July Dining Demand Remains Weak, but Leading Players Diverge

Overview

Goldman Sachs released its July monthly tracking report on the China dining industry. The core conclusion is that industry-wide same-store sales (SSSG) continue to be weak, with weather (especially in South China) remaining a drag, consistent with the sluggish performance of other consumption sectors like beer. However, differentiation among brands is significant: hot pot and Chinese dining brands like Haidilao and Jiutao Jiu show flat recovery; freshly made beverages face wider MoM same-store declines due to last year's high base; while some players like Yum China and Gu Ming maintain resilience through new modules, category expansion, and pricing strategies. The report also updates high-frequency indicators, competitive environment, promotion trends, store expansion, and new product dynamics, providing differentiated rating judgments for covered names.

Core views

Demand Side: July industry same-store sales were weak overall, with weather as the main headwind, particularly low temperatures and rain in South China suppressing dining traffic. The report notes this weakness aligns with other consumption sectors like beer, indicating it is not unique to dining but reflects overall weak consumer demand. Hot Pot & Chinese Dining: Haidilao's July same-store sales were flat YoY, corresponding to approximately 4.0 table turns and ~80% recovery level vs. 2019. This was stable MoM compared to June but lower than the mid-low 80% seen in May. Goldman Sachs views the table turn performance as lukewarm, confirming their view that core business recovery takes time, and aligns with their previously lowered expectations (-1% YoY same-store sales for H2). Haidilao opened 4 direct-operated and 4 franchise stores in July, closing 6 direct-operated stores; the opening pace still lags behind GS expectations. Jiutao Jiu's Tai Er brand saw mid-to-high single-digit same-store growth in July, slightly better than June (when weather also dragged sales), but below previous double-digit growth, indicating weakening recovery momentum. Freshly Made Beverages: Due to the peak of last year's delivery subsidy creating a high base, freshly made beverage brands generally saw widened MoM declines in same-store sales in July, though the report emphasizes the decline remains manageable. Gu Ming is a highlight, achieving resilient performance through successful category expansion and new products. Goldman Sachs believes that considering last year's high base and weather headwinds (Guangxi/Guangdong are Gu Ming's core provinces, accounting for ~5%/14% of stores respectively), July performance is already resilient; although the 2026 store count target was lowered, same-store sales could benefit from improvements in store network quality. Chagee's monthly GMV improved MoM in July, with same-store declines expected to narrow further to low single digits; Goldman Sachs estimates its Q3 same-store decline will be around -7%, benefiting from a lower base and active new product launches. Additionally, faster Geelato store expansion in July-August may contribute low-single-digit growth to company-level same-store GMV. Fast Food (QSR): Yum China's July same-store sales met expectations, with management maintaining the goal of positive same-store growth in Q3. Goldman Sachs attributes its resilience to potential TAM expansion from new modules and affordable pricing strategies. Gourmet Master: China business sales declined -45% YoY in July, consistent with previous months, with store count at ~290-300, down ~30% YoY, reflecting the transition to a franchise model. US business sales growth accelerated to 9.7% (from 6% in Q2), supported by accelerating same-store sales. Goldman Sachs believes China sales decline remains weaker than its expectation for narrowing, while US performance slightly exceeded expectations. Competition & Promotions: Major players generally remain restrained. The boundary between tea and coffee competition within freshly made beverages continues to merge: Luckin launched a 9.9 RMB iced milk tea series, Cotti launched an 8.9 RMB large fruit tea, and Gu Ming launched a limited-time 10-minute, 1 SKU per day 0.01 RMB coffee activity starting August 10. However, these promotions have time and SKU limits and are not large-scale. Fast-food leaders are also offering discounts in freshly made beverages: KFC launched Cool Friday with special prices on select drink/ice cream SKUs, and McDonald's distributed 1.5 million free lemon coupons in early August. Overall, promotions remain normal seasonal marketing, with pricing discipline maintained.

