High Gross Margin and Heavy Assets: The Business Philosophy of Huanshi's "Japanese Cuisine and Nightlife"

In the walled city of the restaurant and wine business, old idols are being demystified, while new followers are still entering.

As the once "first stock of small taverns," Helen's, struggles to transform and franchise, on the other end of the track, COMMUNE, which focuses on a "Japanese cuisine and night wine" all-day model, has officially submitted its prospectus to the Hong Kong Stock Exchange, attempting to tell a completely different quality story.

Capital has long been alerted: in early 2021, Hillhouse Capital was the first to invest in its Series A; in 2022, Nichi-Chu Capital led the investment, with Hillhouse and Tomato Capital participating, completing hundreds of millions in Series A+ financing.

As of the submission date, Hillhouse and Nichi-Chu still held 9.63% and 1.71% of the shares, respectively.

From Seasaw, Nayuki to DianDudu, and Wei's Liangpi, the restaurant and wine bar business has never lacked cross-border cases, but successful ones are few, which may indicate the operational difficulties inherent in this business model.

In 2024, COMMUNE's revenue grew by 27% year-on-year to 1.074 billion yuan, with a market share of 7.8%, approximately twice that of the combined market share of the second and third place in the industry.

However, under the general cost pressure in the restaurant industry, COMMUNE's profit curve shows significant fluctuations: the adjusted net profit margin for 2023 was 8.7%, which dropped to 6.2% in 2024, before rebounding to 9% in the first three quarters of 2025.

Is "Japanese cuisine and night wine" a social traffic business relying on high premiums and heavy asset support, or a business model that can transcend cycles and has high replicability?

Amid the grand narrative of a hundred billion market, can COMMUNE's single-store efficiency support the capital market's expectations for "long-term growth"?

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The essence of the restaurant and wine integration model represented by COMMUNE lies in maximizing operational efficiency within limited space.

Through an all-day social space, COMMUNE extends its operating hours to 16-18 hours, covering all consumption scenarios from brunch, afternoon tea, dinner, to late-night wine markets, thus offsetting the high rents in core business districts.

On this basis, the beverage business plays the role of a profit "ballast." Taking its own brand of beer as an example, the terminal selling price is about 20 yuan, while the procurement cost is only around 2.5 yuan, resulting in a gross profit margin of 87.5%.

The company also optimizes supply chain efficiency by establishing its own import and export trading company and central warehouse for direct procurement of core beverages, maintaining an overall gross profit margin stable at a high level of 67.8% to 70.5%, significantly higher than the industry average.

On the surface, food can bring traffic to beverages, and beverages can enhance the overall customer unit price. However, in actual operations, whether in a restaurant bar or a bar, it is quite challenging to balance both food and beverages.

The reason is that the more complex the SKU, the higher the management difficulty and risk of loss; moreover, the talent teams, equipment configurations, and operational systems required for both are entirely different.

Liu Junjie, founder of the craft beer supply chain service provider Xipi, told Xinfeng that COMMUNE's uniqueness lies in its initial focus on brand and target customer group, which then guided the team formation "The brand is very clear about what kind of scenarios target consumers need, and designs what food to eat and what drinks to have accordingly," Liu Junjie stated. "With a rich SKU and relatively complex operations, it is necessary to maintain a high pricing and gross profit level."

In the first three quarters of 2025, the average bill per consumer member of the brand approached 170 yuan.

High-ticket dining enterprises find it difficult to remain indifferent to the current consumption environment.

In 2024, the brand began optimizing its product structure, reducing the number of self-service drink SKUs from over 1,000 to about half. According to the prospectus, the adjusted self-service drink SKUs are maintained at 200, while the Western cuisine menu consists of about 70 items.

More energy and resources are being directed towards the research and development of proprietary products and differentiation.

As of September 30, 2025, 14 proprietary packaged beverages have been launched, including "Brand German Wheat" and "White Peach Oolong Cider," with their sales accounting for over 20% of total alcoholic beverage revenue.

Through product structure adjustments and strategic price reductions, the company has achieved certain growth in core operational indicators. In 2024, the company's average daily sales per square meter was 58.3 yuan/square meter, which increased to 60.5 yuan/square meter in the first three quarters of 2025.

In comparison, the Chinese fast-food chain brand Laoxiangji achieved a sales per square meter of 89.1 yuan in its direct-operated stores during the first eight months of 2025, boosted by its takeout business.

Moreover, some older stores have shown signs of decline: the same-store sales growth rate in first-tier cities was -1.1% in 2024 and -1.4% in the first three quarters of 2025, showing a continuous year-on-year decline.

In second-tier cities, the same-store growth rate was 3.6% in 2024, but turned downward to -0.3% in the first three quarters of 2025.

