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PANDA EXPRESS FORAGING FOR NEW TERRITORIES

By Howard Riell

The Panda Express fast-food chain is moving beyond the mall to freestanding and strip center locations.

Panda Management Co. is taking it to the streets — moving its Panda Express fast-food chain beyond its traditional mall locations and into endcap sites in shopping centers and major power centers, as well as into freestanding stores.

The South Pasadena, Calif.-based operator has flourished in malls, which offer heavily trafficked locations where busy shoppers can pick up quick, hot and exotic specialties almost without breaking stride.

The company is owned by Andrew Cherng, who founded it in 1973; his wife, Peggy Cherng, serves as president and CEO. It operates just under 400 units spread among its four concepts — Panda Express, Panda Inn, Panda Panda and Hibachi-San. Of those, Panda Express units number nearly 380, with the greatest concentration of units in the West.

Development in Los Angeles and five surrounding counties continues apace, and Nevada and Arizona are also targeted for ongoing expansion.

“They are kind of the category leader, without question, in the QSR [quick-service restaurant] Chinese business,” said Ron Paul, president and principal of 35-year-old Technomic Inc. in Chicago, a leading food industry marketing research and management consulting firm.

What has been Panda Management’s secret?

“I guess good management and good food,” Paul said. “The only other significant player in the U.S. is Manchu Wok, out of Canada, but it is obviously well behind, both in terms of average unit volume and units.” The 200-unit Manchu Wok is one of the leading Asian quick-service chains in North America, with units located in shopping center food courts, airports, office buildings and universities across the United States and Canada.

Hibachi-San, a nine-unit quick-service Japanese steam-table concept, developed as a result of a move to try and control competition. A number of years ago, mall developers’ prevailing view was that if one of a particular concept was good, two would be better. That view bred competitors, so Panda executives decided to head them off. Hibachi-San, featuring a variety of grill and bowl entrees, was developed to give developers that second concept, and the two are often located next to each other.

Despite a couple of recent openings and two more still in the pipeline, Hibachi-San is “not a major growth vehicle,” according to Brad Whitaker, Panda’s senior vice president of development. “But it is a very solid business for us, and one which we may, down the road, continue to expand.”

Panda Panda remains in test mode. Considered the middle ground between the full-service and steam-table concepts — the company refers to it as “fast casual” — it offers limited table service and a cooked-to-order menu in a clean, contemporary atmosphere. Entrees include beef, pork, chicken and shrimp dishes. No more than the current seven units will be opened until the test, which Whitaker termed “very successful,” is complete.

Panda’s roots
Whitaker calls the six-unit, full-service Panda Inn Chinese food chain “our roots; it’s where we started.” The freestanding units all operate in the greater Los Angeles area. It was five years after its founding that the chain received an opportunity to operate in the Glendale Galleria with a reduced menu in what would come to be known as a food court.

“A number of the full-service restaurants there in the Galleria did that,” he said. “Later on, that caught on nationally, and of course the rest is history. We have food courts all over the country.”

The real growth vehicle is Panda Express, with its upscale Mandarin dishes presented in a quick-service format. Its menu features items like orange-flavored chicken and spicy chicken with peanuts. The average per-person check is about $7. To stress quality and freshness, kitchens are open to customers’ view where regulations allow.

“The Express has taken off; that’s our growth vehicle for the future,” Whitaker said. “It has been the bread and butter of the company, the workhorse. But the Inns have been the backbone. That’s where a lot of our chefs come from. It’s where we try a lot of menu offerings; it’s sort of our training ground, if you will, for a lot of our Panda Express managers.”

The Express units operate in a variety of venues, from malls and shopping centers to universities, airports, stadiums and even grocery stores in California. For example, there are units in 55 Von’s/Pavilion stores.

Most of the growth comes through corporate-owned stores, with just a few licensees in airports and universities. For example, Edison Field, where the Angels play baseball, is licensed to Ogden Foods. The objective now is to continue to expand the company stores.

Business comes at lunch and dinner, and so proximity to retailers who draw traffic at those times is all-important.