Analysis framework

Goldman Sachs employs a monthly tracking methodology, updating high-frequency operational indicators for the China dining industry month by month, including same-store sales (SSSG), table turnover rates, store openings/closures, APP DAU/user duration, weather anomalies, domestic flight capacity, ingredient prices, etc., to serve as the basis for judging industry prosperity and individual stock fundamentals. The analysis主线 revolves around "same-store sales performance - competitive landscape - promotion intensity - store expansion - new product rhythm - valuation," cross-validating macro high-frequency indicators with individual stock data. For example, using weather and flight data to explain external factors driving weak demand, using store opening/closing data to monitor network expansion pace, and using promotion tracking to judge the intensity of price competition. The logic for individual stock judgment is: first look at same-store sales performance relative to its own history, the industry, and expectations; then combine with store expansion and new product rhythms to assess growth momentum for the next few quarters; finally map to ratings and valuations. Goldman Sachs particularly emphasizes the impact of high base effects, using YoY comparison "vs. last year" to eliminate base interference and judge real momentum.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  Dining industry analysis uses same-store sales (SSSG) as the core volume metric, decomposing drivers such as table turnover rate and average ticket size

  Same-store sales is the most core indicator for measuring mature store operational quality in the dining industry, excluding scale effects from new stores. Goldman Sachs tracks YoY changes in SSSG and recovery degree vs. 2019 to judge the brand's real operational momentum and recovery progress.

• Event Gaming & Behavioral FinanceExpectation Gap / Expectation Management

  Compare actual operational data with Goldman Sachs' own expectations (GSe) to identify brands that beat or miss expectations

  The report repeatedly uses the 'GS read' technique, comparing July actual same-store and opening data with GS prior expectations, e.g., Gourmet Master China sales missed expectations, US slightly beat, Haidilao opening lagged expectations. This method helps investors identify expectation gaps rather than just looking at absolute levels.

• Cycle & Prosperity FrameworkProsperity Inflection Point Analysis

  Judge the marginal direction of industry prosperity through monthly high-frequency data

  The report compares MoM and YoY trends of same-store sales across brands, e.g., Tai Er dropping from double-digit to mid-high single-digit, Chagee's decline narrowing, aiming to identify whether the industry or individual stock is in a prosperity improvement or deterioration stage, thereby prospectively adjusting earnings expectations and ratings.

• Competition & Strategy FrameworkSubstitution Effect Analysis

  Category boundary fusion and substitution competition between freshly made tea and freshly brewed coffee

  The report emphasizes that the competitive boundary between freshly made tea and coffee is merging, e.g., Luckin launching milk tea, Gu Ming/Mixue launching coffee. This cross-category penetration means originally different consumption scenarios and customer groups are beginning to overlap, requiring institutions to focus on the impact of this substitution effect on single-category brand growth space and pricing power.

• Company Fundamentals & Financial FrameworkEarnings Quality Analysis

  Focus on store network quality rather than just store quantity expansion

  When evaluating Gu Ming and Lucky Cup, Goldman Sachs emphasizes a strategic shift from 'network expansion' to 'store quality,' believing that improvements in store network quality (e.g., prime locations, equipment upgrades) can support same-store sales growth and long-term earnings quality, reflecting an analytical perspective that values single-store efficiency and earnings sustainability.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Gu Ming (1364.HK)

  The most resilient name among freshly made beverages, achieving same-store resilience through category expansion (e.g., 0.01 RMB coffee) and new products; Rating: Buy

  Strengths

  Successful category expansion, high acceptance of new products, store network quality improvement supporting same-store sales, Rated Buy

  Weaknesses

  Core provinces are Guangxi/Guangdong, significantly impacted by South China weather headwinds; 2026 store target lowered

  Comparison

  More resilient performance compared to peers in freshly made beverages facing widened same-store declines

  Risks

  High base, weather headwinds, slowing store expansion

• Yum China (9987.HK / YUMC)

  Most stable performer among fast-food leaders, July same-store sales met expectations and management targets positive growth in Q3; Rating: Buy

  Strengths

  New modules driving TAM expansion, affordable pricing strategy, clear same-store targets

  Weaknesses

  Margin pressure from demand/delivery mix headwinds

  Comparison

  Stronger resilience than peers compared to flat recovery in Chinese dining like Haidilao and Jiutao Jiu

  Risks

  Macro demand weakness, impact of increasing delivery share on margins

• Haidilao (6862.HK)

  Core business recovery is flat, table turnover at ~80% of 2019, opening pace lags expectations; Rating: Neutral

  Strengths

  Expansion into new businesses like BBQ sub-brand Yan Qing and new burger brand

  Weaknesses

  Slow core business recovery, opening below expectations, new businesses diluting margins

