Din Tai Fung - The Art of dumpling PDF

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case study for Mba student. about dumpling business ma...

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DIN TAI FUNG: THE ART OF THE DUMPLING Professor H. Brian Hwarng and Dr. Xuchuan Yuan wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Copyright © 2016, National University of Singapore and Richard Ivey School of Business Foundation

Version: 2016-04-08

On February 24, 2014, Yang Jihua arrived at the head office of Din Tai Fung Restaurant Co., Ltd. (Din Tai Fung) to chair the daily videoconference. The head office was located in New Taipei City, Taiwan. Today’s meeting was special because he had invited David Tang, a friend and loyal Din Tai Fung customer, from overseas to join in. Tang always visited Din Tai Fung wherever he travelled. He liked to taste the xiaolongbao1 and other unique local specialties, as well as experiencing the indigenous service. Yang also took the opportunity to share his business philosophy and management experience with Tang. After the meeting, they discussed the business situation and the customer dining experience at Din Tai Fung’s overseas branches. Tang recounted his experiences from the previous year: We went to Din Tai Fung, took a queue number, and typically waited 20 minutes or longer for a table. After going in, we often saw plenty of empty seats, at times with nearly one-third of the tables unoccupied! Some of these tables, where the customers had long gone, were still not cleared or ready for the next customer. Neither was it consistent in service. . . . Some months ago, my friend Susan Chen dined at one of the Din Tai Fung branches in another country during a business trip. She uttered disappointedly that she would never dine at Din Tai Fung overseas branches anymore! The atmosphere turned serious. Yang frowned and repeatedly mumbled, “Indeed, management is challenging and operations are not easy.” He mentioned that he had been getting requests from overseas branches seeking support, hoping that the Taipei head office would help to recruit servers to work at their branches. In fact, Yang had just returned from the Philippines two days ago, and would be travelling to Dubai that night. It turned out that he was going there to personally evaluate two potential groups for business partnerships. Din Tai Fung received many partnership requests from around the globe to set up overseas branches in various countries. The fund management company under the French Moët Hennessy Louis Vuitton Group had also expressed interest in investing in Din Tai Fung, and hoped to invite Yang to France for a discussion in person. Faced with hundreds of letters of intent to set up overseas branches, his immediate reaction was, “This is very scary!”

1

Xiaolongbao (“小笼包” in Chinese) are steamed soup dumplings, usually served in bamboo steamer baskets.

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DIN TAI FUNG

Yang Bingyi, father of current chief executive officer Yang Jihua, founded the Din Tai Fung traditional cooking oil retail business in 1958. Back then, customers would bring their own bottles to buy cooking oil. Around 1972, the business was affected by a change in the public’s oil consumption behaviour and by the sale of canned vegetable oil. This led Din Tai Fung to change its trade gradually to selling steamed dumplings — xiaolongbao. The popularity of Din Tai Fung’s xiaolongbao gradually spread overseas in the early 1990s. The scale of operations did not expand until 1996, when Japan’s iconic department store Takashimaya persuaded Din Tai Fung to set up its first branch overseas. Din Tai Fung’s signature xiaolongbao was a steamed soup dumpling formed by five grams of dough wrapped exquisitely with 18 pleats around 16 grams of stuffing. The Din Tai Fung chain churned out more than 10 million xiaolongbao per month — all by hand — at more than 100 outlets across 13 countries and territories. At every Din Tai Fung restaurant, skilled chefs could be seen behind the glass panels of the show kitchen, busily hand-making the signature xiaolongbao, immersing customers in the cultural art of its legendary cuisine and enhancing their dining experience. The Din Tai Fung chain overseas expansion had progressed over the years (see Exhibit 1). In December 2013, the Silvercord branch in Hong Kong received one Michelin Star for the fifth consecutive year. Din Tai Fung had a workforce of over 1,600 employees2 working in its head office and nine branches in Taiwan. Its net operating income in 2013 was over NT$2.4 billion.3 The annual income growth rate for the previous five years ranged between 20 per cent and 40 per cent (see Exhibit 2). Din Tai Fung had gained recognition and won numerous awards and honours globally. The company achieved this through decades of perseverance and upholding of high quality standards, motivated by the company’s convictions: “The key to perfect service lies in attention to detail. Daily sales targets are not everything. Quality is the lifeblood of the business. Branding means responsibility.” Din Tai Fung’s brand and ability to attract customers made the restaurant a coveted tenant in many department stores that were willing to provide the most favourable terms to secure Din Tai Fung’s presence. The service culture of Din Tai Fung was to “let the fine food be savoured in one’s mouth, and the service warm one’s heart.” Long queues of customers at the storefront of Din Tai Fung were a common phenomenon. Despite Din Tai Fung never advertising, its popularity had flourished by word-of-mouth. “Din Tai Fung never advertises in Taiwan. There are no advertising expenses, and we do not participate in any discounts or promotional activities,” said Yang.

