(Yicai Global) Aug. 20 -- Chinese hotpot restaurant chain Xiabuxiabu Catering Management China Holdings will close unprofitable 200 stores this year, terminate its upscale sub-brand called In Xiabuxiabu, and launch a new sub-brand to target the medium-end market.

The fast-food company that offers Taiwan style hotpot is slated to start Xiabu X next year to sell dishes for about CNY90 (USD14) per client, Beijing Business Today reported yesterday, citing founder He Guangqi, who had accepted his first public interview after once again taking over the reins as a chief executive at the Beijing-based company in May.

Change of Course

Xiabuxiabu has encountered issues regarding its supply chain and business model in recent years, Zhu Danpeng, an analyst in China’s food industry, said to the same news outlet.

The closure of loss-making outlets and that of the posh sub-brand can generally improve the firm's profit margin in the short-term, but may do harm to its expansion and brand influence, Zhu added.

In Xiabuxiabu, which was debuted in 2019, has suffered a constant deficit, which is mainly due to its unclear positioning, He explained.

That has affected the whole company as Xiabuxiabu issued a profit warning on July 29. The hotpot chain is to record a net loss ranging from about CNY40 million (USD6.2 million) to CNY60 million in the first half, down from the CNY255 million (USD39.2 million) logged a year ago.

Repositioning

The strategic changes may not result in an enlarging network of outlets just yet.

“Xiabuxiabu has been taking a lot of detours in recent years as its choice of locations, management, and corresponding positioning have all gone against its original positioning as a catering brand mainly focusing on mass consumption, so the company decided not to expand this year," He explained.

The company will start its store expansion in second and third-tier cities in the future, said the CEO. Takeout and tea drinks are to become new income drivers, he added.

Xiabuxiabu's Hong Kong-listed shares [HKG: 0520] dropped 0.8 percent to HKD6.09 (78 US dollar cents) in the afternoon after closing 3.3 percent down yesterday. The stock price is almost 70 percent lower this year. Hillhouse Capital Group and Morgan Stanley sold a lot of their holdings of Xiabuxiabu after the firm revealed a huge drop in net profit last year.

Editor: Emmi Laine, Xiao Yi