Apr 17 2008
how to dig yourself into a (donut) hole in china
Silicon Hutong did a post yesterday about Krispy Kreme’s strategy to break into China–Shenzhen to be specific. And while many China consultants try to model and/or describe best practices, its always helpful to look at bad practices–both as a teaching lesson and to laugh at a little. After all, just because people like Krispy Kreme donuts doesn’t mean they will be successful in China. And if you have a popular product, don’t think you can just traipse into China either.
From the post:
China Economic Review is quoting Krispy Kreme’s HK CEO explaining why the confection pushers are planning to start their invasion of the People’s Republic of China in Shenzhen.
“Shenzhen is a migrant city, many are from the north, and the people are more receptive to fried products.”
Krispy Kreme is doomed in China.
Well, we don’t know that its “doomed” in China yet. But I agree with this idea. Why start a western brand that can easily target ex-pats and then expand? What’s clearly lacking isn’t necessarily common sense. It’s the business plan. In other words, I don’t see one. In fact, CER here seems to indicate that both Dunkin’ Donuts and Mr. Donut have some ideas and direction. I don’t see any from Krispy Kreme. That’s my main problem.
First, any company that would stoop to concocting such a nonsense justification for locating a high-value franchise somewhere is engaged in some high-level self-delusion. I would bet that real reason they’re going to do Shenzhen first is that the HK CEO is getting stuck with the job on the mainland, probably likes his mid-levels flat, and doesn’t want to be flying to Beijing or Shanghai all the time. Shenzhen, on the other hand, is 45 minutes from Central by car.
Second, if Krispy Kreme was really serious about China, they wouldn’t hand the responsibility to a guy in Hong Kong. They would do their research and put a guy on the ground in Shanghai, Beijing, or somewhere else in China to act as representative, get to know the local government, and find local franchisees. Behaving like you need to enter China from Hong Kong, then Shenzhen, is a modus operandi far more appropriate to China’s circumstances circa 1990.
I agree with this. Any company that is serious about doing business in China needs people on the ground. Whether its to manage your business or do your due diligence, you must have someone there locally. If you are a foreign MNC, you need to transfer key people to China to be on the ground: decision makers. Yes, decision makers in China–that seems like a foreign concept. But it’s important. Due diligence and commitment to doing business in China is key.
Third, if Krispy Kreme really understood the way into China, they would start someplace where there are a lot of people who already like donuts, can’t get them, and will form long, slavering lines outside their door each morning. If you’re afraid of Shanghai, go with Beijing. Call me crazy, but tens of thousands of American and Canadian businesspeople, students, diplomats, and families seem like a built-in market for a store or ten, better (especially initially) than a million or two migrant workers and their factory bosses.
Alas, Krispy Kreme appears content to sit in Hong Kong and wait for the franchisees to come to them, and then invade the market slowly.
No debate from me. Don’t do anything half hearted if you plan to go into China. Do it all the way. Be full steam ahead. Because the market is dynamic enough that you will probably get eaten alive by everyone else who is running into China. China is not the place for you to dabble. You can do that at home and be a mom-and-pop shop.
So if you plan to go in to China: (1) have a business plan. A good one. One that you believe in. But just have one. (2) have people on the ground. Move them there if you have to. Hire trusted consultants there if you have to. Make sure there is local decision making power and authority. (3) be aggressive. This isn’t the market to “test”. This is a place when you either kill or be killed.
The Hutong concludes:
Fortune in China usually tends to favor the brave and the wise. Be both.
I couldn’t agree more.
Who says a business like Krispy Kreme can’t move gradually into a local market on mainland China? Is that a rule? — Capitalism is still fairly new on the mainland, which has about 90 cities of 1 million people or more. Any business track record in a market this new and this large will not be long enough or broad enough from which to draw cookie cutter conclusions about what constitutes a good business model. —It is just possible that Krispy Kreme, which has franchise operations in more than a dozen countries, knows what it is doing.
Not that it can’t at all. Anything can happen in China.
I just agree with Silicon Hutong that unless it is prepared to have a business plan and compete, it is likely going to do as well as other chains which have had some fast exits from China. (chains like Jack in the Box or Wendy’s)
Maybe KK knows what it is doing as a whole. But to think an HK person is trying to start KK in Shenzhen makes very little sense to me.
I am interested to your aticle about Krispy Kreme. I have doubts what the root cause of failures in Hong Kong. I saw few donut shops in Shenzhen, but I realized that very few customers bough it. Around 5 pieces per hour, how they can servive?