Tempering the overseas appetite

Restaurant experts say Chinese chains must standardize to succeed in overseas markets

Major restaurant chains in China that have been enjoying a great deal of success on the Chinese mainland still have a long and arduous road ahead of them if they want to make a name for themselves overseas, according to industry analysts.

"Chinese restaurant chains are short on logistical know-how as well as distribution outlets. They have a relatively fragile franchisee management system. All of these problems will become more challenging when they enter overseas markets and compete directly with foreign counterparts," Su Qiucheng, president of the China Cuisine Association, said in a recent interview.

In recent years, several Chinese restaurant chains have found mixed results in overseas markets. Haidilao, one of the best known hotpot chains in China, announced in June that it had signed deals to open a restaurant in the United States and another in Singapore.

Prior to the deals, the restaurant, based in Southwest China's Sichuan province, had already established an office to manage its overseas expansion and oversee advertising, menus and the interior design of its restaurants.

Established in 1994, the hotpot chain currently owns 71 restaurants in 15 Chinese cities and employs more than 14,000. Dining at the US and Singapore restaurants will cost about $40 (31 euros) to $50 a person, a far heftier price than it would cost to eat at its Chinese mainland restaurants.

Little Sheep Catering Chain Co, another Chinese hotpot restaurant franchise based in the Inner Mongolia autonomous region that was purchased by Yum! Brands Inc last year, entered the US market in 2005 but pulled out in late 2009.

Despite Little Sheep's lack of traction in the US market, more Chinese companies are pushing forward. The South Beauty Group, a high-end restaurant chain based in Beijing, says it plans to take the next step and expand overseas. Since its establishment in 2000, South Beauty, best known for its innovative Sichuan cuisine, has grown from its first location in Beijing's China World Trade Center to more than 70 sites across the country.

The group is planning to establish restaurants in other Asian countries, such as Singapore, though details about when and where the new restaurants will open have not been finalized, says Zhang Lan, founder and chairwoman of South Beauty.

"Although we don't have a specific timetable, it is for sure that we will enter the US and EU markets in the future to win global recognition," Zhang says.

Other Chinese restaurant chains are cooking up plans to secure a listing on Nasdaq. Chongqing Liuyishou Hotpot Co Ltd, for instance, is aiming for a listing on the second-largest stock exchange in the world.

"We will try to get listed on Nasdaq within three to five years," says Liu Song, president of Liuyishou.

In 2010, the company opened its first overseas restaurant in Dubai.

"On average, we receive more than 1,000 customers every day (in Dubai)," Liu says.

Founded in 2000, the company now has more than 400 restaurants and franchised outlets across the Chinese mainland. The company is planning to open its second restaurant in Dubai next year, Liu says.

"Compared with the domestic market, developed countries and regions are more mature. We can also gain experience from operating branches overseas, which is beneficial for the growth of our domestic business," says Liu, who adds that Liuyishou plans to establish restaurants in US, though he didn't say when that would be.

Guo Jie, an analyst with Beijing-based Citic Securities, says overseas success can translate into greater heights for its restaurants in China.

"By exploring overseas markets, especially in the US or in Europe, Chinese companies can prove their competitiveness to Chinese consumers, which can lead to more popularity domestically," Guo says.

Wan Ge, an analyst with Beijing-based China Venture Group, says: "The domestic catering market is consolidating quickly and has nurtured some well-known brands in recent years. Establishing a presence in overseas markets and going public in the US can help Chinese brands to increase their profile both domestically and abroad."

But these analysts point to a number of difficulties for Chinese restaurant chains with overseas aspirations, one of which has nothing to do with financial figures: maintaining the chain's signature flavors. Analysts say the problem arises because of a lack of ingredients overseas, although many US and European stores in urban areas are often stocked with imported foods and spices. They also say another obstacle is the higher cost of operating a restaurant in markets abroad.

"Because the local market lacks some necessary raw materials and ingredients, the restaurants have to import them from China, which makes the operation costs much higher," Wan says. "And sometimes they have to modify menus based on what is available and change some dishes to accommodate the local palate. These changes usually make it impossible to keep the dishes' unique original flavors."

Su with China Cuisine Association says domestic restaurant chains need to improve the standardization of their cooking processes to ensure consistency in flavors and efficiency in cooking.

Su says compared to their Western counterparts, Chinese restaurant chains lack standards in preparing dishes and in job responsibilities in kitchens.

Still, Chinese companies are confident in their overseas plans. South Beauty Group claims there are many Chinese restaurants abroad that have copied the group's dishes and have been successful.

"If they can make a living by copying and following us, there is no reason why we can't establish our brand overseas by ourselves," Zhang Lan says.

huhaiyan@chinadaily.com.cn

(China Daily 11/02/2012 page16)