General Tso, Meet Steven Covey

Fast-food Chinese chain Panda Express is turning self-help tenets into serious cash flow

Bloomberg Businessweek/November 18, 2010

The Pandas are in an affectionate mood. Seventy-one Panda Express managers are gathered in the banquet room of the Dynasty Restaurant in San Jose, Calif., waiting in line to make a commitment in front of their colleagues to improve themselves-and the business. They are wearing orange T-shirts advertising their newest entrée, Kobari Beef. "I'm feeling saucy," the shirts read.

They call themselves "Pandas" because they are employees of Panda Restaurant Group (PRG), a privately owned, 1,350-location "fast casual" Asian restaurant chain with $1.4 billion in annual sales. Part of being a successful Panda is buying into a process that founder and Co-Chief Executive Officer Andrew Cherng, 62, calls "a continuous commitment to sharpening yourself." That means standing before your fellow Pandas and speaking honestly and openly about your personal and business failings. It also means a lot of hugging. Here is a typical share by Tina, who is from store 538: "I didn't have a good relationship with my dad. We didn't talk, and he treated me unfairly, I always thought. If he called, I wouldn't pick up. I wouldn't call him back ."

Tina begins crying, her voice faltering. "I didn't realize that I was hurting myself by holding on to what happened in the past. I needed to let that go. I can't keep this anger inside me because it just hurts me, it keeps me a prisoner. I have to let that go to go forward. That's the commitment I am making."

When she is done and returns to her seat, she is embraced by a half-dozen fellow Pandas, including Cherng, who nods at the progress she is making.

Cherng is an avid consumer of self-improvement programs. He urges his Pandas to maintain healthy lifestyles and eat a well-rounded diet; he recently challenged the Pandas to run three miles in under 36 minutes. He has since 2003 been a participant in Life Academy, a Taiwanese organization that follows a "life manual" dedicated to the "advancement of the human spirit." He is a devotee of Stephen Covey's Seven Habits of Highly Effective People, Deepak Chopra's The Seven Spiritual Laws of Success, and Don Miguel Ruiz's Four Agreements. Recently, Cherng has become passionate about the Landmark Forum, a program that utilizes Werner Erhard's EST methodology, which Psychology Today described as one that, "tore you down and put you back together."

According to the group's literature, Landmark improves everything from personal relationships to business performance. It is a kind of program Cherng has been relying on for almost a decade. "I see the benefit of Landmark to the human race," he says. "If you quit Panda tomorrow, I still want you to go to Landmark."

During the sharing, it becomes clear that every one of the 71 managers present has already attended the introductory Landmark Forum and many have completed the Landmark Advanced Course and Landmark Communication Course as well. The classes are intensive, three-day sessions where participants are urged to shed their past, break down obstacles to personal growth, and "bring about positive and permanent shifts in the quality of your life."

Cherng, perhaps emulating the Landmark coaches he has learned from, runs his regional meetings more like encounter groups than corporate conferences. He stands in the back of the room, arms folded, nodding as he listens to his managers share their pain, sorrow, joy, and pleasure, and pumps his fist when he hears an inspiring share. He has silver crew-cut hair, a round face, appraising eyes, and a slight underbite, all of which are reminiscent of an Asian Pete Rose. He wears casual clothing, today a Patagonia hoodie, khakis, and loafers. As he paces the rear of the banquet hall, crossing back and forth in front of the breakfast tables, he nods his head and devotes himself to "active listening."

At the end of the meeting, Cherng throws up a PowerPoint slide comparing Panda Express to a variety of restaurant chains. Right now, he explains, Panda is averaging about $1.4 million in annual sales at each of its 485 California locations. In-N-Out Burger is averaging $8 million to $10 million at its best locations.

"We need to be at $2 million per store," he says. "I'm challenging all of you to be impeccable, to aim higher, to grow!" Cherng's belief is that the personal improvement of his staff-by dieting, working on communication skills, running faster, and, of course, attending seminars-is directly transferable to sales. "I challenge you," he repeats."I challenge all of you to grow."

