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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW Certain information and statistics set out in this section and elsewhere in this Document relating to the industry in which we operate are derived from the F&S Report prepared by Frost & Sullivan, an independent industry consultant which was commissioned by us. As part of the preparation of the F&S Report, we commissioned Frost & Sullivan to conduct a guest survey and employee survey (“F&S Survey”). The information extracted from the F&S Report should not be considered as a basis for investments in the [REDACTED] or as an opinion of Frost & Sullivan as to the value of any securities or the advisability of investing in our Company. We believe that the sources of such information and statistics are appropriate for such information and statistics and have taken reasonable care in extracting and reproducing such information and statistics. We have no reason to believe that such information and statistics are false or misleading or that any fact has been omitted that would render such information and statistics false or misleading in any material respect. Our Directors have confirmed, after making reasonable enquiries and exercising reasonable care, that there is no adverse change in the market information since the date of publication of the F&S Report or any of the other reports which may qualify, contradict or have an impact on the information in this section. No independent verification has been carried out on such information and statistics by us, the Joint Sponsors, the [REDACTED] or any other parties involved in the [REDACTED] or their respective directors, officers, employees, advisers, or agents, and no representation is given as to the accuracy or completeness of such information and statistics. Accordingly, you should not place undue reliance on such information and statistics. Unless and except for otherwise specified, the market and industry information and data presented in this section is derived from the F&S Report.(1) PRC CATERING SERVICE MARKET — CHINESE CUISINE DOMINATING AND SELF-OPERATED CHAINS INCREASINGLY POPULAR The PRC catering service market has grown steadily and rapidly in recent years from a total revenue of RMB2,636.8 billion in 2013 to RMB3,964.4 billion in 2017, representing a CAGR of 10.7% during this period. The growth of the PRC catering service market is primarily driven by the country’s increasing urbanization and consumption upgrades of the PRC population. The PRC catering service market is expected to continue its steady and fast-paced growth at a CAGR of 9.6% from 2017 to 2022, reaching a total revenue of RMB6,280.0 billion by 2022. The PRC catering service market has traditionally been fragmented and dominated by standalone restaurants. Due to difficulties in developing and managing scalable and standardized operations, developing reliable supply chains and ensuring high quality, safe and fresh food ingredients, self-operated restaurant chains accounted for only 4.3% of the PRC catering service market in 2017. However, with the increasing consumer focus on brand reputation, food safety, and food and service quality, growth of self-operated restaurant chains is expected to outpace standalone restaurants and franchised restaurant chains at a CAGR of 11.4% from 2017 to 2022, primarily because chain restaurant brands generally have stronger capital platforms, higher brand awareness and reputation, better control over food safety, and offer high quality food and services. (1) The contract sum to Frost & Sullivan is RMB680,000 for the preparation and use of the F&S Report, and we believe that such fees are consistent with the market rate. Frost & Sullivan is an independent global consulting firm, which was founded in 1961 in New York. In compiling and preparing the F&S Report, Frost & Sullivan has adopted the following assumptions: (i) China’s economy is likely to maintain steady growth in the next decade; (ii) China’s social, economic and political environment is likely to remain stable in the forecast period; and (iii) market drivers like the growing per capita disposable income, increasing urbanization rate, continuous innovation, development of technology and government support are likely to drive the catering service market. Frost & Sullivan has conducted detailed primary research which involved discussing the status of the industry with leading industry participants and industry experts. Frost & Sullivan has also conducted secondary research which involved reviewing company reports, independent research