Lunch at haidilao december 7

MET AD 741 Team 3

​Metropolitan College

The Importance of Customer-centric Experience

HaiDiLao Hotpot Inc. The Innovation Process: Developing New Products and Services (MET AD741 D1)

Team 3

Final Paper

Professor: Barry Unger

Merissa Liu (Sasa) | LitongChen (Kyla)

WanqingZhang (Davina）| Yue Bian(Monica) | Yue Wu (May)

Boston University | 11/08/18

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MET AD 741 Team 3

​Content

1. Abstract…………………………………………………………………………………………... 3

2. Introduction ………………………………………………………………....……………………3

2.1 Brief Introduction……………………………………………………………………..………3

2.2 Business Model………………………………………………………………………………3

2.3 Haidilao current status and oppotunities…………………………………..…………………3

2.4 First Blush………………………………………………………………….…………………4

3. Analysis…………………………………………………………………………..……………….4

3.1 Value Network：Value Network：From Sustaining to Disruptive…...……...………………4

3.2 DICEE-Whole Product/Service………………………..………………………...……………5

3.3 Shifting basis of competition………………………...…..…………………………...…..……5

3.4 User Experience…………………...……………………………………………………..……6

3.5 Partnerships………..………………..…………………………………………………………6

4. Recommendation………………………………………………………………………………….7

4.1 Be disruptive and build up standard management system and strict supervision

system……………………………………………………………………………………....7

4.2 Innovation on the diversity of design and dishes………………………………………....7

4.3 Stay competitive: apply market research techniques and find good locations……………...7

4.4 Fan marketing and standarized services to enhance the user experience

………………………………………..….8

4.5 ​Add new partners​………………………………………………………………….8

5. Exhibit…………………………………………………………………………………………….9

6. Reference………………………………………………………………………………………...12

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MET AD 741 Team 3 1. Abstract

Haidilao is a famous hot pot listed company in China. This article takes the importance of user experience as the entry point of Haidilao and discusses it on five levels. (a) What company is Haidilao, (b) How does Haidilao run the business, (c) the current opportunities of Haidilao, (d) detailed analysis of what helped the success and the problem of Haidilao, (e) Recommendations for what should Haidilao do to optimize its corporate? 2. Introduction 2.1 Brief Introduction

Si Chuan ​Haidilao International Holding Ltd​, is a hot pot restaurant chain with 318 restaurants in more than 100 cities in mainland China, Taiwan, and other countries, including Singapore, South Korea, with more than 50,000 employees.

In 1994, Haidilao started from a 4-table booth in Si Chuan, offered hot pot called “Malatang.” To distinguish itself from other competitors, Haidilao introduces unique complimentary services including birthday surprise, shoes shining, free snacks and drinks, manicure, kids playroom, massage. For better control the food qualities and food logistics, Haidilao built up the standardized lean supply chain, with own vegetable base, central kitchen, and Shu Hai logistics. In 2002, Haidilao started its expansion in China. To branch out its business from only focus on in-store, Haidilao launched hot pot retail product and outstanding delivery service in 2010. In 2012, Haidilao opened its first overseas store in Singapore and opened its second one in the United States. Nevertheless, the Haidilao oversea expansion failed to localize. In 2017，with the lack of management, a severe hygiene issue of a rat-infested kitchen at a Haidilao’s restaurant brought to public attention. As of 2018, this hotpot chain has priced its US$963 million Hong Kong IPO. 2.2 Business Model

HaiDiLao targets the customers in more developed regions of the country where customers value “service” as much as the food itself. On average, a diner spends approximately ($16~$23) at the restaurant, making Hai Di Lao sit at the premium end of the hot pot business with 20~30% higher than the market average. (​Cai 2015​) The food material cost，employee cost and other operating costs account for nearly 40%, 30% and 8% of the total revenues of the company respectively, leaving 22% net profits margin for the company.

