(Yicai Global) Nov. 8 -- Chinese hotpot chain Haidilao International Holding will terminate about 300 restaurants by December after the company's expansion streak that continued strong even during the Covid-19 pandemic last year.

The decision aims at cutting losses, but no one should get fired as employees will be transferred to other restaurants, Chief Strategy Officer Zhou Zhaocheng said to Yicai Global.

Sichuan province-headquartered Haidilao opened almost 310 new stores in 2019 and more than 540 in 2020. In the first half of this year, it accelerated its pace of new openings by adding nearly 300 outlets to reach a total of almost 1,600. After the upcoming closures, the number should still remain above 1,300 eateries.

The aggressive expansion caused slowing profit growth in the first six months of 2021. The decline in performance in the first half was due to two reasons: too many new stores and the continued impact of the Covid-19 pandemic, the food chain said in its interim earnings report.

Some stores did not meet the expectations, which is related to the company’s rapid expansion policy formulated in 2019, said Zhou. "Under such a policy, some wrong store locations were selected, and excellent store managers were insufficient,” said the CSO.

The realization prompts self-reflection. "The organizational structure reform has not been able to adapt to the company's development status, and especially management has been exhausted under the current development scale. So, we decided to stop to solve these problems first."

“Management shall take the responsibility," said Zhou. Store managers can be sent to other positions or be included in the talent pool to receive further training and promotion. Meanwhile, their salaries will be guaranteed, he added.

Three aspects affect Haidilao's decision on which outlets to close, said Zhou. Those include considering whether the specific areas have enough consumers and traffic, as well as whether there are other Haidilaos nearby. Moreover, the firm will think of how likely each outlet will be able to increase its profitability in the short run, according to the CSO.

The change of course is likely to show up in the company's earnings. "Closing stores itself certainly has a one-off impact, so we will ask accountants to accrue the impairment loss in accordance with accounting standards,” said Zhou.

Haidilao’s share price [HKG: 6862] closed 4.8 percent up at HKD22.05 (USD2.80).

Editor: Emmi Laine, Xiao Yi