INTB HW 2 Levendary Cafe Case Study PDF

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Connolly 1 Michaela Connolly Professor Kalafatides INTB 200-901 May 1, 2015 Levendary Café: The China Challenge Case Study Question 1: Evaluation of Levendary Entrance into China Levendary Café has several key advantages that distinguish them from their competitors in the quick casual restaurant segment. They provide wholesome soups, salads, and sandwiches using high-quality ingredients, and have a commitment to providing exceptional customer service in a comfortable, friendly environment. Levendary Café is also distinguished by its willingness to take risks, such as offering organic foods and entering new markets like China. In its first year of operations in the Chinese market, Levendary Café’s Metro China/ Beijing Embassy locations had annualized sales in 2010 of just under a million dollars and Metro-suburb China/ Shanghai Koreatown had annualized sales of a little more than a quarter of a million dollars but overall suffered a net loss. Levendary Café entered the Chinese market and underwent rapid expansion, opening up 23 new locations in China within a year under the control of Louis Chen, Vice President of Chinese Operations. As Levendary Café underwent rapid expansion in China, the Chinese restaurants began to lose their standardizations in both menu and store appearance. Some of their Chinese locations offer little to none of the standard Levendary menu items, which is what differentiates Levendary in the quick casual restaurant segment. For example, Levendary Café provides nutritious soups, salads, and

Connolly 2 sandwiches, but their Chinese restaurants offer no salads or their famous cheese soup and have instead replaced them with dumplings and a Thai veggie soup. The café appearance has also suffered and is lacking in standardization. In several locations there is no seating just counter space and in other locations the typical classic wooden framed upholstered chairs in their cafés, which give a high quality feel have been replaced with cheap plastic chairs. The lack of standardization in both menu and café appearance is causing them to suffer in differentiation, because by conforming to serving foods commonly eaten in China, they are becoming no different than any other native Chinese restaurant that serves dumplings. Furthermore, the lack of uniformity in café appearance in addition to the menu variation is affecting their branding and what their customers have come to expect from Levendary Café in terms of food and comfort. Levendary Café is set apart from the competition in the quick causal restaurant segment because of the wholesome food they offer in comfortable surroundings which reinforces their American brand image and appeal. Although standardization is important to branding and image, some customization in menu is desirable to meet differences in regional tastes, such as the U.S. Northeast’s love of turkey and cheddar cheese. Customization also encourages customer service by tailoring the menu to the customers, and in China it can be successful if Levendary Café’s philosophy of wholesomeness is maintained. The expansion into China has been solely by company owned and operated cafés rather than expansion through franchising, which represent two-thirds of the U.S. cafés. The benefits of franchising is the knowledge of the market that the franchisee has while the company can control image through standardization by enforcing brand and operating standards in the franchised stores. The lack of franchising has been a problem as the

Connolly 3 Chinese operation is controlled entirely by one individual, Chen, with little or no accountability to the U.S. operations. Furthermore, Chen before joining Levendary had no restaurant experience rather his experience was in real estate. His real estate knowledge was a benefit to Levendary in terms of getting prime locations in China at reasonable prices. However, his lack of restaurant and franchising experience and lack of understanding of branding and image is detrimental to the success of the cafés in China. His inexperience is exacerbated that he is operating alone with great latitude without support from company headquarters or proper accountability to them. Finally, there is the issue of financial reporting that puts the company at risk. Chen is not adhering to GAAP and his financial results may not be accurate or comparable to U.S. operations. Non-compliance to GAAP may also present regulatory issues for the publicly traded company, possibly impacting share value. Question 2: Suggestions for Changes Mia needs to develop a strategy for China that is in line with the image of the company. This strategy should be developed with input from Chen as he has to buy into the plan. Without Chen’s support Mia will not be able to control him or hold him accountable. In keeping with the founder’s vision for China and Levendary’s success in the U.S. with franchising locations, expansion through franchising should be the goal in China. This will allow the company to control image and standard operations. The franchisees can provide input into menu customization but Lucien, the Chief Concept Officer, must approve any food customization to ensure it meets quality and wholesomeness.

Connolly 4 Chen has established 23 cafés in China and this is the base for the franchise outlets. Before franchising can begin, the cafes’ image needs to be solidified by standardization in keeping with the U.S. company image. Chen must work with the Chief Concept Officer to develop a standard menu for the Chinese cafés, yet allow for some customization for regional tastes. Furthermore, store appearance needs to be uniform and the 23 locations will need to be modified as soon as possible in keeping with the marketing concept of natural and wholesome. Levendary would be adopting Denny’s model of expansion into China of changing the store menu but keeping the store’s look and feel. This would work best as tastes are very different in China but the appeal for American brands is high and branding can be maintained by uniform store appearance. Although this approach would confuse the American traveler to China who would expect the U.S. menu, the American is not the target market rather it is the millions of middle-class Chinese. Furthermore, the U.S. menu would not appeal to the Chinese tastes. To facilitate this strategy Mia needs to make changes in the organizational structure of the company. Currently, Chen is supposed to report to the Chief Operating Officer, Nick White, however this has not been effective. Since China is a new franchise opportunity for the company I suggest that Chen should report to Peter Steele, Chief Franchise Officer. Peter would ensure that the cafés would be standard with a Chinese menu and a uniform appearance that would enhance the company’s branding in China. Also, he has years of franchise experience and together with Chen’s knowledge of China they can be an effective team.

Connolly 5 Question 3: Short Action Program For Continued Growth in China First, establish a standard menu with core menu items for the Chinese market. These core products should be offered at all Chinese locations however some approved customizations will be allowed to account for regional taste differences. The menu should focus on the success of the Metro China/Beijing Embassy stores, which offer a higher priced menu resulting in higher revenue per guest than the Metro-suburb China stores. Second, establish a uniform store appearance for all locations so that Chinese customers can come to expect a certain standard of comfort. Counter only stores do not fit this model or the company image. Third, establish a reasonable and feasible growth objective of how many new stores can be opened in the next year in China while maintaining standard operations and identify new locations. For the upcoming expansion focus should be on targeting those prime locations with significant middle class Chinese. Fourth, develop a franchise model that will work for the Chinese market, this will require tailoring the support to the Chinese franchisees in terms of training, marketing and messaging. Finally, implement standard reporting of Chinese operations to the U.S. Headquarters requiring GAAP financials as well as audits, budgets and strategic planning. Corporate management should be more hands on to ensure franchise standards of operations are being adhered to. By implementing this plan of action entrance into the Chinese market will result in success.

Connolly 6 Works Cited Bartlett, Christopher A., and Arar Han. "Levendary Café: The China Challenge." Harvard Business School. N.p., n.d. Web. 2 May 2015....