An Interview with Kenneth Walker, founder of Bubba’s Texas-Style BBQ

bubbas-sitelogoOn March 25, 2013 I took a taxi out to Hongqiao, a western district in Shanghai, to visit Bubba’s Texas-Style BBQ (now one of three locations).  Having grown up in the Lone Star state it is always interesting to meet fellow Texans in East Asia (there are not many of us… we do not have a reputation for being globe-trotters) and as it so happens the founder of Bubba’s is Kenneth Walker, from South Austin.

Kenneth has spent the last 16 years in Asia, 8 in Hong Kong and 8 now in Shanghai.  Prior to Asia he also had an 8 year stint in New York City, working as a PR specialist for Weber Shandwick, a large global PR firm.  And as he explained it to me, although he enjoyed cooking BBQ as a hobby throughout high school, it was not his intention to create his own barbecue joint in China, rather it was a matter of happenstance.

According to him, “While I was doing PR work in New York and Hong Kong, creating a BBQ restaurant was not something that I had really thought about.  It was not until much later, after I had arrived in Shanghai and sampled the local so-called “BBQ” that I realized there was an unmet market opportunity and I began putting together a business plan.  One of the initial challenges for me then and one of the challenges that all restaurant start-ups today must face in this city is finding a location.  When I finally decided to give this idea a try, I originally tried scouting locations whose tenants were already out of business.  The problem for me was two-fold: the first is that I had actually only been in the metro for less than a year, so I did not have a lot of connections throughout the city.  The second is that in contrast to other parts of the world, after a business closes shop, the ideal time to lease the real estate is not after it is fully closed down.  By then it is too late, as someone else always manages to make arrangements before you do – as I found time and again.  So I changed my strategy to look for establishments that were on their way down – that had seen better days.  The original Bubba’s here, was just that – a woman’s bar called Dragon Bar that was run by a couple of expat women.  A friend noticed the place and informed me about it.  So I stopped by one day and spoke to the lady who was thrilled to hear about the buyout idea.”

Kenneth was able to finally check something off the list: found the location.  And as I mention in Chapter 3, in busy areas like Raffles City (来福士广场), one of the most popular shopping malls in Shanghai, space may cost more than 15 RMB per square meter per day (a rate, which for the typical sit-down restaurant footprint can amount to several million RMB a year).  As a consequence several notable restaurants have closed this past year including Purple Onion, Funky Chicken, Public and The Fat Olive (yes those are real names, visit SmartShanghai for more).

What about supplies and decorations?  For anyone that has lived abroad for any long-term period, it can be difficult to find a number of creature comforts from back home.  And as is the case of football, to the chagrin of North American fans, sport memorabilia can be hard to find.  Yet walking around in Bubba’s, North Americans would feel at home with dozens of sport pennants and authentic jersey’s attached to the wall and even a trophy case with autographed footballs (including one from Tony Dorsett and Mack Brown).

Where did he get these?

“It started with a Michigan State fan a few years ago.  He gave me a Spartan pennant that I hung up on the wall.  And after other patrons saw this, they became riled up.  So I made it an open policy: if you bring it, I’ll hang it.  BYOB: bring your own banner.  So little by little I began to accrue what you see before you today.  Prior to this ambiance, all I had initially brought were a few of things I had with me: a flag of Texas, saddles and a golf club whose Tom Kite autograph was accidentally rubbed off later by a cleaning crew.”

Again, for disclosure purposes I will note that I do not own any equity in his firm.  I even paid for my own baby back ribs.  But as I later told my friends, these were the most authentic tasting Texas ribs I have eaten in this time zone and this is coming from a guy who growing up, regularly ate at Spring Creek and Dickies.  How did he do this?

“As I said, I had sampled the food of other local restaurants and what I found did not meet the standards I was used to back home.  And to make good BBQ you need to actually smoke the meat.  So I began looking for a smoker to import.  I had never done this before and I was unfamiliar with the import laws.  I did find a company in the US called Southern Pride who told me they could sell me one for $15,000 and that they had sold them abroad before.  After hearing they had exported 15 smokers to Asia back in the ‘90s, I then began trying to track down the one that ended up in Shanghai.  Somewhere in this city was a real smoker.  And as luck would have it, I found out that Hard Rock Cafe were the owners of the smoker – and that they closed the restaurant a few years earlier.  I got a hold of their previous GM and he told me that all of the store equipment was now in storage out by the airport and that it was all about to be removed in the next month.  So I drove out to this storage site, climbed around for a couple of hours with a flashlight in my hands and after crawling around old chairs, tables, automobiles and motorcycles, I found the smoker.  While it had been used as a rotisserie oven for chicken, it had never been used as a smoker, so fortunately it did not have any of the old smoker smell stained into it.  I was able to buy it for $2,000 and with the help of about 10 Chinese mover guys we put it onto a flatbed  truck and brought it to the now gutted Dragon Bar.”

