'Urine-gate' piled on problems for a hotpot chain already under fire for gratuitous customer services

It's said in business that the customer is king, but his majesty seems a bit disgruntled of late where one popular hotpot chain is concerned.

Haidilao restaurants across China were stung by the "urine-gate" incident in late February, where two 17-year-old drunk boys urinated into hotpot broth after finishing their late night dinner in a Shanghai outlet. A video of the scene went viral.

The debacle came on the heels of public criticism that the chain was overextending itself with gratuitous customer service when diners really just want quality food at a reasonable price.

The Sichuan Province-based parent company has been on the defensive. It said it only became aware of the "peeing in the pot" incident four days after it occurred, initially warning netizens not to spread the video to "protect the minors" involved. That caused an immediate backlash.

The company later apologized, said it would compensate some 4,000 diners who had been in the Shanghai outlet that evening or recently, and vowed to pursue legal action against the miscreants.

It was not the first time Haidilao has been in the public spotlight.

Earlier, there were online "freeloading guides" that encouraged customers to take advantage of the restaurant's pricing, menu and freebie services.

On lifestyle app Xiaohongshu (Rednote), for example, the following advice appeared: "Order a free water base, which is practically hot water and nothing more, order a plate of noodles and a seasoning package, and you can have a noodle soup meal for less than 20 yuan (US$2.80). Not enough? Have as many free snacks and fruit provided by Haidilao as possible."

The post went on to say: "They even had a free show and free hand-care service for me, and I pocketed free peanut snacks, fruits and beef jerky. Wasn't that a perfect deal?"

It should be noted that the least-expensive single set on Haidilao's menu costs 59 yuan, including a hotpot soup base, nine mini dishes, a seasoning package and a staple dish of rice or noodles.

All this public attention has called into question Haidilao's once-proud claim of unparalleled customer service.

Haidilao was founded in the Sichuan city of Jianyang in 1994, but it didn't become a leading hotpot brand in the country until about 14 years later.

With the rising influence of social media, it became a consumer favorite because of its laundry list of amenities.

Apart from free snacks and fruit, the restaurant chain ballyhooed services that had nothing to do with dining. While waiting for a seat, customers could enjoy free chess and poker games, manicures and shoe polishing. Free entertainment was often provided by staff.

The company was on a roll. In 2019, it opened 308 new outlets; a year later, 544 outlets. By 2024, the company operated 1,355 restaurants on the mainland and in Macau, Hong Kong and Taiwan. It also had 13 franchised outlets.

In 2019, Haidilao achieved an average table turnover rate of 4.8 times per day, meaning that each dining table could serve nearly five groups of customers daily. The figure, which far surpassed industry standards, fell to 3.8 in 2023 before rising to 4.1 last year.

Haidilao's market capitalization reached a staggering 450 billion yuan in 2021, but the pinnacle was short-lived. Since 2020, the company's profitability has been under strain, though its Hong Kong-listed parent Haidilao International Holding Ltd. reported a 4.6 percent profit gain for 2024 despite a drop in average per-customer spending.

Its Hong Kong share price has tanked two-thirds from its peak in 2021, though the shares have risen 4.4 percent this year.

The coronavirus outbreak was a partial cause of the company's woes, but beyond that, Haidilao was facing accelerating costs that forced a downgrading of services. Manicures were no longer free and largely scrapped, some snacks came with additional cost and membership benefits were scaled back.

Haidilao appears to have succumbed to that old Chinese saying: "It is easier to transition from frugality to luxury than from luxury to frugality."

Customers once pampered at its hotpot venues were turning to rival chains with cheaper menus.

The lesson to be learned is that Haidilao needs to put a better foot forward than it did with the "urine-gate" debacle. It needs to be more aware of changing trends in dining out.

A post on Zhihu, a question-and-answer website, criticized the "over-the-top service" strategy of Haidilao, evoking more than 1,400 comments. Most netizens said they just want standard restaurant services coupled with emphasis on quality food.

"We want to pay for dignified services, rather than be subject to endless pampering." commented a user with the screenname "Genius Panda."

In its earnings report for the year ended 2024, the company said this month, "We will continue to deepen our understanding of customer preferences, ensuring that every restaurant aligns more closely with customer demands."

It went on to say, "Regarding pricing, we will adopt a strategy of absolute quality at a relatively low price. We will maintain vigilant monitoring of market changes, assess the risks involved (and) gain insights into consumer needs."

Has the company learned that overpampering customers can lead to unrealistic expectations and poor brand image, or it is time to say no to Haidilao?