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Case study: Levendary Caf

Course: Global Enterprise and Competition


Introduction:
Howard Leventhal, the founder of the Levendary Caf, had grown a small Denver soup, salad
and sandwich restaurant into a $10 billion business in ! years" #n the $uic% casual restaurant
segment, Levendary Caf was distinguished by two elements& wholesome soups, salads and
sandwiches using high'$uality ingredients and a commitment to service in a comfortable,
friendly environment, as well as its willingness to ta%e ris%"
#n (ebruary !011, )ia (oster was named as its new C*+" #n spite of (oster,s strong trac%
record, analysts in -all .treet were till s%eptical of her ability to build a multi'national brand
due to her lac% of previous international management e/perience" )oreover, Levendary,s
domestic business had become matured and was nearly tapped out, and it only had international
business in Dubai, so that its recent entry into the fast'growing China mar%et was closely
watched" )ia (oster had to focus on the e/pansion in China mar%et"
Louis Chen was chosen by former C*+ to enter China mar%et first and had opened !
restaurants" 0ut Chen made many changes in menu and store decoration, which didn,t follow the
brand position" 1nd he used non'2113 numbers from China in financial reports, which bad
been a potential ris%" -hat,s the worse, Chen didn,t ma%e any future strategy to drive
Levendary,s e/pansion in China" .o, (oster had to face many issues" How to protect the
corporate brand4 How to formali5ing report process4 How to standardi5e the operations in
Chinese stores4 How to ma%e a right strategy to drive Levendary,s e/pansion in China mar%et4
However, when (oster tal%ed about these issues with Chen, he had negative attitude to ma%e a
change and communicate with (oster, which let (oster have a $uestion in her mind& whether
Louis Chen could transition to become a professional manager from a local baron4
Questions:
1. What is a ulti!unit "estaurant #u"$ %usiness& 'o( bi) is it& Is it a consolidated or
fra)mented industry& What are its economics&
1$ ulti!unit restaurant business:
)u6 is a %ind of business that consists of many units associated with a single brand and every
unit has its own independent operation" 7his concept were generally categori5ed into three
industry segments& one is specialty establishments that primarily served snac%s and beverages
under $89 one is $uic% service restaurant that provided counter or drive'through service with
average tic%ets between $: and $109 the last one is casual dining that means offering table
service for dinner entrees priced between $; and $!0" #n Levendary Caf, there were ,800 stores
and only 1,!00 cafs were company'owned, which means appro/imately two'third stores were
franchised stores"
*$ 'o( bi) is it&
)u6 business is very big" 1ccording to the data in the case, multi'unit restaurant represented
appro/imately 0< of the total ="." restaurant and contract foodservice industry that was a $>00
billion industry with ?>0,000 locations in !010"
+$ Is it a consolidated or fra)mented industry&
1s the restaurant and foodservice industry was highly fragmented, although )u6 @ust had a
single brand and its own head$uarter, it also had many franchised sub'stores with independent
operations" =nits had their own authorities to change the menu or style to adapt to local culture"
,$ What are its economics&
-orce .ssessment "atin)
6ivalry
)any companies offer the similar items and the competition
is usually fiercer" 7hey must catch any opportunity to fight for
their spot in the mar%et"
High
7hreat of new
entrants
7his industry is mature and it is ris%y to enter" Low
7hreat of substitute
products or service
7here are so many restaurants to choose from" High
0uyer power
1lthough buyers will directly affect the revenue, their
bargaining power can,t influence the price of the product or
service"
Low
.upplier power
7he $uality of raw material is crucial for restaurant" How to
find good material in low price is very important for them"
3owerful

