Zhengxin Food is reportedly chasing a public listing, as its shrinking restaurant network highlights the dangers of relying on franchisees for rapid expansion

image credit: Bamboo Works

Key Takeaways:

  • Zhengxin is reportedly planning a Hong Kong IPO, even as the store count for its chicken chain has contracted from 25,000 to 9,545 over the last five years
  • Whether the downsizing is positive or negative, representing a ‘rightsizing' or collapse, may depend on a closer look at the company's financials when they become public

By Edith Terry

Its business may be shrinking, but that isn't stopping China's "Chicken King" from charging ahead with plans for a $300 million IPO.

That's the word on the street, following a Bloomberg report late last month that Shanghai Zhengxin Food Group Co., China's largest homegrown fried chicken chain, might soon join the pipeline of some 500 companies waiting to go public in Hong Kong. Although quickly denied by the company, the report included enough juicy details to keep the rumor mills churning about Zhengxin and founder Chen Chuanwu's plans for the company.

In addition to the fundraising target, the Bloomberg report also said Zhengxin is working with domestic banking heavyweights Galaxy Securities and CICC as advisors for the deal.

Zhengxin joins a short list of other chicken chains also chasing Hong Kong IPOs. Homegrown rival LXJ International and Taiwan's Ting-Qiao, operator of the Dicos chain, have both publicly filed for listings, though neither has made it to market yet.

KFC, operated by Yum China (NYSE:YUMC) (9987.HK), still rules China's fast food chicken roost, with over 13,000 restaurants nationwide. But at its peak in 2021, Zhengxin's more budget friendly chicken briefly topped KFC with its 25,000 outlets across China. It has shrunk considerably since then, though an IPO may provide the feed it needs for another run.

Zhengxin's "Chicken King" logo, featuring a stylized rooster wearing a crown, symbolizes its aspirations in the sector. It has 188 franchises in Shanghai alone and is present through most of China. Unlike KFC, which runs traditional sit-down restaurants, Zhengxin typically uses a much smaller format more like takeaway chicken stands with very limited or no seating.

In its early days, after the chain's launch in 2012, well-known comic actor Huang Bo helped boost the brand's popularity in ads bragging that its chicken cutlets were "bigger than your face." At an affordable 10 yuan, or about $1.50, per meal, including a drink, the business rapidly grew to 10,000 stores by 2017 and reached 20,000 two years later – more than twice KFC's 9,000 stores in China at the time and seven times the 4,000 for McDonald's (NYSE:MCD). Zhengxin was able to grow so quickly by working with hundreds of franchisees, unlike KFC and McDonald's, which mostly operated their own stores or worked with just one or two major partners in the market.

Growing market

Zhengxin reached its super size by tapping into a Chinese fried chicken market that grew from 60 billion yuan ($8.85 billion) in 2019 to an estimated 105 billion yuan in 2025, according to a report by the Red Food Industry Research Institute. China was home to about 164,000 fried chicken stores at the end of last year, and the category was growing at 11.7% annually.

But Zhengxin hasn't thrived with the market since its business crested in 2021. Instead, the company has been rapidly closing stores since then, and is currently down to 9,545 stores in China, a 60% drop in five years, according to Narrow Gate Group. Zhengxin admits that its store count is down, but says the contraction was intentional.

Today, Zhengxin says it has over 12,000 stores globally, including 1,200 new stores signed in last year's third quarter alone. The company says sales by stores under its "strong control" increased by 13% year-over-year last year, its supply chain capacity increased by 28%, and its overall performance – presumably a reference to revenue – increased by 30%.

The company's shifting profile is the result of a "forest project" that it launched back in 2018 to develop new sub-brands, according to Zhengxin President Jin Jian. In addition, the company began downsizing its core chicken chain in 2023, phasing out older stores with outdated décor, aging equipment, and poor food safety standards.

The same year, it began a global recruitment drive as part of plans to open 4,000 overseas stores within three years. It opened its 15th store outside Mainland China and first in Japan in Tokyo's busy Shinjuku district in May 2023.

After a global franchise recruitment conference in February 2023, Zhengxin claimed it signed 49 agreements for overseas stores, including ones in Vietnam, Thailand, Laos, Malaysia, Indonesia, Japan, the U.S., Australia and New Zealand. The largest franchisee had eight stores in Laos, and Zhengxin's first U.S. store opened in March 2024 in Milpitas, near San Francisco.

Different narratives

While Zhengxin likes to talk about its shifting business at home and growing global footprint, critics have a completely different narrative. They say its lack of new products and frequent complaints over food safety and from unhappy franchisees continue to haunt the company.

And all the while, more competitors are piling into an already crowded market. Behemoths like bubble tea king Mixue (2097.HK), which operates more than 50,000 stores in China and another 4,500 overseas, also offers fried chicken. And hotpot king Haidilao (6862.HK) has also taken a place at the table with a separate fried chicken brand.

Given the crowded market, what is motivating Zhengxin to seek an IPO? It helps to know more about Zhengxin's Chairman Chen Chuanwu, a serial entrepreneur legendary for his frequent and successful business pivots. A native of Wenzhou, an Eastern China city famous for its entrepreneurs, Chen built his first business in 1995 in frozen food working with Wall's ice cream, owned by consumer goods giant Unilever (NYSE:UL). He later opened a chain of shops selling Taiwan-style snacks, before making his fried chicken pivot in 2012.

His small-store format appealed to franchisees, with individual shops costing just 80,000 yuan to open, compared to around 5 million yuan for a typical KFC or McDonald's.

Behind the scenes, Chen began building a logistics and production base in 1999 with 40 warehouse and logistics centers, over 400 refrigerated trucks and 10 factories. The company uses a typical franchising model that earns money through franchising fees, and by selling food products, kitchen equipment and shop furnishings to franchisees.

The bottom line is that Zhengxin's Chen seems quite open to trying new recipes with his businesses, even if he doesn't often talk publicly about his plans. That may be why a single report has set off such a frenzy of guessing, and why investors will be looking closely for more details on Chen's chicken empire if and when Zhengxin files its IPO prospectus.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.