Of all the businesses impacted by the Wuhan coronavirus, those in the retail and restaurant industries have had it worst. A January 31 report by Evergrande’s Research Institute estimated that the retail and food and beverage industry have suffered 500 billion yuan ($72 billion) in losses during the weeklong Spring Festival period alone.
In a recent interview with the consultancy firm China Venture, the CEO of a beloved Inner Mongolian food chain vented at the government, in particular criticizing a mandate that companies continue to pay their employees a full salary during the coronavirus public health crisis. Jiǎ Guólóng 贾国龙, the CEO of Xībèi 西贝, said he only had three months’ worth of cash to spare — and feared that smaller firms have even less breathing room. He blamed the government and called on authorities to step in and ease the pressure.
This article was on WeChat for half a day and went super viral (100,000-plus shares — WeChat doesn’t give data above that number) before being deleted from the platform. But it can still be found on the China Venture website.
Xibei restaurant’s Jia Guolong: The epidemic has left more than 20,000 workers in limbo; even taking out loans to pay salaries, Xibei won’t last three months
During China Venture’s exclusive interview with Mr. Jia Guolong, Chairman of Xibei Restaurant, which has more than 400 Xibei Oat Noodle Village restaurants in more than 60 cities throughout the country, he expressed that at present, 400 of Xibei’s shops were basically closed, only leaving 100-odd shops to handle the takeout business. He estimated that in the month around the Spring Festival, Xibei would lose about 700 to 800 million yuan ($100 million to $115 million) in revenue.
What worries Jia Guolong even more is that right now more than 20,000 employees are waiting for work, but in line with national policy regulations, Xibei must continue to pay out salaries, forking out about 150 million yuan ($21.5 million) per month. Supposing that the epidemic situation does not come under effective control in a short time, the cash that Xibei has on hand will not last three months.
“Within this industry, our life still isn’t too bad, so what about those who aren’t doing so well? We can take on a loan, tighten our belts, and give out three months of salary, but what about other brands and what about other industries?” Jia Guolong says. “You must know that 30 or 40 million people are employed in the F&B industry. If these people become society’s burden, what will that look like?”
Jia Guolong believes that employee expenses, which take up 30% of company costs, are the biggest issue deciding whether the business will live or die in the current epidemic. On one hand, he took initiative in expressing the need for the business to assume responsibility by supporting its employees, and on the other hand, he urgently hoped that the country will offer support by way of policies as soon as possible, such as tax reductions or exemptions, subsidies for employee salaries, and so on, so that responsible enterprises will not suffer.
On January 31, China Venture had an exclusive interview with Xibei Restaurant Chairman Mr. Jia Guolong, the content of which is below.
More than 20,000 employees waiting for work
ChinaVenture: Right now, are Xibei’s shops still in operation?
Jia Guolong: Xibei has 400 shops and more than 20,000 workers in over 60 cities throughout the country. Right now, dine-in restaurants have all basically stopped, and only a small portion of shops, such as those in large cities like Beijing, Shanghai, Guangzhou, and Shenzhen, are staying active to handle take-out orders. But the take-out order volume is extremely small, and is only reaching about 5% to 10% of ordinary revenue.
Our earliest closures started in Wuhan, where we have nine shops. After that, we started to close shops one by one in Beijing, Shanghai, Guangzhou, and Shenzhen, with closures then spreading to the entire country. Now, even our takeout stores in Inner Mongolia have been closed due to government enforcement.
But after closing, our employees are still staying in dormitories, which is an entire other problem.
CV: How many employees are there in dormitories?
JGL: Right now, more than 10,000 employees are in dormitories, and we have to take care of their food, residence, and safety, and also make sure they are in a good mood. Not running all over, not being infected by other people, and also not allowing oneself to become a source of transmission.
On the other hand, we have more than 10,000 workers at home. Right after we suspended operations, there was a portion of employees who chose to return home. Once they’re home, we still have to care about their psychological condition.
CV: What’s the current mental state among employees?
JGL: Right now, still normal. Every day we have good food and drinks, we organize study sessions, and we organize entertainment within a limited scope; there’s no big problem. But as time goes on, who knows?
CV: Nowadays, all of society is in short supply of masks and other protective equipment. Xibei has over 10,000 workers in dormitories — is there sufficient protective equipment?
JGL: We were quick to act and stored a batch, enough to use. We have a specialized logistics department, which buys speedily, even if at a high price. You have to know that some of this batch was [sold] at a high price, with one N95 mask costing more than 30 yuan ($4.30), so this division spent several million RMB.
Cash flow can’t cover three months’ salary
CV: The Spring Festival holiday period is traditionally peak season for the F&B industry. Based on the business situation of previous years, what would Xibei’s revenue be during the Spring Festival period?
JGL: I think it should be 700 or 800 million RMB ($100 million to $115 million) this month. Now, 700 or 800 million RMB of business has suddenly become zero, and even with no revenue, you still incur expenses.
CV: What are the main costs involved?
JGL: Within our cost structure, raw materials take up 30%, but these are equivalent to money, and are not losses. Aggregate labor costs take up 30%, which is the actual big issue. Of the remaining, rent takes up 10%, and with no operations it doesn’t need to be paid. And then taxes take up about 6% to 8%.
After counting everything out, the single biggest variable is manpower costs. But national policy stipulates that these people must all be salaried during vacation, which we recognize, and as a responsible brand, we also feel that we should be good to our employees.
But even if this is no problem in the short term, in the long term it can’t be endured. In one month, we give out 156 million RMB ($22 million) in salary, so two months is more than 300 million ($43 million), and three months is 450 million ($65 million). What kind of enterprise stores up such a huge cash flow?
CV: How much cash does Xibei have in its accounts right now? If the situation does not improve in the short term, how long can you hang on?
JGL: Our cash flow is in accordance with the limit of salaries that we have to distribute. Right now we have not taken on many loans, but even if we take on loans to pay out salaries, I feel we won’t be able to hold on for more than three months.
Before Chinese New Year, we finished paying for goods and gave out bonuses. We didn’t keep much cash on hand because we knew that every year, Chinese New Year is a peak period for business and cash flow would immediately return. We had so much inventory, once sold, wouldn’t it all become cash? Then we can pay salaries and enter the cycle again.
Now things have ground to a halt — suddenly business has stopped, everything has stopped, but staff expenditures cannot be stopped. Shouldn’t that leave one stunned?
When we weren’t in crisis, we were pretty bullish, even saying that we weren’t short of money and that our cash flow was enough. With the crisis here, suddenly we found that our cash flow just can’t keep us afloat, and in one, two, three months will be completely squandered.
We used to say that “when the business grows, the cash flows,” no financing needed, no funds needed. Whatever loans and such the bank gave us, we would be unable to finish using them, and whatever credit was extended, we would use only half. Now we’re discovering that we can’t make it. Once the bills are counted up, really, we can’t even bear it for three months.
Within this industry, our life still isn’t too bad, but what about those who aren’t doing so well? We can take on a loan, tighten our belts, and give out three months of salary, but what about other brands and what about other industries? Forget about it, I also won’t pay out salaries, how about I dissolve the company? [They can only] retrench employees.
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