This year, Rosemead, Calif.-based Panda Restaurant Group is celebrating its 35th anniversary with more than 1,000 U.S. locations and more than $1 billion in annual revenues.

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What happens when immigrant Andrew Cherng – equipped with a master’s degree in mathematics and a desire to live near relatives – leaves Missouri to take a job at a Chinese restaurant in Hollywood? 

Some might call it fate; others would say good fortune. Whatever the case, his life changed when he decided to open his own restaurant, Panda Inn, in 1973. This year, Rosemead, Calif.-based Panda Restaurant Group celebrates its 35th anniversary with more than 1,000 U.S. locations and more than $1 billion in annual revenues. It is the largest Chinese foodservice provider in the nation, it says, and intends to stay that way by “dramatically outperforming” the competition.   

“While lovable pandas have won the hearts of zoo-goers from San Diego to Washington, D.C., a different sort of panda has been winning the hearts – and stomachs – of millions of Americans,” the company states.

“It's the Panda family of restaurants that includes Panda Express, Panda Inn and Hibachi-San, each providing different flavors, settings and service styles. Together, the success of these unique dining concepts has made their family-owned parent company, Panda Restaurant Group [formerly Panda Management Co. Inc.], the largest Chinese foodservice provider in the nation.

“Panda’s great food, great service and great ambiance have won the hearts and taste buds of our customers for the last 35 years,” it continues.

“They are our keys to success. On our [35th] anniversary, we acknowledge and emphasize the continuing importance of customer service in our business, thus the theme ‘Great Service = Great Sales.’”
 
A Star is Born
Panda Inn quickly developed a following with its gourmet Mandarin and Szechuan dishes, such as tea-smoked duck, lotus leaf rice and honey walnut shrimp.

“[Cherng] opened a Panda Inn in Glendale, Calif., and had some customers come for lunch one day that were guys building the Glendale Galleria [mall],” CFO John Theuer says. “They said, ‘Andrew, you have great food. Come open a restaurant in our food court.’    

“He, being the entrepreneur that he is, took the Panda Inn menu and made it workable for a quick-service environment.”

“That provided the springboard and the inspiration for the launch of Panda Express in 1983, fulfilling Andrew Cherng's vision of a unique restaurant that combined the gourmet-style cuisine of Panda Inn with a quick-service format,” the company explains.

“Panda Express is the growth engine of Panda Restaurant Group, designed for people who welcome the uncommon with gourmet Chinese food, served quickly and conveniently in an inviting dining environment.”

Panda Express prepares all of its entrees on-site and features many original recipes developed by Master Chef Ming-Tsai Cherng, Andrew Cherng’s father, who helped him open the first Panda Inn in 1973.

In 1992, Panda Restaurant Group launched Hibachi-San, a mall-based quick-service restaurant featuring a variety of Japanese grill and bowl entrees. Ming-Tsai Cherng oversaw its menu development, as well.

Entrepreneurial Accolades
This year, Panda Restaurant Group received the California Restaurant Association’s annual innovators award, which was presented to Cherng and his wife, Co-Chairwoman Peggy Cherng, by last year’s recipient, Rick Frederico, CFO of P.F. Chang’s China Bistro.

The Cherngs were inducted into the Los Angeles Business Journal’s Hall of Fame this year. “They’re still active in real estate,” Theuer says. “‘Chief Inspirational Officers’ are what we call them.”

Theuer joined the company in 1994, when there were about 90 locations and Panda was earning $65 million in annual revenues. Since the mid 1990s, same-store sales have increased every year, and in 2007, Panda Express added 172 new U.S. locations.

Hands down, Theuer says, Panda’s Restaurant Group’s growth model is largely inspired by that of Starbucks.

Recipe for Success
Panda Express’ flexibility and willingness to adapt to a variety of venues – such as malls, retail stores, shopping centers, college campuses, airports, sports arenas and free-standing locations – have been key ingredients to the company’s success, Theuer says.

In addition, Panda Express was the first quick-service chain to open restaurant locations inside of a supermarket through its ongoing relationship with Vons/Pavilions on the West Coast.

“That provided another captive venue where we weren’t relying on foot traffic,” he explains. “It wasn’t until 1992 that Panda Express jumped out onto the street in the form of a free-standing store.

