Daisy Poon, founder, majority shareholder, president and CEO of Ajisen China, the company behind the Ajisen Noodle restaurant chain, cut her managerial teeth in the hurly burly of China’s food and beverage industry. In March 2007, she led her company to a listing on the Hong Kong Stock Exchange.
Even in the current economic downturn, Ajisen China has accelerated its expansion plans, opening more than 150 restaurants in 2008 to reach a total of 340 outlets throughout China.
China Knowledge@Wharton recently spoke with Poon about her experience in the Chinese noodle business and the challenges of managing a fast-growing company. According to Poon, teamwork is the most important aspect of management, and to be successful, a team must combine people with very different -- but complementary -- skills.
What follows is an edited transcript of the conversation.
China Knowledge@Wharton: Why did you enter the noodle restaurant business?
Daisy Poon: My personal background is bound up with our company’s experience. Before 1994 or 1995, I was mainly doing food exports. We purchased goods in China, including specialties like farm produce, vegetables, garlic, shallots, ginger, lotus roots and even fresh fruit. Almost every day we shipped several containers bound for America, Canada and Britain. Back then, my home was in Hong Kong. After purchasing [the food items], we processed them in Shenzhen, transported them to Hong Kong and then exported them.
China Knowledge@Wharton: So, what made you decide to get out of the food export business?
Poon: Back then, in the eighties or early nineties, it was not like it is now, when everything can be done through the bank by letter of credit. We did business based on personal trust, on relationships, and on reputation. I send you the goods, and you pay me the money 40 or 50 days later. So, you really had to trust the buyer and know him well.
But the food export business was gradually turning into a vicious circle of competition revolving around who could survive a long time [waiting for payment of] accounts receivable. It could turn out, for instance, that you used 10 million [yuan] in cash to buy goods in China, and it took you 60 days to put them through processing and packaging and then transport them to Hong Kong, and then to the U.S. or Canada. And it would take another 90 days for the buyers to pay you after taking delivery of the goods. In the end, you would get your money after [waiting] half a year.
So after more than a dozen years in the business, I realized that I had to do something else. In 1994 or 1995, I joined trade groups to visit Europe, Singapore, Britain, Taiwan and Japan, trying to find out if there were any business opportunities.
China Knowledge@Wharton: Why Ajisen Noodle?
Poon: When we visited Japan, I went to an Ajisen Noodle restaurant for lunch. I have always loved noodles because of my unique identity: The child of a Northern mother and a father from Guangdong, I grew up in Shanxi Province, where people eat noodles but don’t drink broth from boiled bones. So when we were kids, our mother always brought home bones, which were thrown out by pork shops, to boil them into soup overnight, and then she added noodles, vegetables, tomatoes, and meat to the soup -- a very delicious and lovely memory for me. When I ate noodles in the Ajisen noodle shop in Japan, that childhood taste and memory came back.
Of course, I am a business woman, and on top of my personal feelings I had to think about the business model. So afterwards I visited their factories to observe how they made the noodles and the soup. That was really impressive.
China Knowledge@Wharton: What impressed you so much?
Poon: Before visiting the factories, I honestly wondered if I should be running a small restaurant business after years of shipping out big containers? I visited their facilities for making the soup, noodles and flavorings, and got to understand the whole process of how they separate the bones from the meat, and how to process, preserve and manufacture [the products]. Their factory takes up thousands of arces of land, so behind such a small bowl of soup there is a very big investment.... Even if the restaurant itself only contains 16 chairs, there is a huge amount of support behind the scenes. So I realized that it’s anything but a small business.
China Knowledge@Wharton: Was Ajisen a mature brand in Japan in the mid-nineties?
Poon: Yes, they had 200 to 300 restaurants in Japan. So that was the process: I travelled around the world and started to hone in on Ajisen, and then gained a better understanding of the brand. And then negotiations began and concluded in 1995. I received the right to use the brand in the PRC, Hong Kong and Macau. But what I kicked off with first was not the noodle restaurants, it was the factory.