While you may not be as fortunate as Kenneth was in acquiring kitchenware for your own restaurant, today would-be entrepreneurs have websites like Craigslist, Shanghai Expat and Delta Bridges to talk with others (both locals and laowai) to find equipment and potential store locations.

So Kenneth has found a location, a smoker and has a team to work with.  How did he turn it into the real deal?

“The next hurdle is finding some type of wood to smoke with.  Any fruit wood would work just fine, and I knew that apple wood was available as some of the Beijing duck restaurants were using it to smoke their ducks.   I found a local duck restaurant that used Applewood to smoke their ducks, and while they gave me a few sample pieces of wood, they would not divulge the supplier name or contact.  Later however, a friend I had placed in charge of logistics tracked down a company in Beijing that sells Applewood by the ton.  I was not very sure what a ton of wood looked like and was told they would deliver it in a 6-ton truck.  Thus I had a dilemma because I did not want to waste the storage capacity either.  At the same time I did not want to scare the neighbors or the authorities, if they saw a new business opening with piles of wood, what would they think?  So while I initially ordered a full 6 tons, at the last moment I cancelled half of the order.  When the truck finally arrived and we unloaded the wood, all 3 tons that were delivered ended up taking up half of the restaurant.  I got lucky because if I had ordered all 6, there would be no room in the restaurant.  Afterwards we manually moved each cord out behind the restaurant wall and this supply lasted for two-and-a-half years.”

Is the rest history?  Not quite, after all, even with everything in place you still need to cook a produce customers are willing to buy.

“Even though I knew how to cook BBQ, the first 3 months were hard.  I was here from 5am to midnight each day.  I eventually taught some local hires how to properly smoke meat and our initial menu included chicken, ribs and potato salad.  Sometimes, for recipes like a breakfast sausage that tastes like Jimmy Dean sausage for instance, I would do a lot of trial and error before finding the right combination of flavors that the customer was used to and wanted.  The restaurant also features my own secret barbecue cause and dry rub.  Later we expanded the menu to include burgers, pizza, seafood and Cajun style fish& chips.  We did have some Mexican food at one point but felt the menu was getting too cluttered so we culled it.  We might expand the menu again though, due to changing customer demand.”

What are some expansion possibilities and opportunities?

“I opened up the first Texas BBQ in all of China.  Because of my professional background I have done a lot of branding for merchandise like t-shirts and now social media.  I also organize an annual chili cookoff and an annual BBQ cookoff with multiple teams made up of local cooks around the metro.  Because the chili cookoff is an officially sanctioned event by CASI, the top 3 finishers earn automatic bids to the world championship held in Terlingua, Texas.  In addition, we have live bands at these events and more than 1,000 people attend, with about an 80% – 20% demographic split (80% foreigners, 20% local), which is about the same demographic customer base at Bubba’s locations.  We even work with Crown Relocations services to help manage the logistics of the chili teams, by picking up the kitchen equipment the day before and setting it up at the event grounds.”

CASI is the Chili Appreciation Society International and all Texans born north of the Guadalupe River are legally required to belong to it.   Crown Relocations services is 45 years old and according to its official FAQ, generates $766 million in annual revenue.

What are some of the challenges that business owners face?

“This can still be a challenging business culture because of the need to maintain guanxi, to maintain relationships with suppliers and various governmental bodies.  But larger cities like Shanghai, Beijing and Guangzhou have become increasingly business friendly.  There is a formal structure with forms and permits that have been streamlined over the years.  Potential business owners should also make sure to set-up a WFOE because it can be very risky creating a JV with a local partner like a friend or wife.  Too many risks associated with that.”

For more about guanxi Chapter 1 and WFOE (Wholly Foreign Owned Enterprise) see Chapter 10.