"It's unusual in that most restaurants start out on the street and then jump into mall food courts and grocery stores,” he adds. “But we started as a captive venue and then jumped out onto the street. We’re one of the only Asian food concepts to have gone out of the food court and onto the street.”

Maintaining Control
And yet, the company opted not to franchise. “Like Starbucks, we chose not to franchise early on,” Theuer notes. “It’s about running company-owned restaurants, building a great operation and culture, and growing through company-operated new developments. 

“One reason is it helps maintain the culture; everyone’s rowing the boat in the same direction and everyone has a stake in the outcome. We’re in the people business as opposed to the restaurant business, per say.

“One of Panda’s key strengths is the tenure of our employees, particularly in operations,” he explains. “Through that, Andrew is able to grow people internally at Panda and give them the opportunity to learn and grow.

“And reason No. 2, I think from a quality perspective, Chinese wok cooking is not as easy as teaching a franchisee to cook burgers or tacos, so it really helps control the quality.

“If you go into one of our stores, it’s a nicer experience than the typical fast-food restaurant. We have nicer furnishings, granite table tops, wood furniture and an open kitchen, where you can see our chefs working in the wok.”

Panda also maintains control over its distribution network, Theuer continues. “We don’t use a commissary; everything is shipped by our distributor to our stores,” he says. “Everything is made fresh in the stores daily – sauces, vegetables being chopped [and]  meat being cooked – so that the freshness and culinary skill translates into the taste and quality of the food.”

Signature Dish
Panda Express’ Orange-Flavored Chicken is “an irresistible favorite among consumers nationwide,” the company declares. “It is a dish from the Hunan Province in south-central China. It is prepared with lightly battered boneless chicken bites tossed in the wok with our secret sweet and spicy orange sauce.”

Its newest rollout is Beijing Beef, which consists of beef strips deep fried and thrown in a wok with garlic, chili peppers and the same “tangy” orange sauce used in its signature chicken dish. Panda expects Beijing Beef, which was introduced in April, to warrant the same reaction from patrons as its Orange-Flavored Chicken.

Marketing Strategy
It is no coincidence that the company is launching Beijing Beef around the 2008 Olympics in China. “We’ve got some great media behind it,” Theuer notes. “We’ve got some billboards, radio and animated talking panda bears by the names of Eddie and Tom Tom in relation to this new product rollout. Historically, marketing has not been a big part of what Panda Express has done.

“Starbucks has spent 1 percent of its revenues on advertising, and that’s been the case with us, as well. We let the food and the service do the talking. Brand awareness is spread through opening new units.”

Taking Advantage
One thing that has benefited Panda in particular “is there isn’t a competitor out there doing what we’re doing,” Theuer says. “We’re not having a price war like the pizza guys or the burger guys. That’s left us free to do what we think is right for the business.

“Real estate has become more challenging and construction costs have skyrocketed over the last four to five years, making it more expensive to build locations, and rents are certainly more expensive wherever we go,” he notes. “We try to manage costs as best as we can, and we try to be selective where we open new units. If we don’t feel like the deal makes sense, we just don’t do it since we’re privately-held.

“We try to take advantage of our scale as we grow and get better prices from our vendors and be able to pass those cost containments onto our customers. We haven’t increased our prices as a lot of chains have.”

Continued Growth
Panda Restaurant Group operates restaurants in 37 states. “When I talk about Panda, I think about its uniqueness in what it has achieved so far, but also what growth is left,” Theuer notes. “Right now, about  60 percent of our locations are in California, Arizona and Nevada. We’re not everywhere yet, but we are in most of the large metropolitan markets. We can still penetrate Chicago, Seattle, Portland, Ore., and Texas – and those are large markets.”

Panda’s plan is to “continue to grow at about 160 to 180 units per year and continue to take the concept to the street and penetrate markets we’re already in,” Theuer says. “The big part of the growth will be company-operated development, mainly end cap and drive-through.

“So even though we’re in 37 states, we still have a lot of room to grow. We’re adding one to two new markets per year. Oklahoma City and Charlotte, N.C., were new markets for us last year.

“I tend to draw a lot of similarities between Panda and Starbucks,” he admits. “Obviously, we’re in different parts of the industry, but the way we treat our employees, our company-operated growth model and our real estate strategy of being able to go into various outlets is similar to Starbucks.

“While we’re a long way from accomplishing what they have accomplished, we’re on a good path to get pretty close.”