By S. Ramakrishna Velamuri and Xu Leiping
As a successful player in the China’s catering industry, the South Beauty Group, founded by Ms. Zhang Lan in 2000, had expanded by January 2011 to a total of 57 plush restaurants, all of which were profitable, in the most commercially valuable locations across Beijing, Shanghai, Chengdu and other 12 key cities.
The company opened 17 new restaurants in 2010. South Beauty planned to open restaurants in London, Singapore, Hong Kong and Taiwan in 2011 and had been seeking opportunities to acquire overseas restaurant brands. Occupying over 50,000 square meters in total, employing around 4,000 people, and registering more than 4 million footfalls a year, the South Beauty Group was regarded as an innovative and leading player in the Chinese restaurant market. It won the prestigious contract to become a Food Service Partner of Chinese cuisine for the 2008 Beijing Olympics.
In December 2008, barely 8 years after it had been founded, two private equity investors valued the South Beauty chain of restaurants at nearly $400 million.
After having lived in Canada for several years and travelled to many other countries, Zhang Lan believed that Chinese cuisine was misunderstood in the world. A lot of foreigners equated Chinese cuisine with Mapo Tofu and Sweet and Sour Pork, which were popular in Chinatowns. She wanted to change this perception. She also noted that in mainland China, there were few Chinese restaurants with elegant ambience.
Zhang Lan selected a prestigious office building for her first new restaurant, located in the proximity of her target customers ― white-collar office workers ― who were still an untapped, niche market in China at that time. Almost all of South Beauty restaurants that were opened subsequently remained close to its targeted customer base and were located in top-notch office buildings in key cities.
Although the operational costs were higher in comparison with those of other restaurants, meals could be more expensively priced to cover the costs. This combination of high-end location and high pricing was also helpful in developing the upper-middle class brand image.
Zhang Lan and her team insisted that people came to the restaurants not only for the food, but also for the ambience. South Beauty invested 8 million yuan (around $1 million) on furniture, interior decoration, and in setting up the kitchen of a new South Beauty restaurant.
For example, Zhang Lan selected Jack Tam, a Chinese American designer who had graduated from Harvard University to design her first restaurant. She believed that only Tam could understand the styling practices of Western restaurants and the Chinese catering culture. The targeted customers took to the restaurant almost instantly. In this way, the Group became unique in the Chinese restaurant market.
Zhang Lan also decided to provide Sichuan food in her new restaurant. She believed that among the eight main Chinese cuisines, Sichuan food best expressed the Chinese culture and substance. South Beauty restaurants introduced several innovations and improvements, with regard to traditional Sichuan food, not only in terms of new raw materials, but also in terms of the process of preparing and presenting the dishes and the customer experience. As of 2011, the Group was still making a range of innovations with regard to Sichuan cuisine.
An independent R&D team was placed in charge of creating new dishes and the Executive Chef was responsible for the food quality. Under a strict assessment system, only 2 percent of all new dishes could be launched. Although many competitors copied the Group’s dishes, Zhang Lan reminded her team to focus on continuous innovations to shake the followers off instead of worrying about being copied by them. In addition, to enrich its variety and cater to the tastes of different people, the company also added certain Cantonese cuisine and other flavors to its menu.
In addition, South Beauty was seeking to standardize its food and processes, a challenging task for Chinese food and a key success factor for a restaurant chain. The Group’s restaurants were located in several cities and had different chefs at each restaurant. Raw materials depended on the scattered local suppliers, and the quality of each dish relied on the experience of the chef.
The Group had built two central kitchens in Beijing and Shanghai respectively, with 2,000 square meters for each, to prepare the main dish packets with uncooked raw materials and send them to the various company restaurants for cooking. In the future, the central kitchen would be set up in each city of operation. The central kitchen handled dishes prepared from expensive materials and ones that could be easily standardized. However, the kitchens in individual restaurants would also prepare some dishes with fresh materials, such as vegetables, and other special requests.
Traditional culture, such as Chinese cuisine, could be rejuvenated when it was combined with modern thinking and innovative practices. In a changing globalized market, it will be a helpful insight for any local entrepreneur who wants to create the value of the traditions.
S. Ramakrishna Velamuri is a Professor of Entrepreneurship and XU Leiping is a research fellow at China Europe International Business School (CEIBS).