The Panda Express story is many great American stories all in one. It is the classic immigrant story: Cherng and his chef father, Ming Tsai Cherng, who died in 1981, were fresh-off-the-jumbo-jet Chinese émigrés who built an empire one location at a time, starting with a Panda Inn in Pasadena, Calif., in 1973. It is also the great American entrepreneur story of a little guy borrowing $30,000, opening his own business, and working seven days a week to make it a success. It is the story of a happy marriage that is also a thriving business partnership. Cherng met his wife, Peggy, who has a PhD in electrical engineering from the University of Missouri, before he opened his first restaurant; she would work with him not in the kitchen but in the finance, logistics, and systems areas of the company.

Cherng and Peggy, who both hold the titles of co-chairman and co-CEO, preside over one of the fastest-growing and most successful restaurant chains in the U.S. In a challenging economy, the company is on track to record same-store sales growth of 7 percent this year. It is one of the largest privately held retailers in the U.S., with ownership of 99 percent of its locations. Cherng plans to add 75 stores this year and 100 in 2011 as part of a long-term plan to get to 2,300 stores by 2015. Next year the company will expand into Mexico-part of a joint venture with a partner to be announced-with plans to launch 10 stores in 2011 and an eventual goal of 200 stores. Cherng is also diversifying beyond the food business and intends to open 150 Tide-branded dry cleaners in partnership with Procter & Gamble (PG).

The restaurant industry in general has been suffering through two years of declines, but the sector called "fast casual," which is basically non-burger fast food, has bucked the trend, according to Bonnie Riggs of NPD Group. The research firm reports that for the three-month period ended in August, Asian-themed fast casual food was up 4 percent, while the industry as a whole was flat. "Panda drives that category," says Riggs, noting that Panda is 10 times larger than its nearest competitor. With no true national competition in its category, Panda Express now sees the giants of the fast-food industry-McDonald's (MCD), Taco Bell, Burger King (BKC), and the like-as its main rivals.

Still the company faces challenges, which Landmark may or may not be able to help. "Asian is the new Mexican," says Glenn Lunde, senior vice-president for marketing. "It's fresh, exciting. It's what Mexican food was in the '90s." The problem, as Lunde sees it, is getting to 2,300 locations without losing the culture of the business. "Growing is easy," he says, pointing out that the company is entirely self-funded. "But it's doing it right; it's not turning it into another Taco Bell." Lunde should know, he spent eight years at Taco Bell.

The other option, moving up-market and taking on PF Chang's, is not viewed as an appetizing prospect. PF Chang's, with 200 locations, is a sit-down restaurant that has also had a phenomenal run these last two years. "We want to stay right where we are. PF Chang's is the McDonald's of their space. Let them have it," says Lunde. PF Chang's has tried to move down-market into Panda's space, opening Pei Wei, but has found it hard to sell cooked-to-order meals quickly and cheaply.

"The lunch crowd can't wait," says Lunde. The Panda breakthrough, as he sees it, was figuring out how to serve appetizing Chinese food-and fast. The cafeteria-style steam table was the key, but the problem was making food served in that manner look fresh and appetizing. Cherng's innovations were simple: the huge cooler full of fresh vegetables that you see at every Panda and the open kitchen design that lets the customer view the food as it's being chopped, prepped, and cooked. The impression one gets, even if the food has been in the wells for 45 minutes, is of freshly prepared food. It is similar to the approach taken by Subway or Chipotle Mexican Grill. Somehow, the consumer believes that if he can see the ingredients, then the ingredients must be of higher quality. Although the Panda model at heart is much like a college cafeteria-you pick up your tray, move down a line, and choose your food-it doesn't feel that way, and that is where Andrew and Peggy cracked the casual dining code.