China Knowledge@Wharton: Why the factory first?
Poon: The most technical part was actually behind the scenes. And for me, getting into that part of the business was quick: I have experience processing garlic and shallots; my factories boast cheap labor and cheap raw materials. So I had a competitive [advantage] for selling Ajisen [in China]….
But that was just an idea which I did not mention during negotiations. When I started talks with the Japanese company, I suggested that I should start a factory first, so that the support operations would be up and running, and then open the front-line restaurants. They agreed. So I started investing in factories to manufacture noodles and flavorings -- which I later managed to sell to them.
In July 1996, I started the first [Ajisen] noodle restaurant in Hong Kong.... And then we opened restaurants in Shenzhen, and then elsewhere in the domestic market.
China Knowledge@Wharton: KFC, which is renowned for its sharp management and marketing skills, launched a Chinese fast food chain, East Downing, several years ago that hasn’t won too much market recognition yet. In your view, what makes a fast food restaurant chain successful?
Poon: McDonald’s has been here for 25 years. I have only been here for 12 years. But we are in the same league now. My view is that a successful product is more important than successful management.... The customers see the food, taste the food -- not the management.
China Knowledge@Wharton: So what makes a good product?
Poon: It has to do with sensitivity to the market. What really sells like hot cakes? Things that keep your customers coming back. Our noodles make that happen.
Honestly, we didn’t even have a marketing department before [now], because we don’t have many advertisements; we’ve run no TV ads in the past. My view is that we have so many chain restaurants, which are already a big advertisement. Word-of-mouth is also a good advertisement: If you think something’s good, you will recommend it to your parents or friends. I place more emphasis on that. On the other hand, I care a lot about launching new products -- innovation.
China Knowledge@Wharton: Do you have to get approval from Ajisen in Japan before you launch new products?
Poon: I can make the decision myself. We have an R&D group with Japanese and Chinese staff in it. I am one of them.
China Knowledge@Wharton: How big are your headquarters and the R&D team?
Poon: We have 101 people at our headquarters office, with four or five people on our R&D team.
China Knowledge@Wharton: Don’t you have to follow the Japanese product line, or at least follow some of the same guidelines?
Poon: In essence, we are a Japanese food company. That’s why I hire Japanese staff to do R&D. And we also apply Japanese flavoring [sensibilities] to the development of new products. Flavoring is very important in making the food taste Japanese.
China Knowledge@Wharton: How does what you sell in China compare to the Japanese product line?
Poon: Ajisen in Japan has very few products, with five or six types of noodles and a couple of snacks.... In China, we have 100 products within four major categories -- ranging from noodles, rice and snacks to drinks. We get rid of 30% of the most unpopular products every six months and develop new ones.
China Knowledge@Wharton: How difficult is it to standardize Chinese food?
Poon: Standardizing Chinese food is not easy, especially rice. Our Ajisen noodles have one advantage: Rice and noodles are the two major staple foods on Chinese people’s tables. Both noodles and soup can be standardized....
China Knowledge@Wharton: If people think your noodles lack something flavor-wise, what do you say to them?
Poon: China has a saying: “It’s difficult to satisfy everyone’s taste.” So, it’s no surprise that some people could feel that way. But you have to look at the overall pattern: You have customers coming back and your business keeps expanding, producing high profit margins and revenues -- which means that many customers like your food.
China Knowledge@Wharton: How do you control the quality of the food sold in each restaurant?
Poon: We have central kitchens to manufacture the half-finished products and set standards for everything -- for example, how much each ingredient should weigh. And all the flavorings are designed and prepared beforehand.... Every process is pre-designed.... In this way, we can keep the food quality standardized across 100 shops, or even 1,000 shops.
