China Consumer

Mutton and manicures

The hot pot chain that’s hugely popular in China, but struggles in the US

Hai Di Lao w

Dipping in: customers at a Hai Di Lao hotpot restaurant in China

When Hai Di Lao gets a mention, fans of the restaurant chain tend to highlight its much-loved hot pot (Hai Di Lao essentially means “fishing at the bottom of the sea” in Chinese). But they talk too about the chain’s nigh-fanatical focus on service too. While patrons wait for tables during peak hours, Hai Di Lao offers free entertainment via internet terminals, board games and kids’ toys. Patrons can nibble on complimentary snacks in advance of their main meal. And if the wait is a particularly long one, how about a free shoeshine or a manicure to kill time?

This commitment to unusual levels of service has set Hai Di Lao apart in China’s burgeoning yet highly fragmented restaurant industry. The company, which has 75 outlets around the country and one in Singapore, made Rmb3.1 billion ($510 million) in revenue in 2012, up 54% from a year earlier. But Hai Di Lao has loftier goals: it wants to introduce the concept of hot pot – customers cooking vegetables or meat in a boiling broth at their tables – to Western consumers. That means taking it further afield and in March the company announced that it was opening its first branch in Arcadia, a city near Los Angeles.

At the time, Hai Di Lao owner Zhang Yong told the Wall Street Journal that he would be making a few changes to the existing business in order to appeal to American diners. For instance, Zhang reckoned that some of the more distinctly Chinese flavours for hot pot broth, like sour vegetable fish soup, would have to go. The pre-dinner manicure service also got dropped over fears that it might attract the interest of food-safety inspectors.

Still, Zhang was optimistic. “One great thing about Americans is that they are a very curious group of people,” he said. Industry commentators thought Hai Di Lao had a chance in the US market too. Shaun Rein, managing director of Shanghai-based China Market Research Group, went so far as to say that Hai Di Lao has the potential to do for Chinese cuisine what Benihana – hibachi-style restaurants in which chefs prepare food in front of their guests – did to boost Japanese food in the US in the 1980s.

But six months on, Hai Di Lao’s early inroads into the American market look limited. The hotpot chain picked Arcadia for its debut outlet because half of the city’s residents are Asian yet the response so far has been muted. The company seems to be struggling to generate the customer buzz that it develops at home. On Yelp, a popular web service that allows users to rate local businesses, Hai Di Lao only receives 2.5 stars out of 5. In comparison, on Dianping, China’s top review site, the chain is consistently awarded 4.5 stars out of 5.

What has happened? Sina Finance says one of the biggest complaints from American diners is that the restaurant isn’t offering English menus or a telephone booking service in English. That sounds like a fairly fundamental error if Zhang’s campaign is to bring hot pot to a wider audience. Little Sheep, Hai Di Lao’s main rival in China, has 12 stores in the United States that all offer menus in both English and Chinese, appealing to a wider demographic.

Some of Hai Di Lao’s quirkier add-ons don’t seem to resonate as well with an American audience either. Customers are turning down hair bands (to prevent hair from falling in food) and don’t sound too keen on the slippers offered upon arrival, Sina says. Nor has noodle dancing, an enthusiastic dance style proferred by servers at its outlets, caught on with American crowds in quite the same way.

Of course, Little Sheep got some help from its owner Yum Brands, the US fast food giant, when it made the transition to the US market, says the Chengdu-based Tianfu Morning News.

“Why is Hai Di Lao experiencing problems in the US? The company [was successful in China] because it was constantly surprising diners with warm service. But does the hotpot chain understand foreign consumers? Do they know what diners like to do before and during meals?” Zhao Jingqiao, deputy director of the Chinese Academy of Social Sciences Institute, asked the same newspaper. “Until the company fully understands its customers, will it be able to provide them with the service that American diners need?”

Nor is it yet clear that Westerners will eat hot pot as regularly as Asians. As Bill Murray’s character memorably said of it in Lost in Translation: “What kind of place makes you cook your own food?”

© 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.