional cuisines. This is certainly still the case, but rapid urbanisation and a maturing economy that has bolstered the middle-class have largely changed market dynamics and the general needs of consumers.

CFS value growth in China: Eat-in vs. takeaway and home delivery 2010-2020

Note: 2016-2020 are projected growth rates

Source: Euromonitor International

Consumers in China are leading increasingly fast-paced lives, and many have little time to dine-out, or even to cook at home. While eat-in still accounts for the vast majority of foodservice occasions (88% of foodservice value in 2015), both takeaway and home delivery have become increasingly popular in China. The demand for faster, more convenient dining occasions has prompted a sudden rise in third-party food delivery services, making this type of service more accessible to consumers.

Changing market dynamics have had an impact on China’s traditional full-service restaurants as owners have looked for ways to incentivise consumers to continue to dine-in. Further complicating the full-service experience, a ban on government spending toward unnecessarily extravagant expenses, such as state-sponsored dining and alcohol consumption, has had an impact on mid- to high-end full-service restaurants whose business depended on this type of income.

While the needs of China’s typical consumer seems to be moving away from the full-service experience, hot pot has managed to increase in popularity. Hot pot’s hands-on and, potentially, messy cooking methodology meant that the format was not particularly suitable for business meetings or government functions, so hot pot eateries were largely unaffected by the government’s anti-extravagance measures.

Additionally, rapid urbanisation has created a massive flow of domestic migration, as Chinese frequently look to find work in cities in unfamiliar regions. Migration has caused an increased demand for regional cuisines, and hot pot’s adaptable format and ability to incorporate regional spices and ingredients, as well as the sociability of the format and typically low prices, has helped solidify its popularity in the market.

Chains take hot pot mainstream

The demand for hot pot eateries is now so widespread that chains have begun to standardise the experience and profit from its replication, bringing regional varieties to all corners of the market. Tellingly, seven of the top 13 players by value in the chained full-service restaurants category in China are hot pot chains. Unlike many other foodservice formats, hot pot chains are able to expand rapidly due to low overhead costs because the format does not require a complex kitchen or even cooks, as consumers do the cooking themselves.

Top 15 Full-service restaurant chains by foodservice value in 2015: China

Note: Hot pot chains in bold and italicised

Source: Euromonitor International

In this highly crowded and fragmented market, however, emerging chains have had to find ways to attract consumers that are already familiar with the format. Haidilao, the Sichuan-based hot pot chain, for example, has managed to edge out competition through consumer loyalty. The chain offers free services, such as a shoe polish and manicure to diners who willingly wait for as much as three hours for a table, according to CKGSB, a Beijing-based business school. The chain also provides entertainment for diners as noodle-makers famously and theatrically fling dough to create noodles. This attention to service has helped the chain cultivate a solid reputation with consumers and the kind of brand recognition that supports expansion.

Other chains have attracted consumers through format experimentation, adapting the format to cater to the needs of a more modern consumer. Xiabu Xiabu, for example, offers the traditional hot pot format in a quick-service setting. Diners sit in individual place settings along a bar, as each place setting is provided with an individual pot of broth, thus allowing consumers to eat more quickly. This format increases customer turnover and the model makes hot pot more accessible to solo diners or smaller groups that would hesitate to enter a more traditional hot pot eatery.

Still others have managed to compete on product offering. While spicy Sichuan-style hot pot restaurants are still most widespread, others offer more regional ingredients, such as Guangdong-style hot pot, featuring a comparatively mild broth and fresh seafood, to cater to a variety of consumer preferences. Chaoshan beef, however, is hot pot’s hottest trend. This format specialises in the distinct and specific cuts of high quality beef from southern China’s Chaoshan region, rather than offering a variety of meats. Chains such as The Cow’s Story have emerged onto Shanghai’s booming hot pot scene, competing on premium ingredients and a distinct product offering. Consequently, over 200 Chaoshan-style hot pot restaurants have opened in that city in 2015 alone, according to China Daily.

While the pace of the lives of Chinese consumers is quickening, the need for faster, more convenient formats is undeniable, and the sharp increase in demand for foodservice through home delivery is evidence of this change. However, even as the market slowly shifts away from eat-in occasions, the demand for hot pot endures, as the format will continue to serve as a much-needed outlet for Chinese consumers to relax and socialise when choosing to dine out. Chains are driving this growth and have made the format even more accessible, adapting the ancient cuisine to the needs of changing preferences, and ensuring the future of hot pot in China’s massive foodservice market.