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Shaxian Xiao Chi: small size, big profits

2011-12-13 15:44    Ecns.cn     Web Editor: Su Jie
Shaxian has established a company aiming to develop the business chain and go public one day.

Shaxian has established a company aiming to develop the business chain and go public one day.

(Ecns.cn)--"Shaxian Xiao Chi" is a kind of small restaurant run mostly by locals of Shaxian, Fujian Province, which now has branches all over the country and even overseas. The combined earnings of these shops reaches more than 4 billion yuan a year, three times the total annual income of Quanjude, a famous Chinese restaurant known for its trademark Peking Roast Duck, according to a recent survey by the government of Shaxian.

A joke online says that Shaxian Xiao Chi are like intelligence agencies, which spread everywhere across the country. According to the survey, more than 50,000 locals--or seven out of every ten farmers--are currently engaged in the business.

This has happened in part due to efforts by the local government, which set up a team in 1998 to facilitate the development of Shaxian Xiao Chi by organizing promotion fairs in cities like Shanghai and Hangzhou. It also started compensating local people for launching new restaurants.

While the government created a boom for Shaxian Xiao Chi, "Biao Hui"--a private group focused on rotational savings and credit activities--also helped to "give birth" to the industry.

A Biao Hui is formed by a number of people (usually familiar with each other) who meet at regular intervals and pool a sum of money formed by fixed contributions from each member. The members then bid on the pool to see who wins. That member then contributes the basic contribution plus their bid price at the following meeting.

Each Biao Hui has a head responsible for meeting discipline. He/she usually takes the first pool and pays no interest. However, in 1991, heads of the eight biggest Biao Hui in Shaxian fled the township because they had spent all of the money and could not contribute to the next meeting.

In order to survive, the debtors started running small restaurants, a simple business with low costs, which later spread from cities in Fujian to almost every corner of the country.

Deng Shiqi, who owns nearly 200 restaurants in China, used to be one of the runaways, who fled to Xiamen, Fujian, in 1992 and started his first restaurant by selling dumpling soup, noodles and tea eggs.

Deng recalled that the early 1990s was a golden period for his business, since more people went to cities to look for jobs and procedural requirements for setting up new restaurants were simpler.

At that time, he could make thousands of yuan every day, he added.

Lin Wenji and her husband run restaurants in Fujian, the Pearl River Delta, the Yangtze River Delta and northern China.

"People in Guangdong Province like midnight snacks, so our restaurant used to be open round-the-clock. We had to take shifts," said Lin.

Speaking of their profitability, Lin declined to disclose a specific number, "but we can afford a 10,000 yuan-per-square-meter apartment in our hometown," she said.

Statistics from the Shaxian government show that in 1994, the number of Shaxian Xiao Chi increased to 2,000 in Fuzhou, the capital city of Fujian, and 900 in Xiamen.

In response to the central government's call to transfer surplus rural labor, the government of Shaxian began to support the local catering business, not only by encouraging farmers but also assigning officials to launch restaurants.

According to Le Xiangsen, reportedly the owner of the first Shaxian Xiao Chi, over 200 officials from 13 counties plunged into the business in 1998.

In 2004, the Shaxian government decided to pay 1,000 yuan to each restaurant established in Shanghai. In 2007, each of the first 1,000 Shaxian Xiao Chi shops set up in Beijing could receive 3,000 yuan in compensation. In 2010, the first Shaxian Xiao Chi restaurants were opened in Taiwan and Macau in May and July, respectively. Now, people can even find them in foreign countries like Japan, Singapore, the U.S., Australia and Peru.

"Where there is city, there is Shaxian Xiao Chi," concluded Huang Fusong, head of the Trade Association of Shaxian Xiao Chi.

Now, Shaxian has established a company aiming to develop the business chain and go public one day. Le Xiangsen agreed to the business mode, pointing out that "after two decades of development, there should be some changes."

However, though Shaxian Xiao Chi has increased its number of dishes to over 240, most restaurants still focus on the original four, since they want to be efficient by providing fewer choices.

Besides, "people are not enthusiastic about learning new dishes," Le added, who noted that restaurants outside Shaxian need to serve elaborate dishes made by good chefs to seek long-term development.

Yet a bottleneck to achieving this goal is that the cooking skills of Shaxian Xiao Chi can only be passed on to local people, which shuts the door on many talented chefs and further affects the development of the business by rejecting non-locals.

Bai Ruixuan, an economic commentator, pointed out that "For Shaxian Xiao Chi, the dream of going public is beautiful, but the reality is quite painful."

"Listed companies should apply strict rules in management and work procedures, and meanwhile be able to yield handsome profits for the investors. In this regard, Shaxian Xiao Chi still has a long way to go," added a securities analyst.