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Levendary Cafe The China Challenge Case Solution

Solution Id Length Case Author Case Publisher
1909 2205 Words (11 Pages) Christopher A. Bartlett, Arar Han Harvard Business School : 4357
This solution includes: A Word File A Word File

In the aftermath of creating a private equity ownership position in 2011, the new CEO, Mia Foster, took the reins of the restaurant chain, while Leventhal stepped down as the former CEO. The restaurant constituted a chain of 35,000 cafes across China, Dubai, and the USA (Barlett & Han, 2013). Its origins lie in a small soup, salad, and sandwich restaurant in Denver, which has now grown to a $10 billion business (Barlett & Han, 2013).

Foster joined the business with much enthusiasm, yet Wall-street did not consider her much of a strong candidate to manage such a large organization. The results were very clear from the tumbling stock prices, which enraged Foster. Therefore, she set to prove herself a viable candidate against all odds.

Following questions are answered in this case study solution

  1. Introduction

  2. Porter’s Model for China & US

  3. From the Case, you should be able to identify CSFs for Multi-unit Restaurants.

  4. Fairly straight forward; you can do some additional research on China market; use case data to support your comments.

  5. Consider these options in regards to Chen-Leave him alone; Replace him; manage him

  6. Conclusion

Case Analysis for Levendary Cafe The China Challenge

2. Porter’s Model for China & US

The prime candidate of review after her appointment was China; therefore, a Porters analysis may provide an initial background towards the Country Foster was dealing with:

i. Threat of New Entrants

Threat of new entrants entails both local food competitors and franchisees, which can be determined by the growth patterns of the Chinese food services industry and the other macro economic factors. For example, it can be identified that the population in China is almost 1.4 billion and the GDP growth rate is 14.5% (Barlett & Han, 2013). 


Population (millions)









Additionally, the biggest market share is taken by Asian food providers, which implies that barriers to entry are high because not all cuisines are welcomed. Furthermore, according to Trade and Industry Department, a typical Chinese café may cost around HK $1275500 (China, 2013). However, the Chinese restaurant sizes are much bigger; thus, costs much more. Also, although labor is cheap, yet it contributes a large chunk towards the restaurants expenses. Brand identity does not hold much significance, although it does in a few segments, but more important aspect is the food itself. 

ii. Bargaining Power of Buyers

Since the consumer food services industry has numerous competitors, buyers do have a certain extent of bargaining power. There is a variety of local food restaurants, and foreign menus available providing an average customer with lots of options to consider.

iii. Bargaining Power of Suppliers

The competitiveness of suppliers in the restaurant industry does not vary much within a particular segment of the multi-unit concept. For instance, Baskin Robbins will not have much of a competitive edge against Dunkin’ Donuts because there is an industry standard of $5 (Barlett & Han, 2013). Thus, all players intend to stay below the limit, and that does not leave many options for the suppliers. The case is similar in terms of Quick service restaurants and Casual Dining. However, across the segments, suppliers may exercise a certain extent of power in attracting customers by providing similar items, with a more rick experience.

This can be identified by looking at the following graph showing the profit margins per segment:

iv. Threat of Substitutes

This is interesting in China because the trend seems to converge towards a similar appetite for rice, chicken, soup, so on and so forth. Therefore, even popular foreign brands tend to follow those trends. So it may be fair to say that the threat of substitutes is high because the consumer views equal or better products with a fairly standard price and considers switching.

v. Rivalry

The rivalry is high in the Chinese consumer food services industry as can be viewed from the case exhibit 3, whereby the pricing is rather stringent, and the traffic does not accommodate for that scenario. Rivalry within segments is high, yet across segments is lower, because Baskin Robbins cannot consider Lavendary Café to be a competitor because the genre of the industry is different. So successful competitors like KFC, McDonalds, Pizza Hut, and others are rapidly taking over the market, yet local restaurants still own a big chunk of the market.

vi. Relative Power of other Stake Holders

The laws are open for the restaurant industry, yet not so open pertaining to the financial reporting side, taxes side, so on and so forth. The accounting standard utilized is the China GAAP, which is unique to its socialist regime (Delloitte, 2013).

The US market, on the other hand, can be viewed on similar lines:

i. Threat of New Entrants

Threat of new entrants in the US is extremely high because of the cultural diversity that allows new concepts and designs to be exploited. However, the capital requirements in the US remain high and maintaining the restaurant business is even more costly due to the high labor costs that tend to eat all the profit margins. The projected Restaurant industry sale for the year 2013 is approximately $660.5 billion as opposed to $379 billion in 2000.

ii. Bargaining Power of Buyers

The bargaining power of buyers remains high as in the case of China because the amount of restaurants are high, which provides a wide array of options to the average consumer. It is interesting to note the level of similarity within the two markets.

iii. Bargaining Power of Suppliers

The bargaining power of suppliers is limited due to the numerous options available ranging from multi-unit concept restaurants to retail, vending, recreation, and mobile concepts. Additionally, the pricing is not really standardized as opposed to that in China, the variation in US is largely related to the state laws, locality, and so on and so forth.

iv. Threat of Substitutes

The threat of substitutes is high but not as high as it is in China. The diversity in cuisine creates substitutes in the US, whereby you may find numerous options for Chinese, oriental, and other similar foods. 

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