“We don’t want to be too far away from the guests when they’re going to lunch,” said Whitaker, “and we don’t want to be too far away from them when they need to make a purchase at night.”

Exclusivity within a mall is, of course, vital, although that stipulation is far from unique to Panda Express. It will not, for instance, coexist with other tenants selling Asian food. Leases are generally for 10 years.

About 70 new Express units are planned this year, 15 of which will be in malls, the rest on the street, primarily in power centers and neighborhood centers — specifically endcaps or freestanding buildings on parcels near major activity generators.

Panda Express is the only one of the Asian fast-food concepts that operates outside the United States — there are currently eight Express units in Japan as well as four in Puerto Rico — but overseas expansion is not a priority.

“We have so much opportunity within the United States that right now we want to stay real focused on what our principle objectives are, and those are penetrating the United States,” Whitaker said.

Moving beyond the mall
Malls had been Panda Express’ single best setting, Whitaker said, until about two years ago when management began exploring taking the concept outside of what it calls the “captive environment” of food courts and moving it into freestanding locations and strip centers.

“That was a big step for us,” he explained, “because we’d become most accustomed to working in the captive markets. But it’s been extremely successful. Even the supermarkets we would consider captive because there’s not a lot of options for someone who’s in a grocery store.”

Why the increasing move onto the street?

“Because the opportunities in the malls are finite,” he explained. “There are only so many of the malls we want to be in nationally, and there are not very many malls being built. And the malls are probably where we encounter most of our competition. If we want to grow at a 20% to 25% clip a year, we need to find other viable growth vehicles.”

Getting into existing malls can prove a major obstacle, Technomic’s Paul pointed out.

“The problem is that if there is already a Chinese operator in there, you’ve got to wait until that lease is up before you can get that site,” he said. “If you travel around to malls, you see Chinese food in virtually all of them.”

One “out of the mall” concept that has worked well, Paul added, is Pick Up Stix on the West Coast, which he said is growing “very, very nicely.” He said their strategy is to be on the street and in strip centers, not in enclosed malls.

This is not the first chain to have grown up in a mall before expanding to other locations. Chik-fil-A did just that, he observed.

Still, he conceded, “there aren’t a lot of companies who’ve been able to make that crossover. We just have had a very, very successful five-year run now.”

And Paul predicts they will continue to thrive.

“They’re going to be the only Chinese act in town.” He likens the strategy to that of Sbarro, the Commack, N.Y.-based pizza and pasta concept, which has long chosen malls as its primary venue, but has also expanded elsewhere. The QSR Chinese segment itself is growing “modestly,” he added. “It doesn’t seem to be robust growth.”

Endcap sites are preferred for their increased visibility and accessibility, providing two points of visibility for signage. Express stores are also being designed to make their interiors very visible from the outside.

“We’re going to continue to build prominent freestanding locations in prominent locations in marketplaces, but we’re also very happy with key end-cap locations,” Whitaker said.

“Often we’ll go on an outparcel building on an end cap so that we actually get three sides of signage and visibility.”

Going for the end of a strip center is fine, Paul said, “but if you’re not the last you can still have a lot of visibility. I don’t think you have to be at the end to be successful. That, to me, is a little extreme. You don’t want to get lost if it’s a giant, but many of these [centers] are only four, five, six, eight stores.”

Whitaker praises full-service competitor PF Chang’s China Bistro, based in Phoenix, Ariz.

“They have expanded the whole pie for our segment,” he said. “They have given us a good push and impetus to do that.”

Chang’s owns and operates 39 restaurants in 19 states. Its menu reflects five different culinary regions in China, and includes chicken, beef, seafood, vegetable, rice and noodle dishes, as well as a large selection of wines, specialty drinks, and Asian beers.

Operating outside malls provides the chain with greater freedom. Said Whitaker, “The key is that we have the flexibility to do really what we want. If we want it open longer we open longer; if we don’t, we don’t.”

That flexibility is only part of the mix that Panda executives are hoping will springboard them to even greater growth. The concept is sound, the market stable, the category uncrowded, the product popular and the real estate strategy forward looking.

All that remains to be done now, as they say, is the doing.

 

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