Levendary Cafe in the USA
The founder of the Lavenders Cafe©, Howard Elevenths managed to establish a strong market position for the Lavenders Cafe© in the U.S and succeeded in creating a $10 billion business model. The Cafe© has two important elements that differentiate it from its competitors, which were offering nutritious soup, salads, and sandwiches, as well as, providing exceptional service for their guests in a genuine, and friendly manner. The company’s philosophy is satisfying customers’ needs by trying to make an impact on their life and look for the long run profit as encouraged by founder, Howard Elevenths to his staff.
After 32 years of experience operating in the U.S domestic market and after a slowdown in the company’s domestic growth, the company considered expending its operation internationally, more precisely in China, a promising market that had shown a strong annual GAP growth of 14.5% in previous years, as well as, the arisen number of middle class income. The responsibility of overseeing the China operation was given to Louis Chem., a Stanford MBA graduate, after a two-year contract agreement between Elevenths and Chem. in September 2009.
A year and six months into the two-year term contract, Aim Foster was named the new CEO of the Lavenders Cafe© in February 2011. The public press viewed the new CEO as being inexperienced in the international market in addition to some doubt about Foster’s ability to build a multi-national brand. Louis Chem. opened the first store in Shanghai in, January 2010; the first location was in a high traffic business area. Within a year Louis Chem.
was able to allocate 22 additional locations for the Lavenders Cafe©, due to his strong knowledge of the country’s geography and his ability to speak both English and Mandarin Chinese.
However, after a review of China’s operation by the new CEO, Foster was not happy with the way the operation as managed in China, she noticed that the accounting report was not formatted in accordance with U. S. Generally Accepted Accounting Principles.
This was the turning point in the relationship between Foster and Chem., who had not met face to face. The new CEO decided to look more closely into the China operation and planned a trip to China to meet with Chem. for the first time. Identification of Main Issue The case presented a number of main issues that Lavenders Cafe© faced during the expansion into the Chinese market.
From the case the main issue was identified as: he Lavenders brand image is not consistent in the United States and China because there is a lack of communication between the parent company and subsidiary.
The contributing factors to this were the management styles, the lack of standardization, ten cultural Territories Ana t issues have been detailed below. Management style EAI experience In ten Torrent market. I n The Chinese operation lacks close mentoring and evaluation by former CEO Elevenths, who gave too much freedom to Chem. with a very hand off management style. Do right by the concept” was the expression that Chem. had as a guideline for owe to strategies for the China operations.
As a result, Chem. was providing little information to Denver headquarter about how the operation is managed in China, which differs from Foster’s management style who appears to be more demanding than the former CEO. There was no clear strategic plan for the operation in China, when Chem. was asked about a plan he mentioned that he had no plan. Standardization Foster is more process driven and valued standardization, she believed that the China operation should align with Lavenders Cafe© standards in the U.S in terms of reports, and look and feel of the Cafe©.
However, Chem. had a different approach where he was trying to open as many stores as he could in a short period of time, paying little attention to the U. S standardized business model. The issue of standardization clearly was another challenge between Denver headquarters and Chem., as he insists in pushing what he thinks is right and resist what headquarter is asking him to do. Cultural Difference Whenever a company is entering a new market it has to take into consideration the cultural differences between countries.
Based on the case study analysis, the difference between the two countries in terms of eating out habits and eating references seem not to be understood by the Denver headquarter. Denver headquarter believes that it can enforce the same business model applied in the U.S to its stores in China, regardless of local preference. In addition, Foster seems to lack knowledge about the Chinese culture because she was not familiar with the market in China, as she had no experience working internationally.
There was a lack of cross- cultural communication between Chem. and Foster; even though, Chem.
had experienced both cultures while studying abroad in the U.S. Limited experience in the foreign market There was a lack of international market experience since the China market was the second market, Lavenders Cafe© entered aside from a partnership in Dubbed. Due to this lack of experience Elevenths trusted Chem. with implementing the needed actions to grow a successful franchise in China.
Elevenths entrusted Chem. with this given his strong knowledge of the market in China.
Elevenths did not understand that entering a foreign market would take more than knowledge on the country; it would also take strong communication and management skills. Analysis and Evaluation Operational Analysis The operational analysis will cover the company’s internal strengths and weaknesses as well as their external opportunities and threats. The SOOT analysis will be on Leverage care u s.
Operations. I Nils report well also KICK at problems Walt standardization in the China operations. Lavenders Cafe© has gained much strength over its 32 years of business.
The company has created brand recognition around the United States with its 3,500 cafe©’s. There is good brand consistency across all 3,500 cafe©’s due to standardization of the Lavenders product.
