1

Case Analysis: Levendary Café: The China Challenge

Case Analysis: Levendary Café: The China Challenge

BUS 545-Global Business Management

Romel Besha

California Baptist University

This study source was downloaded by 100000774040274 from CourseHero.com on 01-27-2022 07:29:55 GMT -06:00

https://www.coursehero.com/file/64213149/Levendary-Cafe-Case-Analysisdocx/
 2
Case Analysis: Levendary Café: The China Challenge

Abstract

This paper will examine the current situation and structure of Levendary Café. The issues that

Mia Foster faces with Louis Chen will be discussed to provide a recommendation for the best

course of action. Next, this paper will address how a restaurant franchising business works, and

how to succeed. Lastly, the relationship between overseas subsidiaries and headquarters will be

analyzed to determine the implications of the developmental stages of business.

This study source was downloaded by 100000774040274 from CourseHero.com on 01-27-2022 07:29:55 GMT -06:00

https://www.coursehero.com/file/64213149/Levendary-Cafe-Case-Analysisdocx/
 3
Case Analysis: Levendary Café: The China Challenge

Company Background:

Levendary Café (LC) is a very well-known, publicly traded company as of 2011. Based

in the U.S, they have expanded globally and are currently transitioning into the Chinese market.

From their humble start as a small soup, salad, and sandwich restaurant, the founder and CEO

Howard Leventhal turned it “into a $10 billion business” (Bartlett, 2011). Their foundations and

fundamentals are strong, and their performance meets management forecasts, yet their stock is

trading at a discount compared to other similar restaurants. This is partly due to the arrival of

Mia Foster, the new CEO that replaced Leventhal. This is her first role as CEO, and investors are

skeptical about her ability to grow a multinational business without experience. LC always had a

reputation for delicious and healthy food, which made one feel comfortable when dining in their

restaurant. They were a hallmark in the quick casual sector of the restaurant business.

Restaurant Business Structure:

There is a lot that goes into owning a restaurant, even more so when expanding one

globally. From countless employees to various chiefs, a lot of thought and ideas need to be

addressed in order to arrive at the optimal place. As mentioned in the article, we will discuss the

Multi-Unit restaurant business. With the U.S restaurant and food industry being a $600 billion-

dollar industry with close to 1 million locations, it is known they are a behemoth in the market.

However, this industry was split into various different specialties and establishments. For

example, from specialty establishments (Starbucks, Baskin-Robbins), quick service

establishments (fast food), to casual dining (Olive Garden, Chili’s). Although these are the most

common types of restaurants, Levendary Café was in a newer category which was shared with

only a few other competitors. They identified themselves as a Quick Casual restaurant, with a.

self-serve dining experience in a casual dining setting. Now that we have established the

This study source was downloaded by 100000774040274 from CourseHero.com on 01-27-2022 07:29:55 GMT -06:00

https://www.coursehero.com/file/64213149/Levendary-Cafe-Case-Analysisdocx/
 4
Case Analysis: Levendary Café: The China Challenge

specialization of LC, we can address the costs in running a restaurant. From real estate, labor,

food and supplies, there is a tremendous amount of cost that goes into running a restaurant, let

alone a couple hundred. As Bartlett mentioned in his article, “restaurants typically operated on

razor-thin margins, with profitability a direct function of their ability to generate high traffic,

execute consistently, and control costs”. This might seem daunting if you only have one business,

but when franchising and multinational locations come into play, it is more doable.

Franchising:

About two-thirds or 3,500 of LC’s locations were franchised. These locations were

overseen by Chief Franchise Officer Peter Steele. His job was to find new franchisees, support

existing franchises, and make sure they are complying to business standards. Through a

tremendous amount of research, the team at LC decided that they needed to expand into China.

The reasoning behind this decision was due to the growing population and the success of various

other American fast food chains. Through various connections, Louis Chen came into the picture.

He was vetted and determined to be a viable candidate to ferry the expansion into China. Chen

introduced the idea to enter a joint venture with a Chinese operator to expand into the Chinese

market, and thus, Chen was entrusted with Levendary China. Chen was brought onboard to be

trained and learn as much as he could in order to maintain the same standard of business in

China. LC asked Chen to establish a base for franchising in China, as they were eager to expand.