FOOD SUPPLY CHAIN

Every item served at Din Tai Fung followed a carefully designed and controlled production process. From the buying of raw ingredients, to the food preparation and cooking, up to the point where it was served to the customer, Din Tai Fung strongly believed that the quality of the ingredients played a decisive role in the quality of the food. Therefore, the purchasing department worked closely with the quality control and research development (QCRD) department to develop a strict procurement process and policy. Din Tai Fung purchased mainly from suppliers with long-term partnerships. For ingredients that were required in large quantities, Din Tai Fung would usually select two to three suppliers. Although price was one consideration, the key factors were the ingredient quality and the supply stability. However, some key ingredients, such as a specific type of wild shrimp, came from a single source of suppliers. All these suppliers were relatively stable, and had maintained a long-term, reliable partnership with Din Tai Fung. 2

This figure was current as of October 31, 2014. NT$ = New Taiwan Dollar. All currency amounts are in NT$ unless otherwise specified; US$1 = NT$29.86 as of December 31, 2013. 3

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To keep up with the development of new items, the purchasing department would constantly seek suppliers for new ingredients. To ensure product safety at the source, Din Tai Fung shortlisted and only bought from credible suppliers that were recommended by the relevant government agencies. When selecting a supplier, Din Tai Fung evaluated the qualifications of potential suppliers not only on their external certifications but also by conducting internal audits. The purchasing department and the QCRD department evaluated their manufacturing environment, food production process, recipes, ingredients used, and other related conditions. The suppliers would be assessed for their product quality and price, as well as their willingness to work with the company. In terms of ingredients selection, Din Tai Fung adhered strictly to its principle of “Quality first, price second.” As director of production technology Gilbert Lee stated, “Working with Din Tai Fung would raise the reputations of the suppliers. Din Tai Fung makes timely payments.” The purchasing department determined product order quantities based on the usage levels, keeping the order quantity relatively stable for every ingredient. For ingredients such as pineapples and chicken, Din Tai Fung worked with the suppliers to contract a fixed price for the whole year. Some ingredients (mainly leafy vegetables) used in the branches did not come from the company’s central kitchen. The purchasing department would recommend suppliers. The central kitchen also consolidated orders of some ingredients and purchased them collectively. At Din Tai Fung, the discard rates of different ingredients4 varied widely. Even though the company purchased from carefully selected suppliers, the discard rate for some ingredients could be as high as 30 per cent. This was due to Din Tai Fung’s stringent quality requirements. Excess ingredients were normally used to make healthy and nutritious staff meals — one of the employee benefits. To meet the increased capacity with the opening of the second branch in Taiwan, Din Tai Fung set up its central kitchen5 in 2000. The central kitchen had strict hygiene and sanitary control. The QCRD department regularly monitored airborne bacteria and performed random spot checks on the staff’s hygiene. At the central kitchen, over 110 chefs were organized in teams according to their grades of ability to make pot stickers, shaomai, and other dishes. Each team comprised six or seven members. Working around the table, members were each responsible for one task of the production process. The assignment of the team members had taken into consideration the members’ experience and production efficiency in order to cultivate learning as a team. The senior chef, who was more experienced, paced each team and was responsible for scooping the stuffing. At the pot stickers worktable, one chef would inspect every completed product to ensure its conformance to the weight and shape requirements. The central kitchen maintained appropriate stock levels of every ingredient, and made periodic deliveries to the various branches. At each restaurant, there were two kitchens: the front kitchen and the back kitchen. The front kitchen, also called the powder kitchen, was responsible for making xiaolongbao and other steamed dumplings. The back kitchen, also called the stir-fry kitchen, was responsible for noodles, soups, fried rice, fried vegetables, and other dishes. Each branch kitchen placed its orders with the central kitchen. For fastdepleting fresh ingredients, branch kitchens would base their orders on daily needs and place orders directly with the suppliers. To maintain consistency in the quality of the food served, Din Tai Fung developed cooking standard operating procedures (SOP) for every item on its menu. The SOP system in Din Tai Fung started in 1996. Once an SOP was standardized for one purpose, the whole cooking process was filmed for training and 4

They were discarded due to various issues (e.g., vegetables eaten by worms, rotten food from dampness, or overgrown produce). 5 As of December 31, 2013, there were 286 employees (including interns).

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record keeping. The QCRD department was in charge of developing the various different SOPs. Food preparation SOPs were not fixed; they would be updated whenever recipes or cooking methods were improved. In addition to food preparation, SOPs were developed for other operational processes including cleaning restrooms and ushering customers to their tables.

