Michael R. Czinkota
While around the globe we all celebrate some form of Thanksgiving, the food consumed does vary. In the U.S. we consume Turkey – usually store bought, not hunted. Bavaria sees such celebration with Beer and Bratwurst. In China the celebratory meal consists of tea and Hot Pot.
“Everything can be solved by a hot-pot. If not, it can be solved by two.” These words are popular in China. A staple comfort food, the hotpot is a symbol of Chinese leisure life and culture. Similar to the French cheese fondue, the traditional Chinese dish consists of a communal pot in which small ingredients are dipped. The ritual always involves gathering around the dining table, with a large hot pot of broth placed at the center. While simmering, the broth is then enriched by fresh and raw ingredients. These include finely cut meats, vegetables, tofu, and seafood that are cooked in the broth.
The dish can be found in homes and in restaurants across China and other parts of Asia. Recently, the hotpot found its way in other regions around the world as Hai Di Lao International Holding Ltd. – China’s largest hotpot restaurant group in terms of sales – gained market shares abroad. Most hotpot restaurants will attempt to distinguish themselves with their unique flavors and taste, but nothing compares to Hai Di Lao’s secret recipe.
Aside from the delicious hotpot, Hai Di Lao’s success is due to its remarkable service strategy. Hai Di Lao aspires to make every customer feel special. Outside the restaurants, customers line up at the door, waiting with great patience as they indulge in Hai Di Lao’s complimentary services. Such services range from free snacks and beverages, to free massages and manicures. Once customers enter the restaurant, waiters greet them, always with a smile, while subsequently taking their order with speed and accuracy. If dining alone, the restaurant provides its customers with a stuffed toy to be seated in front of them, in order to keep them company.
(All photos credit to Shiying Wang, Georgetown University.)
Although the hotpot restaurant business is extremely competitive, the chain succeeded in standing out from other hotpot restaurants by creating the ultimate dining experience. Branches are managed directly by a shared and central distribution network, ensuring the standardization of food quality across all its stores. By offering exceptional customer service, and adopting a supply chain management system, all Hai Di Lao subsidiaries tend to fulfill, and at times exceed, customer expectations.
Gaining increasing popularity in China, plans call for the chain to enter overseas markets, including the UK and Canada. In late September, Hai Di Lao presented an IPO to help fund and continue its expansion. Initially priced at $2.27 per share, the public offering gave the firm a valuation of about $12 billion. Some people may argue that Hai Di Lao’s IPO value is a bit high, considering its lack of success in the United States.
Back in 2013, Hai Di Lao opened its first U.S. restaurant in Arcadia, California. The restaurant received negative reviews on Yelp and less and less customer retention. Reviewers complained about Hai Di Lao’s overpriced menu, and intrusive and incompetent staff service. Despite its roaring success in China, the company failed to stand out in the United States and was proven to be a big disappointment.
Fast forward to today – with an international expansion right around the corner, how can Hai Di Lao succeed outside of China? Hai Di Lao will have to face more than its competing hotpot counterparts, and learn from its mistakes with the earlier US expansion. Challenges will also come from the local food industry, including other comfort foods such as hamburgers and hot dogs.
In overseas markets, new conditions will apply. First, the chain needs to develop a differentiation strategy by offering complimentary services that are less intrusive and that adhere to U.S. standards. Since offering mani-pedis would be considered a health code violation and waiting to hand tissue paper to customers after washing their hands would seem strange, Hai Di Lao needs to tailor its services to fit the American market’s wants and needs. Such services comprise complimentary hair ties, phone chargers, restroom grooming kits, and an iPad ordering system. They also provide video conferencing rooms, in which customers can enjoy their hotpot experience while video chatting.
Additionally, the firm needs to focus on the product and pricing strategy. Chinese food in the U.S. is still labeled as inexpensive, fast food. Hai Di Lao prices its authentic dining experience between $30 and $50 per person, which may seem costly to American customers. In an attempt to retain more customers, the company can either expect to lower its prices to be more local-consumer friendly or to provide more value to its American patrons through its complimentary services.
To succeed in overseas markets, Hai Di Lao needs to gain a comprehensive understanding of its target markets. Hai Di Lao is strengthening its products by offering locally grown items. The flavors will reflect more local preferences and flavors. This strategy should attract the American consumer who is used to eating fast food and “bowling alone”. Hai Di Lao will take their habit of eating alone into account by offering small one-person pots, perhaps at the expense of an authentic, communal Chinese hotpot experience. Some people may argue that Haidilao’s IPO value is a bit high. It took place on September 26 and initially got the price at $2.27 per share, giving it a valuation of about $12 billion. But if the demand is strong and the company is able to appeal to the American consumer, Hai Di Lao will gain more deal size and American patrons willing to invest. As the Chinese proverb goes, “There are a thousand Hamlets in a thousand people’s eyes”. There also can be a thousand hotpots in a thousand people’s mouths.
Professor Czinkota teaches international business and trade at Georgetown University and the University of Kent. His latest book is ‘In Search For The Soul Of International Business (Businessexpertpress.com) 2018