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Western restaurant concepts are exploring and expanding within China, even as they face a formidable competitive front from domestic Chinese chains. The China market is huge and there is tremendous latent consumer demand, said NPD's Warren Solochek.
"Western chains that have solved the puzzles of management, distribution and site selection are growing rapidly," he said.
One Western concept landed in China four years ago but folded last year after realizing how difficult it was to operate there. Four years ago in Beijing, Master Franchise Wen-Szu Lin and his business partner, both Wharton MBAs, opened Auntie Anne's Pretzels, a U.S.-based chain with more than 1,200 locations in 46 states and 23 countries. The stores closed last year, however, and Lin has recently published a book, "The China Twist," describing the various incidents they faced while running a Western concept in China.
"The business was doing OK but just not worth the stress of operating in China," said Lin, who now works for FOCUS Brands International as director of operations in Asia. "The book's key lessons include a first-hand experience about operating a food business in another country, where the culture, laws and customer demands are drastically different."
Lin faced several challenges, but the most difficult included cultural differences, firm registration, importation and HR laws.
Cultural differences: There were many cultural differences that manifested itself in every aspect of the business, Lin said. "We realized that what we value in preferences, work processes and traditions may not be what the locals value," he said.
Firm registration: Each outlet required full registration of health, environmental, tax and business licenses. Depending on which district the store was located in or what the state of the local/ national politics were, the rules were completely different. Many of the rules were not widely publicized, so getting a store open smoothly was often more about relationships, Lin said.
Importation: Lin constantly ran into issues importing goods. While one shipment could pass, the same items in the next shipment could fail.
"The process seemed arbitrary and impossible to manage," he said.
HR laws: There were many HR laws that any business operating in China must fully understand, according to Lin, who said that the law heavily favors employees.
"The employer can run into a nightmarish situation if they do not have proper HR to watch over every small detail," he said.
The biggest lesson Lin learned from his Auntie Anne's experience has nothing to do with business, and everything to do with the personal sacrifices needed to become a restaurant franchisee.
"A franchisee is an entrepreneur who has put a lot of their hard-earned savings on the line," said the husband and father of two. "Oftentimes, being an entrepreneur comes with a lot of sacrifice; sacrifices that goes beyond the franchisee and impacts friends and family. Every aspect of life is impacted and can have repercussions in relationships with others."
For example, Lin said he used to frequently take out his wife for date nights before becoming a franchisee; however, after opening the units, he stopped doing that because he wasn't paying himself much.
"I felt uncomfortable spending anything more than the bare essentials. While it was easy for me to handle as I was engrossed in work anyway, this new approach is not easy for others," he said.
He recommends that any would-be franchisee speak to others who run businesses before launching ahead. It could help them to better understand the trade offs they will have to make.
It's a marathon, not a sprint
Running operations in the food business is a marathon, said Lin, who found that there was always lots of work that should have been done "yesterday." If he were to do it over again, he wouldn't obsess over every detail and he'd hire more professional help.
"We should have let go some of the major tasks to professionals, like IT and accounting, so that we could focus on the core things that we needed to get right," he said.
Although Lin believes he had the ability to keep operating, he lacked the funds to grow properly. In the end, his heart wasn't in it.
"Both my partner and I left very lucrative careers to do this but reached a point in our personal lives where we wanted more stability and less stress," he said. "For me, the birth of my first child was the trigger that made me evaluate if the growth potential was worth the sacrifices. It wasn't as I needed to focus on family."
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Topics: Operations Management