Article

Panda Express on expansion fast track

The Asian restaurant chain plans to grow 70 percent throughout the next five years.

February 6, 2011 by Valerie Killifer — Editor, FastCasual.com

At 1,350 units, Panda Express is by far the segment leader in terms of Asian menu categorization. Banking on the Asian category’s Technomic status as the restaurant industry’s most "under-utilized” segment, the chain is looking to grow 70 percent throughout the next five years.

If the company reaches that milestone, that will mean 2,300 units by 2015.

The executives at Panda Express have developed a strong expansion strategy to help fulfill the company’s projection. Led by Stephen Blum, the company’s vice president of real estate, expansion efforts will focus heavily on the East. Currently, the majority of Panda Express’ penetration is everywhere west of the Rockies, including 460 units in California alone.

New markets moving forward include northwest Arkansas, Memphis, parts of Texas, Sioux Falls, Iowa, Cheyenne, Wyo., Louisville and Lexington, Ky., and Norfolk, Va., among others.

Blum said the company will use its core infrastructure to develop those emerging markets and an emphasis on community and family focus to build sales.

“We’ve seen phenomenal success in the Midwestern markets that we’ve chosen,” Blum said. “The wholesome nature of the Midwest, the real family atmosphere and the sense of community that they have has really worked well. And they’ve really embraced us.”

With the ranking of Chinese food as the No. 1 ethnic cuisine in the United States, Blum said the company is well positioned to emerge as the category leader, mainly because competition in the space is among regional restaurants rather than national chains, although challenges do exist.

“There’s not one national competitor; however, that business in the U.S. has more competition so, I don’t know if it benefits us,” he said. “I think what benefits us is if you go into a community, people know what Chinese food is. It’s something people are familiar with.”

While there isn’t much competition on the national scale, there are a few chains within the Asian category that are holding their own.

P.F. Chang’s fast casual off shoot, Pei Wei Asian Diner, has 169 units. While same-store sales remained flat in the company’s third 2010 quarter, check averages increased and the company plans to open 10 to 12 units in 2011.

Privately-held Leeann Chin’s, based out of Bloomington, Minn., has 41 units and has expressed plans top franchise nationwide. Meanwhile, 13-unit Mama Fu’s Asian Cuisine is targeting Pittsburgh, Pa., and Louisiana for expansion.

While a dose of healthy competition is good, Panda Express continues to corner the market in terms of unit and sales growth.

“The class of 2010 stores created the highest opening sales record of any class of opening stores. It’s a great place to be,” Blum said.

He credits that kind of success with the company being good at two things: real estate and operations. “They both go hand in hand,” he said. “At Panda, we’ve had to focus on that.”

While the chain has a store platform fit for airport, university and food court locations, growth will primarily take place in terms of standalone locations as well as strip center end caps.

“Those two avenues are our highest priorities. We’re still going into universities, airports and toll plazas, but the thrust of development is end cap and freestanding,” he said. “Real estate is certainly a driver of the long term growth of the company and that will continue to be the case.”

Menu innovation

Panda’s expansion strategy wouldn’t be complete without some attention to its menu. In 2008, and for the first time in 15 years, the company added a new permanent item – Beijing Beef – to its menu. In 2009, the company introduced its SweetFire Chicken and its Wok Smart menu, which features items that are less than 250 calories per serving.

“Traditionally, Panda had done seasonal products each quarter, which is different than trying to add a new permanent product,” said Glenn Lunde, Panda’s chief marketing officer. “But Panda is so equated with orange chicken we wanted to give customers another product.”

About 90 percent of the customers that come into Panda order two to three items at once, so with the Beijing Beef the company wanted to offer more products that had the potential of becoming a guest favorite.

“It needed to rival orange chicken and be available year round,” Lunde said. “It was a very exciting time. It was something new and we did a lot of training around it and it just created a lot of excitement."

Both the Beijing Beef and SweetFire Chicken are still on the menu and are in the top five products the company sells.

In 2010, the company introduced Kobari Beef, its version of Asian BBQ, and Honey Walnut Shrimp, which set new sales records. The company was surprised by the customer reaction because the dish cost $1 more and but was being ordered during times of economic uncertainty.

Moving forward, Panda Express will unveil four new menu items a year -- two limited-time offers and two permanent additions.

“Menu inspiration comes from different places,” Lunde said. “There are so many restaurants you can go to and be inspired.”

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