Each cafe© has a similar design and atmosphere and offer the same core products. Lavenders Cafe©’s standardization has allowed the company to franchise their product and resulted in expansion across the United States. Currently, two-thirds of the company’s cafe©s are franchised.
Each region also offers different menu items from one and other, on top of the core menu items. For example, fewer soups are offered in the southern regions of the United States.
This adds to the company’s strong business culture of “delighting the customer” and creating a personalized experience for each customer. Lavenders Cafe© detailed and strict operating standards, policies and practices has allowed for tight control of store level expenses and close monitoring of operations.
The founder, Howard Elevenths, is an entrepreneur who wasn’t afraid to take risks. His willingness to take calculated risk led to the company using organic grains in its bread and hormone-free naturally raised meats. Lavenders Cafe© became part of the growing trend of consumers wanting healthier and more natural menu options.
1% of Americans over the age of 50 have become more conscious of what they eat. Lavenders Cafe© target market is white-collar professionals and upper-middle-class women.
Their choice to shift towards healthier menu options is meeting their target markets change in tastes. A fully scaled test kitchen and food science laboratory also allows the company to meet the changing tastes of their consumers. The food team, which includes highly trained chefs from the Culinary Institute of America, is responsible for the test kitchen and laboratory, as ell as conducting quality checks across all 3,500 cafe©’s.
Lavenders Cafe© has a good organizational structure.
Each knowledgeable and highly experienced member of the management team knows their responsibilities and who responds to them. There is a clear power structure. Finally, Lavenders Cafe© has a strong training program for their retail employees called Operating Tools and Learning. TTL sets operating standards and provides employees with materials to enhance their learning.
All these threatens have resulted in Lavenders Cafe© being a successful business in the United States. Lavenders Cafe© also has internal weaknesses.
The U.S. Operations are beginning to slow and investors are losing confidence in Lavenders Cafe©. This is one of the reasons the company chose to expand into China.
However, there is no separate international division from the Denver Headquarters and the new CEO, Aim Foster, lacks international management experience. Although Lavenders Cafe© personalized touch has led to repeat business, it is also considered a weakness because it slows down the speed of service. Currently, there is a lack of brand recognition in China for Lavenders Cafe©.
Finally, financial reports from China are being submitted in their own format and the U.S. Operations are then “massaging’ teem to apply ten u s Generally Accepted Accounting Principles.
These are all weaknesses for Lavenders Cafe©. Every company faces external opportunities and threats. As domestic business for Lavenders Cafe© is beginning to slow, the company must look at opportunities to continue to be successful. Firstly, Lavenders Cafe© is part of an emerging category in the restaurant industry called the “quick casual”. Another opportunity is to expand internationally.
Other than the expansion into China, Lavenders Cafe© is experimenting with a licensing deal in Dubbed. Some potential threats for Lavenders Cafe© are the rising food costs and shifts in food trends. Food costs are beginning to rise due to a variety of factors such as climate change and a rise in oil prices. A change in food trends is a potential threat for any restaurant. If a restaurants’ product does not meet consumer’s tastes, then revenues will decrease.
Lavenders Cafe© will need to look at their external opportunities and threats.
Lavenders Cafe© China operations has three areas that need to be standardized: look and feel of the restaurant, menu options and accounting practices. Firstly, all 23 restaurants have a different design and atmosphere. The first location to open was similar to Lavenders design standards, but the second location in Shanghai was a takeaway counter with no seating. Denver Headquarters should understand that they cannot put the same restaurant that is in the U.S.
, in China. There should be extensive market research conducted on design and atmosphere that would be successful in China.
Another option is to follow what Cafe© Coffee Days did in India. Cafe© Coffee Days offers three different formats of stores, ranging from a smaller grab and go coffee shop to a larger cafe© with areas to sit down. Lavenders Cafe© could have different formats for restaurants; however each format would have a similar atmosphere to help standardize the brand in China.
Secondly, menu options are vastly different across all 23 locations. For example, the Shanghai Korean offers dumplings with an average check of $2.
The Beijing Embassy location offers sandwiches and soups with an average check of $10. Some menu items were offered at all locations, such as the chicken sandwich. A solution to standardize the menu is to do something similar to the U. S.
Operations. All locations would offer the same core menu items, but each region would have some different menu items that vary from one another. Chefs that have been trained in China and educated on different regional tastes should help create the core menu items and the different regional items.
The final area that must be standardized is accounting practices. The current financial reports are being sent to the U. S.
And massaged to meet U.S. GAP. All enterprises in China are required to use the Chinese Accounting Standards such as the Accounting System for Business Enterprises. SABA has similar standings to the U.
S. GAP and the International Financial Reporting Standards. An international financial analyst should be hired in order to deal with both China and the U.S. Uncial reports and audits. Financial Analysis A financial analysis of the U.
