In a country where eight different and distinct cuisines are part of tradition, restaurant group Beijing Xi Bei is the new kid on the block. Chairman and founder Jia Guolong is trying to establish the cuisine of northwestern China as yet another alternative. With 48 directly-managed restaurants already under his belt, Jia has major expansion plans on his menu.
Today, the Xi Bei group has a turnover of US$200 million. Jia, in his mid-40s, expects Xi Bei to grow at 30% annually over the next three years, reaching 100 outlets by 2015. On the drawing board for 2015 is also an initial public offer. “We hope Xi Bei can become a brand like Pizza Hut one day,” says Jia in an interview with China Knowledge at Wharton.
Below is an edited transcript of the interview.
China Knowledge at Wharton: How did you start the Xi Bei restaurant chain?
Jia Guolong: I majored in aquatic products [a discipline offered by several Chinese universities] and opened a seafood restaurant in my hometown in Lin He district in Inner Mongolia [the autonomous region in North China]. It made some money, but I felt it did not have too much potential for growth. So I went to Shenzhen to manage a seafood restaurant. But despite my best efforts, that failed. In 1999, we started a seafood restaurant in Beijing which also did not do well. So we switched to our hometown-style food, mainly varieties of You Mian [thin oat noodles] and mutton. We have a lot of experience in cooking these dishes. We have several different ways of preparing mutton — baking, boiling, stewing, braising…
The Beijing restaurant was named Xi Bei You Mian Village, and it did very well. We added other northwestern dishes and opened a second outlet in 2001. The customers liked the food and we expanded both the menu and the chain. In 2011, we renamed our restaurants Xi Bei North West Food.
China Knowledge at Wharton: China has eight traditional cuisines — Shandong, Sichuan, Guangdong, Jiangsu, Fujian, Zhejiang, Hunan and Anhui. Northwestern cuisine is relatively unknown. What’s special about it?
Jia: Northwestern food is unique because of the ingredients. Northwest China refers to Shanxi, Gansu, Ningxia, Xinjiang, Qinghai and West Inner Mongolia. The natural habitat stretches from the Gobi desert to mountains and grasslands. The vast grasslands support large herds, and you get red meat [beef and mutton] of the best quality here. We eat mutton almost every day. We cook mutton in ways that are not seen elsewhere in China.
The other major ingredients are wheaten food and mixed grain rice. We have the best wheaten foods in China — from Nang [a kind of crusty pancake] in Xinjiang province, Qing Ke Bing [highland barley bread] in Qinghai province, Roujiamo [a meat sandwich or burger] and Yangrou Paomo [bread and mutton soup] in Shanxi province, La Mian [stretched noodles] in Lanzhou, and You Mian [thin oat noodles] in Inner Mongolia. These two [red meat and wheaten foods] are the distinctive features of northwestern cuisine.
China Knowledge at Wharton: The food you mention are all traditional northwestern snacks and priced at only 20 yuan (US$3.2) for one dish on the streets of northwestern China. How big is the commercial potential?
Jia: What is a snack? Ordinary people eat them every day. What is any catering business for? To create a good meal. The trend today is that people cook less at home and dine out more often. The question is: how do we transform these small dishes into a good dinner.
Xi Bei’s cuisine is not just snacks. We select, aggregate and create all kinds of northwestern dishes. We position ourselves as a “leisure restaurant”. The price per customer is around US$10. To my mind, the market potential for these snacks is far greater than for the “big” dishes.
Pizza Hut is our benchmark. The pizza was originally a snack in Italy. Now, Pizza Hut is a global chain. A McDonald’s hamburger is the same as Roujiamo. Hamburgers are accepted around the world. If the product is standardized and scalable, and of high quality, small dishes have great potential.
China Knowledge at Wharton: Northwestern cuisine is relatively unknown in China. Will consumers accept it?
Jia: This is where the opportunity lies. Growth comes from the border zone — the crossover area. The eight big cuisines in China are well established. This leaves newcomers very little room for growth.
Northwestern cuisine is relatively new. Consumers don’t have any preconceived notions. This is an opportunity. You can design the offerings for advanced production techniques. You can choose what benefits the consumers most. You start from zero and expand. Over time, this category will be established.
China Knowledge at Wharton: Although China is famous for its food, there are very few large companies in this sector. People say the most difficult thing for a Chinese restaurant chain is standardization. How do you see it?
Jia: I think the golden age of the Chinese food industry has not yet come. From now on, when the market gets more mature and the consumption level keeps growing, Chinese restaurants will stand out.
In Chinese cooking, it is very difficult to standardize fried dishes. Our solution is to eliminate frying as much as possible. Our new menu lists 120 items; only eight are fried. Our next menu will probably have no fried dishes. At Xi Bei, we bake, boil, steam, braise, stew, stir and mix, and burn. This is much easier to standardize. Unlike China’s traditional eight cuisines, which need a lot of frying, northwestern cuisine can be established without fried dishes.
China Knowledge at Wharton: How will you improve your menu?
Jia: We change the menu once a year. Earlier, our mission was standardization. Now we feel we have to promote the northwestern cuisine too.
