China Consumer

Not to all tastes

A fast food chain makes big bucks from duck neck

Not to all tastes

They eat it all the time...

The Chinese are known for their sense of adventure when it comes to what they eat, even for items that would soon find their way into waste disposal in many countries.

Indeed, some animal parts – rejected by Western consumers – enjoy much more respected status. So it is with chicken feet and another local favourite, yabozi, or duck neck.

Duck neck is a common local street food, where it is chopped into small pieces and packed in plastic bags.

But it can also be a lucrative business. Zhouheiya, a Hubei-based firm that specialises in selling varieties of the delicacy, recorded Rmb400 million in sales last year. That brought it to the attention of domestic private equity firm Tiantu Capital, which recently invested Rmb60 million in the company.

Zhouheiya was founded in 1997 by Zhou Fuyu, who still runs the company today. Using his own duck neck recipe, Zhou opened his first store in his home city Wuhan. The shop began drawing crowds from early on. Capitalising on the opportunity, Zhou opened seven more stores within the province.

As with many small businesses, along with expansion came headaches. Zhou admits to Southern Weekend that he lacked education, and could only get so far with a can-do attitude. Zhouheiya has grown to more than a 1,000 employees, and Zhou hired new management to help him cope with the expansion.

Zhou himself has put plenty of thought into his business model. Most companies selling duck neck are franchise operations. Zhou, however, believes that success depends on consistency in quality and service. So he has chosen to manage his own stores, exerting full control of their operations.

The strategy brought problems as well as opportunities. First Zhou had to invest in developing his own processing facilities. In 2006, the company invested in three food-processing centres in Wuhan, Jiangxi and Shenzhen to supply the growing chain of Zhouheiya restaurants. Zhou also implemented an enterprise resource planning (ERP) system to track sales and inventory across his store network, something relatively unusual for most businesses of similar size.

Zhou’s foresight paid off. With its uniformed workers and familiar decor, Zhouheiya now delivers duck neck that tastes the same in Hunan as it does in Beijing. Marketing its meat as tasty and healthy, Zhouheiya appeals to office workers, especially women. That is somewhat different to the standard customer base for yabozi, which is more male, and often beer-drinking.

But the problem with the self-managed model is a much slower expansion rate. Zhouheiya’s biggest duck neck competitor Juewei Yabo has now opened 3,000 stores in over 20 cities in just six years by recruiting franchisees. Zhouheiya, on the other hand, has only 200 stores around the country, says Private Economy News.

Still, the biggest headache for Zhou is copycats. According to the Manager’s Daily, there are now several stores claiming the Zhouheiya identity in Guangzhou even though the company has yet to open an outlet in the city. Zhou complains that combatting the fraudsters is a complicated task, as the barriers to entry make it particularly vulnerable to counterfeiting. His main strategy is to open new stores at a faster pace, and then to keep his customers by demonstrating the superior quality of his product. The plan is to increase the number of stores to 400 by 2012, using the cash raised from his private equity investors. He is also talking about a listing by 2015.

That looks like a pretty rapid pace for expansion, given that it has taken almost 15 years to get half way to the new target, and one risk must be that Zhouheiya loses some of the centralised oversight that has helped the brand to stand out.

Not so, says Zhou, who promises to remain fully focused on the detail. He says that this will help him win his war with the copycat duckneckers too.

“You can’t replace the tyres for a sportscar with those of a tractor,” he tells Private Economy News, “and I insist that every part of the process is perfect. Not many counterfeiters can do that.”

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