Kung-fu fighting

Fast-food chain rocked by family falling out

Kung-fu fighting

Kungfu lives up to its label

Early in January Macau casino king Stanley Ho grabbed headlines after he sought to sue members of his family for seizing control of his flagship Macau casinos.

It was a riveting spectacle, with events apparently changing almost by the hour (or more accurately, depending on whichever family member was last to visit Ho’s mansion).

Then, after a lot of finger pointing, the 89 year-old billionaire announced that everything had been resolved. The lawsuit was dropped, although analysts say the power struggle will erupt again once the patriarch is out of the picture.

The Ho saga is a dramatic example of generational change within a family business. But other family firms have faced similar strains, including fast-food chain Kungfu.

Founded in 1994, the chain made its name as an early domestic Chinese rival to foreign giants like McDonald’s and KFC. It was also one of the first local firms to deliver its fare consistently, serving up items like steamed egg with preserved pork or fish ball noodle soup in all 400 outlets around the country.

“It is very difficult to standardise Chinese food, which explains why Chinese fast-food chains have lost grounds to Western-style restaurants,” a venture capitalist told the Economic Observer. “But Kungfu solves the problem by standardising its cooking method: steaming.”

Kungfu created a computer-controlled steamer to cook all of its fastfood meals (so no wok is involved in the cooking process). The employees then put the pre-cooked food – prepared in Kungfu’s own factories – into the steamers for reheating. This way, food is ready in minutes and Kungfu can better control the quality of its final cooking.

With help from this approach, Kungfu expanded quickly around the country. It recorded over Rmb1.5 billion in sales last year, and announced plans to list on the stock market to fund expansion. Cai Dabiao, the head of the restaurant chain, told Oriental Morning Post in January that his hope is to double the number of restaurants in three years.

This all sounds promising enough. But back to the issue of feuding in the family business: two months after announcing its IPO ambitions, Kungfu advised that plans for a listing would be pushed back indefinitely.

As it turns out, the company founders are now embroiled in a feud with more than a hint of familial distraction. Cai and his business partner Pan Yuhai, vice president of the firm, have been locked in a power struggle since Cai divorced Pan’s sister Minfeng in 2006.

Pan Minfeng, who sold her 25% in the company to Cai for an undisclosed amount during the divorce process, has since accused her former husband of adultery. And this seems to mean that she is also demanding that her ex-husband gives her back her stake in Kungfu.

Meanwhile, Cai has been falling out with his erstwhile brother-in-law, after accusations that he was trying to sideline Pan by getting rid of several of his supporters from senior company roles. Pan is now allying with his sister, hoping that recovering her shares would help boost his own position in the company.

That leaves the company in a mess, Kungfu employees told the Economic Observer, and senior executives have started leaving.

“The greatest threat to the survival and success of any family business isn’t so much linked to outside factors such as technology, customers and competitors. It’s more associated with the relationships among family members,” says Jean Lee, chair of the management department at China Europe International Business School.

Gary Wang, founder of Tudou, the video site, also learned this the hard way. Tudou, which was preparing for an IPO back in October, has now postponed its plan for a listing too, says 21CN Business Herald.

Like Pan Minfeng, Wang’s ex-wife has filed a lawsuit against her former husband, claiming her right to a stake in the firm. That’s proven strategically costly, given Tudou’s rival, Youku has listed ahead of it.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.