Sat, July 13

Celebrity Restaurants: The Glittering Façade and the Harsh Reality Behind the Hype

In recent years, many celebrities have been keen on doing one thing: opening restaurants or endorsing them. For instance, Huang Xiaoming’s “Burnt Jiangnan Barbecue,” Chen He’s “Xianhezhuang,” Bao Beier’s “La Zhuang Chongqing Old Hot Pot,” Guan Xiaotong’s “Natural Dumb Milk Tea,” and so on. Initially, everyone was very supportive, as they wanted to support their idol’s business. Some opted for franchising, while others frequented the restaurants, leading to the overnight popularity of these celebrity-owned eateries, with daily revenues easily reaching tens of thousands of yuan and lines of customers stretching inside and out, even requiring scalpers to reserve spots for fees ranging from 60 to under 100 yuan. However, looking at the situation today, the scene has drastically changed. As of May 2022, Chen He has exited the shareholder lineup of Xianhezhuang, leaving franchisees with heavy losses and the operational state of the stores easily imaginable. By mid-2023, only about 200 stores remained, and they had already exited major cities like Beijing, Shanghai, and Guangzhou. Other celebrity restaurants are in a similar dire state, with Han Han’s “Happy to Meet You” losing over a hundred million yuan, and the dining brand “Natural Dumb,” tied to Guan Xiaotong, shrinking from nearly 200 outlets in 2021 to just eight remaining, while the company and its legal representative have been restricted from spending. Hong Kong celebrity Wu Zhixiong’s five restaurants in mainland China have all closed, incurring losses of tens of millions. Countless cases like these exist, and the few celebrity restaurants still operating are nowhere near their former glory, with no lines even with discounts. With so many ways to make money, why do celebrities flock to the catering industry, and why do these establishments fail within a few years? Who really benefits from this?

I want to say that celebrities engaging in side businesses is not uncommon. According to RET Rui De data, celebrities’ side businesses are diverse, including restaurants, bars, clothing, beauty, hair salons, etc., but the majority are concentrated in the catering industry, accounting for over 60%. Among these, hot pot restaurants are the most common because they have high profits and low barriers to entry, with gross profits generally ranging from 30% to 50%, and even up to 60% with good cost control. The threshold for opening a hot pot restaurant is relatively low, mainly focusing on ingredients and flavour. Ingredients are easy to manage as long as a high-quality supply chain is found, and the larger the purchase volume, the better the price negotiation. As for flavour, it’s easily standardized with a hot pot base, facilitating expansion. Celebrity-owned restaurants have been a trend for over a decade, but most have closed down within 3 to 5 years.

In 2015, Chen He, along with his friends Ye Yiqian and Zhu Zhen, opened a hotpot restaurant named Xianhezhuang. After operating for 3 to 4 years without proper promotion, Xianhezhuang not only failed to expand but was also on the brink of closure. However, in 2019, Xianhezhuang suddenly took off, opening over 700 stores in two years, averaging one store per day, and at its peak, surpassing 800 stores. To put this into perspective, Haidilao, established in 1997, took over 20 years to exceed 1,000 stores, while Xianhezhuang fast-forwarded at double speed, firmly establishing itself in first and second-tier cities such as Beijing, Shanghai, Guangzhou, Xi’an, and Chengdu. The major credit for Xianhezhuang’s success doesn’t go to Chen He, but to a company named Zhishan, which specializes in incubating restaurant brands, using the strategy of leveraging celebrity-owned restaurants for marketing. They emphasized this approach and collaborated with food bloggers, dancers, comedians, and even car and watch bloggers to visit the restaurant, creating a uniform strategy. Chen He, playing the role of the owner, collaborated with influencers on short video platforms, where influencers showcased the restaurant’s dishes, followed by praises and calls for visits.

This strategy, albeit common, proved to be highly effective. Two years ago, short video platforms were flooded with influencers visiting various celebrity-owned restaurants. On one platform, the topic “Brothers Xianhezhuang” reached a total viewership of 1.19 billion times, and “Xianhezhuang” hit 1.01 billion views. Intense marketing turned Xianhezhuang from loss to profit, opening over 500 stores in a year. Zhishan Group has operated not only Xianhezhuang but also other celebrity restaurants like Natural Dumb, Zhaomenkan, and Burnt Jiangnan, all featuring their involvement. Tan Duck Blood, popular for celebrity gatherings, also falls under Zhishan’s umbrella. The celebrity restaurant frenzy can be exemplified by the situation on Dongda Street at Chengdu IFS in 2021, where a 500-meter-long influencer street hosted six celebrity restaurants: Latoula by Du Haitao and Wu Xin, Natural Dumb by Guan Xiaotong, Burnt Jiangnan by Huang Xiaoming, Fumianmian by Jam Hsiao, Xianhezhuang by Chen He, and Douliu Hotpot by Angelababy. Fans specifically visited to support their favourite celebrities, even waiting for two to three hours at the entrance, giving rise to professional queue agents or scalpers, who could earn five to six hundred yuan a night just by selling spots in line.

