Quick Chang

17 January 2003 by
Quick Chang

Rick Federico is not a fan of media attention. He likes to keep a low profile, and he applies the same philosophy to his company, summed up with the motto: "Under-promise, over-deliver."

That said, it's hard to miss the man's restaurants - or, at least, the buzz surrounding them in the USA. Federico is president and chief executive officer of PF Chang's China Bistro, which celebrates its 10th birthday next year. In that time, it has grown to 75 restaurants in 32 states and made history by becoming the first successful branded chain of Chinese restaurants in its market.

The restaurants marry Chinese and American in every way. The food is mainly Chinese, with an occasional Eastern take on American favourites (wok-seared barbecue spare ribs, for example), the service is all-American, and the decor is somewhere in between the two cultures. The concept has impressed the public and the American restaurant world alike, so much so that Asian seems to be the hot new stuff of the casual dining scene, and competition is emerging fast.

PF Chang's was dreamt up by restaurateur Paul Fleming when he was a franchisee for Ruth's Chris Steakhouse. Fleming moved from California to Arizona, and bemoaned the lack of good Chinese restaurants there. He got together with his friend Philip Chiang of the Mandarin restaurant in Beverly Hills to develop an authentic Chinese menu, but Fleming insisted on his own strictly Western touches, such as a 50-strong wine list and American-style desserts.

The first PF Chang's (Fleming is the "PF", Chiang is the Chang) opened in the upmarket Phoenix suburb of Scottsdale in 1993. The company went public in 1998 - Fleming left and went on to develop Fleming's Prime Steakhouse & Wine Bar. Growth has been at a steady pace of 13-15 restaurants a year, although there will be 15-17 openings in 2003, a consequence, says the company, of better-than-expected performance. In October, Chang's increased its 2002 revenue expectations from $419m to $421m; next year, it expects to hit $530m.

Federico, who joined in 1996 from restaurant conglomerate Brinker International, says the chain is not prepared simply to stamp out carbon-copy restaurants. To him, "chain" is a bad word. "Any time you get to a certain amount of restaurants, you're going to be perceived as a chain," he says. "But everything we do in our approach is to give each restaurant some level of individuality."

Each restaurant has an open kitchen, which is a focal point of the space. And though the feel in every one is similar - sleek, modern, with Asian wall murals and statuettes of Buddha - there are differences. Murals are all hand-painted, the fabrics for the booths are custom-made, and floors can be cherry wood in one or stained concrete in another.

The company approaches its operations in a similar fashion, with high-level employees having a stake in their restaurants. The restaurant manager is an operating partner and invests $25,000 for a 6% stake. The executive chef is a culinary partner who invests $8,500 for 2% ownership. And market partners - who invest in a geographic area, which can run across several states - invest $50,000 for a 7% stake. Chang's retains an option to buy back the stake after five years, and if the employees leave they have to sell. Chang's puts up the capital to build and operate the restaurant and insists on pricing and menu control; there's no tweaking with the product unless the company agrees to it.

Federico's theory is that this will encourage managers to stick around, and evidently it does - he says that turnover at restaurant manager level is little more than zero. One of his pet hates is "revolving door management" - losing managers to higher positions or other units. "Continuity of leadership will consistently produce the best results," he says.

And the results so far have been good, with Chang's riding out the tough economic situation of the past year. "This year, we expected comparative store sales - those open for 18 months - to grow in the 2-3% range, and they're growing at 4%," Federico says, putting this down partly to steady expansion. Although careful, the company's expansion has been planned to head off competition, which Federico sees not just among Asian restaurants but all "upper-end casual dining" - brands such as Il Formation, Houston's, Cheesecake Factory and Magana's Little Italy. "A lot of our strategies early on were to create PF Chang's as a first player in the marketplace," he says.

To add an extra buffer against the competition, the company is developing another brand, Pei Wei Asian Diner, launched in 2000. The decor here is red and black, with retro touches such as neon signs. Bills are about half what they are at Chang's, with counter ordering and table service. Pei Wei's kitchens are also open-plan and the food - Chinese, Vietnamese, Japanese and Thai - aims to be, like that at Chang's, fresh and inventive.

Federico is modest about what many see as Chang's seminal influence on the USA's casual restaurant scene. "I think we've taken advantage of a trend," he says. "I don't think we've set the trend. Nobody has been successful in branding a Chinese or Asian restaurant, but part of that was because nobody believed they could. Thirty years ago, if you were an Italian restaurant and you weren't family-run, you weren't perceived as being good. It has been the same thing in the Asian segment."

He bristles at suggestions that preparing Asian cuisine requires Asian heritage, but there is Chinese involvement, nonetheless. Philip Chiang still consults on the menu, and research and development chef is Bob Tam, formerly of Asian restaurant Betel Nut in San Francisco. Part of the training for servers at PF Chang's is to eat a lot of the food and learn what goes best with what. They are taught to bring a balance of taste, texture and colour to the table. "They should step in and tell customers if the flavour profiles of two dishes are similar, and recommend something else," says Federico.

The company has set itself a limit between 125 and 150 restaurants for the PF Chang's brand in the USA (the number for Pei Wei is yet to be determined), but it is already looking overseas. Federico and his executives paid a visit to the UK in the summer and sat down with contacts at Whitbread, Conran Restaurants and estate agencies to find out what it would take to operate here.

Expansion into Britain is definite, says Federico, although not for a couple of years. Property prices put him off. "I couldn't figure out how to operate in London and make money," he says. "I walked away absolutely convinced we would do fabulous sales, that the concept would be well received. I'm convinced we're going to get there, but now is not the right time. We've decided our energy is better focused on the development of the business in the USA."

For now, that is. Watch this space.

PF Chang's China Bistro

Web site:www.pfchangs.com
Number of units: 75
Average number of seats: 220
Average spend: $17.50 (£11.30)
Average weekly sales, third quarter, 2002: $108,600 (£70,150)

Pei Wei Asian Diner

Number of units: 16
Average number of seats: 85
Average spend: $8.50 (£5.50)
Average weekly sales, third quarter, 2002: $40,200 (£25,970)

The competition

Big Bowl (Brinker International): launched, 2000; 17 units
Yen Can (Yum! Brands and Hong Kong-based Favourite Restaurant Group): launched, 2002; 5 units
Noodles & Company: launched, 1995; 50 units

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