The high margins give the company enough budgets to improve operations. Haidilao adopted a strategy to open more small stores located closer to major residential communities to give potential customers interactions. Haidilao manages all its branches directly to guarantee its service and food quality. Haidilao has distribution centers where ingredients can be processed, packed and delivered directly to the customer’s table, leaving no cooks in the kitchen and great decreasing the labor cost. (Yao 2015) 2.3 Haidilao current status and opportunities

Haidilao is currently performing well. In 2017, Hot-pot has the highest proportion in the Chinese food industry, earned 437 billion yuan, achieves 13.7% in Chinese restaurants. Haidilao earned 10.637 billion yuan in revenue and 1.194 billion yuan in net profit. (​Snowball 2018)

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MET AD 741 Team 3

From 2013 to 2017, the hot pot market grew by 11.6%, other categories of Chinese restaurants grew by 9.9%. Most brands are single-store businesses, while only 0.32% of hot-pot brands have more than 100 stores. Haidilao had a market share of 2.2%. 60 yuan-200 yuan per person cost in the high-end hot pot accounted for about 28%. High-end hotspots are growing fast, with a compound growth rate of 13.9 percent between 2013 and 2017. The growing popularity of hotpot, the dispersion of hot-pot industry, the higher living standards in China indicate that Haidilao has more opportunities in the future. (​Zhu, Q. 2018)

All of the above illustrate that Haidilao is one of the best enterprises in the industry, and there is much room for growth. Recently, Haidilao exposed overseas restaurants bad performance, new stores supervision is not uniform, the growth of customer complaints and loss of repeat customers. The author believes that how to use the sufficient funds and existing resources, seize the opportunity, find and solve Haidilao’s existing problems, make innovations to meet the needs of consumers, and continuously create value is worth discussing. In this case study, the author will use some concepts to analyze the strengths and threats of Haidilao and give recommendations correspond. 2.4 First Blush (1) Amazed that Haidilao wins in the marketplace mainly for its comprehensive service, not dishes. (2) Admire Haidilao continues to innovate products according to the current popular factors. For example, it recently caught up with trendy artificial intelligence, transform its restaurant into a model of full machine automation one. (3) Curious about how Haidilao’s expansion accompanied by hygiene and management problems (4) Astonished that as a hot-pot company with the largest market share, only accounted for 2.2% in the industry 3. Analysis 3.1 Value Network：From Sustaining to Disruptive

Haidilao did not get the attention of consumers when it first entered the market.Other hotpot competitors were focused on developing new dishes, except HaiDiLao made an adverse change in developing service. Consumers were paying more attention to the taste of food than services. Plus, investors were worried about wasting money on hiring extra servers to achieve this goal can reduce the profit of the company. After a few years, Haidilao, as a disruptive one uses its services, achieved terrific results. The services of Haidilao valued customers build up loyalty and helped Haidilao to expand its corporate reputation.

Haidilao is currently focuses on sustaining technology. It paid close attention to consumers' innovative products on social platforms and added them to the official menu. Haidilao imitated Alibaba’s self-service restaurant, converted half of the restaurant's service system into a machine, and the side dishes were completed by robotic arms (Exhibit 1). Moreover, Haidilao adjusted its operating model based on big data and continuously improved it (Exhibit 2) (Albrecht, 2018). However, Haidilao underestimated the potential disruptive threat of new hot-pot competitors, and innovation is now just copying other conglomerates innovations. Incentives:

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MET AD 741 Team 3

The overall corporate culture of Haidilao is “home culture.” Every old employee is responsible for teaching apprentices. Whenever the apprentice's position is promoted, the master will also have a similar commission.（Bai, 2017) Internal culture:

Haidilao "family culture" has led to problems in its institutional management. Haidilao promotes the use of "trust" in place of management, the store manager has decided that all management decisions store. This results in Haidilao management system, the lack of supervision, and the headquarters of the senior management lack of participation in management. Vertical or flattish hierarchy:

Haidilao positions are divided into employee level and management. The employees are divided into new employees - second-level employees - first-level employees - model workers; management is divided into the lobby manager - store manager. The criteria for each level are only “customer satisfaction” and “employee enthusiasm.” 3.2 DICEE-Whole Product/Service

Deep- Haidilao’s broad features were over repeat last five years and giving consumers boring images with the same services and especially the new generation consumers is not interested in those services but only gaming or video conferences.

