Interview with Zhang Yong: The Secret of Haidilao's Success

Observer, page 49, Issue 507
February 21, 2011
Translated by Tang Xiangyang
Original article: [Chinese]

Please note: Some answers have been edited for brevity.
 
Economic Observer: How did you start your business?
Zhang Yong: I came from a small county and didn't go to college. Soon after graduating from a vocational college, I decided to quit my job and start my own business.
I opened a hot-pot restaurant with my girlfriend - who went on to become my wife - and another friend and his girlfriend. I was penniless, so the others were the real investors, though the entire investment was less than 10,000 yuan.

Though I didn't contribute much in terms of start-up money, I assumed the position of general manager and promised the others that our assets would grow to 150,000 yuan within five years. I swore that if I couldn't manage it, I would compensate them. That was a huge amount of money for a group of twenty-somethings in the 1990s, so they were all a bit startled.
 
EO: How long did it take to become the biggest restaurant in Jianyang City?
Zhang: We only had one outlet in Jianyang. Though it was only a small outlet, we managed to edge the surrounding hot-pot stores out of market. Everyone thought I was mad because I kept investing all our money in the restaurant. Within a few months, we'd become the largest hotpot restaurant in Jianyang.
At the beginning, we had only four tables, but later we expanded by adding a whole floor. Our restaurant had the best décor and even had air conditioning. In 1998, we opened our second store.

I don't care about money. It's your view of the world that decides your attitude towards money and your ties with your colleagues. You know whether you want to expand. If you're only interested in earning money, you're scared of risks and you break your principles as soon as quarrels break out. If you have a bigger dream, you view money as a resource for investment. That is how entrepreneurs think. At this time, I was dreaming of going to Beijing.
 
EO: When did you have first have this idea?
Zhang: When I was 14, when most men's voices break, my voice didn't break. Everyone laughed at me. I became unsure of myself and nervous, I didn't dare talk to girls. Up until now, I still don't know how to dance and I had no way of learning the new pop songs that were becoming popular at that time. You could say that this period was a formative time for me in terms of my outlook on the world.
Finally, I discovered a good place, the county library. Before the 1980s, we lived in a closed world. The library contained only propaganda-oriented books. However, between 1983 and 1984, new books were brought in, such as the poetry of [Rabindranath] Tagore, as well as historical works.
Before reading those books, I was ignorant and dull, but I believed in the concept of equality. Education makes a man. If you have been educated in a traditional way, you view your employees like other people do. This has nothing to do with management. Why is it that I can understand my employees? It's because of my value system as well as what I experienced when I was 14 or 15.
 
EO: The second store was called "Lou Wai Lou" (楼外楼)?
Zhang: It's from an ancient Chinese ancient poem. I didn’t know how to position my store. Since it was better decorated, we guessed it might attract more wealthy clients, while the first store would appeal more to ordinary people, so we gave it a new name. Anyway, finally we found its market niche.
I did it instinctively - how could people distinguish between the two outlets if they were both called Haidilao? Many people assume that we knew about management in the first stages of our company's development. In fact, once you have positioned yourself, it's clear what to do.
 
EO: When did you consider expanding your business to other provinces?
Zhang: When Louwailou opened, a friend of mine, who sold medical equipment and had a company in Xian, asked me whether I was interested in opening a hot-pot restaurant there. I said yes.
I didn't have money or knowledge about the market there, but I believed that north China ought to be a huge market. He agreed with me. He said Sichuan hot-pot is very popular across the country, but Xian's hot-pot restaurants aren't so good. I'm sure that you'd do well there.
He booked me on a flight to Xian. He wanted me to be his partner, but I only had 200,000 yuan and I told him that I didn't have enough money, but he said that didn't matter.
Finally we opened our Xian branch at a cost of only 700,000 yuan that lasted for about half a year.
 
EO: But things didn't go smoothly in Xian?
Zhang: The taste was not right and it took time to become popular. Additionally, I could not manage it by myself – I rarely went there since we had two other stores and my family was in Jianyang. We suffered losses of over 300,000 yuan.
My partner was very decent. He told me that he wanted to cover the larger part of the losses, but I refused. Finally I paid 180,000 yuan and he paid 150,000 yuan. I was under huge pressure at the time and it took me a long time to repay him but I respect him because he gave me time to repay.
Of course, even without him, I would have expanded my business beyond Jianyang since there was no more room there to develop. But I might have chosen Chengdu instead of Xian.
Since then, we have never cooperated with others.
The catering industry is difficult to control. At that time, we had no information system and had to rely on individuals, mainly waiters and waitress, to run the whole company. If you doubt them, then you will fail. You have to give them room to perform, then they will treat their job seriously. It's important to give them responsibility. Eventually even the wait staff can choose to give away free meals.
 
EO: But, if you are a listed company, shareholders will consider free meals as a waste of money.
Zhang: Yes. That's why I hesitate [about going public]. We didn't do it from the beginning, but it eventually became a common practice. Yes, some staff abuse the system, but I don't want to change it because most of my employees are reliable.
Putting faith in my staff has paid off for me. Giving them responsibility is how you show trust.
 
EO: When did you start to emphasize strategy?
Zhang: I can't remember. It must have been after the size of our company had reached a certain scale. Now we have very sound planning. Our market positioning is simple: we provide a high-quality place for friends and families to meet. It's high-quality and therefore a littel expensive, but it's not a luxurious.
 
EO: Do you come to your office every day?
Zhang: I'm only there several days a month. When I am in Beijing, I will hold a regular meeting once a month. But most of time I's simply meeting contacts over tea and I don't really consider this work - it's just like chatting with friends.
 
EO: Do you have any requirement for the growth rate of your company?
Zhang: Yes, but we're careful. We only consider opening new stores when we have the staff.
 
EO: You're still refusing to accept outside investment?
Zhang: Once venture capital is involved, everything becomes complicated. The investors require the company to develop quickly. Problems will occur no matter how clever the manager is.
 
EO: Do you have any special way to train your employees?
Zhang: My strategy now is to ensure employees' loyalty.[…] We have imported American standards to our kitchen. We can control the temperature of our warehouse, we use washing machines and we have a modern distribution system. The biggest difference between our company and others is how we train our employees.
 
EO: When you are socializing with your workers, does this have any impact on your authority?
Zhang: No one dares ignore me, but in fact I'm easy-going. For example, if a high-level manager or store-manager makes a mistake, I will tell him, I care about you and want to have a talk with you, but since my time is limited; you have to fly to Chengdu. Since you have made a mistake, you'll have to pay for your flight, accommodation and the coffee we drink. I call them the "coffee rules."
 
EO: You set this policy to reinforce your authority?
Zhang: I have to be capable. They will challenge me if I were to make mistakes.
 
EO: How does Haidilao plan for its employees' long term development?
Zhang: All of our executives are chosen from grass-root employees. That's where we are different from others - their employees don't feel valued.
 
EO: Do you have high staff turnover ratio?
Zhang: For waiters and waitresses its 10% a month, which is almost the lowest in China. Employees above restaurant manager level seldom quit.
 
This interview was edited by Will Bland and Paul Pennay