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Previously, the year-old had been president of the U. She had started her career at a major global accounting firm, leaving to earn an MBA from Wharton. Foster was known for her frank communication style and strong execution. There were two reasons for this. To address these concerns, Foster decided she needed to visit the Chinese operations. On May 25, , Foster stepped out of the limo that Chen had arranged to pick her up at the Shanghai Pudong airport. Heading in to her first in-person meeting with Chen, she knew there were big decisions to be made.
Indeed, they would determine the future of Levendary China. Bartlett and writer Arar Han prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management.
This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are some references to actual companies in the narration. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business Publishing.
While some concepts had bridged these categories for years e. Like other quick casual restaurants, Levendary promised more wholesome choices than its quick service cousins and a more informal self-serve dining experience than its casual dining relatives. High turnover in the industry required restaurant companies to continually source and train new employees and to manage employee attrition.
This expense was influenced by not only the cost of the ingredients purchased, but also the amount of waste. February Its corporate chefs were highly trained artisans from the Culinary Institute of America and other top cooking schools who took pride in creating everyday versions of gourmet fare. The most recent risky change occurred five years before Foster became CEO, when the company decided to use only organic grains in its breads and hormone-free naturally raised meats in its sandwiches.
Leclerc managed both the food development group and the marketing team that together determined what Levendary represented to the customer. Its creative team worked with outside advertising agencies to convey the TFG concept through advertising copy and images. The logo, store decor, and media images used a palette of earth tones to communicate natural, wholesome goodness.
The distribution team ensured that banners, table tents, window decals, and menu boards were properly placed in all 3, company and franchised stores, appropriately modified for differences in store size and layout. Preparing menus and menu boards was complicated by variations in menu items to respond to local market preferences and by pricing differences to meet local competition.
But the comfortable, welcoming, and homey "look and feel" of stores always remained consistent. The food team was also responsible for conducting quality checks in the field. It also relayed any recommendations for modifications to the menu or variations in the store "look and feel" to the Concept group for consideration and approval.
In general, OTL functioned as both an internal school and a standards enforcer. Headquarters staff totaled approximately in all. There was no separate international division. The Strategic Base: Serving the U. Market Levendary was built on a culture that emphasized "delighting the customer.
Make them want to come back. The two key store operating metrics of speed of service and order accuracy were driven by standardization, and personalization threatened both. See Exhibit 2. With stores in urban, suburban, and rural environments across all 50 states, Levendary believed there was no such thing as "the American consumer.
It offered fewer soup items and more drink options in the South, allowed one or two regional specialties to be added to its core menu, and listed its menu items in order of local popularity. While appreciated by customers, the menu variations represented a challenge for the Food, Operations, and Marketing teams.
Each new release was accompanied by a marketing program and new menu boards. Systemwide sales were driven by a small number of core items. Its geographic expansion strategy jokingly referred to within the company as "follow the mommies," later adapted to "follow the yuppies" had plateaued. Recognizing that its concept did not translate well into small towns, particularly in the Midwest and South, the board of directors began discussions about overseas expansion.
Opportunities in China With a population of 1. Two additional trends attracted U. An affluent middle class, a large increase of women in the workforce, and a growing lifestyle trend to eat out all supported growth in the Chinese food services industry, which increased from RMB 1.
Independent full-service restaurants still dominated the industry there were 2,, nationally , but the highly competitive quick service sector was growing the fastest, from RMB billion in to RMB billion in While foreign fast food companies attracted the most attention, restaurants serving Asian food, primarily Chinese, took the biggest share of the quick service segment.
However, due to low margins, wide variation in regional food tastes, and most of all, the difficulty independents had experienced in standardizing operations, there were few successful local chains. The most successful foreign fast food chain was KFC, which had more than 3, restaurants in Chinese cities. In KFC opened on average one new store every day. Through its Chinese joint venture partners and local management, it had learned to adapt.
It added a few items such as congee rice porridge and even altered the famous seasoning on its core fried chicken offering. Its restaurants retained a consistent worldwide look and feel, and a menu featuring its Big Mac, McNuggets, and french fries. While its core menu was the same, localized specials such as the China Mac with black pepper sauce, pork burgers, and red bean ice cream had been added.
