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 (if a tad overpriced) 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.
We’ve translated parts of the article below.
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
西贝贾国龙：疫情致2万多员工待业 贷款发工资也只能撑3月 (Xībèi Jiǎ Guólóng: yìqíng zhì 2 wàn duō yuángōng dàiyè, dàikuǎn fā gōngzī yě zhǐ néng chēng 3 yuè)
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 of 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.
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?
CV: By 1988, Xibei had already been founded, and during the SARS episode in 2003 there were already five shops in Beijing. How did you respond then?
JGL: At the time of SARS our company had 500 or 600 employees, so we called a vacation, and the employees happily left. We chartered two big buses and sent back employees from over one hundred townships. Because they were leaving from the epidemic area in Beijing, the government enforced quarantine on them for half a month, and during the quarantine period the government took care of their food and shelter.
After quarantine, these employees of ours returned home without incident. In May we let them know one after another that business was resuming, and they bought their own train tickets to return to work.
During this suspension of operations, these employees did not have a salary, which they accepted and felt was normal — it was 2003, after all. The government also felt that it was logical, so that was that.
At the time, China’s economic situation was different from what it is now. SARS continued for so long, yet we still had 9% growth. Now the entire economic situation is worsening, and we’ve also increased in scale, with our labor costs rising from 15% to 30%.
Originally, employees being on vacation just meant they were on vacation, but now that isn’t acceptable. When on vacation they still need a salary, and that difference is just huge. But we have to shoulder this responsibility. If we start to lay off workers, or even push all of our workers onto society, won’t that be troublesome? Isn’t that a factor for social instability?
But we have taken up our responsibilities, and the government actually should provide the last line of support. Especially not come up with those “foolish policies” again — paying twice as much salary during the epidemic prevention period. [Translator’s Note: Jia appears to be referencing comments such as those made by the Shanghai Municipal Human Resources and Social Security Bureau that employees working during the extended Chinese New Year break should be paid double (English, Chinese).] Because after we enterprises collapse under pressure, then social upheaval will come. With mass unemployment, people will have no income and their purchasing power will be grossly inadequate — is this not an economic crisis?
Don’t let good people suffer
CV: What policies do you hope the government will launch to alleviate the difficulties faced by the F&B industry?
JGL: Supposedly the banks have recently been planning to lower interest rates, but this is a cup of water on a burning cart of firewood — what use is lowering rates by one or two points? In reality, the country has leeway to exempt and reduce taxes. For example, the government could avoid collecting all 2020 taxes. The room for policymakers is very big, and could make up for some of our losses during the epidemic prevention period.
Regarding employee wage subsidies, I don’t know if the country has any good methods.
Actually, everybody should bear a little of the burden; enterprises should bear some, the country should bear some, different organizations should bear some, and individuals should also bear some.
This gets back again to the question of good people doing business. What is a good person? A responsible person is a good person. Taking responsibility for employees, by not dismissing them and continuing to pay out salaries; taking responsibility for customers, by making safe food that puts them at ease; taking responsibility for the country, by managing the enterprise and companies well.
But us taking responsibility requires that the country support us. If the country does not support us, then in the end, the enterprises and good people that take responsibility will suffer.
CV: Property management for many shopping centers has also taken measures to reduce or waive rental fees to varying degrees for tenants. Does this count as a significant form of support?
JGL: [Right now] it’s not us who took the initiative to stop business, it’s the landlords taking the initiative and not allowing you to operate, and of course the country is not allowing shopping centers to open for business. But right now the landlords are saying, “We’re giving you reduced/waived rental fees, under what circumstances would we give you a free month of rental?” Well, it’s you that asked me to stop work, you’re still taking my rental fees, you definitely shouldn’t be collecting fees.
Real estate merchants cannot be permitted to confuse this matter.
CV: As far as Xibei is concerned, what is most crucial right at this moment?
JGL: It’s [hoping that the government] can bring the epidemic situation under control as soon as possible. We will take charge of our employees — no running around, no getting infected, no becoming a transmission source — and this is the greatest contribution we can make for the country.
We are taking the end of Chinese New Year as a checkpoint, and also taking March 1 as a checkpoint, and after that we’ll see how things go.
For now we will do our utmost to hold on, and we’ll leave further discussion for the day we can’t hold on anymore. When will we lose our grip? Who knows. How great people’s endurance is, just how great the endurance of enterprises is, what might still happen in the course of events — there are too many variables, so we shouldn’t try to calculate with such precision. Right now, just working hard to get what’s right before our eyes done will have to be enough.
The above, translated by Jordan Schneider and Shaun Ee, first appeared on China Venture.