In traditional Chinese restaurants, where Cherng got his start, there is a strict division between what is called "FOH," or the front of the house, and "BOH," the back of the house. FOH are waiters, busboys, and, most important, the manager who keeps the dining room running smoothly. BOH are the cooks and prep chefs who prepare and hand over the plated food to the FOH staff. Cherng is the quintessential FOH man. He is joyous, optimistic, glad-handing, and even here, in his office suite on the second floor of his Rosemead (Calif.) corporate headquarters, he has the welcoming and eager-to-please manner of a bow-tied maître d' on opening night.

In his office, he is surrounded by a sculpture of a golden Buddha; a sculpture of a dragon; a basketball signed by John Wooden; and framed photos of his three daughters with their families. His bookcase is filled with self-help titles. Even back when he had just one restaurant in Pasadena, his waiters recall him bringing in cassettes of the latest business management seminar he had attended. Years later he moved from management to personal enlightenment. "For a while it was Seven Habits, then Life Academy, then Landmark," says Alan Huang, senior vice-president for operations and a Panda since 1988. "I rebelled in the beginning, but Andrew kept pushing so I went."

"Business is a playground," says Cherng, sitting down. He takes a moment to think before he reverts to his customary smile. "Business is where you practice your human skills. It's where you grow. You have to grow! You grow as a person, and then you will grow in business. That's how you go forward."

Spending time with the Pandas is unlike visiting almost any other corporation. Where else will an employee walk up to you, as one store manager did to me during a corporate meeting, give you a hug, and say: "Hi, I'm Francis Yee, and I'm making a commitment to being more open."

Cherng is unapologetic about his focus on what he calls "personal growth." "Before 2003 we used to be more task-based," he says. "But now, if you want to be a manager at Panda, you have to be committed to being positive, to continuous learning."

Eugene Lam, a regional vice-president managing 340 stores, says that joining Landmark isn't mandatory. "Every now and then we have some individuals who say all they want to do is work and go home and do nothing," he says. "But those people will eventually feel like they won't catch up, they'll feel behind in the workplace."

Cherng became successful before he sought to understand the mechanisms of his success. Only in his 50s did he begin to wonder at the components of business and personal success and invest his time in self-help movements. "We just did it, never thought about not doing it," he says. "I would never leave the restaurant. I developed kidney stones from standing so much. I forgot to drink enough water. Just standing, waiting for the customer."

Cherng grew up in Taiwan, the son of a chef who had fled with the retreating Kuomintang from the mainland in 1949. The Cherngs moved to Yokohama, Japan, in 1963, when his dad, Ming Tsai, got a job at a Chinese restaurant in Yamashita-cho, part of Yokohama's vast Chinatown.

Cherng was an indifferent student. "My best subject was playing pool," he says. "There was a club next to the school, and I would be in there all day." He quickly decided he had to get out of Japan. As an ethnic Chinese, his options there were limited. "There's a line, you know," he says. "If you're not Japanese, you can't cross that."

"America seemed like the next right thing. I don't know why. It just felt like something I had to do," he says. The obstacles facing a young Chinese person who wanted to go to college in the U.S. were formidable. "I couldn't take SATs," Cherng recalls, "I couldn't even speak English." He heard about a college, Baker University, in Baldwin City, Kan., that didn't require SATs. He "manufactured" his high school transcript-"I gave myself good grades"-and had his high school principal sign off on the document. "Did he read it? He didn't care. These are the kinds of things you need to get done, you figure out how to get it done."

He went to the U.S. by himself and recalls 1966, that first year in Kansas, as one of the loneliest of his life, saying: "We had no phones. A letter would come from my family, and I would read it five times over. And my mother and father didn't know how to write, so they would get somebody to write for them. People left the dorm for Thanksgiving. I didn't leave. Nobody was left but a few Chinese still in the dorms."

He could only take mathematics courses-his English wasn't good enough for any other subject-but he discovered that if he took German, he could learn English and German simultaneously, since he was proficient at neither. The summer of 1967, the Summer of Love, was for Cherng the summer of working as a waiter in a Chinese restaurant in Brooklyn. He began to work every summer, every winter, every break, saving up money for tuition.

