The Rise of Panda Express
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If you ever crave Chinese food, you should definitely try Panda Express. With its over 2,200 locations generating more than 3 billion dollars in revenues, Panda Express is the largest Asian restaurant chain in the US. How did they grow into a leader in the quick serve business? Let’s dive in to see how they made it.
In 1973, Andrew Cherng and his father founded full-service restaurants, Panda Inn, in Pasadena, California. They were banking on the large Asian-American population in the area to form their customer base. At first, there was nothing special about the business. They were like any other full-service restaurants, competing against other players in the Chinese food category. After a decade, Andrew noticed the boom in the fast food space. Customers were attracted to the convenience of quick-serve restaurants but the space for the oriental category was basically non existent. Finding an attractive niche, Andrew opened Panda Express in 1983 in Glendale, California.
Since Panda Express was unique in that it combined Asian cuisine with the fast-food concept, it gained a lot of traction. The first few stores were located in shopping malls, and then they popped in strip malls, airports, universities and even in grocery stores. The chain grew outside of California to neighbouring states such as Nevada and Arizona, to eventually reach the East Coast. In 1987, the chain’s chef, Andy Kao, introduced the famous Orange Chicken. The first version was served bone-in but nowadays you will find that the dish is boneless. The combination of its good food quality, financial discipline and the boom in the Asian restaurant category brought Panda Express to new heights.
By early 1990s, the chain had opened around 50 stores across the US. The chain remained cautious by expanding at a reasonable pace. The majority of the new stores were opened with internally generated funds. By mid 90s, they had over 100 stores generating more than 100 million dollars. On the East Coast, it was met with Manchu Wok, a competitor that had established itself before Panda Express expanded in that region. Although Manchu Wok had more stores at first, it quickly fell behind Panda Express, who adapted its restaurants size to maximize its geographical footprint. The strategy to range stores from 400 to over 2,000 square feet gave Panda Express an entry point in all locations it wanted to play in.
At some point, Panda Express feared that they would lose customers to Japanese restaurants. If you think about it, natural competitors in the East Asian category would be Chinese, Japanese and Korean food. And at the time, Japanese cuisine was prime for the quick-serve category with their ready to go sushi. Thus, in 1992, Panda Express decided to start their own Japanese restaurants, named Hibachi-San. The Japanese chain was not meant to be innovative or even grow at all. You will be surprised by its purpose. It was to make sure that customers would always choose Panda Express over Japanese restaurants. Just think about it. Becoming your own competition is the best way to win the competition.
During all this time, Andrew was at the helm of the chain. And to be honest, I am seriously impressed by his business strategies. But he could not undertake all of his projects by himself. In 1994, he hired Joseph Micatrotto as COO to help expand the chain further. Micatrotto had extensive experience in the sector, having previously worked at Chi-Chi’s Mexican restaurants. But his stay at Panda was short, amounting to two years, after which Andrew’s wife, Peggy, assumed the role. I have to say that Peggy is a really smart person. She had advanced degrees in computer science and worked at 3M’s aerospace division.
She personally undertook a project to computerize the operational and financial systems of the chain. She developed the software for the point-of-sale terminals to track inventory and customer behavior, which helped Panda achieve supply chain efficiencies. Hats off to her. I think that she was way ahead of the game in terms of data analytics. That gave Panda an edge over any other restaurants. Both Andrew and Peggy are very capable individuals. And together, they would take out any kind of competition.
Another area in which they excelled was maintaining the balance between American and Chinese. They had to modify the menu to suit the American palette but at the same time, they needed to honour their origins. That’s why I would tell people that Panda Express is a mixture of American and Chinese, and does not represent authentic Chinese food. In the end, the chain eliminated MSG from their kitchens and cut back on spice levels. What also added value to the chain was that they made everything from scratch. They kind of integrated the full-service concept in the quick serve environment.
Let’s turn on to their marketing strategy. Although the chain ramped up its advertising campaigns in the early 90s, it was not until the late 90s that they experimented with television ads. And the ads were limited to a specific area in which they did not have a strong presence. I am quite impressed by their capital efficiency. They do not splurge on marketing for the sake of driving sales. They want to use the most effective marketing channel to grow their brand awareness. When they saw the potential demand for drive-thru ordering in 1997, they opened their first drive-thru restaurant in California.
The chain is also committed to serving the broader community through its Panda Cares arm, launched in 1999. In addition to providing food for the underserved, employees also volunteer their time. Moreover, it seems that the chain treats its employees fairly, as compared to other fast food chains. Panda Express employees receive health care benefits, paid sick leave and even match 401k contributions up to 4%.
The chain kept expanding, opening their 1,000th location in 2007 and passing the 1-billion-dollar mark in revenues. They crossed the border for the first time in 2011 when they opened a restaurant in Mexico. Since then, they have been continuously looking to expand their international footprint. They opened locations in Canada, South Korea, Japan and Dubai, among others.
The chain has also managed to stay relevant in the new millennium. In 2014, they launched an Innovation Kitchen in Pasadena, California, whose purpose is to explore new ways of serving customers. The same year, they revamped their online ordering system and mobile app to stay at the forefront of digital innovation. They also hired a grand tea master from Taiwan to design their teas, which they rolled out in their tea bars. By 2017, they had opened their 2,000th location. And they kept growing since then.
Have you ever tried their food? If so, what is your favorite dish? What is the closest competitor you would go for if Panda Express were not available? As always, let us know what you think.
