By looking at the factors of success and the challenges of Little Sheep is facing currently, the report is written to find out the reasons why Little Sheep has been so successful in the hot-pot industry in China and to give some recommendations for overcoming its shortcomings while doing business. By taking advantage of the acquisition benefits, product differentiation and successful marketing mix, Little Sheep is generally recognized as a leader in the hot-pot industry in China. By studying this company, clues to succeed in the Chinese market can be found.
Inner Mongolia Little Sheep Catering Chain Co. Ltd. is a private company found in Baotou, Inner Mongolia in China in 1999 by Mr. Zhang Gang () and Mr. Chen Hongkai (). It currently holds 525 chain restaurants in China including Hong Kong, Macau and Taiwan, Japan, South Korea, United States, and Canada, having over 60,000 employees over the world. The company is renowned in operating its hot pot restaurants (both in franchise and wholly owned business), condiment processing (wholesale and retail) and meat processing business (wholesale). Their hot-pot business serves dinner in a variety of thinly sliced meats such as pork, mutton and beef.
In 2012, Little Sheep was sold to Yum! Brands Inc, a US based fast food franchise conglomerate for $587 million, to facilitate its future international expansion after the approval of the Chinese Ministry of Commerce. Yum! Brands Inc, on the contrary, can diversify itself into a full-service Chinese restaurant segment. Being the first Chinese catering business that listed in Hong Kong Stock Exchange, The Little Sheep Co has delisted in Hong Kong in February 2012 as Yum! Brand Inc decided to keep it a private company.
The ideology of the company is ‘basing on quality to maximize customers’ value’. The company operates its business based on a vertical integrated industrial Chinese development mode. It established its own logistics distribution centers and export organizations. A food safety guarantee system is formed to monitor the whole production process. The three meat production centers, including Xilinguole grassland base, Byannor grassland base and Hulunbair grassland base, formed the biggest mutton processing enterprise in the industry. Little Sheep is also the first to pass the Organic Food Certification in China. Overseas, their products have passed International Quality System Authentication of ISO9001:2000, National Green Food Certification and HACCP Certification.
INDUSTRY ANALYSIS INCREASING DEMAND IN CATERING SERVICES
The figure above shows the increase in annual retail sales figure in China from 2005 to 2010. Despite the falling figure in growth rate showed, it is in fact incurred from a change in calculation method in 2008 and we see a gradual rise in absolute figure. An increasing demand in catering services is built alongside with (1) the growing economy, aid by the government goal of generating domestic demand in the next 5 years, (2) the changing dining style that focus on quality and diversity of food in restaurants, which made hotpot industries become a major part of the catering business.
INTENSIFIED COMPETITIONS AMONG CHINESE AND FOREIGN FIRMS
International catering businesses has increasingly shown strong interests in the emerging markets as global economic situations outlook remains unclear. These companies have often undergone a long history of development that enables them to build up a competitive advantage in hardware, software, management and service against the Chinese companies. This will force Chinese catering companies to modernize their operating vision and management style to compete with others.
BRANDED CHAIN OF RESTAURANT ENTERPRISE WILL BE STRENGTHENED
The previous unhealthy price war in the process of standardization could no longer fulfill the sustainable development of the catering industry and branding concept will play a more important role in the future. There is no doubt that it will take time to refine quality control and human resources management of a company but it will facilitate the transformation of the Chinese catering firm into a more sustainable business model in the future.
FACTORS OF SUCCESS
There are three factors of success to the Little Sheep in the Chinese hot-pot market, namely the core competence, successful marketing mix and the benefits of acquisition. The first task of every division head on each day is to read financial report and sales statistic which reflect yesterday’s performance. This allows the managers to make managerial decision promptly. Franchising system is becoming stricter to ensure the quality of food. It stopped accepting new franchisees by 2003 and stopped co-operation with franchisees of poor performance.
At the beginning, hot-pot catering in the restaurants is Little Sheep’s core business. The recipe of the hot-pot soup consists of Chinese herbal medicine. This was a new attempt and it attracts many people. Little Sheep products differentiate into other areas, like products on the shelves of supermarket and gifts targeting different groups, for instance health-conscious people, families and rich people. By introducing more products in the market, it can further utilize its brand and generate more income. Apart from the types of products, it concerns about the quality of food. The quality of the mutton is ensured as it is originated from Mongolia. Its food passed FDA & SGS tests by the US Food and Drug Administration.