300 hundred restaurants in 22 countries might not sound like a billion dollar empire, but you would be wrong.

Dave Young:

Welcome to the Empire Builders Podcast, teaching business owners the not-so-secret techniques that took famous businesses from mom-and-pop to major brands. Stephen Semple is a marketing consultant, story collector, and storyteller. I’m Stephen’s sidekick and business partner, Dave Young. Before we get into today’s episode, a word from our sponsor, which is… Well, it’s us, but we’re highlighting ads we’ve written and produced for our clients, so here’s one of those.

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Dave Young:

Welcome back to the Empire Builders Podcast. I’m Dave Young. Stephen Semple is here, and we’re going to talk about the building of another empire. And I’ve got to admit, I don’t know a whole lot about this one. I’ve maybe…

Stephen Semple:

Oh, wow. That’s exciting.

Dave Young:

We’re going to talk about P.F. Chang’s. I’ve maybe eaten at one of them, I would say less than half a dozen times in my life.

Stephen Semple:

Okay.

Dave Young:

And I think it’s just more of a convenience and proximity issue. I’m never really near any of them.

Stephen Semple:

So while they’re big, they’re not massive. They’re 300 restaurants in 22 countries, so they’re not like many of the other things we’ve talked about where there’s thousands of them.

Dave Young:

Right.

Stephen Semple:

So no, they’re not as prevalent. But look, 300 restaurants is still pretty successful.

Dave Young:

Yeah, that’s a lot. How did they get started? I’m not going to guess. I’m going to let you tell me.

Stephen Semple:

Okay. The business was founded by Philip Chiang and Paul Fleming. And Paul Fleming, you might recognize because he’s of Ruth’s Chris Steakhouse fame.

Dave Young:

Oh, okay.

Stephen Semple:

They got together, and they founded P.F. Chang in Scottsdale, Arizona-

Dave Young:

That makes a lot of sense.

Stephen Semple:

… in 1993. Now, Philip spells his last name C-H-I-A-N-G. So at a certain point, he changed his spelling just to make it easier. Drop the I and make it easier.

Dave Young:

Drop the I and made it just… Spell it the way it sounds.

Stephen Semple:

… Spell it the way it sounds, make it easier for the U.S. market. And the company has been bought and sold a few times over the years, but the first acquisition from the founders, from Philip and Paul, happened in 2012 by Centerbridge Partners in a deal worth a little bit over a billion dollars.

Dave Young:

Wow.

Stephen Semple:

They did okay. They walk away with some cash.

Dave Young:

Now, was it before or after they started putting it in supermarkets?

Stephen Semple:

I do not know the answer to that question.

Dave Young:

Probably predates.

Stephen Semple:

I’m going to suspect after.

Dave Young:

Okay.

Stephen Semple:

But the story starts with Philip’s mother, Cecilia Chiang. Cecilia was born in Beijing in 1920 to a really wealthy family. She grew up in a palace in China, ate high-end food, full staff, chefs, the whole nine yards, part of the aristocracy. And during the Chinese Civil War and the Japanese occupation, her family fled China and relocated in Japan, and there, the family opened a restaurant. Now in the 1960s, she travels to the U.S. Cecilia travels to U.S. to help her sister who came to America because of the economic challenges in Japan, and her sister had opened a restaurant in San Francisco and needed help-

Dave Young:

Okay.

Stephen Semple:

… and Cecilia came over to help her. But that venture failed, but Cecilia still remained in the U.S. And look, Chinese food in America at that time was not good. If you look at just about every food that has come to United States, the first people who brought it, whether it was Italian, whether it was Mexican, whether it was Chinese, the first immigrants were the people who were poor.

Dave Young:

Yeah. What years are we talking about here?

Stephen Semple:

1960.

Dave Young:

Okay.

Stephen Semple:

So the first immigrants who came were the people who were poor, so therefore, typically the food is not the great food, it’s not made with the great ingredients. And so here she is, she’s looking around and she’s saying, “Look, there’s this poor Chinese food, all basically from the Canton region.” And most of it has been also turned into an American version, because basically, again, people were making it with whatever was available, so it really became very Americanized.

Dave Young:

Right.

Stephen Semple:

And Cecilia saw that, and what she wanted to do was introduce America to a more refined Chinese food, what she had experienced growing up as a wealthy person in China. So in 1961, she opens a sit-down restaurant with food from Northern China called The Mandarin.

Dave Young:

Okay.