  Comparison

  Recovery level in hot pot track lower than previous market optimistic expectations

  Risks

  Uncertainty in core business recovery timeline, margin dilution from new businesses

• Luckin Coffee (LKNCY)

  Coffee leader, beat expectations in Q2, maintained Buy; Entering tea category via 9.9 RMB milk tea

  Strengths

  Same-store/margin resilience, delivery cost decline exceeding expectations, rapid store expansion

  Weaknesses

  Competition merger with tea may intensify price pressure

  Comparison

  Leading same-store and margin performance among freshly made beverages

  Risks

  Pressure on single-store quality from overly rapid store expansion

• Gourmet Master (2723.TW)

  China business plunged (-45%), US business accelerated, overall Rating: Neutral

  Strengths

  US sales accelerated to 9.7%, same-store acceleration

  Weaknesses

  China sales continue to plunge significantly, missing expectations, stores transitioning to franchise

  Comparison

  China business performance significantly weaker than GS expectations, US business slightly exceeded expectations

  Risks

  Continued deterioration of China business, execution risk in franchise transition

• Chagee (CHA)

  Leader in freshly made tea, July GMV improved MoM, same-store decline expected to narrow, Rating: Neutral

  Strengths

  Accelerating Geelato store expansion contributing to GMV, active new product rhythm, lower Q3 base

  Weaknesses

  Same-store still in negative growth territory

  Comparison

  Weaker recovery momentum compared to Gu Ming, but improving marginally

  Risks

  Uncertainty of same-store turning positive, lingering impact of high base

Key data

• Haidilao July Table Turnover RateApprox. 4.0 timesStable YoY, increased MoM due to summer peak season, corresponding to ~80% recovery level vs. 2019
• Haidilao July Store OpeningsOpened 4 direct + 4 franchise, closed 6 directOpening pace still lags behind GS expectations
• Tai Er July Same-Store GrowthMid-to-High Single Digit (MSD%-HSD%)Slightly better than June, but below previous double-digit growth
• Gourmet Master China July Sales-45% YoYDecline consistent with last month, weaker than GS narrowing expectation
• Gourmet Master US July Sales+9.7% YoYAccelerated from 6% in Q2, slightly exceeding expectations
• Chagee Q3 Same-Store ForecastApprox. -7%Benefiting from lower base and active new products, decline expected to narrow to low single digits
• Luckin Aug 7 Sales25 million cupsSales on Start of Autumn day, higher than over 20 million cups last year
• Gu Ming Core Province Store ShareGuangxi 5%, Guangdong 14%South China weather headwinds significantly impact Gu Ming
• Lucky Cup 2026 Store Opening CapBelow 2,000 storesBelow 1,000 in H2, strategic shift to store quality and prime locations

Impact & implications

The report believes that July data continues to reflect weak industry demand, but differentiation is intensifying. For brands like Yum China and Gu Ming that can maintain same-store resilience through category expansion, new modules, or affordable pricing, Goldman Sachs maintains Buy ratings, believing they can gain share in a weak demand environment. For names like Haidilao, Chagee, and Gourmet Master where same-store or opening results missed expectations, Goldman Sachs maintains Neutral ratings, reflecting a cautious attitude towards the pace of core business recovery. Overall, while industry promotions enter the peak season, they remain restrained, and pricing discipline has not significantly deteriorated, meaning downside pressure on profits is relatively controllable, but continued weakness in demand remains the primary contradiction.

Risks

• Persistent weakness in demand, with external factors like weather repeatedly disturbing dining traffic
• Last year's high base in freshly made beverages putting pressure on YoY growth
• Weather anomalies in key regions like South China amplifying impact on brands with high store density
• Fusion of tea and coffee competition boundaries may trigger more intense price competition
• Slowing or shrinking store expansion leading to decreased growth momentum

What to watch

• Whether each brand's same-store sales can stabilize or turn positive in Q3, especially the realization of Yum China's positive growth target
• Whether Chagee's Q3 same-store decline can narrow to low single digits as expected
• Whether the fusion competition between freshly made tea and coffee will further increase promotional intensity during the peak season
• The supportive effect of Gu Ming's store network quality improvement on same-store sales
• Luckin's overseas expansion (Malaysia) progress and ramp-up situation of new stores
• The extent to which Haidilao's new businesses (burger brand, etc.) dilute overall profit margins