S. And China operations provided information on Lavenders Cafe©’s current financial status. The income statement for China can be seen below. In China, their food and paper cost is at 51%, which can be attributed to tenet Nell under TOT pitons on ten menu Ana ten lack AT Illustration system set up. Once a core menu is created and more locations begin to open, Lavenders Cafe© will be able to take advantage of economy of scale and lower food and paper cost.
China also has a high occupancy cost at 24%.
This could be a result of having to pay extra to get the better locations. In addition the Chinese real estate market is very high meaning that any location is very expensive. During the time of the case study the Chinese real estate was going through a “golden decade” which can demonstrate the higher occupancy cost that the Chinese division occurred compared to the United States. The pre-opening expenses also contributed to the loss of income in the first year for China.
After the first year of business, China had a loss of $143,620.
China operations also have a lower marketing expense. Marketing is generally not a large expense in China because the local population listens more to radio advertisement, which are cheaper, and rely on word of mouth. Income Statement- China The financial statement of the U. S.
Operations, which can be seen below, shows that Lavenders Cafe© generally follows industry standards. Their food and supply cost are slightly lower than industry standards. Generally, food and supply costs are about 29% of total sales, but Lavenders Cafe© food and supply cost are at 24% of total sales.
Occupancy costs for Lavenders Cafe© are about 4% lower than industry standards. Lavenders Cafe© spends more on marketing then industry standards, about 2% Geiger.
The different dimensions that Egger Hefted identified are: Power Distance, Uncertainty Avoidance, Individualism vs. Collectivism, Masculinity vs.. Femininity, and Long Term Orientation vs.. Short Term Orientation.
Through using these five dimensions one can evaluate how each culture approaches these dimensions and how it influences them in the workplace. The score beside each dimension determines how much value they place towards each dimension. It is interesting to note that on only one dimension, Masculinity vs.. Femininity, the two countries have a comparative score.
It is with these differences that communication issues between the two countries can be seen.
Power Distance The Power Distance Dimension looks at the relationship that people hold with others n that country. China scores very highly on this dimension as people value their superiors and do not act outside of their ranking in society. In regards to the case study it is confounding that Chem. is unobservant of his superiors power being Aim Foster. In ten case scene Is continually rude to Meal Ana Stetsons near attenuator I I can be attributed to two different factors.
The first of which is that Chem.
was originally hired by Howard Elevenths therefore Chem. believes that Aim is not his superior. Elevenths gave Chem. freedom to expand the Lavenders business into China with little guidance or instruction. To have a new CEO enter the business Chem.
will not feel the need to respect Aim, as he still believes his true superior is Elevenths. In addition Chem., while he is from the Chinese culture, had many experiences and training in the United States. Therefore it can be seen that Chem. was of American culture and acted as such.
The United States had a low score on the Power Distance so while Chem. is with the Chinese branch of Lavenders he still has the American cultural values. Uncertainty Avoidance Uncertainty Avoidance looks at the way that culture embraces uncertainty. With a low Nanking in the Chinese culture it is evident that this country looks at laws as flexible. This is seen in Lavenders China as the standards between all the restaurants vary and are different from the brand standards that are seen in the United States Lavenders stores.
In addition the difference in accounting practices can be seen.
The China division was very lenient about their reporting of finance to the US Division. Individualism vs.. Collectivism This dimension looks at how individuals think and act, if it is for the greater good or if it is for their own well-being.
The Chinese culture looks out for the group when asking decisions. This is demonstrated in the case when Chem. disrespects Aim Foster. He previously considered Elevenths to be his group and when Aim takes Leviathan’s position then he does not recognize her as an insider. This results in his mistrust of Aim and her authority within the Lavenders Cafe© company. Masculinity vs.
The Chinese culture has high ranking in this and is seen through Sheen’s demeanor. He is very competitive and is eager to be successful. This is seen through his urge to keep his position with Lavenders China and the fast pace in which he opened the stores in China. In addition his actions of being very abrasive with Aim Foster is because he feels threatened that she is trying to take over his position with Lavenders. He had never had his business interfered before by anyone from the Denver Headquarters so he put his back up when Aim started to interfere with how he was running his operation.
Long Term Orientation vs. Short Term Orientation Long Term and Short Term Orientation looks at how a culture is prepared for the future. The Chinese culture is very focused on planning for a long-term future. This dimension demonstrated the American culture that Chem. must have picked up on his mime in America.
With his time managing the Chinese division of Lavenders, Chem. was very short sighted and opened up a large amount of stores in a short period time. Instead of formulating a business plan, which would encourage growth for the future of the business, Chem. did not have one and was simply opening businesses when he found an available location.
Parent company vs.