And other opportunities?

“While it will vary from location to location, but the team that gutted and renovated our first restaurant did so brick by brick.  They used the wood paneling from the bar to construct a ladder and reused the bricks to create a new wall in a different location.  This kind of resourcefulness occurs throughout many other construction sites all throughout the country.  And because of time saving methods like this, we were able to gut and then reopen the restaurant in about 3 months – a process which probably would have taken longer in other cities in the US.  Other opportunities that I see are a “dive” steak restaurant.  It is hard to find a really good steak for a decent price in this city.  When I was working in New York there were a couple of very inelegant restaurants that had nothing but graffiti on the walls, no frills or ambiance whatsoever.  The money you paid for the meat was used to buy the best meat for the money, so you got a great product, a delicious steak.  I think there is room for several of these “dive” restaurants throughout China, especially in bigger cities.  In addition, there are these pop-up trailers that are popular in certain cities of the US.  They are mobile units that cook ethnic food like from Vietnam and I have yet to see them here on the mainland, but could see them being very popular late at night and early in the morning near bars and clubs.”

For a review of these pop-up mobile food trailers in Austin see: Scrumptious Chef

With varnished bar stools hovering around wooden tables, a flat-screen TV with sports on in the background, sport pennants and white walls (as opposed to the pink and black décor of Dragon Bar), Bubba’s illustrates how a simple idea and bit of tenacity and luck can create a successful business in China.

For more info about Kenneth and Bubba’s BBQ see: Shanghai’s First Annual BBQ Cookoff: What’s Bubba got to say about it? from ShanghaiExpat and Austinite who introduced Shanghai to Texas barbecue to compete in Terlingua from Austin360

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Chapter 16 – Localizing and understanding your customer

[Note: below is Chapter 16 from Great Wall of Numbers]

My own experiences with Western fast-food establishments overseas can be summed up best by the rivalry and fortunes between KFC and McDonald’s in China.  It was November 2008, when I first arrived in Shanghai (and the mainland) I noticed immediately within walking into the KFC near the Holiday Inn in Pudong that the listed menu items were both visibly different and numerically more.  While Americans like to joke that there is a Starbucks at every street corner, the same can almost be said about KFC, especially with train stations in China.  No matter where you travel to, you are bound to see the Colonel.  And during these subsequent travels I noticed that KFC’s food selection varied from place to place: Guangzhou had different tastes than locations in Hefei, which tasted slightly different than those in Shanghai.  Furthermore, while the items offered were typically the same from city to city, relative to US menus there were a number of visibly different choices.  For example, KFC served corn as dessert in fruit cups, egg-yolk –filled-cupcakes operated as appetizers and traditional gravy was hard to find.1

In contrast, I rarely saw McDonald’s at every turn of the street.  In fact, when I first moved to Bengbu, Anhui in 2008, there were three KFC’s and only one McDonald’s.  Why was one more popular than the other?  One rumor was that McDonald’s simply imported the food items from the US and used it as the sole menu choice for Chinese customers unfamiliar with hamburger (remember, pork is the most consumed meat in China, not beef).23 But the real story is much more complex and interesting.

KFC and McDonald’s both opened up stores at around the same time in the 1980s.  Yet today, there are more than twice as many KFC restaurants as McDonald’s.  Harvard Business Review has discussed this case-study in depth,4 pointing out five key reasons for KFCs success:

1)       Corporate managers at KFC’s then-new China division led by Sam Su, “infused a Western brand with Chinese characteristics.”  As cliché as that may sound, managers at KFC China reworked the menu (expanding it more than 75%) so that it offered a mix of traditional foods as well as local tastes and flavors.  Because the parent company (PepsiCo) was relatively hands off, regional managers could continuously introduce, remove and tweak menu’s to better cater to local tastes.  The notable example HBR cites is that of spices: Shanghai customers thought food was too spicy and those in Sichuan felt foods were too bland.  So local managers were given flexibility to cater to the specific regional tastes.

2)       Instead of trying to compete head-to-head with McDonald’s in the largest cities, KFC managers first opened restaurants in smaller cities spread across the country.  As a consequence, because they were the first ones in the city, they were able to accomplish the three L’s of retailing: location, location, location.  So not only did they manage to win highly-trafficked real-estate but also a distributed supply chain to help “reduce costs” as they scaled.  The end result, KFC is now the largest restaurant chain in China, “with more than 250,000 employees and about 40% of the market for fast-food chains.”