Indulgent- The additional services refer from the customers as pushing and over warmly. For instance, when the customer waits in line, the server forces them to take their service featuring. However, during that time the customers only want to get a table early possible, and these optional services are not helpful.

Complete- HaiDiLao has the official website, and mobile apps include complaints, reservations, and delivery order. Since the company wants to expand their market into global, HaiDiLao is incomplete for not hire any outsourcing consultant company, and this effect to help expansion with cross-cultural locations which involve regulations and languages.

Elegant- HaiDiLao design of restaurants, menu, and symbol are not elegant as suppose to be. For example, HaiDiLao provides the traditional Chinese design of a restaurant that has some old fashion wood style and the symbol only has white and red. The restaurant lack of menu innovation and new design especially young generation giving highest revenue spent on any industry. For those design, make the customers think lack of interior and symbol design because young adult prefers modern design at this time.(​Alexander 2016)

Emotive- HaiDiLao without deep, indulgent, complete, and elegant elements that cannot name their restaurants to have a great product or service.(​Etiemble 2017) 3.3 Shifting basis of competition

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MET AD 741 Team 3

Xiabu Xiabu is a “one person, one pot” fast food style hot pot. Xiabu Xiabu Provides

convenient hot pot sets with low prices (30RMB/person) to address customer’s pain of limited time and money. Besides, Xiabu Xiabu opened stores with high density, which cover office towers and shopping centers of many cities. Haidilao is a high-end hot pot restaurant (60-120 RMB/person) serving traditional Si Chuan hot pot. It aims to maximize the customer’s experience. Even though Haidilao has a worse location and higher prices than Xiabu Xiabu, customers prefer Haidilao due to its better services. In this part, the functionality of Haidilao wins the competition.

Little sheep is a traditional Mongolian hot pot. In 2011, little sheep was sold to Yum! Brands changed its western fast-food management system and successfully expanded to overseas countries. However, this management system did not fit hotpot in the Chinese market, leads to closing tons of little sheep in China. (​Eastday, 2018) ​Haidilao’s service and foods win the competition and gain more market share than little sheep in China. Unfortunately, Haidilao unique services like massage are not allowed to enter the US market and other western countries. Also, Haidilao price is 40 dollars per person in the US. Little sheep is 20 dollars per person and has Yum’s strong western restaurants management skill. (Stiavatti, S. 2018).Haidilao’s has fewer locations with the inconvenience. With similar functionality and reliability, little sheep wins the competition in the western countries with lower prices and better locations.

3.4 User Experience

While providing thoughtful service, the staff of Haidilao is enthusiastic like to chat with customers（​Kr, 2018)​. This kind of service blurs the distance between employees and users and will bring them troubles during meals.

Also, the long waiting time is another problem facing Haidilao. The waiting time is more than two hours makes the consumer impatient, affects the mood of eating, and leads to severe loss of customers (​Huang, E., 2018)​. The small distance between the table with a large number of customers occupancy and entertainment performance led to a particularly noisy dining environment. 3.5 Partnerships

Haidilao’s Hotpot delivery service is now available on “Baidu Meituan” and “Eleme.” Besides, Haidilao cooperates with Tencent offers table reservation and food-ordering services on its official Wechat account to its customers.

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MET AD 741 Team 3

Haidilao opened its first fully automated restaurant in Beijing, with service staff being replaced by mechanical arms and robots can perfectly finish food processing, ordering and delivering works. The entire process is monitored and managed by InSight Knowledge Management Systems, which is developed jointly by Haidilao and Panasonic Corp.

