It co-branded with Coca-cola. They worked together and created marketing synergy, building association between two products in customers mind. Little Sheep’s products are coherent with the theme of Coca-cola “to make good food more delicious”. This co-branding can help Little Sheep attract young consumers. For example, one of the joint campaign with Coca-cola, “Who is the next King of Expression”, helps Little Sheep build relationship with an international brand through this well-promoted event.
It launched an interactive marketing campaign to encourage involvement and build an emotional bond with customers. If a customer “check-in” through social networking sits in any Little Sheep store, he will get a free dish of mutton. It also promoted its brand through different e-media, for example SOHU.com, the NETEASE and dianping.com. PLACE Restaurants Little Sheep has opened over 700 branches all over mainland China, primarily in first- and second-tier cities. The provinces with the highest penetration includes Guangdong (66 branches), Hebei (54) and Zhejiang (53). Its presence in almost every part of China makes it a dominant player in this market.
Out of mainland China, Little Sheep has over 20 branches in many affluent regions and countries including Hong Kong, Macau, USA, Canada and Japan. Such presence is limited, but is still significant as a traditional hot pot restaurant chain. Logistics Little Sheep has an efficient and strict quality control and logistics system to ensure the highest level of quality in their products and services. All their meat products and soup bases are produced in the national production base which ensures they can maintain consistent quality in their most important products.
They have developed their own logistics facilities called Little Sheep Logistics. As it is self-owned, it can be controlled so that it will follow a strict set of policies. For example, they have a minimum storing period policy so that stock will be delivered as soon as they are produced. Their system is in fact efficient, evident by that they manage to deliver meat products from Mongolia to Hong Kong using refrigerating lorries in four days consistently.
For the whole delivery system as a whole, they have implemented a five-step procedure as shown in the below diagram. All products produced in the production base or from suppliers will be delivered to one of the six main warehouses located in different parts of China. They are then transported to secondary warehouses, followed by distribution centers. The products will then be distributed to branches all around China from the distribution centers. Such a clear and effective procedure helps Little Sheep to maintain a consistently high level of delivery efficiency.
Little Sheep has established clear hygiene guidelines for the production and warehouse workers. However, it is difficult to manage the hygiene standards of the hundreds of branches, especially the franchised ones. For this, Little Sheep aims at keeping branch-end procedures at minimum. In other words, most products are already edible or can be directly put into the hot pot on arrival at the branches. The branch workers do not have to apply a lot of final procedures to the food products and the hygiene standard could then be maintained.
PRICE There are geographically diversified pricing strategies. For example, in China, the average price per person (in HKD) is about $80. This is due to Chinese people are more price sensitive and there are abundant competition in the hot-pot market in China. Luckily, the low production cost and low standard of living in China allowed the company to charge a lower price. In Hong Kong, consumers are charged at the medium price of around $135-150. In Japan, per capital consumption is charged relatively high about $400 on the average due to the lack of competitors in the Japanese hot pot market and higher production cost. Customers are also less price sensitive and they have higher purchasing powers compared to Chinese citizens, making a high-price strategy more profitable.
As Little Sheep owns its production and logistic facilities, the company is able to maintain a stable source of supply, hence lowering the production and maintenance costs. The target consumers of the Little Sheep are supposed to be the middle-class people. But due to the decreasing production cost and taking advantage of the economy of scale, the price of the Little Sheep is less expensive at about HKD$80 that becomes more affordable by most of the citizens nowadays. Currently, the Little Sheep remains a popular choice of dining places among Chinese citizens.
BENEFITS OF ACQUISITION
Little Sheep has become a listed company in HK Stock Exchange since 2008. However, in Feb 2012, they were acquired by Yum! Brand Inc. and delisted from the HK Stock Exchange. Yum! is a US-based company, which is the world’s largest fast food restaurant company in terms of system units. Yum! is very successful worldwide, they entered China since 1987. Their brands include KFC, Pizza Hut and East Dawning ( which is a Chinese-style fast food restaurant) and so on.