3)       Starting in 1997, KFC built a distribution network from the ground up.  While relatively expensive, the investment paid off because they have supply-chain quality control all the back to the individual suppliers and animal feed companies.  As a consequence KFC “now has the most advanced and integrated cold-chain system in China, with 11 full service logistic centers and six satellite centers serving every province except Tibet.”

4)       Employee training is an on-going challenge to everyone operating a retailer with ambitious expansion plans.  KFC needs “at least 1,000 new managers and 30,000 new members a year” and so it has implemented a sort of rolling team of trainers that move from one new location to another, training each new restaurant team both job skills and people skills so they can provide “excellent customer service.”

5)       Unlike how they expanded in the US and other international regions, KFC locations in China are almost exclusively (90%) run by the corporate instead of the franchise model.  They did this because of a dearth of experienced entrepreneurial talent available and “to closely control every aspect of their operation, from menu to decor, and to monitor results and the success of new products.”

Since their first store opened in 1987, KFC now operates approximately 5,000 restaurant outlets in 700 cities and is on pace to open one new store everyday of the year – with a goal of opening 15,000 nationwide including 700 more in 2013.5 And despite a food scare regarding antibiotics in chicken suppliers mentioned in Chapter 3, they plan to continue this expansion.6 A large reason why they have been successful is as noted above in the HBR study: adapting to local tastes with foods such as fried dough, sweet potato buns and fishball soup.  Furthermore, its parent company, Yum Brands, now operates 5,400 stores on the mainland (including Pizza Hut restaurants); more than double what it had five years ago.7 As a consequence, China now represents for over half of Yum’s operating profit and sales globally.8 In fact, in 2010, KFC China for the first time had surpassed the US market in revenue.  In contrast, McDonald’s has a mere 1,464 outlets and 16% of the fast-food restaurant market share.9

How can these tribulations help you?

Before opening a physical store, ask yourself these questions:

  • Will my target market want my product as-is, or should it be tweaked and modified to fit their tastes?
  • Where should our company set-up shop first?  Does it need to be in a higher-profile Tier 1 city or can it take the distributed “long tail approach” that KFC utilized by placing proportionally more stores in smaller cities?10
  • Can you locally source your supply chain?  If it is inorganic matter, based on the discussion in Chapter 7 will you try to utilize a 3D printer?
  • Who will you recruit to fill your management, sales and customer service roles?
  • Should you franchise your operations out or manage them from a central location?

Other foreign restaurants and coffeehouses have moved into China as well.  By catering to both local and Western tastes, Starbucks now has more than 700 stores and 12,000 employees on the mainland and plans to have 1,500 stores and 30,000 employees by 2015 making it the 2nd largest market behind the US (for comparison Starbucks recently announced it plans to open 3,000 new locations in the Americas including 1,500 more in the US by 2017).111213 By introducing flavors specific to Chinese tastes such as Red Bean and Green Tea Frappuccinos (popular domestic flavors), they have managed to localize their brand.1415 As a consequence, same store sales increased 10% in 2012 from the year before and “Starbucks stores in China now average $886,000 in annual sales, up from $507,000 in 2008.”1617

Their success has seen the entry of Britain’s Costa Coffee, which opened its 100th Chinese store in 2011 and now has 186 as of July 2012.18 And across the straights in Taiwan, 85C, a coffee chain plans to open up 100 more coffee shops by 2017 (it currently operates 366 on the mainland and 347 on Taiwan).19 According to Euromonitor International, coffee shops on the mainland generated $558 million in sales in 2011 and expect sales to triple by 2016.20 In fact, coffee sales collectively rose 20% from 2010 to 2011.21 In other segments of the industry, Subway restaurants (赛百味) also plan to expand from the current 358 restaurants to 900 by 2015.22 Carl’s Jr. opened its first mainland restaurant in Shanghai in 2009 and has plans to add 100 by 2016.  And with arguably the most aggressive expansion plan, Burger King plans to open 1000 restaurants by 2019 (up from 63 currently).23 And like KFC before them, these firms are succeeding and hope to succeed by blending both local and Western tastes in a quality-controlled manner.