Haidilao has a highly self-reliant supply chain. This supply chain reveals several defects. First, the food supply cost is very high. Second, suppliers begin to suffer greater stresses because of the restaurant’ rapid expansion. They have to spend less time spent on food procurement, storage and distribution to satisfy the needs of all restaurants.

Besides, the CEO of Haidilao aims to open more restaurants abroad this year. However, Haidilao is lack of expertise and guidance for expansion outside of China. It has not yet mastered reasonable approaches to build its brand name abroad and attract foreign customers. 4. Recommendation 4.1 Be disruptive and build up Standard Management System & Strict Supervision System

Haidilao should not just copy other conglomerates, instead seek disruptive technology while sustaining its signature services.

For the value network, the corporate culture of Haidilao is replaced by trust, and the store manager is responsible for the overall management of the store. As a result, the store decision is too one-sided and lacks a monitoring mechanism. With the expansion of the storefront, Haidilao needs a standardized management system, and the senior management of the company should enhance the management participation with each store. Haidilao needs to set a strict supervision system, and every decision of the store manager needs to be reviewed by the superior management. 4.2 Innovation on the diversity of design and dishes

From the DICEE analysis, the author thinks that HaiDiLao should offer more changes such as redesign symbol, restaurant, and dishes. As the restaurant design, the majority of restaurants in China were the traditional style which using wooden materials, but it is not looking elegant especially as young generation prefer new looking. Haidilao could transform into modern design with black and white, as a symbol of the clean and top-grade restaurant. It is also turning this design changes of opportunities into the U.S market and to show new faces from HaiDiLao.

Moreover, Haidilao can design unique stores for some market segments with fewer viewers. For example, vegetarians, high-end consumers, children. The company should also offer seasonal products and their menu like Christmas or spring festival special which makes the menu look more interesting. During those holidays, it will be the phenomenon to offer gift boxes include sauces, broth, and Chinese dessert, etc. In the development of these stores, Haidilao needs to develop special foods for particular customers, which is an excellent solution to the state that Haidilao has been sustaining on dishes. 4.3 Stay competitive: apply market research techniques and find good locations

To make Haidilao more competitive in the overseas marketplace, it should enhance its market research team. First, Haidilao could use ethnographic market research. Haidilao can support some Chinese employees to homestay in a local family. By learning local family eating and living habits,

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MET AD 741 Team 3 employees can know their tastes, preference, and their home culture. Moreover, Haidilao can recruit some local people with restaurant experiences to help operate the Haidilao in a new market.

Second, Haidilao can figure out the exploration space. The top extreme of the vertical axis refers to a job to be done. Functionality like eat hot pot, massages, pedicure do not fit some markets. After interacting with local people, Haidilao could find out local entertainment activities, and add these entertainments to restaurants services. The right extreme of the horizontal axis understands the complete customer experience. Haidilao could integrate local family elements into Haidilao’s design and services, give the customer an experience that makes them feel at home. Once Haidilao’s store reaches the top and the right extreme, it has more chance to be acceptable in the new market.

The discovery-driven planning can help enter the market effectively. Haidilao can set up a free trial store, invite local people to enjoy the meal and give suggestions in order to validate whether previous adjustments fit the new market. Haidilao can also provide free new dishes for customer tasting in existing stores.

The overseas location is another factor that Haidilao’s being less competitive. Due to the lack of brand awareness in the North American market, Haidilao should choose commercial centers in the site selection. Compared with the price of the location, choosing a place to get more customers is more important. In Boston, for example, Haidilao can choose to locate in Chinatown or Newbury, and obtain a large number of customers, thus increasing the speed of expansion. 4.4 Fan marketing and Standardized Services to Enhance the User Experience

Based on the brand value of Haidilao and the famous brand culture, Haidilao can strengthen its loyal customers and spread its brand image through fan marketing. Increase fan engagement by regularly hosting festival events, birthday parties, and corporate visits through the Fan Club. In the Haidilao store, derivatives of corporate culture can be sold or exchanged to increase brand value. Such as tableware, aprons or special food.

