High Margins and Heavy Assets: The Magician's "Daily Meals and Night Drinks" Business Strategy

In the encirclement of the restaurant and bar business, old idols are being disenchanted, while new followers continue to enter.

As the former “Number One in Small Bars” Helen’s struggles to pivot towards franchising, another player on the track, COMMUNE Illusionist, which focuses on a “Japanese dining and night bar” all-day mode, has officially submitted its IPO prospectus to the Hong Kong Stock Exchange, aiming to tell a completely different story of quality.

Capital has already moved ahead: in early 2021, Hillhouse Capital led its Series A investment; in 2022, RiChu Capital led, with Hillhouse and Tomato Capital following, completing a multi-billion yuan Series A+ financing round.

As of the filing, Hillhouse and RiChu still hold 9.63% and 1.71% respectively.

From Seasaw, Naixue to Diandoude and Wei’s Cold Noodles, the restaurant and bar business has never lacked cross-industry cases, but success stories are few, which may already indicate the operational difficulty of this business model.

In 2024, Illusionist’s revenue grew by 27% year-over-year to 1.074 billion yuan, with a 7.8% market share, roughly twice the combined market share of the second and third industry players.

However, under the general cost pressures in the catering industry, Illusionist’s profit curve shows obvious fluctuations: in 2023, its adjusted net profit margin was 8.7%, which dipped to 6.2% in 2024, then rebounded to 9% in the first three quarters of 2025.

Is “Japanese dining and night bar” ultimately a social traffic business relying on high premiums and heavy assets, or a business model capable of cycling through economic cycles and highly replicable?

Under the grand narrative of a trillion-yuan track, can Illusionist’s single-store efficiency support the market’s expectations for “long-term growth”?

Space and Social Premium

The essence of Illusionist and similar restaurant-bar fusion models lies in maximizing operational efficiency within limited space.

Through all-day social spaces, Illusionist extends operating hours to 16-18 hours, covering all consumption scenarios from brunch, afternoon tea, dinner, to late-night bar, thus hedging against high rents in core commercial districts.

On this basis, the beverage business acts as a “ballast” for profits. Taking its own brand of beer as an example, the retail price is about 20 yuan, with procurement costs around 2.5 yuan, resulting in a gross margin of 87.5%.

The company also operates its own import-export trade company and central warehouse to directly source core beverages, optimizing supply chain efficiency, and maintaining a high overall gross margin of 67.8% to 70.5%, significantly above industry averages.

On the surface, food can attract foot traffic for drinks, and drinks can increase overall per-guest spending. However, in actual operations, whether it’s a restaurant bar or a pub, it’s difficult to balance both food and alcohol effectively.

The reason is that the more complex the SKU, the higher the management difficulty and loss risk; plus, the talent teams, equipment, and operational systems required for both are entirely different.

Liu Junjie, founder of craft beer supply chain service provider XiPiShi, told XinFeng that Illusionist’s uniqueness lies in starting from the brand and target customer base, then reverse-engineering team building.

“Illusionist is very clear about what kind of scenarios target consumers need, and designs what food to eat and what drinks to drink accordingly.” Liu Junjie said, “With a rich SKU and relatively complex operations, it also requires maintaining higher pricing and gross margins.”

In the first three quarters of 2025, Illusionist’s average bill per member is close to 170 yuan.

High-ticket dining enterprises find it hard to remain indifferent to the current consumer environment.

In 2024, Illusionist began optimizing its product structure, reducing self-selected beverage SKUs from over 1,000 to about half. According to the IPO prospectus, after adjustment, the self-selected beverage SKUs are maintained at around 200, with Western-style food menus about 70 items.

More resources are allocated to proprietary product development and differentiation.

As of September 30, 2025, the company has launched 14 self-branded beverages, including “Illusionist German-style Wheat” and “White Peach Oolong Tsingtao,” which account for over 20% of total alcohol beverage revenue.

Through product restructuring and strategic price reductions, the company has achieved growth in key operational indicators. In 2024, the average daily sales per square meter was 58.3 yuan, rising to 60.5 yuan in the first three quarters of 2025.

In comparison, Chinese chain fast-food brand Laoxiangji, boosted by delivery, reached a store sales per square meter of 89.1 yuan in the first eight months of 2025.

Some older stores are already showing signs of decline: same-store sales growth in first-tier cities was -1.1% in 2024 and -1.4% in the first three quarters of 2025, with consecutive YoY declines.

In second-tier cities, same-store growth was 3.6% in 2024, but turned negative to -0.3% in the first three quarters of 2025.