This was when he discovered his knack for working the front of the house, at Chinese restaurants like The Shanghai Door on 94th and Broadway in Manhattan. He also realized, like thousands of his countrymen, that Americans seemed to have an insatiable appetite for Chinese food. His sophomore year at Baker College, a freshman from Hong Kong arrived, Peggy Tsiang, a fellow math major. "We were in the same class," says Peggy. "I was 17. Being foreign students, we were both adjusting, there was a lot of adjustment. It wasn't love at first sight...but he was a very attentive person."

The two would go on to graduate school together at the University of Missouri, where Andrew earned a master's in applied mathematics. Afterward, Peggy stayed in Columbia, Mo., earning her PhD, and Andrew moved to Los Angeles to manage his cousin's restaurant, Ting Ho, in Hollywood. "I was making $800 a month," he says. "The restaurant was open six days a week. I told my cousin we have to be open seven. That was not so smart. We opened seven days, and I was still getting $800 a month."

When his parents joined him in the U.S. in 1973, Andrew figured out he had a great BOH man, a master chef, to go along with his own FOH skills. He heard about a restaurant on the east side of Pasadena that had closed. Cherng put up every dollar he had saved, took out a $20,000 bank loan, and borrowed $10,000 more from a waiter he worked with at Ting Ho. It was this waiter who suggested the name Panda. This was the era of Nixon going to China, the opening of bilateral relations, and the first pandas turning up in American zoos. "Americans like pandas," the waiter reasoned.

"I was so confident," Cherng recalls. "I remember there was this restaurant down on Walnut, Sangs, and they were selling a hundred pounds of bean sprouts a day, just loading every dish with bean sprouts. I thought, 'Who wants to eat that?' And they were busy. So I thought, you know, because of my father, 'I've got better food.' But then that month, two other Chinese restaurants opened, across the street from me and a few blocks away. I'm like, 'Jesus, how unlucky,' but that's how life works."

If you had walked into the Panda Inn in 1973, you would have found very little to differentiate it from most other chop suey joints. The décor was a little brighter, the food a little better, but for most customers, it was just another Chinese place. Gradually, by simplifying his lunch menu to include the dinner favorites at 60 percent of the price, but charging customers for rice and other extras, he began to build a steady following. "By 1977," he says, "they were lined up lunch and dinner, lined up!"

He opened a second restaurant, and then a third in 1982, all with sit-down dining rooms. In 1983 he opened the first Panda Express in the Glendale Galleria mall. Before opening, he pulled his chefs together and forced them to come to a consensus about the preparation steps and ingredients for each dish. "I told them, 'You stay in that kitchen and don't come out until you agree on one recipe,'" he says. From those meetings he developed a number of recipes, including Orange Chicken, the signature dish of the franchise, which is ordered by 75 percent of Panda customers. (To serve it, PRG goes through 65 million tons of chicken a year.)

Expansion was slow but steady, with two more stores in 1985, three in 1986, and three more the next year. By 1992 there were 97 stores, and revenue was growing at 33 percent a year. Cherng also came up with the open design and colorful décor, dotting the interior with red paper lanterns, all novel ideas in the Asian food industry, which had been dominated by mom-and-pop operations that didn't always put a premium on design. Yet all of Andrew's vision may have run up against the hard realities of logistics if not for his wife. "In the beginning, we said we wanted to be the McDonald's of the East," says Peggy. "But what he didn't realize was that we had to standardize everything, from recipes to kitchens. That's the difference between us. I think process, systems. He's the visionary."

Peggy's office is around the corner from Andrew's. On her desk is a copy of How to Win Friends and Influence People by Dale Carnegie. When asked how she likes it, she shrugs and says: "It's kind of another Seven Habits." Peggy is a pretty woman with short black hair and smooth, pinkish skin. She has a gentle voice but becomes impatient when discussing concepts that can more quickly be explained with a chart or a graph or a time line. Asked about when certain developments happened at Panda, she goes to a computer and starts opening PowerPoint slides.

