Chinese restaurant chains put AI on the menu

Asia’s love of hotpot, a cuisine that involves diners dropping raw meat and vegetables into boiling broth at their table, may look like a way for restaurants to cleverly outsource cooking to their customers. It is also the kind of business that seems far removed from the artificial intelligence boom. But Chinese restaurant operators, whose business models rely heavily on controlling labour and food costs, could be among AI’s early beneficiaries.

Take Hong Kong-listed Haidilao, which runs China’s biggest chain of hotpot restaurants. It uses AI to increase table turnover, analysing video footage to track how far along diners are in their meal across more than 1,200 restaurants. On top of that, robots help deliver dishes from the kitchen to tables, automated kitchen equipment handles repetitive food preparation tasks and intelligent systems assist in managing inventory. Restaurants can generate more revenue from the same real estate and labour, while reducing food waste.

Similarly, Yum China, which owns KFC and Pizza Hut in China and is the country’s largest restaurant operator with more than 19,000 restaurants, is already pushing AI into its daily operations. AI digital assistants help managers with scheduling, inventory and food safety tasks. AI is also being used for new restaurant site selection, forecasting sales to determine when stores need restocking as well as optimising food supply deliveries based on traffic conditions.

The pay-off is starting to show. In the first half of this year, the restaurant-level operating margin at Haidilao’s overseas business, separately listed as Super Hi International, grew to 10.7 per cent from 6.4 per cent. The leap suggests that, as well as benefiting from scale as the number of restaurants increases, the group’s AI investments are starting to improve productivity. For Yum China, too, operating margin in the second quarter reached 11.1 per cent, the ninth consecutive quarter of expansion.

Of course, AI alone cannot take credit for these improvements. Conventional cost control still matters. But across thousands of locations, AI-driven reductions in food waste and labour costs can make the economics of restaurant chains that much more juicy.

For Chinese restaurant stocks that are battling weak consumer sentiment, this provides a helpful buffer. And, more broadly, it points to the next iteration of the AI trade. Investors have spent much of the past year betting on the companies that build the chips and infrastructure powering the technology. The next beneficiaries will be traditional businesses using AI to make existing assets more productive.

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