We will modernize traditional northwestern dishes. Just as the pizza was rebranded, packaged and promoted by Pizza Hut, we will establish new imagery for items such as Yangrou Paomo, Roujiamo and Big Plate Chicken. They have a long history. But northwestern cuisine should not be seen as underdeveloped and peasant-style preparations. We will make our dishes modern, fashionable and cool.
One way is to use modern equipment, which also helps standardization. The traditional Xinjiang way of making roast mutton is to bake it in a pit. Xi Bei now uses an intelligent oven made in Germany.
Also, if you have toomany items on your menu, logistics becomes more complex. The new Xi Bei menu offers only 120, 90, and 60 dishes depending on the size of the restaurant.
China Knowledge at Wharton : What do you think is the core competitiveness of a restaurant chain business?
Jia: What matters at the end of the day is the overall operating system — from supply chain management and brand positioning to talent building and clear strategy. You have to focus all your resources in one direction. Core competency develops in the long term. You grow faster than competitors. They know why you grow so fast. But they can’t duplicate your success. That is what makes a business successful.
Look at McDonald’s. You can download the details of their operations from the Internet. You can hire their people. But can you build another McDonald’s?
China Knowledge at Wharton: How do you build competitiveness in your supply chain management?
Jia: This is something we have learnt over many years and is not easy to copy. We have made many mistakes and taken many detours. We have learnt. The lessons include the season in which we should purchase red meat from grasslands, how to forecast procurement, how to store, and the transportation logistics. There are a lot of commercial and technical issues as well. First, you have to finish all procurement and packing in the fall season. Your forecast has to be accurate, as this is the purchase for the whole year. Third, you need to have a large amount of capital at that time.
China Knowledge at Wharton: What is distinctive about Xi Bei’s supply chain?
Jia: Natural and healthy raw materials. Red meat and rice and grains come directly from the grasslands of northwestern China. I manage the raw material procurement myself. In the past, we also purchased some raw materials from the market. Now there is strict control on raw materials procurement.
Every Xi Bei restaurant needs 160 ingredients. Beef and mutton account for 50% of our spending and rice and grains 20-30%. So 70% of the raw materials are purchased from northwestern China. The other 30% is for locally-purchased fresh vegetables and seasoning.
China Knowledge at Wharton : Food security is a very emotive issue in China now. How do you address this concern?
Jia: Food security is the cornerstone for the catering industry. If you have a problem here, your business can collapse overnight no matter how big you are. From this year, we have hired a B2B service provider on food security solutions — Ecolab Inc of the U.S. — to work with us. They will provide a package solution and day-to-day consultancy. We are confident that we can improve our food security level to a benchmark for the Chinese food and restaurant industry.
China Knowledge at Wharton: You have hired Trout & Partners [a leader in strategic positioning]. What will they do?
Jia: I attended a Trout seminar and found their positioning theory very relevant to our company. Traditional businesses have to find an idea which can be embedded into the customer’s heart and strengthened. The theory is easy to understand, but difficult to implement. It requires farsighted vision, clear direction and focus. You then have to work hard to reach the goal. In the recent years, we have rebranded our company from Xi Bei You Mian Village to Xi Bei North West Food, streamlined our business lines to focus on northwestern food, optimized our menus, and simplified our service models.
China Knowledge at Wharton: You expanded fast in 2011. What is the biggest challenge in rapid expansion?
Jia: Before 2010, we had 24 outlets across the nation (including other brands). We opened 16 Xi Bei restaurants in 2011, six of them in Shanghai. All our stores are directly managed by us. Products can be standardized, but people cannot. In traditional industries like catering services, the major challenge is to ensure the company culture is not diluted, and the staff share the same vision. Everyone should be able to see where his future lies and benefit from the growth of the company. This is the key to our growth.
I try to operate the business in a way that both the boss and the employees win. People care about fairness. So our mechanism on promotions has to be fair. We have to manage our business well and make it respected. We have to be able to make a profit, and reinvest. To achieve this, the most fundamental thing is that you have to have a clear strategy, a competitive business model, and an advanced corporate culture.
China Knowledge at Wharton: You have been a serial entrepreneur before Xi Bei. What have you learned?
Jia: In entrepreneurship, you naturally meet all kinds of frustrations and failures. This makes you wonder what you have done wrong, or what you are good at. You can then correct yourself and do things better the next time. In Shenzhen, when local people heard that the boss of the restaurant comes from Inner Mongolia, they would smell mutton even in my seafood dishes. I did not realize that knowing my background would impact my customers’ perception. It is only when you reflect on such things that you can correct yourself.
China Knowledge at Wharton: What’s your target? Does Xi Bei plan an IPO [initial public offer]?
Jia: Based on our three-year growth plan, we will achieve more than 30% CAGR [compound annual growth rate] in the next three years. We had revenues of US$150 million last year. We will have more than US$200 million this year. The target is US$477 million in 2015 and US$1.6 billion in 2020.
We plan an IPO in 2015, and expect that Xi Bei will have around 100 directly-managed restaurants by that time. The majority will be small-to-middle sizerestaurants, with average annual revenue per outlet at US$2 million to US$3 million.
China Knowledge at Wharton: What is your vision for Xi Bei?
Jia: Our vision is to create the biggest brand in the Chinese leisure catering industry. We will have restaurants in major cities across China and around the world. The northwestern cuisine we have presented will become an influential cuisine both inside and outside China.