Wallace delists to seek change: Competition in the fast-food market intensifies

Ask AI · Does Wallace’s Delisting Reflect a Disconnect Between the Financing Function of the National SME Equities Transfer System (New Third Board) and Company Needs?

China Jing reporter Yan Na Sun Jizheng, Chengdu report

Recently, news about “Wallace’s delisting” made the trending topics list. According to a notice from Wallace’s parent company, Fujian Huashi Food Co., Ltd. (hereinafter “Huashi Food”), the company’s shares have been terminated from being listed on the National Equities Transfer and Quotations System for SMEs, officially ending nearly a decade of its New Third Board listing process.

Wallace stated that this delisting is a decision the company made proactively, aiming to further improve operational decision-making efficiency, reduce operating costs, and align with its long-term strategic layout. As for whether the company will seek to restart an IPO and related development plans in the future, Wallace did not respond.

As one of the local fast-food brands with the widest presence in lower-tier markets, Wallace’s proactive delisting has drawn widespread attention. In the view of industry insiders, Wallace’s delisting is not a passive move in a situation of operational desperation, but an active choice based on cost-benefit considerations and strategic adjustments.

At present, Wallace faces multiple challenges, including slowing revenue growth and accelerating market competition. Bai Wenxi, deputy director-general of the China Enterprise Capital Alliance, believes that after the scale of its stores reaches a ceiling, the company needs to shift from “extensive expansion through new stores” to “optimization of existing scale,” focusing on supply-chain efficiency and product quality control upgrades.

Ten Years of Listing Financing Only in the Tens of Millions

Several experts interviewed believe the core driver behind Wallace’s delisting is the mismatch between the financing function of the New Third Board platform and companies’ development needs, along with additional pressure and needs for strategic adjustments from the company’s own finances. In April 2016, Huashi Food listed on the New Third Board with the original intention of using the capital market to support large-scale expansion. However, over nearly ten years, the company completed only one targeted share placement in the early stage of its listing, with cumulative financing of merely 10 million yuan.

Bai Wenxi analyzes that the fundamental issue is an imbalance between capital value and costs. Compared with the compliance costs required to maintain the listing, as well as information disclosure costs, audit costs, and governance costs, the financing scale of a decade on the New Third Board does not offer an advantage in terms of input-output.

Yuan Shuai, an expert from the China Jing Media think tank, said that after nearly ten years of listing, the capital market has become a financial burden for Wallace. Delisting can reduce the constraints that the status of a public company places on operational decision-making, helping the company get rid of short-term performance pressure from the capital market and focus more on internal rectification.

From an operational perspective, Wallace’s financial pressure may also be one of the reasons for delisting. The financial reports show that in the first half of 2025, Huashi Food’s total liabilities exceeded 2 billion yuan, and its asset-liability ratio exceeded 70%, far higher than the industry average of 60% for catering. Jiang Han, a senior analyst at Pangu Think Tank, noted that after Wallace’s number of stores hit its peak and then declined, the scale dividend reached its limit. Delisting may be to get rid of the capital market’s pressure on short-term performance, and to focus on internal adjustments and strategic reshaping.

This delisting is also seen as a signal of Wallace shifting its strategic focus. Bai Wenxi believes that after Wallace’s store scale reaches its peak, it needs to move from “extensive expansion” to “optimization of existing inventory.” Delisting allows the company to operate with less burden, reduce regulatory constraints, concentrate resources to solve issues such as product quality control and franchisee management, and also create room for trial-and-error as it explores new business models.

Wallace recently emphasized to the media that delisting does not affect consumers’ rights and interests or business cooperation, and that the fundamentals of operation at its dine-in and storefront locations remain stable. Regarding Wallace’s future capital path, Jiang Han believes that if the company can effectively resolve issues related to quality control and management and improve profitability, restarting an IPO in Hong Kong or on the A-share market in the future is not out of the question. But it also needs to take into account the market environment and financing needs comprehensively.

Diminishing Store-Scale Effectiveness

According to records, Wallace was founded in 2001. With a low-price strategy of “Coke for 1 yuan, chicken leg for 2 yuan, and burger for 3 yuan,” it opened up the market. In 2016, it entered the New Third Board and began scaling up expansion using a partnership chain model based on “store crowdfunding, employee partnerships, and direct management.” Under this model, Wallace added 14,000 stores from 2019 to 2022. In 2023, the number of stores surpassed 20,000, bringing explosive growth.

Wallace’s core profit model is to earn trade margins by supplying stores with food ingredients, consumables, and other items. This has kept its gross margin at a low level in the industry for a long time. In the first half of 2025, Huashi Food’s revenue was 4.625 billion yuan, down 0.49% year over year. This marked the first half-year report with revenue decline since its rapid expansion period. Gross margin for the period was only 6.04%, and operating profit margin was 3.77%, far below Yum China’s 10.9% operating profit margin for the same period.

Gao Chengyuan, president of the Distant Influence Research Institute, said Wallace’s low gross margin is not caused by its low-price strategy. Mixue Bingcheng also follows a low-price route, with a gross margin of 38.3%. The core issue is that Wallace’s supply-chain efficiency is relatively low—it only plays the role of a “middleman” earning distribution spreads, while leading brands have achieved deep integration of the supply chain.

