Hai Di Lao. What can a hot pot restaurant teach us about innovation?
- Frederic Etiemble
- 4 days ago
- 5 min read
Part of my work in the innovation space involves scouting for compelling stories, conducting in-depth research, and gathering solid data to write case studies I use to inspire people to innovate and tackle complex challenges.
A few years ago, Greg Bernarda and I developed a series of case studies in the food industry. Our goal was to spark the imagination of intrapreneurs at a global food company as they launched a corporate accelerator in China. One of the stories we chose to tell was that of Hai Di Lao.
Hai Di Lao was founded in 1994 in Jianyang, Sichuan Province. The original restaurant was a modest hot pot eatery with just four tables and a single chef, Zhang Yong, who was also the company’s founder. While it began as a no-frills operation, it quickly stood out in a crowded market. How did Hai Di Lao climb to the very top of such a competitive and fragmented market? How did it scale from a small-town restaurant in the 1990s to a global brand serving hundreds of millions of customers each year?
Greg and I were committed to investigating those questions. In the case study that follows, you’ll find a synthesis of the key insights from that work, illustrated through the lens of business model innovation.
From great service to great services
Let’s start by setting the scene. If, like me, you are unfamiliar with hot pot, it is a highly popular style of eating in China that involves dipping fresh meat and vegetables in simmering broth. While tasty, hot pot is also extremely simple, with a straightforward recipe and ingredients. The popularity of this cooking style in many parts of China has led to the presence of many nondescript restaurants competing ferociously for customers.
Somehow amid this competition, Hai Di Lao developed a winning value proposition that’s given them enduring customer loyalty.
In this case study we used the strategy canvas from W. Chan Kim and Renée Mauborgne. We analysed what differentiates Hai Di Lao from a ‘traditional Hot Pot restaurant’ by scoring them both on the typical factors of competition relevant for this market, as well as the ones Hai Di Lao had developed. Quickly we could visualize the market opportunity Hai Di Lao had created for themselves, taking a bet on service as a differentiator, and then evolving their value proposition from ‘great service’ to ‘great services’.
If great table service is the first thing that comes to customers’ mind when they think about Hai Di Lao, great table service is supported by a large variety of other services offered for free. This includes Wi-Fi, snacks, drinks, access to games, shoeshines, manicures and massages. Their success is visible in a compelling metric shared by few of their competitors, waiting time. Customers are frequently willing to wait for more than two hours for a table.
A small revolution in the kitchen
A great value proposition for customers may be necessary but is seldom sufficient for a successful business. While their innovation in customer experience is what stands out from afar, Hai Di Lao’s backstage operations are an equally critical part of its winning business model.
If you were to walk past the crowded tables of satisfied customers into the kitchen, you’d be confronted with a scene that looks nothing like most other hot pot restaurants. You would see a much smaller kitchen with very few cooks compared to their competitors. Hai Di Lao has adopted a radical approach to their supply chain based on the principle of food preparation standardisation. Complementing this reduction in kitchen staff is a distinct employee value proposition that attracts and retains the right kind of restaurant service staff, those who thrive with a high level of autonomy towards customer interactions.
Hai Di Lao’s unique customer experience proposition combined with the professional supply chain and the high-level of autonomy given to waiters have led to a radical shift in the centre of power in their restaurants. Traditionally, power in restaurants is held by chefs – they get to call the shots and other staff largely have to follow directives. The Hai Di Lao model largely eliminates this kitchen-centric model and devolves power to the waiters, who have full autonomy to make the decisions required to deliver the quality of experience that continues to pack the house each night.
These innovations in their business model are the real ‘secret sauce’ that has allowed their business to scale while maintaining consistency in food quality and customer experience.
Beyond the Restaurant
Over time, Hai Di Lao also began to treat the restaurant not just as a business, but as a platform. They launched related products and services - such as home hot pot kits and branded sauces available in grocery stores - extending their reach and revenue without diluting the brand experience.
This evolution illustrates how a strong core business can enable adjacent innovations once the foundation is solid.
What This Case Teaches Us
Hai Di Lao is a powerful example of how value proposition innovation can lead to breakout success, even in industries that seem commoditised or overcrowded. But the case also reminds us that great customer experiences must be underpinned by scalable, sustainable operations.
In short: the frontstage of the business model matters, but so does the backstage.
It’s also a case that challenges industry orthodoxies. By flipping the traditional power structure of a restaurant and placing authority in the hands of service staff, Hai Di Lao showed what’s possible when you design for trust and empowerment at scale.
Looking ahead
From a single four-table restaurant in Jianyang in 1994 to a business generating RMB 7 billion in revenue by 2016, Hai Di Lao had already become a remarkable growth story by the time we first wrote this case. But the company didn’t stop there. Over the next few years, it scaled even more aggressively, reaching RMB 41.5 billion in revenue by 2023, and operating over 1,300 restaurants globally.
As described in this case, this extraordinary growth was powered by a consistent focus on innovation in both customer experience and operations.
Of course, such rapid expansion is never without its risks. In recent years, Hai Di Lao has faced significant challenges, including overexpansion and the external shock of the pandemic, which led to a strategic retrenchment and the closure of underperforming locations. But even amidst these headwinds, the company remains one of the most prominent players in the global restaurant landscape.
What the Hai Di Lao story illustrates is that innovation, when deeply embedded in both the frontstage and backstage of a business model, can fuel not just initial success but also long-term scale. Their journey from four tables in Sichuan to tens of billions in global turnover is a powerful reminder that great businesses often grow from small, thoughtful experiments.
Nobody can tell what the next chapter may look like for Hai Di Lao, but if history is any guide, it will still be shaped by bold thinking, a focus on service, and a willingness to challenge industry norms.
About Fred
Executive advisor on strategy and innovation. Co-author of The Invincible Company, a guide to building resilience in organizations through corporate innovation. The book was shortlisted for the Thinkers50 Strategy Award in 2021.
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