This localization-first strategy is similarly echoed by mainland experts such as Savio Kwan, former COO of Alibaba who recently told The Wall Street Journal that “Companies need to avoid bringing Western business ideas straight into China. It’s not always transferable.”24 Similarly, Hermann Hauser, cofounder of Amadeus Capital Partners opined that “Overseas businesses need to tailor their products specifically to the Chinese user, and in particular consider the average GDP per person and adapt product pricing.”25 And again, while there is a significant outlier of high-networth individuals at the top, the vast majority of the population earns less than $5,000 a year.  What can your firm localize and sell to this price point?

Takeaway: while it would be impractical to transplant your company or business model in place of KFC, you can use the lessons they learned in doing business in China.  Hiring teams comprised primarily of local residents has the added benefit of understanding consumer expectations and buying behavior.  In contrast, if you attempt to fill your teams with expats and foreigners, they may not fully understand the local tastes, customs or taboos.  And arguably one of the most important questions for companies wanting to sell physical goods: as described in Chapter 10, what are the regulations and laws concerning your industry?  What kind of guanxi do you need to have with local suppliers, distributors and decision makers?  Answering all of these will enable your company to accurately assess strengths, weaknesses, opportunities and threats.


Endnotes:

 

  1. Western fast-food establishments such as McDonald’s, Pizza Hut and KFC (the latter two of which are both owned by Yum!) are generally perceived as ‘higher-class.’  That is to say that because their food is generally more expensive relative to local restaurants, families treat a visit to McDonald’s, Pizza Hut or KFC as a something “special.”  The marketing campaigns and quality control programs at these establishments further reinforces this image of ‘higher-class’ which surprises the typical Western tourist who probably does not view it the same way. []
  2. See China’s Volatile Pork Industry from the USDA and China rejects U.S. complaint against chicken tariffs from Los Angeles Times []
  3. Chinese farmers produced 50 million tons of pork in 2012, more than half of the world’s total.  See How China’s love affair with pork is creating a pollution problem from The Guardian []
  4. KFC’s Radical Approach to China from Harvard Business Review, November 2011 []
  5. Yum Brands Says The Chinese Still Love KFC from The Wall Street Journal []
  6. See Yum Brands Rebounds From Chicken Antibiotic China Scare from Bloomberg, Yum stumbles badly in China, warns on profit from Reuters and ‘Kentucky Fried China’ no more? from Reuters []
  7. Yum’s Yuck Factor in China from The Wall Street Journal []
  8. ‘Kentucky Fried China’ no more? from Reuters []
  9. KFC’s Big Game of Chicken from BusinessWeek []
  10. The Long Tail: Why the Future of Business is Selling Less of More by Chris Anderson []
  11. See Why Starbucks succeeds in China and others haven’t from USA Today and Starbucks opens first India outlet in historic Mumbai ‘shrine’ from Vancouver Sun []
  12. Starbucks: we love China from Financial Times []
  13. See Starbucks back on expansion path in Americas, China from Reuters and Starbucks to More Than Double China Staff to 30,000 by 2015 from Bloomberg []
  14. Neat! Starbucks Asia – Red Bean & Green Tea and Hojicha Frappuccinos from Brand Eating []
  15. Another niche opportunity may be exporting tea to China.  For example, the descendants of Charley Grey (the Prime Minister whose eponymous namesake ‘Earl Grey’ tea comes from) have been successfully growing and exporting tea to Chinese consumers; selling 10 metric tons in 2012.  See Earl Grey descendants sell English tea to China from Reuters []
  16. Starbucks: China to Become No. 2 Market from The Wall Street Journal []
  17. See the informative two part series: Will China be Starbucks’ Cup of Tea? and Will China Be Starbucks’ Cup of Tea? Part 2 from contextChina []
  18. Whitbread sales boosted by Costa Coffee growth from Reuters []
  19. Taiwan cafe chain hits the spot on mainland from South China Morning Post []
  20. China the new battleground for coffee brands from The Malaysian Insider []
  21. Starbucks Plays to Local Chinese Tastes from The Wall Street Journal []
  22. See Subway Aims For 900 Sandwich Restaurants In China By 2015 from China Retail News and Subway eyes further China expansion from China Daily []
  23. Burger King Plans to Open 1,000 Stores in China from Bloomberg []
  24. The Do’s & Don’ts of Business in China from The Wall Street Journal []
  25. Ibid []
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