After the acquisition, Yum! will manage the entire operation of Little Sheep. They aim to improve Little Sheep’s operation mode, in order to increase the leading role of Little Sheep and provide a high quality food and beverage service to Chinese customers.  There are several advantages for Little Sheep. First of all, since Yum! has a very successful business in China, it would help Little Sheep to establish a better brand image. Second, they can enjoy economies of scale through brand synergy. For example, Little Sheep could have a co-advertising campaign with other Yum!’s brand like Pizza Hut. This may save costs due to the larger size of the promotion campaign. Little Sheep can also share the same site with KFC and Pizza Hut so that they can save rent. On the other hand, since they have joined Yum!, they can enjoy better negotiation power with suppliers and proprietor, which may help them to find a better site location, or to save costs.
Little Sheep is facing its weaknesses and threats. Lack of hygiene is the main weakness of Little Sheep and intense competition is its main threat. We have done a survey on my3q.com, asking “what do you value the most when having hot-pot?” And there are totally 125 respondents, in which 48 are Chinese respondents and 77 are non-Chinese respondents. (Survey statistics please refer to the appendix) When asked which aspect do they value most when having hotpot, Chinese consumers replied by saying price was their main concern, and then followed by hygiene and taste. However, non-Chinese consumers replied to the question differently. They deemed that hygiene was the most crucial factor, and then followed by price and taste. The survey result provides us with insight that if Little Sheep wants to perform well in foreign countries, it should strive to provide a clean and hygienic place for consumers to enjoy hotpot.
Unluckily, if you search Little Sheep on Youtube, the most frequently searched result is ‘Little Sheep- Mouse’, which then plays a video where a mouse appears in the restaurant. It may be due to several reasons such as lack of sufficient training for staff on food and personal hygiene, and after the clip has been released, more bad news on the poor hygiene conditions were publicized. Not using hand gloves but with bare hands while handling food, complaints on the greasy tableware, knocking the cattle bones on the floor for the soup base etc. These had dwindled consumers’ confidence in having hotpot in Little Sheep. It seems that much has to be done before Little Sheep can actually become an international brand.
THREATS: INTENSE COMPETITION IN THE HOT POT MARKET
Competitors copying the idea of adding Chinese medicine into hot pot soup or imitators using very similar brand names are common nowadays. These situations had harmed the company’s profits largely, leading to an intense competition within the hotpot industry. The Inner Mongolian Little Lamb limited company had been established in September, 2001. The company serves three sub-brands, Yuan Dynasty Quality TOP HOTPOT, the Wishing Bone, and the Happy Greenland. Through chain-like management, this modern business model carries its business in global market. Up to 2010 year’s end, has developed chain store more than 500, overseas markets and so on Japan, Australia, England, Saudi Arabia has its chain store. The company had been the fourth strongest companies in China (with Little Sheep being the third).
The Wishing Bone is the Little Lamb’s newest project. It emphasizes on health and fashion. The targeted customers are income stable working class. The Wishing Bone has a countryside style environment, graceful pure, simple nature, to place oneself as if in the countryside. The Yuan Dynasty Quality TOP HOTPOT is the Inner Mongolian Little Lamb’s high-end brand, mainly focus on the quality. In September, 2008, the first shop is born in Baotou. The Yuan Dynasty Quality TOP HOTPOT strives to serve at the highest quality in every aspect such as environment, food material and services.
The Happy Greenland mainly targets on those who were born after 1980’s and 1990’s. The subject of this restaurant is happy and fashion. It promotes itself as the self-service fashion hot pot brand. The first shop is born in August, 2008 in Baotou. At present it has opened 21 branch stores in China. The Happy Greenland’s environment is sprightly, the colors are bold and the facilities are stylish. All these favour those who were born after 1980’s and 1990′, making it an ideal space for them to get together. In comparison, Little Sheep only has two different models, which are “all you can eat” (unlimited food at fixed price) and “a la carte” (pay for the amount you eat).