A ‘zero innovation’ formula

Located in the ever-changing metropolis of Shanghai, Zhending Chicken hasn’t updated its menu in 30 years. The chain store has no franchises, no delivery options and closes its doors every night at 7:30pm. Despite being set in its ways – or perhaps because of it – Zhending Chicken continues to be the most popular chicken restaurant among Shanghai locals.

“The snack shop next to my high school has packed up and left, but Zhending Chicken isn’t going anywhere,” one customer told Huxiu, a portal.

“If any visitor to Shanghai asked me what to eat in the city, I would say Zhending Chicken every time,” recommended another.

Through the restaurant’s glass kitchen partition, diners can watch chefs serve up plates of its famous ‘white cut chicken’ in less than a minute. The chef cuts the poached meat into more than 10 pieces, organises the slices onto a plate, places a stem of parsley on top, and the dish is ready to serve. The rest of the menu is all poultry-related: chicken blood soup, chicken porridge, chicken dry noodle, claw, gizzard and more. Diners are welcome to bring their own bottle of wine to wash down the food.

Zhending is flexible in its ordering and pricing. When customers place their orders at the front desk, they can ask for a whole chicken, half, or quarter. They can also specify which part they prefer such as “just the thigh” or “just the wing”. The portion is weighed to two decimal points, and payment is calculated down to the cent.

In 1990, founder Liu Dingzhao opened his first store on bustling Xinle Street. The nine square-metre shop has since expanded to 32 stores across Shanghai.

Zhending’s outlets regularly have long queues during dining hours, and popular locations sell out quickly, reports Huxiu. Customers have to arrive early to get the menu items they want.

The Chinese fast food chain has been frequented by some famous individuals. In 1998 the then US President Bill Clinton had lunch with the Shanghai mayor and owner Liu at a Zhending Chicken restaurant.

The restaurant has also received some of the country’s official culinary designations, such as being ranked as a “China Famous Restaurant” and a “China Famous Business Venture”.

Zhending Chicken is obviously in a smaller league versus the far larger KFC. With more than 5,000 stores in over 1,100 cities, KFC is China’s biggest restaurant chain (see WiC511). It has invested heavily in marketing, partnerships and online delivery to stay competitive – in stark contrast to Zhending Chicken’s style of operation.

“Zhending Chicken’s business model can be encompassed by two words: old-school,” commented a user on Zhihu, China’s most popular question-and-answer website. “No group-buying discount, no promotions, no cross-border operations. The restaurant does not have partnerships with other companies and it has very few advertisements.”

The anti-modern, non-digital approach seems to drive the business’s success. For 30 years Zhending Chicken has maintained its white and red trademark colours and Shanghainese can instantly recognise the three giant Chinese characters on the stores’ signage.

The chain’s footprint tends to track communities where older people reside, appealing to diners who are typically middle to older-aged. Local senior citizens – on producing proof of their age – can get 10% off their orders, which makes Zhending Chicken a hotspot for silver-haired Shanghainese.

“Metal tables and chairs in a clean and bright environment, Zhending Chicken has that feeling of an old Shanghai-style state-owned canteen, which is becoming harder to find,” one elderly customer told Huxiu. “It reminds me of scenes from the old Eighties movie A Small Suzhou Restaurant.”

Amid China’s rapidly transforming restaurant sector, Zhending Chicken is an outlier – defying technological change and ignoring fickle consumer trends. For the last 30 years it has been stubbornly the same. That has worked – for now. But without luring a younger demographic of diners, there must be questions about the chain’s longer term prospects.

Fancy a bite?

Leading snack firm to IPO

The origins of latiao (辣条) are said to date back 1998. At the time, a flood swept through Hunan province, which led to a shortage of soybeans and the price for the crop skyrocketed. Several chilli sauce makers switched to gluten and began selling dried noodle with a spicy flavour. It started as a staple food substitute but as the new product’s popularity grew among kids, sugar was added into the mix. And latiao was born.

Since then, the snack has developed a devoted following among younger consumers in China. Many say the spicy gluten sticks taste like beef tendon and pair well with beer. Henan, with the largest wheat production in the country, has subsequently displaced Hunan as the ‘capital’ of latiao makers, accounting for over 50% of national production.

In late November, the snack was in the headlines again when Henan-based latiao maker Weilong Food applied for a listing in Hong Kong early next year. Positioning itself as the leading snack provider in China, Weilong is reportedly aiming to raise $1 billion from the IPO.

Founded in 1999 by Liu Weiping, Weilong’s revenue in 2019 exceeded Rmb4.9 billion ($735 million), a 43% increase year-on-year. The company expects sales will grow to Rmb10 billion in 2021. It is also hugely profitable: gross profit margins for latiao are about 50%, according to Tencent News, a news portal.

Besides latiao Weilong also makes potato chips, guocha (a type of snack made from rice) and packaged soy eggs.

A big part of the company’s success comes down to Liu’s savvy marketing. When he first founded the company, he set up food stands near high schools, offering free samples. To make it easy for customers to snack on-the-go, Liu also made sure his goods were individually packed so they could easily be stuffed into backpacks and lunchboxes.

To differentiate itself in a market crowded with low-cost manufacturers, Weilong began hiring celebrities like Zhao Wei and Yang Mi to endorse its products about 10 years ago. When the reality competition Keep Running took the country by storm in 2015, the latiao manufacturer launched a campaign with the slogan “Keep Running, Latiao”, to capitalise. To combat the perception that latiao production was unhygienic, Weilong also embraced livestreaming to give audiences a virtual tour of its factory.

“While a lot of old brands have slipped into oblivion, Weilong has not disappeared from the public’s sight, but kept up with the trends of the times. Other companies can also learn from Weilong’s marketing tactics. Its survival method is worth adopting,” Tencent News advised.

Industry insiders say Weilong has been mulling an IPO since 2018 but the plan was put on hold after the company became embroiled in a food safety scandal. Shanxi province’s food safety authority had declared that Weilong’s latiao did not meet its standard because of a type of (fairly common) food additive approved for use in Henan but not in Shanxi.

The truth is that latiao has little nutritional value. It is highly calorific as well: 357 calories per 100 grams, compared with French fries, which contain about 150 calories. Small wonder that people describe the snack as ‘the three-highs’: high in sodium, high in sugar and high in fat.

Weilong is not without competition. Rival Yankershop, for instance, has launched a new type of latiao that includes ingredients like oats and corn, that claims to boost fibre intake. It also increased spending on R&D to reduce the amount of oil, sodium and additives in the core product.

Another rival Mala Wangzi has also launched a new product line that uses natural ingredients to appeal to increasingly health conscious consumers.

That explains some of Weilong’s need to raise capital from the forthcoming IPO. “It’s obvious that competition in the latiao market has become increasingly fierce. In the face of all the challengers it is only a matter of time before Weilong Food’s competitive advantages are eroded. To that end, Weilong Foods has tried to make a big splash in new categories in the past two years, such as the development of a self-heating hot pot brand and the launch of other ‘self-cooking’ spicy hotpot products, and the sale of hot and sour noodles,” commented blogger Zhengjingshe.

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