During that time, celebrity-owned restaurants were the unrivalled trend in venture funding. Logically, a restaurant boosted by a celebrity should naturally attract a lot of traffic, and with the operation of professional incubation agencies, celebrity-owned restaurants should have flourished. So, why do most not last even three years? The core reason is excessive exploitation. Many celebrity-owned restaurants rapidly expand and then just as quickly vanish due to opening up franchise opportunities. Taking Xianhezhuang as an example, the franchise fee alone is 480,000 yuan, and this is just for the brand usage fee with a term of only three years. After three years, annual renewal costs 20,000 yuan. Franchisees must also purchase essentials like benches and hotpot utensils from headquarters, which costs about 200,000 yuan. Ingredients crucial to the flavour, such as hotpot base, oil, and seasonings, also must be bought from headquarters, adding up to 150,000 yuan. In total, franchising a 300-square-meter store costs about 1.68 million yuan, excluding rent, utilities, and labour costs. Additionally, there’s a monthly management fee of 2%.

The official payback period is stated to be just over nine months, calculated based on an average of 130 seats, a per-customer spend of 85 yuan, and a turnover rate of 2.2, resulting in daily revenue of about 24,000 yuan or roughly 730,000 yuan a month. Assuming a 60% gross margin and subtracting various expenses, the monthly net profit is estimated at over 170,000 yuan, with a net profit margin of 24%. This figure is highly exaggerated. To give some context, Haidilao’s net profit margin has historically been around 8% to 10%. By comparison, Xianhezhuang’s 24% net profit margin seems almost mythical. Other celebrity restaurants charge similar franchise fees: Sun Yizhou’s Zhaomenkan starts at 250,000 yuan, Huang Xiaoming’s Burnt Jiangnan at 380,000 yuan, and Guan Xiaotong’s Natural Dumb milk tea at 128,000 yuan, not including management fees and royalties. In contrast, Mixue Bingcheng, with over 20,000 stores, has a franchise fee of around 10,000 yuan. Such inflated claims are bound to burst eventually.

In May 2012, numerous franchisees protested in front of Xianhezhuang outlets, criticizing the brand for its ugly business practices. Some invested up to 8 million yuan with no return, complaining that promises such as celebrity appearances and a one-year payback period were never fulfilled. The most disappointing aspect was the lack of territorial protection that typical franchises offer, like ensuring only one franchise within a 3km radius or a maximum of ten franchises in a city. Without such limits, as long as someone was willing to pay, they’d grant a franchise, leading to a rapid closure of multiple outlets once the initial hype died down. An insider from the restaurant industry bluntly stated that no one serious about running a restaurant business would consider franchising a celebrity restaurant.

Besides the franchisees complaining about not making a profit, consumers also lamented the high prices. They wondered why meals associated with celebrities cost so much more, especially when the taste was just average. For example, Meng Fei’s small noodles start at 28 yuan, while a typical bowl of Chongqing small noodles doesn’t exceed ten yuan. Another venture by Meng Fei and Huang Lei had an average spend of 500 yuan per person and closed within two years. Some menus might look affordable, but the portions are disappointingly small, with dishes not exceeding 40 yuan but offering minimal quantity. With such a price-to-quality ratio, how could these establishments survive?

Even more concerning than the prices are the hygiene issues reported in recent years. In 2017, a dish at Bao Beier’s hot pot restaurant, purported to contain duck blood from Sichuan, was made from cow blood mixed with water—without a drop of duck blood. Interestingly, Bao Beier had promised to uphold food hygiene standards at his restaurant’s opening. In 2020, a hot pot restaurant owned by Xue Zhiqian was found to have tableware contaminated with coliform bacteria. In 2021, the kitchen of Lado La, founded by Du Haitao and Wu Xin, was exposed for being as dirty as a pigsty, with garbage bins placed randomly, flying insects, and walls covered in stains.

In reality, celebrities venturing into the restaurant business indeed have significant advantages. While others spend heavily on marketing, celebrity names naturally attract traffic and access to extensive free publicity. If their product, service, and operations were reliable, they could easily surpass competitors. However, the reality of celebrity restaurants often attracts criticism for exploiting consumers. Some individuals, neither knowledgeable about the restaurant industry nor supply chains, leverage their fame and capital to make quick money, abandoning the business when issues arise. For franchisees, the bigger the celebrity’s fame and traffic, the higher the franchising premium. Yet, they do not receive corresponding benefits, perhaps getting just a few celebrity posters or a pre-recorded video for all stores. Actual celebrity appearances at openings come at an additional cost. Furthermore, this traffic is a double-edged sword: high visibility invites scrutiny and easily generates negative news. If a celebrity’s reputation plummets, their business can suffer by association. Celebrities like Chen He, Zheng Kai, and Xue Zhiqian have already exited their restaurant ventures, eliminating any traffic advantage. With no competitive edge in cost-effectiveness or service, repeat customers are few, leaving franchisees to struggle until closure. For consumers, nostalgia only goes so far; if a restaurant is expensive, tastes poor, or lacks hygiene, it ends up on their blacklist.