In Yuan Shuai’s view, Wallace’s model of driving revenue by scaling its store count has entered a phase of marginal diminishing returns. The Narrow Door Restaurant Eye data shows that Wallace’s store count had fallen to 19,494 by February 2026. “Companies must shift to rebuilding a single-store profitability model—by improving operational efficiency at each store and optimizing product structure to increase profit per store, rather than continuing to rely on scale expansion to achieve revenue growth.” Yuan Shuai said.

While the partnership model helped drive expansion, it also planted hidden risks of losing control over product quality. On a third-party complaint platform, there are more than 14,000 entries related to Wallace. In March 2025, its stores were also exposed for using expired ingredients. Yuan Shuai said Wallace’s headquarters has an insufficient share of equity in terminal stores, which results in a lack of say in implementing product quality control standards, thereby triggering a chain reaction of food safety issues. Meanwhile, with profit per store being thin, stores find it difficult to upgrade their quality control, making it easy to fall into a vicious cycle of “profit per store declines—quality control problems intensify—customer traffic decreases.”

Gao Chengyuan believes that the problem of dispersed equity under the partnership system becomes prominent after the store count exceeds 20,000. The existing control and management system was not upgraded in step, leading to the emergence of “diseconomies of scale.” The period when simply expanding scale could still bring dividends is already over, and low gross margin can no longer offset fixed costs through scale dilution.

Intensifying Industry Competition

Recently, Wallace has rolled out transformation measures from two aspects—supply-chain integration and business expansion—in an attempt to break through growth bottlenecks. Earlier, Huashi Food spent 100 million yuan to acquire all equity interests in Shandong Xinshizhou Food Co., Ltd. The company is a key core production capacity supply base for Wallace’s northern market and has a deep-processing industrial park producing 120,000 tons of chicken products per year. This acquisition allows Wallace to directly control part of the raw material supply end. Through vertical integration of chicken-processing steps, it compresses intermediate costs, alleviating supply-chain pressure. At the same time, Wallace has cross-bordered into the coffee segment, launching a “9.9-yuan coffee monthly card.” After consumers purchase it, within 30 days they can exchange for a cup of classic American-style coffee for free every 2 hours.

Li Weihua, a franchise expert, believes Wallace’s brand positioning is inherently low-priced, so its coffee products naturally continue this strategy. For the “9.9-yuan per month” promotion, if calculated based on 210 times of drinking per month, the cost per cup is less than 5 cents. This shows the campaign is not designed to make profits; rather, it has a topic-creating effect and a traffic-driving effect, effectively attracting customer flow to stores.

However, industry insiders are generally cautious about the outlook of Wallace’s coffee business. Bai Wenxi analyzed that Wallace’s coffee business faces clear cost pressure. The cost of coffee beans per cup is 2.34 yuan; combined with equipment and labor, the total cost may exceed 3 yuan. Under a subsidy model, it is hard to make profits.

Yuan Shuai pointed out that Wallace lacks operational experience in coffee categories and the support of a supply chain. The “9.9-yuan per month” coffee cannot cover costs, which will ultimately increase financial burden over the long term. Moreover, the rule limiting purchases to once every 2 hours restricts how frequently users can use the offer, making it difficult to form sustained user stickiness. In the end, it may turn into a short-term marketing tactic.

While Wallace is implementing internal adjustments, the external competitive landscape has already changed. On one hand, international fast-food brands such as KFC and McDonald’s are accelerating their layout in lower-tier markets. KFC has introduced the “Twin Star” small-store model, lowering the per-store investment amount to 700,000—800,000 yuan. In 2025, it added 1,349 net new stores, bringing the total close to 13,000, and by using “Crazy Thursday” it compresses its price band to an interval close to Wallace’s. McDonald’s had a total store count exceeding 7,700 in 2025 and plans to reach the “10,000-store” scale by 2028. Zhang Jiayin, CEO of McDonald’s China, has repeatedly stated publicly that the company plans to reach the “10,000-store” scale in China by 2028, and that about half of the newly added stores will be located in third- and fourth-tier cities.

Gao Chengyuan said that in the face of the low-tier offensive from KFC, McDonald’s, and others, Wallace needs to redefine “value for money”—not “the cheapest,” but “best quality at the same price, and lowest price at the same quality.” Competition in lower-tier markets has shifted from “whether there is [a product]” to “which is better,” and Wallace must prove that low prices do not mean low quality.

On the other hand, the rise of local up-and-coming brands like Tasty places Wallace under homogeneous competition pressure. The founder of Tasty was once a Wallace franchisee, fully understanding demand in lower-tier markets. It focuses on “Chinese burgers.” Its average unit price is on par with Wallace’s. As of early 2026, its store count has already surpassed 11,000. Wallace’s share of stores in third-tier and lower cities once exceeded 50%, and this market is becoming the focal point of competition among many brands.

In response, Li Weihua proposed recommendations: build a comprehensive supervision and guidance system and define reasonable commercial-area protection ranges. This can help the company maintain a relatively coordinated state between scaling expansion and operational control.

Jiang Han believes Wallace can increase R&D investment on the product side, launch featured new items to meet diverse consumer needs, and at the same time emphasize product quality and healthy pairings. On the pricing side, it should stick to its affordable-price advantage and flexibly use promotional strategies to further improve product value for money. On the service side, it should focus on improving store service efficiency and customer experience. On the brand side, it should strengthen brand building and marketing promotion, continuously improving brand awareness and reputation.