According to an article by Mourdoukoutas, the location of a franchised restaurant has a

tremendous impact on the success of the business. With KFC and other fast food restaurants

owning or taking all of the prime locations, Chen began to move quickly to establish new

restaurants. Within a year, he had opened 23 new LC’s due to his local connections and know-

how. The ultimate key to having a successful restaurant franchise is always the food. If your food

This study source was downloaded by 100000774040274 from CourseHero.com on 01-27-2022 07:29:55 GMT -06:00

https://www.coursehero.com/file/64213149/Levendary-Cafe-Case-Analysisdocx/
 5
Case Analysis: Levendary Café: The China Challenge

isn’t good, then people won’t come to your restaurant. You need delicious food and presentation,

then you can worry about your business model and ambience.

Meeting Chen

It is evident based on the information in the article that Louis Chen has taken certain

liberties with the Levendary name. From implementing menu changes to different chairs and an

overall different ambience, he has strayed from the strategically formed LC business model. This

lack of standardization, as Leclerc mentioned, “could destroy everything”. LC was known for

their healthy and uniform approach to good food in a comfortable setting. With Chen’s changes,

travelers would be getting different treatment and service, all the while associating it with LC.

This could either be good or bad, but Leclerc didn’t want to take the chance. The 23 stores that

Chan opened were not franchised, as franchised stores are very heavily monitored and

standardized. The 23 restaurants were opened, effectively, by LC and Chen. Through Chen’s

resistance to change and Denver’s fear of the lack of standardization, Foster decided to meet

Chen and take a look at LC’s Chinese venture.

Developmental Stages

These developmental stages have several implications for HQ and for overseas

subsidiaries. For one, LC’s Denver HQ has learned that expansion into new cultures isn’t easy.

They need to be aware of local wants and needs while trusting someone in the region to expand

for them. Second, HQ should understand that maintaining standardization throughout their

restaurants, especially internationally can be difficult. They need to be stricter and clearer in their

expansion criteria. Denver will survive this discrepancy in China, but they will have to remedy

the situation in China. What Chen and other overseas subsidiaries can learn from this is that, yes,

be aware of the local needs and wants, but run the ideas by HQ first. Chen shouldn’t have single

This study source was downloaded by 100000774040274 from CourseHero.com on 01-27-2022 07:29:55 GMT -06:00

https://www.coursehero.com/file/64213149/Levendary-Cafe-Case-Analysisdocx/
 6
Case Analysis: Levendary Café: The China Challenge

handedly almost toppled LC because he knew what the Chinese market wanted. The implications

for the Chinese restaurants are change. Change will come and it is necessary, for the health of the

publicly traded LC.

Conclusion and Recommendation

It can be seen that running a Multinational Business is not an easy feat. With Mia Foster’s

arrival as CEO, the Chinese expansion had been dropped into her lap. With no experience of

multinational expansion, the stock was being traded at a discount, and the world didn’t think she

could do it. Nonetheless, LC expanded into China with the help of Louis Chen and grew their

market share tremendously. Discrepancies arose, but both sides discussed the necessary changes.

My recommendation to Mia Foster in regards to Louis Chen are to work with him and train him

to become a professional manager. A local baron is not good for the corporation and it can derail

the progress that LC has made in China. Work with Chen and work towards change and open

communication. It seemed that there was a tremendous lack of communication between Chen

and HQ, resulting in a vastly changed business model. If Mia was to help Chen understand the

reasoning behind their fear, maybe Chen will be willing to conform. The two sides have to work

together to find a happy medium between corporate standards and local market desires.

This study source was downloaded by 100000774040274 from CourseHero.com on 01-27-2022 07:29:55 GMT -06:00

https://www.coursehero.com/file/64213149/Levendary-Cafe-Case-Analysisdocx/
 7
Case Analysis: Levendary Café: The China Challenge

References

Bartlett, C. A. 2011. Levendary Café: The China Challenge. Harvard Business Publishing

Mourdoukoutas, P. 2013. 5 Things That Make a Franchise Successful. Forbes

This study source was downloaded by 100000774040274 from CourseHero.com on 01-27-2022 07:29:55 GMT -06:00

https://www.coursehero.com/file/64213149/Levendary-Cafe-Case-Analysisdocx/
Powered by TCPDF (www.tcpdf.org)