Originally a small business operated by a wife-and-husband team, Country Style Cooking Restaurant Chain (CCSC) is now a large fast food chain in China that has rapidly expanded to over 100 locations in less than three years with support from venture firms Sequoia Capital and SIG China. Country Style Cooking offers a wide selection of affordable, Sichuan-style Chinese entrees as well as side dishes, appetizers, beverages and desserts for roughly $2 per meal. The company is able to serve its dishes in under 60 seconds by developing pre-mixed sauce packages in a central location, which are then distributed to restaurant sites where they are added to freshly prepared meals on-site. Country Style Cooking is offering 5 million ADSs at a range of $14-$16, which was raised from its original range of $12-$14, and plans to list on the NYSE under the symbol CCSC. BofA Merrill Lynch and Credit Suisse are the lead underwriters on the deal, which is one of nine scheduled on the IPO calendar for the week of September 27.
Strong Growth Potential
With a 54% jump in year-over-year sales to $48.1 million for the six months ended June 30, Country Style Cooking has clearly benefited from positive trends driving the Chinese restaurant sector such as urbanization and rising disposable income. The country's quick service restaurant sector grew at a 13.1% five-year CAGR to reach $69.4 billion in 2009 and is expected to hit $113.1 billion by 2014 (10.3% CAGR). Country Style Cooking targets 130 restaurants by the end of 2010 and expects increases in comparable restaurant sales as it expands delivery services, introduces a breakfast menu and streamlines operating procedures.
Though the chain has reported impressive historical results, it has a relatively short operating history and its aggressive expansion strategy carries execution risk. Country Style Cooking will also have to invest in its supply chain and incur other overhead costs as it maneuvers its transition to a larger company; operating margin fell 120 basis points in the 1H10 due to higher marketing expenses, share-based compensation and depreciation. Additionally, rising food and labor costs could pressure long term margins, which could also be negatively affected by new market entrants given relatively low barriers to entry.
With strong growth prospects and backing from two well-known venture firms, this IPO offers unique exposure to the Chinese quick service restaurant market. The company also raised its proposed price range on Thursday, signaling strong demand for the deal following successful debuts by other recent Chinese IPOs such as SouFun Holdings (SFUN), China Kanghui (KH) and HiSoft Technology (HSFT). With nine deals scheduled on the IPO calendar for the week of September 27, Country Style Cooking Restaurant Chain could be the main course among a wide range of menu options for IPO investors.