This document discusses Levendary Cafe's consideration of expanding into China. It provides background on Levendary Cafe, an overview of the multi-unit restaurant industry in the US and China. It analyzes China's market growth and industry trends. It also discusses Levendary Cafe's critical success factors in the US, Porter's Five Forces analysis of China's industry, segmentation and targeting options, and the dilemma the CEO faces in deciding how to structure the company's expansion into China.

1. : The China Challenge
Presentation By:
Divyani Jain (PFM16021)
Ritu Kumari(PFM16043)

2. BACKGROUND
• Howard Leventhal was the founder and
previous CEO of Levendary café.
• Multi-unit chain restaurant with chain of
3500 cafes in which 1200 were company
owned and the rest were franchised.
• It was a soup, salad and sandwich
restaurant whose revenue grew upto $10
billion in 2010.

3. Multi Unit Restaurant Business
• In 2010, the U.S. restaurant and foodservice
industry was a $600bn industry with 960,000
locations.
• Multi-unit concepts were generally categorized
into three industry segments :
 Speciality establishments
 Quick service restaurants
 Casual dining

4. Critical success factors in the U.S.
Brand
In the beginning of the café, the founder emphasized
the culture of “delighting the customer”. The
company was also committed to evolving menu choice
to keep the brand fresh in the eyes of the customers“.
Quality service:
The company gave up the standardization service
model, i.e., speed of service and order accuracy, and
rather emphasized ‘personalization in service’. This
approach brought Levendary Café many customers
that mostly consisted of ‘white collar professionals’ and
‘upper middle class women’.

5. Local menu adaptions:
Levendary had a flexible menu in different 80
states it 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:
The concept team in the company would roll out
a suite of new products, five times in a year and
always used healthy ingredients like
pomegranates or quinoa. Moreover, these new
products would have minor variants to adapt to
different flavours in different areas.

6. Need for Expansion
• By 2008, the company’s domestic
growth began to slow, because it
lacks strong demand in small
towns in the Midwest and South.

7. China’s Overview
• Population of 1.4 Billion
• GDP Growth Rate – 14.5 %
2000 2009
From 36.2%
Increase in Urban
Population
Jumps up by 28.8%

8. Increase in Per Capita Income
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
2000 2009
Leap of mighty 170%
Represents a nearly 3
fold increase
•Increased standard of
living of ‘middle class’
•Increased number of
working women

9. Industry trends
0
0.5
1
1.5
2
2.5
Within 5 years the industry grew by 76.72%
2000 2009
Implies :
• More and more people
are ready to eat out.
• KFC and Pizza hut have
been a great success
already

10. Growth in Quick Service Section
2000
2009
0
100
200
300
400
500

11. Scoping out the Industry
Poter’s Five Force Analysis

12. Rivalry (High)
The multi-unit restaurant industry is
dominated by independent full-
service restaurants, existing
American chains, and Asian chains
Power of Suppliers (Low)
Raw ingredients suppliers are
fragmented and usually differentiate
themselves by cost rather than quality.
Generally homogeneous pricing since
ingredients are commodities.
Lowering prices by buying in bulk
Power of Buyers (High)
Chinese consumers often seek the
lowest-priced option.
Buying power of a buyer is high
because of the low switching cost
and there are various other brands
available to choose from.
Threat of Substitutes (Medium)
Many Chinese households still cook
homemade meals with their families.
Young adults often buy from mall
food courts and night market stalls
instead
Threat of New Entrants (Medium)
Low start up costs
Low margins may weed out those
who are inexperienced

13. Decision Tree

14. Strata 1: Cosmopolitan, Affluent,
Experimental, Mobile
Strata 2 : Neo Rich , Neo Urban, Youth,
Enthusiastic of US Branding
Strata 3: Middle Income, Family Oriented
Strata 4 : Low income, Traditional
Strata 5: Subsistence, Daily wage earners
Segmentation and Targeting

15. Mia’s Dilemma

16. Rationale
• Giving Levendary China its own line of command grants Chen
the freedom to manage China’s operations while staying under
the watchful eye of the CEO, who will make sure that Chen is
striking the right balance between staying true to Levendary
Café’s brand and catering to local Chinese tastes.
• China’s operation has no strategy in place. One strategic
vision is critical which should be followed by both Chen and
US Counterparts.
• Should Chen defy the imperative to align Levendary China
under a consistent brand image, he should be swiftly replaced
by another manager who not only has network contacts but
also understands the importance behind presenting a uniform
front to the Chinese market.

17. The Answer lies in Restructuring

18. Thank you for visiting
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