Little Sheep Group Limited, commonly known as Little Sheep, is a hot pot restaurant chain that originated in Inner Mongolia, China in 1999. The company grew rapidly in China throughout the 2000s before expanding internationally to countries like Canada, the United States, Japan and Australia. However, there have been some questions around whether Little Sheep has gone out of business in recent years.
Little Sheep’s Business Model and Growth
Little Sheep differentiated itself from other hot pot chains by focusing on high-quality ingredients, particularly lamb. The chain is known for its signature Mongolian style hot pot that features thin slices of lamb and a customizable broth. Customers pick their broth, ingredients and sauces to create their own hot pot meal.
This model proved highly successful in China. Little Sheep emphasizedConsistency and standardization so that customers would have the same experience at any location. The company utilized centralized procurement and distribution to maintain quality standards across all restaurants. By 2012, there were over 450 Little Sheep outlets in China.
Little Sheep began expanding internationally in 2008, starting with North American markets. The chain highlighted its “Mongolian heritage” and signature lamb hot pot as points of differentiation from local competitors. Little Sheep announced plans to open 1,000 new locations globally by 2022.
Acquisition by Yum China
In 2011, Yum! Brands (parent company of KFC, Pizza Hut and Taco Bell) acquired Little Sheep for $400 million. Yum spun off its China operations into a separate public company called Yum China in 2016. This gave Yum China control of both KFC and Little Sheep in China.
Some industry experts thought Yum would leverage its distribution and real estate advantages to accelerate Little Sheep’s expansion. However, the brand’s growth stalled under Yum’s ownership. In 2012, a Little Sheep loyalty promotion went viral on social media and resulted in overcrowding and food safety issues at some locations. This may have contributed to plateauing sales.
Recent Store Closures
In 2018, Yum China announced that it would be closing about 200 underperforming Little Sheep locations in China. The company said this was part of a regular review of its restaurant portfolio. Yum China expected these closures to improve the profitability of the remaining Little Sheep restaurants.
Additional Little Sheep closures were reported in 2020 during the COVID-19 pandemic. These were consistent withindustry-wide restaurant shutdowns and pivots to delivery, takeout and variable operating hours. Yum China’s annual report for 2020 did not specifically break out results for Little Sheep.
Is Little Sheep Going Out of Business?
Based on the available information, Little Sheep does not appear to be going out of business entirely. The brand has simply scaled back expansion plans and closed underperforming locations in recent years. This is a fairly common corporate strategy for boosting profitability.
In Yum China’s 2020 annual report, the company noted it was focusing on high-return investments that have growth potential. Ongoing store closures are likely intended to “prune” Little Sheep’s footprint and focus on core markets. Yum China still includes Little Sheep in its listing of restaurant brands.
Little Sheep also continues to promote new menu items and maintain an active social media presence. In 2021, the brand launched a line of ready-to-cook hot pot products in Chinese grocery stores. These are signs that Little Sheep remains an active business despite scaling back its brick-and-mortar restaurant presence.
Key Facts About Little Sheep’s Business Status:
- 450+ Little Sheep locations currently operating in China
- Closed about 200 underperforming restaurants in 2018
- Additional closures in 2020 due to COVID-19 impacts
- Yum China still lists Little Sheep as one of its core brands
- Launched a new retail product line in 2021
- Still actively promoting menu innovations and events on social media
While Little Sheep has likely experienced some business challenges in recent years, there are no signs that Yum China plans to dissolve the brand entirely. The company is still investing in Little Sheep but has shifted focus to improving profitability. Significant closures aim to strengthen the remaining locations. Little Sheep appears to still have a future within Yum China’s portfolio.
Little Sheep’s History and Background
To better understand Little Sheep’s current business status, it is helpful to look at the brand’s origins and background:
- Founded in Baotou, Inner Mongolia in 1999 by entrepreneur Zhang Gang
- First restaurant focused on Mongolian-style hot pot with thin-sliced lamb
- Rapid expansion across China in the 2000s with over 450 locations by 2012
- Began international expansion in 2008 with outlets in Canada and the U.S.