Before Peggy joined her husband at Panda, she worked at Comtal/3M as a software designer. Before that, she was at McDonnell Douglas. "I was doing computer systems that helped to build missiles," she says. She was, in other words, a rocket scientist.

When she joined Panda full-time in 1982, just as the company began its rapid expansion, she brought with her a systems expertise that allowed Panda to deploy technology like a point-of-sale system that allowed each restaurant to track inventory and automatically reorder ingredients. Peggy wrote some of the software herself and eventually headed the expansion of the program and terminal into the robust and patented PAWS (Panda Automated Work Station) system that is now in every store. PAWS allows for real-time tracking of inventory, sales, and customer preferences throughout the entire company.

"This was the only Chinese restaurant using computers," says Gigi Cheung, who joined Panda as a waitress in 1986. She would work her way up to executive director for compensation and benefits, reporting directly to Peggy. (And yes, she has done the Landmark Seminar, as have all 12 of her staff.) "The standard was higher here," says Cheung. "The system was already in place: teamwork, technology, even the bonus system."

Peggy would come up with the human resources software, oversee much of the financial planning, secure the credit lines the young company needed, and even work on streamlining the kitchen. She oversaw the creation of Panda's "K-Minus" system, which entails doing as much prep as possible before the food hits the kitchen. She says things like, "We needed to K-Minus the sauce." At Panda, the sauce is premixed, in bags. She also figured out ways to K-Minus the meat and the veggies. Andrew, the visionary, the Front of the House man, just wanted to open more restaurants, expand, and attend his self-help classes, but it was Peggy's technological knowhow that allowed it all to proceed as smoothly as it did. It was Peggy who figured out the Back of the House.

Perhaps Cherng's obsessions with per- sonal growth stem from his desire to keep himself motivated as his company, already worth billions, continues to expand.

To reach Cherng's goal of $2 million per store in annual revenue and $2 billion in total sales, the company is going to have to make some changes. Lunde, the highest-ranking Caucasian in a company dominated by Asians and Latinos, believes he can improve sales by tweaking the menu. Lunde is a creature of the fast-food industry. At Taco Bell, he came up with hit products such as the Chalupa and the Gordita. He joined Panda in 2005 and has since created two recent popular additions to the Panda menu, Kobari Beef and Honey Walnut Shrimp. Kobari Beef is based on a dish originally served at the Panda Inn, where it was known as Panda Beef. "We focus-grouped it and found that some people thought we were actually serving panda," says Lunde of the name change. Lunde is best known for his judicious use of one key ingredient: bacon. "I put bacon in everything," he explains. He worries that to expand the business, the chain might need to move into breakfast meals-not a natural area for an Asian-themed restaurant-and add even more bacon. So far, experiments with bacon-cheddar bao-steamed buns-have not met with much success.

Cherng still sees the company's growth more in personal rather than professional terms. Reaching his goals, he believes, means "better service, better execution, better environment. Every one of these things requires a human touch. Every one of these things benefits from Landmark.....Forget about return on investment. This is a tremendous overall contribution to society."

At a mall near the airport in San Jose, Calif., Cherng pauses before visiting a Panda Express at the end of a strip that also houses a waxing salon and a frozen yogurt shop. He nods his head, saying, "This is a good-looking store." He poses for photos with his staff and then greets confused diners. "Thank you," he says. "Thank you for coming."

Two young men and a middle-aged woman, on their lunch break from a nearby office, look at him and nod back. "He must work here," says the woman to the one of the men as they walk out through the glass doors.

As they leave, Cherng walks over to the table where they were sitting, picks up a grain of fried rice from the table, and takes it to the garbage bin. He may no longer spend his days behind a podium in a bow tie and suit anxiously awaiting the lunch crowd, but he will always be a Front of the House man.

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