In terms of cost structure, due to the need for chefs, bartenders, and other personnel for all-day operations and multi-shift systems, the brand's labor costs are high.

Employee expenses increased by 38% year-on-year to 290 million yuan in 2024; in the first three quarters of 2025, labor cost growth was 21%, also higher than the 14% revenue growth during the same period.

Additionally, unlike competitors like Helen's that adopt a franchise model, the brand has always adhered to a fully direct-operated model. Its initial investment per store is as high as 5 million to 6.5 million yuan, and most stores are located in core business districts, representing a typical heavy asset operation.

In 2024 and the first three quarters of 2025, the depreciation of leased properties, factories, and equipment accounted for 17.4% and 13.6% of total revenue, respectively, resulting in a high fixed cost burden.

"Dream Space" Difficult to Replicate

In the current environment where many franchise fast-food brands are rushing to list on the Hong Kong Stock Exchange, dining models like the brand that emphasize "atmosphere management" are facing standardization challenges head-on.

Co-founder and Chief Brand Officer Fan Xiameng has stated that its product system is divided into two main categories: one is tangible products such as meals and drinks; the other is "virtual products" composed of services and environments such as sound, light, taste, and touch "Atmosphere management seems to have no standard answer, but it is hidden in a lot of details." The team at Huanshi stated that this includes time-segmented playlists, dynamic lighting, precise control of music decibels, as well as service standards for staff shifts, spacing of tables and chairs, and more.

Nevertheless, the social experience itself remains difficult to replicate in bulk.

"Atmosphere" heavily relies on the operational capabilities of individual stores and relationships with regular customers, which involves many uncertainties. Therefore, Huanshi is particularly cautious in site selection.

Co-founder Sun Xianguo pointed out when discussing the site selection strategy under the trend of "integrating dining and drinking" that while data is crucial in site selection decisions, the team also values intuitive judgments based on scenarios.

He views COMMUNE Huanshi as a "dream-making space." Whenever they arrive at a potential site, the team will pre-conceive specific scenarios such as the layout of the outdoor area, the combination of greenery, and the creation of a drinking atmosphere.

"Data is the foundation, but when facing an uncertain macro environment, we also believe in the energy of intuition and imagination," Sun Xianguo explained. However, considering various factors such as all-day operations and the age range of customers, their site selection standards will only become more stringent.

In 2024, Huanshi plans to open 11 new stores in first-tier markets, accounting for about two-thirds of the total new stores that year, and almost all are positioned as higher-end "selected stores."

Its expansion pace in second-tier cities is relatively steady, maintaining an opening speed of about 6 new stores in the first three quarters of both 2024 and 2025.

Investors who have long focused on the consumer sector analyze that its strategy of "standard stores" sinking down and replicating "social premium" essentially leverages brand momentum to attract lower-tier customer traffic, achieving traffic conversion and improving per capita efficiency, while gradually expanding supply chain profits.

In the eyes of the market, the real challenge for dining models centered on scenarios and experiences is not operational complexity, but whether they can continuously attract consumers and avoid being forgotten or abandoned.

"If we evaluate Helen's from 2018 to 2022, it is still a successful case, precisely fitting the consumption power and social needs of college students at that time," Liu Junjie stated. "It's just that the preferences of young people have changed now."

In Liu Junjie's view, Chinese consumers overall still have limited acceptance of the "dining and drinking integration" business model, and the truly mainstream dining and drinking consumption scenarios remain concentrated in roadside stalls or various types of dining establishments.

In third-tier and lower markets, where they have not yet focused their layout, Huanshi currently maintains only 9 stores. Since these stores generally range from 400 to 700 square meters, and local consumption scenarios and demands differ, their average per capita efficiency is only one-third of that of stores in first-tier cities.

Ling Yan, chief consultant at Lingyan Management Consulting, suggested that Huanshi could focus on "localization" and "lightweight" in the future: the former refers to integrating local snacks and dishes to lower the consumption threshold with "familiar flavors"; the latter points to smaller store formats with lighter investments, creating new experiences through cost-effective soft decoration and activities.

Huanshi plans to add 105-135 new stores within three years, doubling its overall scale from the existing 112 stores Among them, it is planned to open 30-40 new stores in 2026, focusing on first- and second-tier cities; 35-45 new stores in 2027, deepening into second-tier and emerging markets; and further expanding 40-50 stores in 2028 to cover major economic regions.

However, the heavy asset operation model requires a very high continuous supply of funds, and listing on the Hong Kong stock market has become a key window for replenishing capital.

As of November 2025, the company's cash and cash equivalents are less than 100 million yuan, with net current liabilities reaching 175 million yuan, indicating a significant liquidity gap.

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