*. Identify u" critical success factors in the /0 and then discuss potential institutional
voids in China.
1$ Critical success factors in the /.0.:
Brand: 1t the beginning of the caf, the founder emphasi5ed the culture A delighting the
customerB that impressed the customers deeply" 7he company was also committed to evolving
menu choice to %eep the brand fresh in the eyes of the customers"
Quality service: 7he company gave up the standardi5ation service model that means speed of
service and order accuracy, and emphasi5e personali5ation in service" 7his approach brought
Levendary Caf many A heavy userB customers that consist of white'collar professionals and
upper'middle'class women"
Local menu adaptions: Levendary had a fle/ible menu in different 80 states" #t allowed one or
two regional specialties to be added to its core menu and listed its menu items on order of local
popularity"
Food quality: 7he concept team in the company would roll out a suite of new products five
times in a year and always used healthy ingredients li%e pomegranates or $uinoa" )oreover,
these new products would have minor variants to adapt to different flavor in different areas"
*$ 1otential institutional voids in China:
Culture difference: 7he difference of culture between two countries is the biggest barrier in
this case" *ating habit is the first reason" 7here is a wide variation in regional food taste in China,
so that it,s very hard to satisfy every customer,s demand in flavor" (urthermore, western food is
not Chinese people,s favorite food" #t,s very hard to attract and maintain customers" 7here were
many challenges for ma%ing menu, food and mar%eting teams"
Lack of information: there were so many companies had entered into Chinese foodservice
industry, it,s very ris% for Levendary as new entrant" 7he company also needed to %now about
the policy and financial statement format for the new mar%et" (inding good suppliers in low costs
is also a challenge for the company"
Location: where to put the store is very important" Levendary needs to do mar%et research to
find the right location to open the store" 1ccording to the */hibit , the average traffic of the
store in 0ei@ing *mbassy is definitely lower than others" Location is also associated with
distributions" 1 good location can reduce the costs of distributions"
+. Why did Levendary decide to enter China ar2et& 'o( did its /0 foundation match
a)ainst China mar2et needs& #compare /0 3s China mar2et in terms of customers and
operations$
1$ Why decide to enter China ar2et:
Ripe for investment: China,s 2D3 grew 1:"8< over the past decade with a population of 1":
billion people" #ts Aurban population rose from >"!< of the total in !000 to :>">< in !00?, and
a strong middle class emerged whose per capita income surged from 6)0 >,!;! to 6)0
1C,1C8B" 7hat is to say, Chinese had more potential power to consume products and services"
)oreover, more and more women appeared in the wor%forces and a lifestyle trended to eat out is
growing fast" 1ll these drive the fast improvement of Chinese foodservice industry"
Internal reason: #n !00;, Levendary,s domestic growth was slowing" 1nd its concept
Adelighting the customerB didn,t translate well into small towns" #t had to implement its overseas
e/pansion"
Success of other brands: .ome companies had already succeeded in China, li%e D(C,
)cDonald,s and 3i55a Hut,s" 7hese brands can give Levendary some e/perience when entering
China mar%et"
*$ 'o( did its /0 foundation match a)ainst China mar2et needs&
Customer: #n the =".", Levendary,s foundation was based on the principle that Adelighting
customerB" 7hey tried their best to meet the customers, needs and serve them in a comfortable
and friendly environment" 7hey would add regional taste to their core menu to adapt to local
flavor" #n China, Louis Chen changed the core menu, too" #n the forth store at the north entrance
to 0ei@ing,s (orbidden City, no salad was on the menu" 1t the !rd location in a Dorean suburb
of .hanghai, sandwiches were replaced by a variety of local dumplings" 7hese changes meet the
needs of local consumers and regional mar%ets"
perations: #n the =".", every store had the same arrangement and decoration to provide a
standard, comfortable and friendly environment" *very store had tables and gave customers a A
premiumB image" However, in China, Louis Chen also changed the arrangement" He too% the
counter away with no seat in the store located in Eu 2arden of .hanghai" 1nd in the store
located in the entrance to 0ei@ing,s (orbidden City, he replaced Levendary,s classic wooden
framed upholstered chairs with a plastic framed alternative produced by a local supplier"
,. What are the 2ey issues facin) ia -oster and (hat (ould you recommend her to
address these issues&
1$ 4ey issues: 1ll the %ey issues stem from the lac% of standardi5ed operations in China"
1t first, the different format of financial statement provided the potential ris% for Levendary"
7hen, the optionally changed menu and arrangements of stores in China had damaged the
principle that Aserve customer in comfortable and friendly environmentB" How to maintain the
culture of its brand and the image A premiumB is a big issue for (oster" )oreover, how to
standardi5e the operations in China and confront with Louis Chen is also crucial affair"
*$ "ecommends:
(irst of all, (oster should standardi5e the accounting procedures" 1s Chen pointed out, hiring an
international financial analyst and managed by Levendary,s audit both would incur unnecessary
costs" (oster should consider alternative method, li%e training Chen,s accountants with 2113"
Levendary,s foundation wanted to ma%e sure that every customer was served in similar ways
while presenting a uniform image" 0ut the former C*+ gave Louis free authority for operations
in China and didn,t reinforce the need to align with ="." operations" 1s a result, Louis utili5ed
his freedom to ma%e critical decisions without conferring with ="." management or
head$uarters"
=nderstanding that Louis had made changed to adapt to the local mar%et, (oster should remind
Louis that the company wants every customer can e/perience the same brand culture" )oreover,
she should send manager to review the Chinese operations more fre$uently"
(oster should try to manage Louis rather than replace him" Louis had the ability to thin% locally
and spea% *nglish and Chinese" He also had the social connections in China and was willing and
eager to ma%e this wor%" #t is very hard to find a replacement" +f course, (oster can give Louis a
notice that if he cannot wor% together with her manage team, there will have some problem with
his contract renewal"
# also suggested that (oster should ma%e a long'term strategy as soon as possible to ensure
Levendary can revive in China mar%et" +f course, this strategy should discuss with Louise who
had more e/perience than (oster,s manage team"
Conclusion:
#n this case, (oster faced common issues that many global companies would face" Different
culture, different habits, different behavior and different policies lead to many problems in
overseas e/pansions" 1ll the issues are around about the standardi5ation that will be the future
for all companies" How to manage a Chinese manager who really doesn,t %now well about
standardi5ation is crucial method"
(rom this case, # %now about standardi5ation is very important for companies" +nly under the
standardi5ation can the company ensure the $uality of products and services, as well as maintain
an e/cellent management system" (urthermore, immediately communication is also very
important" #f Louis could communicate with head$uarters when he made decisions, if Levendary
could sent managers more fre$uently to review the operations in China, there wouldn,t be so
many issues"
Wor2 cited:
0artlett, C", Han, 1"" F!011G" Levendary Caf& 7he China Challenge" Harvard Business
Publishing, Feb 2013.
Dhanna 7", 3alepu 2" D", .inha H""F!008G .trategies 7hat (it *merging )ar%ets" Harvard
Business Publishing, June 2005.
2hemawa 3"" F!00:G" Distance .till )atters& 7he Hard 6eality of 2lobal */pansion" Harvard
Business Review, December 200.
2abrielsson, 3", 2abrielesson, )", .eppal, 7""F!01!G" )ar%eting .trategies for (oreign
*/pansion of Companies +riginating in .mall and +pen *conomies& 7he
Conse$uences of .trategic (it and 3erformance" J!urnal !" #n$erna$i!nal %ar&e$ing,
Jun 2012.