Levendary Cafe

The China Challenge

Group 11
Name Roll
Esha Choudhury PGP/17/078
Subharthi Sen PGP/17/052
Tarang Doifode PGP/17/038
Tasleem Fathima J PGP/17/054
Monisha Mehrothra PGP/17/026
Introduction
The Foundation &
expansion
Founded by Howard Leventhal
Started off as a small soup, salad
and sandwich restaurant
Now a chain of 3500 cafes,
$10billion business
Spun out of private equity
ownership in January 2011
Mia Foster- the new CEO
International presence- only in
Dubai and China
Falls in the Quick casual category
Average checks in the range of $8
to $12 (US)
The Wall Street Hostility:
-Domestic business fully tapped
-Fosters lack of international
management experience

The China
Opportunity
1.4 billion population; Urban pop
Per capita income
High growth in the Chinese food
services industry- 80% between 2004
& 2009, quick service sector fastest
growing- 85%
Foreign fast food companies attracted
attention- Asian food especially
Few successful local chains
The star performer- KFC- 3000
restaurants in 450 cities
Localized menu items e.g. McDonalds
China Mac
Departure from US concept e.g. Pizza
Hut as high-end casual dining
restaurant
Levendary China- 23 restaurants,
departure from US store design and
menu selection


The Levendary Concept
Commitment to healthful, wholesome eating
Using high quality and healthy ingredients e.g. shifting to use of only organic grains in its
breads & naturally raised meats
Tasty Fresh Goodness
Sensing nascent food trends and staying abreast of changing tastes
Risky changes adapted wholeheartedly
Highly trained chefs created everyday versions of gourmet fare
Innovating & willingness
to take risks
Emphasis on delighting the customer- personalized approach
Comfortable, friendly environment and homey look and feel of stores
Customer Service
The customers Point of View: Eating at Levendary makes me feel rich
Specialty
establishment
Quick Service Quick Casual Casual Dining
Success Factors for a Franchisee
Human
Resource
Finding a skilful and interested person
Person with ability to manage resources properly
Market Study
&
Benchmarking
Proper market research
Following best practices by competitors
Store Location
Store location dictates the demand and is of prime importance
Quality
Control
Proper review on operational parameters and quality
Success Factors for a Franchisee

Uniformity
Consistency across the franchisees in service, ambience and appearance
Very less customizations
Brand appeal
& Marketing
Effective marketing campaigns and brand management
Store
Experience
Differentiating from competitors on the basis of the experience offered at the
stores
Other Factors
Traffic, Traffic management, Capacity utilization, Marketing effectiveness and
brands appeal
Demand analysis (Metro vs Metro-
Suburb)
Location Metro China Metro-Suburb China
Metro US Suburban US
Annual Sales $806000 $288000
$10320000 $2126000
Square Footage 1500 500
2500 4000
Sales/ Sq. Foot $537.33 $576
$4,128 $531
Average Daily Traffic 260 430
3210 560
Average Daily Traffic/Sq.
Foot
0.173 0.86
1.284 0.14
Average Check $10 $2
$15 $12
Total Daily Check $2600 $860
$48150 $6720
Total Daily Check/Sq.
Foot
$1.73 $1.72
$19.26 $1.68
Lower average cheque means profits can be made only through volumes Chen is trying to maintain a high volume per square
feet in Metro-Suburb China
Sales per square foot slightly better for Metro-Suburb China where as it is Suburban sales is 1/8
th
that of Metro US
Total daily check per square foot equal for both cases in China but varies largely in the US
Considering a higher rental per square foot in Metro China, margins might still be higher at Metro-Suburb China
Chances of capacity under utilization in Metro China


Financials (Levendary US vs. Levendary
China)
Common Size Income Statement Levendary US Levendary China
Sales 100% 100%
Food & Paper Expenses 28% 51%
Labor Expenses 32% 12%
Occupancy Expenses 8% 24%
Marketing Expenses 13% 2%
Pre-opening Expenses 0.3% 12%
General & Admin Expenses 8% 5%
Levendary Chinas food and paper expenses are much higher
Labor rates are cheaper in China and provides cost advantage
Occupancy expenses for China can be cut by moving to the metro- suburb areas where demand is also growing overall
Levendary China should improve on its marketing activities since marketing expenses are remarkably low
Preopening expenses seem to be high in China because of going through the government processes it get permits/ approvals to
open the outlets and staffing costs

Go-getter
Local baron
Professional
manager
Stage Theory
The entrepreneur
suitable for
starting up a
business from
scratch
A manager
capable of
replicating the
success and
expanding a
business over a
territory in a short
time
A manager capable of
expanding a venture over a
large territory by
standardizing operations
and processes to the extent
possible
He should be able to apply
his knowledge and
experience in other
situations or benefit the
organization as a whole
Introduction
Growth
Maturity
About Chen


Entrepreneurial Spirit
Bilingual in English & Mandarin Chinese
Decade long experience as a retail
property developer
Huge network of contacts
Knows how to navigate through
regulatory processes in China
Passionate about good food
MBA from Stanford
He has been there since inception
These factors helped Chen establish 23
outlets in a short period of time


