China's Spicy Hotpot Billionaire Is Ready to Take on the World

By Publications Checkout
China's Spicy Hotpot Billionaire Is Ready to Take on the World

Zhang Yong, the co-founder and chairman of Haidilao, one of China’s most successful hotpot chains, remembers his first time eating out. As a 19-year-old welder in Jianyang, Sichuan, it was exhilarating to escape the proletarian company cafeteria and dine in an actual restaurant, a rare experience for him at the time.

But the staff was rude and the hotpot didn’t inspire. Then came a twist of fate that would change China’s culinary history: Zhang bolted from his job at a state-owned tractor factory in a dispute over a company apartment for him and his fiancée. In 1994, he opened his first restaurant with just four tables.

Today, Zhang runs the nation’s most popular chain of restaurants that serves up boiling soup broth with meat, seafood, vegetables, and noodles. Haidilao has 196 outlets in 60 Chinese cities as well as more in Los Angeles, Tokyo, Singapore, and Seoul.

He’s also one of China’s newest billionaires, according to the Bloomberg Billionaires Index, thanks to his 68 percent stake in closely held Sichuan Haidilao Catering and 63 percent stake in Hai Di Lao Holdings along with a 36 percent stake in publicly traded Yihai International, a food distribution and seasoning manufacturer for Haidilao, whose products are also sold in China by Wal-Mart, Carrefour and other retailers. Yang Yingying, a spokeswoman for Haidilao, said Zhang declined to comment on the net worth in an email.

Zhang has no regrets. “That factory never made a profit,” says Zhang dressed casually in an open shirt during an interview in Zhengzhou, Henan, where he was attending a conference for Chinese entrepreneurs. “If I had not started Haidilao, I would have had to find something else, because you have to support yourself, you have to eat.”

Sichuan Spice

Zhang said he plans to keep expanding and aims for as many as 80 more stores this year, with maybe ten of them overseas.” Revenue of Haidilao will likely grow by more than 30 percent to 10 billion yuan ($1.5 billion) this year, he said, and there are no plans to publicly list the company on domestic or overseas stock exchanges.

Zhang splits his time between China and Singapore, where his wife and son live. He’s done well for a guy who started out earning just 93 yuan ($14) a month in his first factory job. Last year, he bought a high-end property in Singapore for S$27 million ($20 million), according to the Business Times, a financial daily.

Hotpot restaurants have surged in popularity as young Chinese entered the middle class and began eating out together. Haidilao specializes in spicy Sichuan hotpot dishes featuring a spicy broth and choices of meat, seafood, mushrooms, tofu and assorted vegetables.

At Haidilao, stoves are built into each table to keep your broth boiling. It’s possible to order a hotpot with two compartments set apart by a metal divider designed to match the curvy yin yang symbol. That way one side can be mushroom or chicken-based broth for more delicate palates, while the other is seasoned with whole peppercorns for diners looking for some spice. Hotpots with no divider and all spice are also available.

What really sets Haidilao apart is its customer service. Customers waiting for a table can get their nails done or receive a shoulder massage at no charge. After being seated, every diner is given a moist warm towel and apron to protect their clothes.

Individual plastic baggies are provided for mobile phones and those dining solo are sometimes offered a teddy bear to accompany them. “It was the key that got his first tiny restaurant going. The service was right there from the beginning,” says F. Warren McFarlan, professor emeritus at Harvard Business School, who co-authored a 2011 case study on Haidilao.

Zhang, like his waiters from a humble background in the hinterlands, knows the challenges migrants face in the big city. Haidilao provides apartments, often with air conditioning and wifi, for its staff. Zhang also provides a monthly subsidy for the parents of senior staff and managers. There’s a disaster fund for when employees’ families face hardships from natural disasters. “It’s not easy being a rural migrant in China,” says Zhang.

Deep Bench

Haidilao tends to promote from within, placing waiters and cleaners on management promotion tracks. The person who runs its U.S. business started as a restaurant doorman. Chief executive officer Yang Xiaoli worked her way up from her first role as a waitress.

Managers are evaluated by levels of customer satisfaction and staff morale, rather than primarily on restaurant revenue. “We rarely hire from outside. Just because you have a degree from Harvard or from Peking University, we won’t give you any special favor,” says Zhang, who never finished high school. “When I watch the waiters," he said, "I know they’re thinking about how they want to replace me,” he said with a smile.

At Haidilao, wages start low, but rise rapidly for top performers. That and generous perks keep turnover lower, an anomaly in China’s high churn service industry, points out Harvard’s McFarlan. By treating employees well, Zhang “inspires a real level of loyalty,” he says.

Successful managers are eligible to open franchises. Wang Bin, a 32-year-old migrant from Shaanxi province who started out cleaning toilets at Haidilao, runs a 24-hour restaurant in Sanlitun, Beijing’s nightlife district, and recently opened his first franchise shop in the coastal town of Weihai, Shandong.

With the customary 2.8 to 5 percent of revenues from the Shandong shop that goes to all franchisees, Wang now earns about 50,000 yuan ($7,281) a month, some five times the average wage of a Beijing restaurant manager, he said. “Haidilao cares about fairness and giving everyone a platform to develop oneself,” said Wang. “I have no plans to ever change companies."

While the charismatic Zhang has successfully overseen the expansion of Haidilao across the country, it is unclear whether his business model will translate overseas. “He’s taking a model working in one context with whole lot of history and social values and trying to transplant it,” says McFarlan.

Zhang, however, is determined to take the Haidilao brand global. At his sole U.S. outlet in Los Angeles, Zhang said he’s unhappy that its business relies heavily on ethnic Chinese customers. To try to attract a more varied crowd he says future restaurants in the U.S. will adopt a more night-club-like atmosphere, with pop music and set menus for diners and perhaps even individual hotpots for each diner at the table.

McDonald’s, Coca-Cola and Starbucks are all a reflection of American culture,’’ said Zhang. “As the Chinese economy grows and the world starts to put more focus on China, I believe there’s a chance for Chinese restaurants.”

News by Bloomberg - edited by Hospitality Ireland