Haidilao needs to provide more standardized services, and the core of the service is friendly but not bothering customers. Therefore, Haidilao needs to regulate employees through new regulations and training to control the distance between employees and customers and meet customer needs in a detailed but low-key manner. Haidilao should also change the waiting time by offering a reward through time waits and redeem the credit by winning games switch to money deductions. This helps them to divert attention, reduce anxiety, and increase satisfaction. To provide a more relaxing environment in the restaurant, the company should offer spaces between tables and reduce the volume of communication from employees.

4.5 Add new partners

There are some suggestions Haidilao could use regarding Partnership. Depending on one food supplier is risky with multi-restaurants. Haidilao needs more outside suppliers who can provide same food material quality that match company standardization. Especially in the overseas markets, it is more expensive to import food material from the domestic suppliers. Moreover, every country has its quarantine standards on food quality. It will be much cheaper and safer to collaborate with local suppliers. With these additional profit gains by outsource, Haidilao can invest it in new developments.

Furthermore, Haidilao can put experienced food global chain specialist as a board member. With the global chain management knowledges, Haidilao can quickly integrate into the foreign

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MET AD 741 Team 3 markets. Also, seeking help from professional consultant companies may be another option. These companies are very familiar with the local market conditions including an appropriate location for business, household consumption level, and customer preferences.

8. Exhibit Exhibit 1: High tech hotpot store

Exhibit 2: Machine data statistics

Exhibit 3: Haidilao’s competitors

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MET AD 741 Team 3

Exhibit 4: Time- thousand paper cranes

Exhibit 5: ​Loneline of eating hot pot alone-​ doll ​accompany

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MET AD 741 Team 3

Exhibit 6: Business Model Canvas

Exhibit 7: SWOT Analysis of Haidilao

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MET AD 741 Team 3

9. Reference

Albrecht, C. (2018, October 28). Haidilao and Panasonic Team Up for Robotic Hotpot Restaurant. Retrieved November 1, 2018, from https://thespoon.tech/haidilao-and-panasonic-team-up-for-robotic-hotpot-restaurant/ Alexander, A. (2016, June 3). Guy Kawasaki's "DICEE" acronym. Retrieved from https://alvinalexander.com/best-practices/guy-kawasaki-dicee-acronym Bai, J. (2017, August 28). HaiDiLao’s “home culture” conflicts with modern management? Retrieved November 1, 2018, from ​https://baijiahao.baidu.com/s?id=1576940851016827227&wfr=spider&for=pc Cai, C. Y. (2015, December 7). Hai Di Lao: Service Beyond Imaginations. Retrieved from https://rctom.hbs.org/submission/hai-di-lao-service-beyond-imaginations/

Chen, C., Shen, H., & Fan, D. X. (2015). Hai Di Lao Hot Pot: From Employee Stimulation to Service Innovation. ​Journal of China Tourism Research,11​(3), 337-348.

Christensen, C.M. (1999): Value Networks and the Impetus to Change, Module 1, ​Harvard Business School​,

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https://thespoon.tech/haidilao-and-panasonic-team-up-for-robotic-hotpot-restaurant/
https://alvinalexander.com/best-practices/guy-kawasaki-dicee-acronym
https://baijiahao.baidu.com/s?id=1576940851016827227&wfr=spider&for=pc
https://rctom.hbs.org/submission/hai-di-lao-service-beyond-imaginations/
MET AD 741 Team 3

Note 5-699-163

Christensen, C.M. (1999): Finding New Markets for New and Disruptive Technologies, Module 2, ​Harvard

