Nileshkumar Rughani (I-WAC)

MBA-5405 Global Business Environment

14th July, 2018

Levendary Café: Global Expansion Strategy

Levendary Café is a well known, publicly traded brand in the US and currently expanding into
China. Previous CEO, Howard Leventhal, was the founder of popular chain of 3500 cafes, who
grown business from small soup-salad, sandwich restaurant to a $10 billion business. New CEO
Mia Foster (MBA from Wharton) experienced in global counting firm, worked as a consultant at
McKinsey took over new responsibilities to develop a multi-national brand, but Wall Street was
curious and suspicious about that because of lack of International business experience with Mia
and domestic slow down of business.
Multi-Unit Restaurant Business represents 30% of the foodservice industry which is a $600
billion industry with 960,000 locations. They are categorized into three industry segments:
Specialty Establishments, Quick Service Restaurants and Casual Dining. Levendary Café is a
hybrid of the last two “quick casual” which has an average check in the $8 to $12 range. They
are distinguished by two elements: wholesome foods using high quality ingredients and a
commitment to service in a comfortable, friendly atmosphere. They were also distinguished by
their willingness to take risk by the original founder.
Levendary Café recently entered into the fast growing China market and instead of keeping the
US concepts intact they changed the store design and menu selections in 23 new stores located in
different cities in China. When the new CEO (Mia Foster) came on board she started to look into
the China operations. At this point the China operations have already been set in place and have
been running successfully now for almost 2 years.
Mia Foster noticed some changes happened with Chinese expansion market, Louis Chen (VP of
China) an intelligent/experienced/bilingual businessman responsible for all changes like; he
transformed traditional wooden furniture structure of US Levendary café to local Chinese plastic
furniture; He changed core menu items from basic US taste to local Chinese taste and cuisine.
Moreover, she surprised by financial auditing report were totally different than standardized
American audit reports. In the United States, Levendary Café is a quick-casual restaurant
serving soups, salads, and sandwiches. The café distinguishes itself with high quality ingredients
and a commitment to service. Upon entering into the Chinese market, Levendary Café has lost
this brand focus. Although the first store conformed to Levendary’s design standard and menu
selection, other locations held alarming changes. This poses a major problem for successful entry
into the Chinese market because Levendary Café’s concept and image could be ruined.
Mia Foster and executive team surprised by technicalities of Chen style, but his role awarded by
Howard Leventhal for make a decision to Chinese market and use ability to do so whatever. US
team feels this as a personalized freedom from owner but I think it was risky and smart decision
made by Leventhal for making changes in expansive market strategy.

Analysis of success in Restaurant franchisee industry:

In order to be successful in the restaurant franchising business, a company must follow a few key
guidelines. First, it is crucial to have a full understanding of the market that a company would
like to enter. The company must understand the ‘consumer behavior’ of the local people as well
as the locations/cultural/religious practices. There are typically two modes of entering a foreign
market. Some companies are successful by changing their entire menu while keeping the same
outlook and environment. Other companies are successful by maintaining a universal and
standardized approach. When Chen brought Levendary Café into the Chinese market, he did not
follow either of these paths.
Once a particular mode of entry is determined, it is important that the corporate/executive office
maintains a healthy relationship with the foreign/franchisee office. Both office locations must
work together to share information and resources in order for the strategic plan to be carried out
efficiently and effectively on standardized manner.
Finally, it is crucial to protect the integrity of a companies reporting structure. Once a company
enters a foreign market, it is necessary to formalize/standardized the reporting/auditing process.
An international financial analyst should be hired to manage the company’s finances abroad.

Exhibit-1 shows that Chen’s plan isn’t successful as compare to US market; NYC Metro area
and Beijing Metro area have similar infrastructure and capacity even though Beijing restaurant
wasn’t closer to generate better sale in compare to NYC sale.
Exhibit-2 shows that, due to fast franchisee expansion strategy and more pre-opening expenses
net operating income is in a negative value.

Exhibit-1: Sales Comparison US-China Locations

Metro US/NYC Sub-Urban Metro Metro Sub-

US/Denver China/Beijing Urban/Shanghai
Annual 2010 $10,320,000 $21,26,000 $806,000 $288,000
Sale (USD)

Sq. Foot Area 2500 1500 4000 500

Seats 84 120 80 0 (counters only)

Avg. 3210 260 560 430

Traffic/Day

Exhibit-2: Levendary China Income Statement (2010)

Sales (USD) $ 3,261,598

Cost & Expenses
-Food & Paper 1,663,415
-Labor 382,720
-Occupancy 782,784

Total 2,828,919

Pre-Opening Expenses 3,91,392

Marketing 65,232
G&A 163,080
Depreciation 6,523

Total Cost & Expenses 3,455,145

Operating profit -193,547

Interest expense 0
Other expenses 5,925
Income before Tax -199,472
Income Tax -55,852

Net Income -143,620