HDL Q1 2025: Delivery Revenue Jumps 38% as Margin Trade-Off Fuels Customer Expansion
HDL entered 2025 with customer growth and delivery outperformance but at a clear cost to profitability, as management doubled down on its dual focus strategy of employee empowerment and customer-centricity. Short-term margin pressure is the price for a deliberate shift to bigger portions, sharper pricing, and immersive dining experiences, positioning the business for longer-term loyalty and global expansion. The coming quarters will test whether these investments yield sustained traffic and brand momentum as competitive intensity and cost inflation persist.
Summary
- Delivery Outpaces Core Dine-In: Delivery revenue surged, highlighting digital channel traction and menu innovation.
- Margin Sacrifice for Loyalty: Aggressive reinvestment in pricing and employee benefits compressed operating margin but built customer and staff engagement.
- Expansion Playbook Shifts: Regional pilots and “second curve” concepts signal a more diversified, globally adaptive growth strategy.
Performance Analysis
HDL’s Q1 revealed a deliberate trade-off between near-term margin and structural growth, as management prioritized volume expansion and brand differentiation over profitability. Revenue grew to $198 million, supported by a 6.8% increase in customer traffic and a 38% jump in delivery revenue, aided by menu localization and expanded delivery radius. However, operating profit margin fell to 4.1%, down 2.5 percentage points year-over-year, reflecting strategic pricing adjustments, larger portion sizes, and stepped-up investment in employee benefits and team building.
Gross margin slipped slightly, pressured by promotional activity and cost inflation, while personnel costs rose to 35.3% of revenue, up 1.4 points, as the company leaned into staff retention and engagement. The average table turnover rate held steady at 3.9, but same-store turnover improved to 4.0, indicating underlying operational resilience. Notably, regional performance was mixed, with Southeast Asia holding steady, North America showing double-digit traffic growth, and new stores ramping under a more selective, health-focused expansion approach.
- Delivery Channel Acceleration: Delivery revenue’s 38% growth far outpaced core restaurant gains, reflecting digital and menu innovation traction.
- Margin Compression from Dual Focus: Operating margin fell as management prioritized customer value and employee investment over short-term profit.
- Regional Divergence Emerges: Traffic and performance varied by geography, with North America and Southeast Asia showing resilience, while average ticket size declined due to FX and menu rationalization.
HDL’s Q1 results underscore a business in active transition, balancing short-term financial pain with the promise of long-term brand and operational leverage.
Executive Commentary
"In the short period for sure, our operational margin were under pressure...But it is to our conviction that we must have a long-term dedication so we can achieve our strategy of dual focus on both employee empowerment and customer-centric cooperation."
Yang Lijuan, Executive Director and CEO
"This is primarily because we increased the investment in team building in this quarter, improving employee benefits and talent reserves...By implementing these strategies in the short term, the operating margin will be short under pressure. But it is to our conviction these measures are necessary and worthwhile so that we can gain long-term customer loyalty and the trust from the employees."
Qu Cong, CFO and Secretary of the Board
Strategic Positioning
1. Customer Value and Differentiation
HDL’s core strategy is anchored in “better quality for price” and experiential differentiation, as evidenced by larger portions, immersive dining concepts, and scenario-based offerings (such as family and pet gatherings). This approach is intended to deepen customer loyalty and position HDL as the hotpot brand of choice in an increasingly competitive global market.
2. Employee Empowerment as a Competitive Lever
Management is betting on employee engagement as a flywheel, investing in salaries, benefits, and team-building to drive service quality and operational consistency. Country and regional managers are empowered as “chief owners” of these initiatives, with standardized checks and diversified activities to foster a cohesive company culture across borders.
3. Delivery and Menu Innovation
Delivery is emerging as a critical growth engine, with new menu offerings and expanded delivery radii driving outperformance. Localized products, such as the grassland beef brisket in Southeast Asia and the beef gallon base soup in Japan, are boosting order rates and brand relevance, supporting the omnichannel expansion thesis.
