EXECUTIVE SUMMARY

Facing a number of barriers and difficulties in its operation overseas, Haidilao stumbles in U.S. expansion. The first outlet was launched in Arcadia, California in 2013. By now, Haidilao has only added one more outlet, and it is also located on the west coast. Besides the slow expansion rate, revenues coming from these two outlets are disappointing. Overpriced menu and excessive service are two factors that are driving customers away, which indicates Haidilao is having a hard time understanding the U.S market. Thus, partnering with a U.S consulting firm to conduct market research and advise product strategy would be helpful in understanding the culture gap.

In the following six months, working together with the consulting team, Haidilao will conduct a five-phase project including company analysis, market analysis, strategy setup, strategy plan implementation and project evaluation. This proposal calls for a budget of $23,000 and is expected to generate $67,000 in the first year and $90,000 afterward.

PROBLEM STATEMENT

In 2013, Haidilao opened its first U.S restaurant in Arcadia, California. Despite its success in China, the company failed to stand out in the U.S market. The restaurant was rated 3 out of 5 on Yelp comparing to 4.8 on Dianping (Chinese version of Yelp). Reviewers on Yelp are complaining about Haidilao’s overpriced menu and intrusive service. Besides, as the graph below demonstrated, among Haidilao’s outlets worldwide, U.S outlet has the lowest net income in 2018.[i]

Chart 1. Average net income in different countries’ outlets

 After the initial investigation, the market team discovered that Haidilao’s failure results from inadequate understanding of the U.S market which further leads to an inappropriate menu and inattentive employees.

1)     Inattentive Employees:

Customers cite difficulties in communicating with the waitstaff in English. Service like standing by the table and being on call is considered to be caring in China but is intrusive due to Americans caution for personal space and privacy. Persisting service problems is a sign that the company has not yet figured out how to train and motivate employees under the American system.[ii]

2)     Inappropriate Menu:

U.S customers are dissatisfied with the food, price and language used on Haidilao’s menu.  Certain ingredients that signal quality in China, such as the whole cloves and peppercorns dotting the spicy coup base, are unappetizing to American diners. Americans don’t eat certain animal organs, which means Haidilao will need to change its menu. The Chinese-only menu also discourages U.S customers while ordering. Besides, Haidilao prices its dining experience between $30 and $50 per person, which is costly to American customers since Chinese food in the U.S is still labeled as inexpensive and fast food. [iii]

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While Haidilao is struggling with getting a niche in the U.S, it’s competitor Little Sheep is popularizing the dish, expanding its footprint in over 35 U.S. cities.[iv]  As one of China’s best-known hot-pot brands, Little Sheep was facing the same challenges in self-transformation at its first attempt into the U.S in 2006. After years of struggling, the founder decided to sell it to Yum! Brands. As a veteran in expanding market overseas and knowing the U.S market well, Yum! Brands largely facilitated the standardization of operation, improved reputation and speeded up Little Sheep’s listing process.

The table below shows the difference between Haidilao and Little Sheep:

Haidilao

Little Sheep

Serving Style

Individual pot

Shared pot

Menu

On iPad, in Chinese

On paper, in Chinese and English

Price

Expensive ($30-$60)

Affordable ($11-$30)

Service

Excessive

On demand

Business Model

Owner-Operator

Franchise

Table 1. Difference in Haidilao and Little Sheep

In order to accommodate the U.S. market, Haidilao changed the traditional shared hot pot into individual hot pot. This movement is at the cost of losing authentic Chinese experience and the customers are not buying it.

Although the iPad order system provides pictures to demonstrate the food, there is no English on the menu. On contrast, Little Sheep uses paper-based menu with both Chinese, English and pictures, which generates better customer experience.

The average cost per person for Haidilao is $40 while it’s only $20 for Little Sheep. Additionally, each Tuesday, Little Sheep offers an all-you-can-eat meal for only $19.99.

Haidilao offers excessive service even though it is not required by customers.  However, Little Sheep only offers service when needed.

Little Sheep’s franchising business model allows it to expand market rapidly. It attracts many investors with access to a well-known brand, bulk purchasing power, group marketing support and practical advice from a knowledgeable management team. In contrast, Haidilao’s owner-operator business model impedes the market expansion due to the limitation in capital.

SOLUTION

As recognized by Zhang Yong, Haidilao’s CEO, the bottleneck right now is the company doesn’t have enough understanding of the culture difference between the U.S. and China.[v] Despite Haidilao’s effort to catering to U.S customers, only 1/10 customers are from U.S.[vi] Currently, Haidilao’s U.S marketing team are all Chinese experts who do not know the U.S market well, especially when it comes to Americans eating habit and diet preference. Thus, partnering with U.S consultants to advise entire global expansion strategy is more valuable and would set a path for future development.  When considering which consulting company to hire, Haidilao should look for a local firm that deal mainly with the service industry since they know the market and the consumers in that area better.