Its outlets were positioned as high-end casual dining restaurants, and its menu extended well beyond pizza to include scallop croquettes and escargot.
Wine was served, reservations were accepted, and a minute wait for a table was not uncommon. Young affluent Chinese went to Pizza Hut to impress their dates. Despite these successes, many other American restaurants had struggled in China. So too did California Pizza Kitchen, forcing the founders to personally intervene to relaunch the effort. More recently, Chinese chains had begun to learn from foreign competition and began to focus on standardization and tight control of raw materials, food preparation, and in-store service.
Other successful Asian chains in China included U. The decision was hastened by the appearance of Louis Chen as a viable candidate to lead the effort.
Chen gradually earned the confidence of CEO Leventhal and other key stakeholders. In time, Leventhal dropped his original idea of a joint venture with an established Chinese operator, and entrusted Levendary China to Chen, whose energy and entrepreneurial spirit reminded him of an earlier version of himself.
Over six weeks, his mandate was to pick up as much as he could and replicate it in China. The Denver team invited him to tap into their resources and expertise, interpreting and adapting them for use in the local Chinese stores. Before his departure for China, the board asked Chen about his plans. I believe we have a good chance of building a credible foundation of stores and breaking even within a year. We just have to be flexible. For example, Chinese eat few dairy products, so we should downplay our cheese soup.
But a new generation now gives milk to its children, so tastes are evolving. In spite of the monumental work ahead, the board was convinced that Chen was the right choice. Chen also had a network of contacts to help speed up the process of permitting, incorporating, and staffing stores. Finally, he was passionate about good food, and had long wanted to work in the restaurant industry. Chen opened his first location in the expatriate-heavy Pudong region of Shanghai in January , just three months after returning to China in his new role.
Occupying the corner ground floor location of a new high-rise office building, the first restaurant was both prominent and luxurious. It was an instant hit among white-collar employees of the global financial firms housed above it.
His local knowledge and connections helped him lock in prime locations at good prices, and within a year, his initial location had grown into a chain of 23 restaurants. However, she had not had the opportunity to meet Chen or to closely examine the China business.
When she became CEO in February , the new CEO was surprised to find that the Chinese subsidiary submitted all management and financial reports to Denver in its own format. Foster felt strongly that this would not be a sustainable practice as the China operations grew into a larger portion of total revenue. Both steps were expensive but seemed necessary for a publicly traded company that intended to stake its future on growth in the China market.
During a video conference that Foster set up to meet Chen in her first week at Levendary, she shared these thoughts with him. He bristled at her suggestions, claiming that both changes would not only incur unnecessary costs but would also greatly inconvenience his local operations. We have to protect the integrity of our reporting structure. The next day, Foster added the China operations as an agenda item in the weekly executive meeting she held with her direct reports in Denver.
The EVP of Administration agreed that using non-GAAP numbers from China in the financial reports was a risk, and that formalizing the reporting process was a necessary change. But the reality is that no senior executive has visited China since Howard officiated at the opening ceremony for the Pudong store a year ago. Howard gave Louis a lot of freedom to establish the Chinese operations, and frankly, it shows.
Louis is a great asset but I confess managing him has been a frustrating exercise. By the end of the meeting, the executive team had agreed it was time to obtain more information about the China operations.
Steele spent 10 days in China, and at a weekly executive meeting in late March, presented his findings. He provided detailed descriptions of the 23 China locations, all in or around Beijing and Shanghai. By the opening of the 23 location in a Korean expatriate-heavy suburb of Shanghai, all but one sandwich item had been removed from the menu, and replaced by a variety of local dumplings. This is a pure disaster," he exploded.
Our customers travel a lot, and in one visit to just one of those places, our carefully nurtured concept and image will be ruined. Mia, you need to stop Louis now. She turned to examine a chart comparing several Levendary locations in the United States and China Exhibit 3. Inwardly, she knew that resolving this issue would be a big test for her.
Levendary Cafe: The China Challenge Case Study Analysis & Solution
Levendary Cafe: The China Challenge Harvard Case Solution & Analysis
Levendary Cafe: The China Challenge