We have four central kitchens [manufacturing bases] across China and other manufacturing and logistics centers in Shandong, Chongqing, Wuhan and other places. The noodles produced at these bases will be sent to the logistics centers for further processing or delivery to restaurants.
If we are going to expand, we have to think about how to control our quality as we expand. So, we have to do thorough research on our products and minimize the human factor. The central bases make and transport [the food]. Staff in each single restaurant don’t have to do too much [to the food]; they only need to control the temperature and then steam it.
China Knowledge@Wharton: What are the major challenges in terms of managing such a fast-growing company?
Poon: We have a professional management team, and they settle management issues at their respective levels. As the president of the board, the major thing I have to consider is strategic planning. For example, we now have around 340 chain restaurants; we plan to achieve 2,000 stores. How long should it take? How do we control quality when we expand that much? And how do we raise the level of service? I put most of my efforts into these things. Our plan is to open [another] 1,000 restaurants within five years.
China Knowledge@Wharton: When do you expect to see returns for your expansion?
Poon: We are in the process of reaching that point now. At present, we have to push into new cities, which implies new costs and manpower, even if we only open one or two restaurants in a new place. Before going public, our headquarters had only 30 to 40 people. Now, we have more than 100 people to support our expansion.
China Knowledge@Wharton: Who are your competitors?
Poon: We don’t have direct competitors, by which I mean noodle [restaurant chains]. But within separate regions, there may be some well operated, good noodle restaurants, though they are not nationwide. However, we have indirect competitors, including KFC, and McDonald’s. I feel that the stronger your competitor, the better. And we can be complementary. Every brand has its own strength.
China Knowledge@Wharton: What's your management style?
Poon: My view is that teamwork is fundamental. The people in your executive management team are very important. We have around four or five people on the team. One works on operations, one on finance, one on human resources management. So each of them is very important, and we complement each other. My COO is what people call a “wild wolf” type of executive -- very tough. Sure, we have some disagreements in our work, but we try to complement each other -- analyze problems, raise questions, and try to solve them and push the business forward....
Meanwhile, within the team, there has to be someone who can take the fight to the market place, someone who is tolerant and calm, someone who can keep things under control, and someone who thinks in greater detail. You have to have these different traits within one team, and the skill to organize all these people is crucial.
Another key point is that we have been working together for more than a decade. That is a long time, so we have the experience of running things together.
And the most important thing is that we are down to earth, act quickly and lead the company by example. We are the major shareholders; we care and put ourselves on the front line -- into the regional offices, into the smallest details. Sometimes, I know things that a supervisor might not ordinarily know. My COO knows what’s going on, and he makes sure that others who should know it [are informed].
Everyone has to be responsible for something.... I spend a lot of time on operations. I don’t spend too much time on public relations, I focus on my business. Every business leader has their different [strength].
China Knowledge@Wharton: Are there differences between your management style and that of people who have been formally trained as professional managers?
Poon: Professional managers mainly look at financial statements. [They are] short-sighted, as they only have three-year contracts, so their main focus will be on how to raise performance in those three years. In some ways, their approach and mindset are different to ours. I look at the longer term.
China Knowledge@Wharton: On the other hand, your company is mainly controlled by your family members. What are you doing to motivate employees from outside the family?
Poon: I have awareness in this regard, and we are training people. We are gradually training them to move up to the COO or vice-president level in the future. We would like our regional general managers to mature and support us....
China Knowledge@Wharton: What is your blueprint for the next decade, beyond your plans to open 1,000 restaurants within five years?
Poon: I hope the Ajisen brand can expand further within China. KFC now has 2,800 restaurants -- we are still a baby compared to them. So, we have a big potential for future growth. On top of that, I want us to be in the rest of Asia. Ajisen has to be a global brand. Nowadays, the Japanese company is taking some steps in the U.S., Canada and Britain, but they are quite conservative and small. That’s not bad: They are building a basis for our future. My plan is to expand in China, and then into Asia, and then to the U.S. and Canada -- and make the brand truly global.