Adamant
Hard to work along with
Not open to suggestions
Negative attitude
Does not follow the core policies
Resistance to change

Remove
Chen after
the
contract
ends
Keep Chen
but
impose
control
Structure

What to
do with
Chen?
Continue
giving free
rein to
Chen
Find suitable replacement:
Same look and feel across all outlets
Change in Accounting methods
Risks:
Monitoring the new resource
Difficulty in finding real estate
Difficulty in building contact network
Benefit from Chens experience & contact
network
No change in accounting methods with respect to
China operations
To-do
Risk of brand dilution
Finding a way to reconciliate China accounts
so that that they maintain the integrity of the
HQ at US
Benefit from Chens experience & contact network
Similar look and feel across all outlets but
changes in menu
Maintain Brand name
To-do:
Define clearly the responsibilities of Chen and
his performance parameters
Take collective decisions on major plans or
entries
Communist state led by a party
High government interference
Strict labour and tax laws requirements were very different from USA
Corruption
World largest produces and consumers of rice, corn and tea
Main trade partners are Japan, South Korea and Europe
High income level growth Middle class per capita income rose by $1634
GDP growth if 14.5% in a decade
Potential market for investors across the world
Eating habits were different from the American style in sub urban areas
Urban population rose from 36.2% to 46.6% in almost a decade
Increasing trend of eating out
Changing patterns of social behaviour
Political
Economic
Social
CHINA
Advantages:
Co ordination and monitoring costs would be lesser because of decentralized structure
Integration mechanisms will not be needed
Performance ambiguity will be low
Need for cultural controls is low
Levendary brand image will not be diluted
Chen can exercise his full entrepreneurial capabilities
Risks:
Losing the basic concept of high quality ingredients, commitment to service, comfortable and friendly ambience, everyday
gourmet version loss
Dilution of TFG Tasty Fresh and Goodness
Localization strategy: Open the quick service restaurants in China Under a different Brand Name
Advantages:
The concept of TFG and Levendary experience will be maintained
Levendary brand image will not be diluted
Risks:
Co ordination and monitoring costs would be very high because of matrix structure
Integration mechanisms will have to implemented and controlled
Performance ambiguity will be very high
Need for cultural controls is high
Chen may feel antagonized especially if proper, unambiguous performance measurement is not set up and if too much of his power
is taken off

Global standardization: Same strategy as USA in China
Chinas rice obsession
Hybrid strategy
Keep the type of restaurant as quick casual across the globe
Chens strategy of having a counter only location in Shanghai Korea town is not
appropriate
The lifestyle of the inhabitants of the Koreatown is not what Chen assumes it to
be the occupation of the people has changed from majorly agriculture to other
occupations longer leisure time, larger disposable income
Increasingly the city dwellers were migrating to the suburban areas because of
lesser noise and pollution levels
One of the articles mentions that the corporate employees do not mind
travelling more than 20 Km to have a peaceful meal and time
Define the management practices, look and feel of the restaurant and
keep it same across the appropriate locations
The ambience and appearance of Chinese outlets has to be maintained
the same to keep the brand image
Ensure that enough resources are provided from the headquarters to
these outlets
Design a training program that upholds the values of Levendary and
ensure that it is administered to all the employees in the outlets OTL
for China
Schedule timely monitoring, collective decision making and review
mechanisms
Establish mechanisms to manage and to reconciliate the accounting
system to cater to both Chinese and USA Government and investors
requirements
Chen is following the
Levendary look and
feel and most of the
menu in the urban
areas but changing it
drastically for the
Suburban areas
Take time to
research the market
and discuss the
strategy before
opening in a
different kind of
location
Allow the change of menu in dissimilar location
The consumption pattern of the American consumer and a Chinese consumer is
different
Success of Dennys in Japan
Even McDonalds and KFC tries to change the menu in a limited way according to
local tastes Peri Peri fries in India by McDonalds and Fiery Grilled Chicken by
KFC
Update the menu from time to time based on the changes in tastes of the
existing and potential markets
The cost can be reduced by tight control of operations and raw materials used in
those locations in China that are similar to urban US market
Levendary
International food and not fast food
Believed that there is no such thing as American Customer
Rolled out a suite of new products 5 times a year
How important is China to Levendary?
Strategic
Leader
Contributor
Black Hole Implementer
Competence
of local
Organization
H
i
g
h

L
o
w

Strategic Importance
of Local environment
High Low
China has a lot to teach
Entering and adapting the business strategies in
China will give the novice Levendary, the experience
in managing international business
This experience and knowledge can enable entry into
other Asian markets
Detect signals of change in the customer tastes

Chen has a lot to learn
Chen should take time to do research in China before
opening the outlets
Chen should be able to transfer his Chinese
experience to the head quarters
He should be more open to suggestions from Head
quarters so that the core proposition is not lost
Chen should be sensitive to the changes in tastes so
that the strategies can be changed and the decision
regarding entry into other markets can be made
easier