4. Selective Global Expansion and “Second Curve” Initiatives
HDL is shifting from rapid footprint growth to a more measured, health-focused expansion, closing underperforming stores and piloting new concepts like barbecue and fast food under its Promenade plan. The “second curve” now contributes a growing share of revenue, signaling a strategic pivot toward diversified, regionally adapted formats.
5. Brand Building and Marketing Activations
Brand engagement remains a priority, with themed events, celebrity collaborations, and viral campaigns (such as the 250 million meal set event) sustaining buzz and reinforcing HDL’s cultural cachet, especially among younger demographics and in new markets.
Key Considerations
HDL’s Q1 was defined by a deliberate margin-for-growth trade-off, as management doubled down on foundational investments in customer experience, digital channels, and employee engagement. The company’s ability to convert these investments into sustainable traffic, higher-frequency visits, and improved unit economics will be the critical test going forward.
Key Considerations:
- Margin Resilience Under Pressure: Operating margin contraction is a calculated risk; ongoing wage and promotional investments must eventually yield operating leverage.
- Delivery Channel Scalability: Delivery’s outperformance demonstrates demand elasticity, but cost-to-serve and competitive intensity could challenge profitability as scale increases.
- Regional Adaptation and Store Health: The pivot to a “motion-up” expansion model and closure of underperforming stores signals a more disciplined approach to international growth.
- Brand Differentiation vs. Commoditization: As hotpot becomes more mainstream globally, HDL’s success in maintaining experiential and product differentiation will determine pricing power and customer stickiness.
- FX and Macro Headwinds: Average ticket size declined, in part due to FX, underscoring exposure to currency volatility and regional macro dynamics.
Risks
Margin pressure may persist if customer acquisition and employee investments do not translate into higher lifetime value or improved unit economics. Rising wage, rent, and promotional costs could erode profitability if traffic growth stalls. Competitive intensity in both core and delivery channels, along with macro and FX volatility, present ongoing risks to both top-line and margin recovery.
Forward Outlook
For Q2, HDL signaled:
- Continued double-digit new store openings, with a focus on health and regional adaptation
- Ongoing investment in product innovation and employee engagement
For full-year 2025, management maintained a long-term focus on:
- Balancing growth with disciplined cost management
Management highlighted several factors that will shape results:
- Scaling “second curve” concepts and regional pilots
- Monitoring cost structure closely as investments ramp
Takeaways
HDL’s Q1 marks a clear inflection toward customer and employee-centric reinvestment, with digital and delivery channels leading growth but compressing near-term margin. The company’s strategic bet is that these moves will build a more loyal customer base and a stronger, more adaptive global brand over the medium term.
- Delivery and Menu Innovation Drive Outperformance: Digital channels and localized products are becoming key engines of growth, but must be managed for profitability.
- Margin Trade-Off Is a Strategic Choice: The dual focus on customer and employee experience is intentional, but will require sustained traffic and ticket recovery to validate.
- Watch for Execution on Regional Expansion and Cost Discipline: Future quarters will reveal whether new concepts and disciplined expansion can offset rising costs and competitive threats.
Conclusion
HDL is consciously trading short-term margin for long-term brand and operational strength, as delivery and experiential investments drive customer and employee engagement. The next phase will demand proof that these investments can translate into sustained, profitable growth across diverse global markets.
Industry Read-Through
HDL’s Q1 underscores a broader industry shift toward omnichannel engagement, as digital ordering and experiential differentiation become table stakes for global restaurant brands. Margin compression from rising labor and promotional costs is likely to persist across the sector, especially for those prioritizing customer and employee retention over near-term profit. Disciplined expansion and regional adaptation are emerging as critical levers in international growth, with competitive intensity and FX volatility as persistent headwinds. Operators across foodservice, especially in experiential and delivery-driven formats, should watch for signs of operating leverage and brand stickiness as these strategies scale.