Business School​, Note 5-699-163

Eastday, (2018, January 2). Little sheep decline, haidilao rise, Retrieved from​http://mini.eastday.com/a/180102182307500.html Etiemble, F. (2017, November 15). Hai Di Lao & the unexpected innovation insights from a hot pot restaurant. Retrieved November 1, 2018, from https://medium.com/field-notes-from-corporate-innovation/hai-di-lao-the-unexpected-innovation-insights-fr om-a-hot-pot-restaurant-6fd33683485e Huang, E. (2018, September 27). Here are the bizarre services you can get from China's trendiest hotpot restaurant. Retrieved November 1, 2018, from https://qz.com/1402429/haidilao-ipo-weird-services-at-chinas-trendy-hotpot-restaurant/ IPO. (2018, August 16). Haidilao will go to Hong Kong for listing. There are three major challenges that seriously threaten it. Retrieved November 1, 2018, from ​http://www.sohu.com/a/247520827_393779 Kawasaki (2000). Rules For Revolutionaries: The Capitalist Manifesto for Creating and Marketing New Products and Services.Ch. 1, 2, 3, & 5. ​Harper Business.

Kawasaki, G. (2006). Guy’s Golden Touch. Retrieved November 14, 2018, from https://guykawasaki.com/guys_golden_tou/.

Kr. (2018, September 26). The secret that Haidilao can't say. Retrieved November 5, 2018, from https://36kr.com/p/5154872.html Ling-Han, L., Jia-Yin, Q., & Chao-Yang, Y. (2013). How does praise and rumor spread online? Analyzing user relationships on social networks: A case study of Haidilao. ​International Conference on Management Science and Engineering 20th Annual Conference Proceedings​.

Nothhaft, C. (2017). Eatertainment: Hai Di Lao. ​Made for China,​233-242.

Snowball. (2018, June 13). ​Overall detail analysis of Haidilao, Retrieved from https://xueqiu.com/6763085736/108810476 Stiavatti, S. (2018, February 15). ​Mongolian for the masses: ​Little Sheep Mongolian Hot Pot,​ Retrieved from https://www.newsreview.com/sacramento/mongolian-for-the-masses/content?oid=25857396 Wang, J., & Cheng, L. (2012). The relationships among perceived quality, customer satisfaction and

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http://mini.eastday.com/a/180102182307500.html
https://medium.com/field-notes-from-corporate-innovation/hai-di-lao-the-unexpected-innovation-insights-from-a-hot-pot-restaurant-6fd33683485e
https://medium.com/field-notes-from-corporate-innovation/hai-di-lao-the-unexpected-innovation-insights-from-a-hot-pot-restaurant-6fd33683485e
https://qz.com/1402429/haidilao-ipo-weird-services-at-chinas-trendy-hotpot-restaurant/
http://www.sohu.com/a/247520827_393779
https://36kr.com/p/5154872.html
https://xueqiu.com/6763085736/108810476
https://xueqiu.com/6763085736/108810476
https://www.newsreview.com/sacramento/mongolian-for-the-masses/content?oid=25857396
https://www.newsreview.com/sacramento/mongolian-for-the-masses/content?oid=25857396
MET AD 741 Team 3

customer retention: An empirical research on Haidilao restaurant. ​Icsssm12​.

Yao. (2015, December 9). Haidilao Hot Pot's Success. Retrieved November 1, 2018, from https://rctom.hbs.org/submission/haidilao-hot-pots-success/ Zhu, Q.(2018, June 31). ​Ten pictures to understand the development of the black horse in hotpot industry, Retrieved from​ ​https://www.qianzhan.com/analyst/detail/220/180731-169d1cab.html - comment

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https://rctom.hbs.org/submission/haidilao-hot-pots-success/
https://www.qianzhan.com/analyst/detail/220/180731-169d1cab.html#comment
https://www.qianzhan.com/analyst/detail/220/180731-169d1cab.html#comment