SERVICE: THE DIN TAI FUNG WAY

Din Tai Fung firmly believed that high-quality food should be delivered with matching high-quality service. Providing thoughtful and attentive service to enhance the customer’s dining experience was at the core of Din Tai Fung’s service philosophy. Consistently maintaining a friendly smile was characteristic of every Din Tai Fung server. At the nine branches in Taiwan, the servers were attentive to the customers at all times, providing warm and caring service. When a customer’s chopsticks dropped on the floor, more than one server would approach the customer with a pair of sanitized chopsticks, before the customer requested it. When a customer placed a cup on the table, the server would be waiting by the side to refill it with tea. When a server noticed that a customer was cold, the server would offer the customer a shawl to keep warm. During the meal, if a customer’s clothes were stained by oil, the server would proactively offer a “stain-removal pack.” To efficiently accommodate customers of different group sizes, Din Tai Fung used mainly two-seat or four-seat square tables that could be easily reconfigured for larger groups. “At Din Tai Fung, although there are many SOPs, there is no rigid formula when it comes to serving the customers. Mr. Yang emphasizes the importance of communications; he encourages us to interact with the customers,” stated He Yinong, a catering specialist at the Taipei Xinyi branch. One of the most cosmopolitan corners in Taipei City was probably at the location of Din Tai Fung’s Xinyi branch (the initial start-up store). At that branch, more than 50 per cent of the customers came from around the world. In order to provide foreign customers with personalized service in their native languages, Din Tai Fung had specially trained an international team. Every member was fluent in at least one foreign language — fluent enough to use that language to introduce the characteristics of food items, the best way to savour the food, and even help the customers resolve other problems they might have encountered on their trips. The spirit of service that Yang had passed on to every server was “to treat every customer as you would treat your family member, and genuinely show them your care and concern.” Receiving a thank-you note from a customer was the best encouragement for the servers. This was because, as they said, “In interactions with customers, when customers are happy, we too will be happy.” A distinguished American professor gratefully wrote a thank-you note to praise the servers at the Taipei 101 branch for sending their international team member to accompany his wife to an acupuncturist. In another incident recounted by Wu Yiting, an assistant catering team leader at the Taipei Xinyi branch, after the restaurant closed for the day, the staff helped an anxious, disappointed, and hungry French customer by feeding him and then helping him retrieve his mobile phone that had been lost in a taxi.6 Outside Din Tai Fung’s Xinyi branch in Taipei, a typical sight was queues of people from around the world waiting to dine. Based on group sizes and native languages, the front-line reception staff would assign customers into queue groups and give them a timed queue number slip and a menu order form. Meanwhile, the staff kept the customers informed of the expected waiting time, which was calculated to pleasantly surprise the customer when the actual waiting time was shorter (see Exhibits 3 and 4). During peak seasons such as festive periods or public holidays, it was not unusual for the waiting time to exceed two hours and the number of waiting customers to exceed 460 (see Exhibit 5). During their wait, customers could observe the xiaolongbao chefs through the show kitchen glass panels and admire how 6

This occurred in the Taipei Xinyi branch, October 21, 2013.

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xiaolongbao were created by the chefs with masterful skills, great precision, and focus. However, one of the major challenges faced by the branches was how to reduce the anxiety of customers. While waiting, the customers would usually decide what to order and fill out the menu order form. Once seated, the server would bring tea, confirm the order, check if the customers had any special dining requests, and then estimate their food’s arrival time (see Exhibit 6). For customers unfamiliar with the menu, the server would patiently explain the characteristics of each food item and help them order. Any special request would also be noted through the meal order terminal and processed accordingly. Although there would always be long queues outside the restaurants, the principle of ensuring a high-quality dining experience inside remained unchanged (see Exhibit 7). Close collaboration between servers and between departments was essential to Din Tai Fung’s highquality service. The servers would share stories about the dining habits and preferences of frequent customers. Attentive, non-intrusive service was the highest standard. The manager of the branch at Taipei 101, Carol Wu, who had worked at Din Tai Fung for 23 years, spoke with confidence on collaborations between the front of the house (FOH), the front kitchen, and the back kitchen: “When the speed of service is not catching up, or if there is a problem with the food, the chefs will make improvements immediately upon feedback. They are very cooperative. Customers’ feedback about the taste and quality of the food sometimes is conveyed to the chefs by the servers directly.” Although each branch had its own branch manager and team, the nine branches in Taiwan formed a highly interconnected system, with close collaboration and mutual support. When a branch encountered a staff shortage, the branch manager would request support from other branches. Din Tai Fung would not set specific revenue targets for each branch. High seating turnover rates were not the key performance goal of the branch managers. The estimated daily sales turnover served only as a quantifiable business volume reference to facilitate the preparation of ingredients and worker scheduling, not as an absolute indicator for assessing performance. An exceptionally high sales turnover per capita would instead draw Yang’s inquiry. All branch managers and directors of the front and back kitchens were promoted internally. Having worked their way up from the ground level, with 10 to 20 years of experience or more, they were seasoned and skilful veterans.

EMPLOYEE DEVELOPMENT AND WELFARE

Din Tai Fung had established a unique “buddy system” to train new employees. Every trainee (new employee) was assigned a “buddy-trainer” during the initial three-month probation. These buddy-trainers were experienced staff who had already completed the buddy-training program. The trainee would learn all the required FOH basic service skills and attitudes from the buddy-trainer. Buddy-trainers were responsible for their trainee’s learning progression and outcomes. It was an on-the-job training system. In 2012, Din Tai Fung took the unprecedented step of employing an experienced management consultant as an in-house instructor. Sara Shen had worked at the Taiwan China Productivity Center for 14 years. As the in-house trainer, Shen was responsible for setting up programs to upgrade service and management skills. S...