The French love cheese. The Chinese barely eat it. The French have transformed bread-making into an art form. The Chinese eat more rice and noodles than bread, especially western-style bread like baguettes. So it is in the midst of these improbable odds that Huang Li, a former railroad worker from Inner Mongolia, decided to start a French-Chinese bakery in China 20 years ago. Today, Wedomé boasts more than 350 bakeries in Beijing and Shanghai serving an average of 100,000 people a day. The company is planning to expand significantly — it is opening one new store a week. Wedomé succeeds by incorporating Chinese tastes into its baked products, such as the French mooncake.
Huang first learned how to make cakes in Guangdong province in southern China. That’s when his obsession with baked goods began. His passion for bread ensures that his bakery uses only high quality ingredients, such as cream imported from France. It is a distinction that sets Wedomé apart from many of its rivals. Today, Huang prides himself on retaining his bread-baking skills. Sometimes, customers can see him behind the clear glass window in Wedomé’s Fuchengmen store making French baguettes. He recently spoke with Knowledge@Wharton about growing his company in a crowded market for bakeries.
An edited transcript of the conversation follows.
Knowledge@Wharton: How did you start Wedomé?
Huang Li: We started in 1996. Pure western-style bread stores were very rare in Beijing at that time. People would buy bread and cakes from general food stores. We were the first bread store to set up a transparent window to display the whole process for customers. You could see how the bread was processed from raw materials to the final product. Even today, only a few modern stores do that.
Knowledge@Wharton: How long did it take you to expand from a single store to a chain store business?
Huang: It’s a substantial change from one to 10. When the number of stores was below 10, we didn’t have organized management systems. It took us four years to reach 10 stores, and we set up a system in that period.
After the 10th store, our management capability improved. We entered a rapid growth phase when the number of stores exceeded 100. After 20 years, we now have around 300 stores in Beijing and 50 in Shanghai. Every store is directly managed. We now have a management system that includes team-building, quality control, product launches, process standardization and training systems to ensure the uniformity of operations.
“High-quality raw material is what makes us stand out from others.”
Our store sizes are small. The initial investment per store is around 700,000 yuan ($100,000). Our average daily revenue for a single store is about 10,000 yuan ($1,450), which is at the upper end of the market. A store normally breaks even in five to six months.
As of today, we haven’t raised any capital externally.
Knowledge@Wharton: What’s your expansion plan for the future, sticking to your directly managed model?
Huang: Our current rate is one new store a week. I believe we can expand substantially. KFC and McDonald’s have several thousand stores in China, but their store locations are restricted to commercial centers or busy streets. Our bakeries are much smaller and we can open near residential communities and subways. So, our choice of location is wider.
In the future, Wedomé will consider the franchise model to expand. However, you have to be very confident in your standardization system, especially in quality control and franchisees’ credit before you can adopt that model.
Knowledge@Wharton: There are so many players in the bakery industry. How does Wedomé differentiate itself?
Huang: Customers like us mainly because they like our products. I am a baker myself and I have lots of passion to make good bread. For a bakery, to make a good product is the most fundamental thing. I have devoted much more attention and resources to the product than to marketing and advertising. To ensure product quality, you have to use good raw materials. High-quality raw material is what makes us stand out from others.
… Our location is also [what makes us] unique. I position Wedomé as a bakery with products made fresh onsite to serve people’s daily needs. So, our location is mainly in residential communities or near public transportation hubs rather than in commercial centers. You can buy some bread before going to work, after work, or when you take a walk after dinner near home. Convenience is the main consideration for our store locations.
Knowledge@Wharton: What is so special about your ingredients?
Huang: For example, cream is very important for a bakery and it accounts for a big portion of raw material costs. Many bakeries use cheap artificial cream but we have always used … [products from] President, which is the biggest dairy brand in France. In the past three years, we have been its biggest Chinese client and the third-biggest client globally.
We import active yeast from Lesaffre, a French company. It’s the biggest yeast company globally. Our cheese is from MG, the biggest Australian cheese company, and we are its biggest Chinese client. In addition, we buy syrup from Canada, cherry wine from France and coconut powder from the Philippines.
Knowledge@Wharton: It’s widely recognized that it’s hard to keep employees in the dining and bakery industries. How do you hire and train people, and what is the turnover rate of your staff?
Huang: Yes, it’s hard to hire people in this industry because most of them don’t treat their jobs as long term [careers]. Many young people do it as [part of] a transitory phase. Right now, we have plans to convert qualified employees into partners. We want to make Wedomé into a platform to let them be their own boss and start their own experiments. This plan has lifted people’s motivation, and the turnover rate has been reduced.
Knowledge@Wharton: A bakery has its origins in the West. Have you made any localized innovations?
Huang: We have created a new category — the French mooncake. The market is full of Cantonese-style mooncakes, and all the brands are competing in this category. But we integrated some French bakery processes and made it in a round shape and call it a French-style mooncake. [A mooncake is the signature pastry of the mid-Autumn Festival.]
The filling is also western style. We launched this mooncake 10 years ago. At the beginning, French mooncake was only 10% of our total mooncake sales; it’s 100% now. We created this market by integrating French [baking] with Chinese culture.
Knowledge@Wharton: What is your response to the e-commerce trend? Do you sell online?
Huang: We set up an independent e-commerce department in 2014. It now has around 150 employees with two or three deliverymen, and the others are marketing and customer service people. The business has grown by more than 200% annually for the past two years. Cakes account for 80% of online sales right now although it is only 20% in offline stores.
“We have plans to convert qualified employees into partners. We want to make Wedomé into a platform to let them be their own boss and start their own experiments.”
We also use the internet to understand and interact more with our customers. Our WeChat [instant messaging] account has around 800,000 fans and we actively interact with them, inviting them to taste new products and give feedback.
Knowledge@Wharton: Since 2012, the bakery industry has generally faced pressures because of the “three high, one low” factor, which refers to high costs, high salary, high rentals and low profit. Does Wedomé face the same challenge?
Huang: The pressures are there. However, they haven’t endangered our expansion at this stage. We use the best raw materials, but our pricing is not the highest. So customers like us.
Knowledge@Wharton: As a baker, what products do you like to make the most?
Huang: I really enjoy making French baguette. It’s a simple product, but very difficult to make well. And I love eating it.
Knowledge@Wharton: Tell us about your personal history and what made you succeed in this industry.
Huang: I was born in Inner Mongolia in 1969 and was a railway worker after graduation from high school. Later, I went to Guangdong province in southern China to learn how to make cakes. I personally like to eat bread and make bread.
I think success needs two things. One is that you have a dream to build [something you believe in]. The second is that you devote your heart to your cause. From the beginning, I always thought of offering good products with good quality raw materials — and customers prefer healthy products.
I am always thinking of how to do a better job every day. I will never lose sight of that target. I will never leave the bakery industry in my lifetime.
Article by Knowledge@Wharton