In this case, the parent company would be Lavenders Cafe© U.S. Operations and the subsidiary would be Lavenders Cafe© China operations. In terms of restaurant size, U.S.
Restaurants range from 2,500-4,000 square feet. China restaurants are smaller in size; they range from 500-1,500 square feet. These results in less staff needed for China restaurants, approximately 13-20 staff members. The U. S. Restaurants need about 24-26 staff members.
The larger U.S. Restaurants are able to accommodate more customers; they usually have 84-120 seats and can serve anywhere from 560-3,210 guests per day.
Due to smaller size, China restaurants have a maximum of 80 seats currently and can serve 260-430 guests per day. In terms of menu options, the only item that is offered in both the U.
S. And China is the chicken sandwich. The Suburban U. S. /Denver restaurants make more revenue and have a larger square footage then the China restaurants. However, the China restaurants have higher average revenue per square foot.
Restaurants in Beijing make $537.33 revenue per square foot and restaurants in Shanghai make $576.00 revenue per square foot. As the new CEO of the company she has to make a decision that will result in profitability for the company and chose an action plan that ensures long-term success for the business. As such that are a variety of alternatives that Aim Foster will eave to chose from in order to move forward with the company.
The following list presents the many alternatives that should be considered:
- Shut down all operations and solely focus business in the United States.
The China division stores look and feel vary from what the Lavenders Brand is trying promote in their US Division. In order to continue with the stores in China then restoration will need to be completed to all the stores. Aim Foster will need to determine if the China division profits are worth the renovations and continuation of Lavenders China.
- Fire Louis Chem. and hire a new manager for the China Division.
Louis Chem. has proven himself as a capable entrepreneur and someone who is knowledgeable of the Chinese retail market. However he lacks communication skills, which was noticeable through the expansion of 23 Lavenders shops in China that do not fit with the brand image. Chem. is also extremely confrontational and may not be the best fit with the new CEO, Aim Foster, as he already had built a rapport with Howard Elevenths, the previous CEO.
If Louis Chem. cannot properly function and communicate with the US Lavenders division then he may need to be replaced by someone with a fresh perspective on en Dustless.
- 3 Hire a management Tell to manage ten Canaan Dillon AT Leverage. It is apparent through the case study that the US Division of Lavenders has not been able to communicate in an effective manner with an international branch of their company. The Hefted Dimensions that were listed above demonstrates the cultural differences that separate the two branches of Lavenders.
With no cultural training Aim Foster and the US Division are not communicating properly with Louis Chem.. An alternative to the situation would be to hire a management firm to look after the China division. A management firm with International experience would be a solution to the communication problem because they would understand how to conduct business while ensuring good communication.
- Create a separate division of Lavenders for the China stores. The Lavenders stores in China are off brand from the original concept that is seen through out the United States.
This is largely due to the fact there is limited communication because the key players in the United States and Louis Chem. in China. In order to fix this problem it would be wise to bring the structure that works so well in the United States and duplicate this order in China. With 23 stores in China, Lavenders will need a separate branch in China, as it will provide structure to that side of the business. With more supporting players in China, asides from Louis Chem., then Lavenders will be able to maintain the brand and in addition, more supporting managers will ensure that communication is maintained between the US Division and the China Division.
- Make a Joint venture with DATA Group to expand into China. The DATA Group is a “global enterprise headquartered in India, and comprises over 100 operating companies, with operations in more than 100 countries”. DATA has operating companies in China and as such they will be able to reduce the large operating costs that Lavenders China is currently experiencing. As noted in the Analysis and Evaluation section, the operating costs are very high. Entering into a Joint venture with a company who has established infrastructure will help eliminate these costs and allow Lavenders to increase their profits for the first couple of years. In addition the Joint venture will allow Lavenders to be partnered with people who are culturally aware and possess cultural intelligence.
- Replace the US Division Chief Operating Officer, Nick White. It was easy to identify that communication was a large issue between the US and China Division Lavenders. It is easy to target Louis Chem. as the main culprit of this issue as he was combative and disrespectful to Aim Foster. However the blame can also be placed onto the COO of the US Division, Nick White because he was responsible for keeping communication with China and overseeing the brand image in China. Nick White clearly let this responsibility go and as a result the China Division does not reflect the US vision for Lavenders.
If someone has to answer for the mistakes that ere made in China than perhaps it should not be Louis Chem. but instead it could be Nick White.
After evaluating all of the above alternatives for Aim Foster and Lavenders Cafe© to pursue it was decided that the best alternative would be number 4, create a separate division of Lavenders for the China stores. This alternative includes renewing the contract for Louis Chem. and brings more managers to China to help grow Lavenders in the China market with the vision and brand image of the US Division. Lavenders in the United States can contribute a large portion of their success to their hierarchal.