David Zhao Wants to Take Over the (Restaurant) World

If you’re into hot pot, the Chinese method of dining that involves dipping raw ingredients into a central vessel of hot broth, chances are you’ve heard of Chubby Cattle, the hot pot restaurant co-founded by one-time M&T student David Zhao, which has a location in Philadelphia.

Chubby Group, which contains Chubby Cattle and of which Zhao is a founding partner, has been finding success in recent years and has massive growth planned ahead. In an era where independent restaurants are struggling to stay afloat while combating razor-thin margins and staffing issues, Chubby Group is growing by… well, not being independent.

“Restaurants today are not successful because there’s no consolidation,” said Zhao in my December conversation with him. 

Consolidation is the reason that fast-food restaurants, which typically charge the cheapest prices anywhere, can still remain profitable. Consolidation leads to lower costs; lower costs enable lower prices; low prices drive volume; that volume, even with thin margins, brings in meaningful absolute revenue.

Chubby Group has already found benefits from scaling a consolidated group of restaurants. The company has its own cattle ranch, seafood farm, and caviar line. Its size also enables it to negotiate better credit card processing fees and real estate deals.

Zhao has a bold forward vision for Chubby Group, which will launch a traditional rewards program, Chubby Club, this year. By 2030, he sees the group having around 10,000 restaurants under its umbrella. How? First, capital. This has been acquired through investments by strategic investors, banks, landlords, and crowdfunding. Second, by scouting the country for the best independent restaurants and offering them the benefits of the group’s scale in return for a percentage of the restaurant’s revenues (which hopefully amounts to less than the savings enabled by being a part of the group). Participating restaurants will be brought into the Chubby network and placed on its app for diners to discover, along with receiving the aforementioned direct cost benefits.

The full success of the model is not just about bringing restaurants into the fold, but making sure that they are the best restaurants. Zhao said that he wants the Chubby stamp on a restaurant to be akin to the one that Michelin gives–a guarantee of a certain level of quality. He wants a diner to be able to open up the Chubby app and be able to find high-quality restaurants of all kinds anywhere in the country, without needing to look outside the Chubby ecosystem.

David Zhao’s vision and tone are far grander and more urgent than when I first saw him speak at a WAX (Wharton Asia Exchange) event in 2022. If that all pans out, America’s next great restaurant group could be a trillion dollar one.

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