reports and data based on its own research database. Frost & Sullivan has obtained the figures for the projected total market size from historical data analysis plotted against macroeconomic data as well as specific related industry drivers. Numbers marked with “~” are approximates. —74— THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW 9,000 CAGR 2013-2017 2017-2022E Self-operated restaurant chains Franchise restaurant chains Self-operated restaurant chains 12.9% 11.4% Standalone restaurants Franchise restaurant chains 11.4% 10.0% 6,280.0 5,763.5 293.1 6,000 Standalone restaurants 10.5% 9.5% 5,264.2 265.0 4,359.1 961.9 4,793.8 238.4 881.2 3,964.4 191.0 3,579.9 213.6 802.9 3,231.0 170.8 728.9 2,892.6 151.3 660.2 2,636.8 133.9 597.7 117.3 536.6 3,000 105.2 480.9 426.7 5,025.1 Revenue (RMB Billion) 387.6 4,617.2 3,851.3 4,222.9 3,195.9 3,507.8 2,616.2 2,892.0 2,144.0 2,348.5 0 2013 20142015 2016 20172018E 2019E 2020E 2021E 2022E Source: Frost & Sullivan Analysis The PRC catering service market comprises three segments, namely, Chinese cuisine, Western cuisine and other cuisines. The Chinese cuisine segment accounted for a significant portion of the overall PRC catering service market, with a 80.5% market share in 2017. The Chinese cuisine segment grew from a total revenue of RMB2,184.6 billion in 2013 to RMB3,192.0 billion in 2017, representing a CAGR of 9.9% during this period. Going forward, this segment is expected to continue its growth at a CAGR of 8.9% from 2017 to 2022, reaching a total revenue of RMB4,888.7 billion by 2022. The Chinese cuisine market in the PRC can be further categorized into formal Chinese restaurants (such as hot pot, Sichuan cuisine and Cantonese cuisine) and Chinese quick service restaurants and others (such as Chinese barbecue and street food). Formal Chinese restaurants refer to Chinese cuisine restaurants that provide table service. Hot pot restaurants are one type of formal Chinese restaurants. Chinese quick service restaurants and others refer to restaurants that provide a simple dining ambiance and a limited number of dishes with limited or no table service. Among all Chinese cuisine styles, hot pot had the largest market share in the Chinese cuisine market in the PRC, with a 13.7% market share in terms of 2017 revenue. The following chart sets forth a breakdown by Chinese cuisine market by cuisine style in terms of 2017 revenue. Chinese Others, 5.3% Quick Service Chinese barbecue, Restaurants 4.7% and Others Hot pot, 13.7% Chinese food court, 7.5% Formal Chinese Chinese fast food, Sichuan cuisine, 12.4% 12.2% Cuisine Cantonese cuisine, 8.2% Other formal Chinese cuisines, 5.8% Xinjiang cuisine, 3.1% Jiangzhe cuisine, 6.3% Yungui cuisine, 3.1% Northeastern cuisine, Hunan cuisine, 4.4% 3.2% Beijing cuisine, 3.5% Anhui cuisine, 3.3% Northwestern cuisine, 3.3% Source: Frost & Sullivan Analysis PRC HOT POT SEGMENT — FAST GROWING AND MOST POPULAR CHINESE CUISINE STYLE Overview Hot pot is one of the most representative Chinese cuisine styles, with a history of over 1,700 years. Hot pot is prepared with a simmering pot of soup stock at the dining table, containing a variety —75— THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. INDUSTRY OVERVIEW of East Asian food ingredients. While the hot pot is kept simmering, ingredients are placed into the pot and are cooked at the table. Typical hot pot dishes include thinly sliced meat, leafy vegetables, root vegetables and mushrooms, meatballs, tofu and seafood. The cooked food ingredients are usually eaten with a dipping sauce. Hot pot is the most popular dine-out option in the PRC within the Chinese cuisine segment. The warm and comforting nature of hot pot has made it a popular cuisine enjoyed in social gatherings by friends and family. In addition, the popularity of hot pot is attributable to the diverse food ingredients available, the ability to personalize to taste preferences, the fresh and healthy cooking method and the social element of the cuisine. Diners are able to choose from a wide range of food ingredients to add to their hot pot. Because diners can usually choose the soup base and personalize their own dipping sauce, the hot pot meal can be easily tailored to suit different taste preferences. As food ingredients are freshly cooked at the diners’ tables, hot pot is a healthy option among Chinese cuisines, and often preferred as PRC consumers increasingly value food quality and nutrition. There are three major styles of hot pot in the PRC, namely Sichuan style, Cantonese style and Mongolian style.
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