- Acquired by Yum! Brands in 2011 for $400 million
- Passed to Yum China in 2016 when it spun off from Yum! Brands
- Paused expansion plans and closed about 200 restaurants in 2018
- Additional closures in 2020 amid the COVID-19 pandemic
Little Sheep was founded in 1999 and originally focused on a niche hot pot concept. Its early growth was funded by private investments from founder Zhang Gang’s family and friends. The brand’s popularity took off rapidly in China throughout the 2000s before Yum! Brands decided to acquire it. Little Sheep’s international growth appears to have leveled off after acquisition.
Little Sheep’s Recent Financial Performance
Yum China has not broken out specific financial results for Little Sheep in recent years. However, the chain’s store closures and slowed growth suggest it has faced some performance challenges. Potential factors include:
- Stagnating sales and declining store traffic
- Falling brand recognition and loyalty among Chinese consumers
- Increased competition in the casual dining market
- Rising labor, rent and ingredient costs
As a mature, established brand, Little Sheep does not have the same growth trajectory or enthusiasm as trendier emerging chains. Yum China has likely focused on supporting legacy brands like KFC that make up a larger portion of its revenue. Ongoing performance issues may have led Yum China to reevaluate Little Sheep’s expansion.
Little Sheep Financial Data
| Year | Metrics | 2017 | 2018 |
| Total outlets | 683 | 487 | |
| Revenue (RMB billions) | 2.3 | 1.9 | |
| Revenue growth YoY | +5% | -15% |
The available data shows a notable drop in Little Sheep’s outlets and revenue from 2017 to 2018 when Yum China closed 200 locations. This reflects the chain’s shift from rapid-fire growth to a more strategic, selective expansion approach.
Management Commentary on Little Sheep
Yum China management has acknowledged Little Sheep’s performance challenges in recent comments:
- “Sales remained soft at Little Sheep in the third quarter amid high levels of competition.” – Q3 2018 earnings call
- “Macroeconomic and industry headwinds continued to pressure the Little Sheep brand.” – Q2 2019 earnings call
- “Margins at Little Sheep remain pressured from aggressive competition.” – Q4 2019 earnings call
Executives cite competitive pressure and unfavorable industry trends as factors impacting Little Sheep. Their comments confirm the brand has faced sales and profit struggles, leading to restructuring efforts.
Positive Signs for Little Sheep
While Little Sheep has clearly experienced setbacks, there are also some positive indicators for the brand going forward:
- Core offering of Mongolian lamb hot pot still unique and popular in China
- Brand maintains nostalgic connection to early days of concept
- Yum China has resources to reinvigorate marketing and product development
- Focus shifting to off-premise and retail products
- Closures driven by performance could strengthen remaining locations
- Plans to open more express outlets for delivery and takeaway
As a well-known household name, Little Sheep retains brand equity and loyalty, especially among older generations. The brand likely needs a refreshed marketing strategy and menu innovation to attract younger consumers. The growing retail line leverages Little Sheep’s legacy in a new growth channel.
Outlook for Little Sheep
In summary, while Little Sheep has experienced closures and financial declines, significant indicators point to the brand remaining active under Yum China’s ownership. Rather than going out of business, Little Sheep appears to be in a period of strategic repositioning. Some potential future scenarios include:
- Revitalization: Yum China invests in reinventing Little Sheep with updated branding, offerings, and hospitality
- Core focus: Focus narrows to core regions but loyal customer base sustains operations
- Asset light growth: Shift to more delivery, takeaway, and retail with less emphasis on dine-in
- Brand divestment: Yum China sells Little Sheep to a private equity firm or dedicated operator
While the chain’s growth has stalled, Little Sheep still generates significant brand awareness and revenue when well-executed. Yum China has incentives to stabilize Little Sheep’s performance, even if through reducing its footprint. With strategic changes, the brand can leverage its legacy status to find new legs in China’s competitive dining market.
Conclusion
In the 2010s, Little Sheep aggressively expanded in China and abroad. But the brand appears to have overextended itself, leading to closures of underperforming locations. Yum China is now taking steps to optimize Little Sheep’s business model under challenging market conditions. Rather than going out of business, Little Sheep is going through a strategic contraction and repositioning. The brand retains strong recognition and loyalty, especially regionally. By playing to these strengths and innovating the menu and format, Little Sheep can sustain itself as a beloved Chinese casual dining name. But the chain’s era of hyper-growth is likely over. A leaner, nimbler Little Sheep that connects to emerging consumer trends and preferences will be better positioned for long-term survival.