After deciding which consulting firm to work with, Haidilao should clearly outline expectations:

Healthy revenue in Year 1, steadily growing in Year 2 and Year 3.

Build Haidilao’s distinguished reputation in the U.S market.

Increase two more outlets in the US within three years.

Within the six months, Haidilao should work on five phases showed below together with the external consultants to achieve the three goals mentioned above.  At the end of each phase, Haidilao will expect the consulting team to reach certain stages listed below:

Company Analysis: The consulting team will have a detailed picture of Haidilao’s culture, operation system and finance status.

Market Analysis:  The consulting team should provide a market analysis summary including market segmentation, size and preference.

Strategy Setup: The consulting team should propose a strategy adjustment plan in terms of product and branding.

Strategy Implementation: Resolve the pricing and branding paradox and should observe a revenue increase.

Performance Evaluation: Evaluate the projects actual cost and benefit as well as Haidilao’s image in the U.S by then.

The Gantt Chart below shows the detailed timeline of this proposal:

Chart 2. Proposal timeline

BENEFIT-COST ANALYSIS

Hiring U.S consultants can help Haidilao have a better understanding of the U.S market. External consultants will also bring innovative strategy to tailor Haidilao’s product according to the potential market while maintaining Haidilao’s value and mission. This proposal has an estimated cost of $23,000 and is expected to generate $67,000 in the first year and $90,000 after the first year. The average costs of consultants at different levels are laid out below[vii]:

Title

Cost per hour

Analyst

$50

Consultant

$100

Senior consultant

$150

Table 2. Average cost of consultants

Table 3 shows the estimated hours and expenses.

Phase

Hours/staff

Analyst

Consultant

Senior consultant

Total cost

Company Analysis

20

3

2

0

$7,000

Market Analysis

20

2

2

0

$6,000

Strategy Setup

20

1

2

1

$8,000

Strategy Implementation

60

1

1

1

$18,000

Performance Evaluation

50

1

0

0

$2,500

Total

170

$23,000

Table 3. Consultants working hours and headcount estimation

Table 4 shows the estimated benefits.

Benefits

Value

Assumption and accuracy

Market Expansion

$70,000

Target Market: not only in California but also in other cities in the U.S.

Reputation

Not included in this estimate

Haidilao will have its own unique reputation

Employees training fee

$20,000

No need for training employees to conduct excessive service.

Table 4. Benefit of lowering current price

Table 5 shows the summary of estimated costs and benefits.

Estimated Cost

Estimated Benefits

Net Benefits (1st year)

Net Benefits (after 1st year)

$23,000

$90,000

$67,000

$90,000

Table 5. Benefit-cost summary

CONCLUSION

With the intelligence of external U.S consultants, Haidilao could harness that power to develop a new product and market strategy that effectively fit the company into the U.S, thus allowing Haidilao to maintain the lead in the hot-pot industry. The methodology of how to adapt to a culture that is very different from where Haidilao comes from would be applied to expansion in other countries as well.

The proposed plan to carry out the above suggestions would generate additional revenue of $67,000 in the first year and $90,000 in the following years. The proposed project is a promising investment for Haililao to build a reputation and expand the U.S market.

[i] Jie, L. (2018, Nov 12) Haidilao’s polarized revenue in Singapore and U.S. Retrieved from:  http://www.canyin168.com/Article/xw/76678.html

[ii] Christopher, M. (2014, Jan 22). Successful Chinese Hot Pot Chain Stumbles In U.S. Expansion. Retrieved from: https://www.forbes.com/sites/christophermarquis/2014/01/22/successful-chinese-hot-pot-chain-stumbles-in-us-expansion/#2a850a6c6e66

[iii] Michael, C. (2018, Nov 20). In the Interest of Food. Retrieved from: http://michaelczinkota.com/2018/11/in-the-interest-of-food/

[iv] Anonymous (2012, Dec 21). Little Sheep: The Fastest Growing Restaurant in the US. Retrieved from: http://www.chineseofchicago.com/Content.aspx?nid=8639

[v] Bloomberg News. (2017, Apr 26). This Restaurant Chain Wants to Bring Chinese Hotpot to the World. Retrieved from: https://www.bloomberg.com/news/articles/2017-04-26/spicy-soup-from-china-tempts-foreign-palates-as-chain-expands

[vi] Pamela, A. (2018, Oct 3). Hot Pot Hospitality: Haidilao Chain Creates The World’s Richest Restaurant Magnate. Retrieved from: https://www.forbes.com/sites/pamelaambler/2018/10/03/hot-pot-hospitality/

[vii] Daniel, H. (2015, Dec 15) How Much Should I Pay a Marketing Consultant? Retrieved from:

https://milesherndon.com/blog/how-much-should-i-pay-a-marketing-consultant