Regarding cost structure, because all-day operation requires employing chefs, bartenders, and other personnel across multiple shifts, Illusionist’s labor costs are high.

In 2024, employee expenses increased by 38% year-over-year to 290 million yuan; in the first three quarters of 2025, labor costs grew by 21%, also higher than the 14% revenue growth in the same period.

Additionally, unlike competitors like Helen’s that adopt franchise models, Illusionist has always maintained a wholly owned operation mode. Its initial investment per store is as high as 5-6.5 million yuan, with most stores located in core commercial districts, typical of heavy-asset operations.

In 2024 and the first three quarters of 2025, depreciation of leased properties, factories, and equipment assets accounted for 17.4% and 13.6% of total revenue, creating a high fixed cost burden.

“Dream Space” Difficult to Replicate

Amidst the surge of franchise fast-food brands rushing to the Hong Kong Stock Exchange, restaurant models like Illusionist that emphasize “atmosphere management” face significant standardization challenges.

Co-founder and Chief Brand Officer Fan Xiameng once said that its product system is divided into two main categories: one is physical products like food and drinks; the other is “virtual products” composed of sound, light, taste, and touch—services and environment.

“Atmosphere management may seem to have no standard answer, but it is hidden in many details.” Illusionist explained, including carefully curated playlists for different times, dynamic lighting, precise control of music decibel levels, service standards for staff shifts, and table and chair arrangements.

Nevertheless, the social experience itself remains difficult to mass-produce.

“Atmosphere” heavily depends on individual store operational capabilities and customer relationships, with many uncertainties. Therefore, Illusionist is particularly cautious in site selection.

Co-founder Sun Xianguo, when discussing the site selection strategy under the trend of “dining into alcohol,” pointed out that although data is crucial in decision-making, the team also values intuitive judgment based on scenarios.

He regards COMMUNE Illusionist as a “dream space,” where each potential site is pre-visualized with specific scenarios such as outdoor seating arrangements, greenery matching, and creating drinking atmospheres.

“Data is the foundation, but when facing uncertain macro environments, we also believe in the power of intuition and imagination.” Sun Xianguo explained. However, considering all-day operation and customer age span, their site selection standards will only become more stringent.

In 2024, Illusionist opened 11 new stores in first-tier markets, accounting for about two-thirds of the new stores that year, almost all positioned as higher-end “Premium Stores.”

Its expansion in second-tier cities has been more steady, maintaining about 6 new stores per year in 2024 and the first three quarters of 2025.

Investors who focus long-term on the consumer track analyze that its strategy of sinking “standard stores” and copying “social premiums” essentially leverages brand momentum to attract lower-tier customer flow, converting traffic into sales and improving store efficiency, while gradually expanding supply chain benefits.

In the eyes of the market, the real challenge of scene- and experience-centered dining models is not operational complexity, but whether they can continuously attract consumers and avoid being forgotten or abandoned.

“If we evaluate Helen’s from 2018 to 2022, it remains a successful case, precisely fitting the consumption power and social needs of college students at that time.” Liu Junjie said, “But young people’s preferences have changed now.”

In Liu Junjie’s view, overall acceptance of “restaurant and alcohol integration” among Chinese consumers remains limited, and the mainstream dining and drinking scenes are still concentrated in large food stalls or various restaurants.

In third-tier and below markets where Illusionist has not yet heavily expanded, it currently maintains only 9 stores. Since these stores are generally 400-700 square meters, and local consumption scenarios and demands differ, their average daily sales per square meter are only about one-third of those in first-tier cities.

Ling Yan management consulting chief analyst Lin Yue suggested that Illusionist’s future could focus on “localization” and “lightweight” expansion: the former involves integrating local snacks and dishes to lower consumption barriers with “familiar flavors”; the latter refers to smaller, lighter-investment store formats, creating new experiences through high-cost-performance soft furnishings and activities.

Illusionist plans to add 105-135 stores over three years, doubling its current 112 stores.

Specifically, in 2026, it aims to open 30-40 new stores mainly in first- and second-tier cities; in 2027, 35-45 stores, focusing on second-tier and emerging markets; and in 2028, another 40-50 stores to further cover key economic regions.

However, the heavy-asset operation model demands continuous capital supply, making Hong Kong IPO listing a critical window for fundraising.

As of November 2025, the company’s cash and equivalents on hand are less than 100 million yuan, with net current liabilities reaching 175 million yuan, indicating a significant liquidity gap.

Risk Warning and Disclaimer

        The market carries risks; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest at your own risk.