Stephen Semple:

And it opens not in Chinatown, because here’s the thing that she recognized, context is everything. If she opened it in Chinatown, people’s expectation would be it would be the same as all the Chinese restaurants in Chinatown.

Dave Young:

All of them. Right, right.

Stephen Semple:

So what she did, she opened it on Polk Street, not far from Pacific Heights in San Francisco.

Dave Young:

Okay.

Stephen Semple:

Bit of a bold move, but she wanted to be seen as different, and that was how you did it.

Dave Young:

Makes sense.

Stephen Semple:

Now, the menu had some things that were unfamiliar, like pigeon, and it did not have some things that were expected like chow mein. And she struggled initially, because America was not really ready to try new things. Now, after two years of struggle came her breakout moment. The restaurant was visited by a guy by the name of Herb Kane, who was the most influential columnist in San Francisco history. He was a writer for the San Francisco Chronicle. But here’s the interesting thing, not a food critic. And he comes in the restaurant, falls in love with it, and gives it a great review. And overnight, the place becomes famous. You couldn’t get into it. It was visited by the likes of Julia Child, James Beard. It was totally on the radar. And I actually think the review may have even been more powerful because he was not a food critic.

Dave Young:

Sure. Yeah.

Stephen Semple:

But it also goes to show you… We talk about influencers, influence and all these other things, most restaurants be like, “We’ve got to get the food critics in here.” This guy was just a columnist who came in to try out their food-

Dave Young:

Right.

Stephen Semple:

… and it made them famous. And one of the things he loved was Peking duck, and so today Peking duck is pretty normal, it was really new back then. And suddenly, authentic Chinese food started to pop up. This really started it. In the late 1960s, Chinese restaurants in the United States doubled to about 10,000 of them. 1966, the first sushi restaurant opens. She opens the second restaurant, and Philip… And we’re talking about Philip Chiang?

Dave Young:

Right, right.

Stephen Semple:

Philip, her son, joins the business, and opens The Mandarin Cafe in LA, where he starts modernizing Chinese dishes for American diners, so starts doing a bit more of a fusion, right?

Dave Young:

Mm-hmm.

Stephen Semple:

Now, it’s here that Philip meets Paul Fleming, from Ruth’s Chris Steakhouse.

Dave Young:

Right.

Stephen Semple:

And Philip starts to build a bit of a friendship with Paul, and wants to work with Paul, wants to leverage his knowledge. Because after all, Ruth Chris is an upscale restaurant, and there’s this rise of casual chains, but Paul is not super excited, because none of them are Chinese, nor is Cecilia. She’s like, “I don’t really want to do this.” Philip is determined, he stays in touch with Paul. So 1979, things really start to change, because the restaurant called China Coach is opened by Wolfgang Puck, and it grows very quickly to 50 restaurants. And it’s the early ’90s, and Cecilia is ready to sell the restaurants.

Dave Young:

Stay tuned, we’re going to wrap up this story and tell you how to apply this lesson to your business right after this.

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Let’s pick up our story where we left off, and trust me, you haven’t missed a thing.

Stephen Semple:

And it’s the early ’90s, and Cecilia is ready to sell the restaurants, which basically frees Philip to make the changes he wants to do. He cycles back to Paul. Paul’s now looking at it going, “Well, there is this place for this growth and all of this.” So they decide to start something new. And Philip wants to bring other Asian cuisines, he wants to take it beyond Chinese.

Dave Young:

Okay.

Stephen Semple:

So he wants to add other Asian foods to it. So he spends three years developing the menu, and they changed the spelling of his last name to make it easier. And in 1993, here’s the other thing I found really, really interesting, they chose to open in Scottsdale in 1993. And here’s where Philip learned something from Cecelia, she did not open in Chinatown, she opened somewhere where there was not Chinese restaurants. At the time in Scottsdale, it’s described as a Chinese food desert at the time. Virtually no Chinese restaurants in 1993. Now, many people would go, “Well, you want to open up somewhere…” Nope, open it in Scottsdale. Opening weekend, they had 1,000 people, some waited for hours.

Dave Young:

Wow.

Stephen Semple:

Lined up around the block. Now, what really made them successful is Paul brought his ability to be able to scale a business, upscale dining, and really grow the business. And this is what allowed them to quickly… They quickly drove to 200 locations in a few years. And in 2012, 19 years later, they sold it for $1.1 billion.

Dave Young:

A billion bucks.

Stephen Semple:

Yeah. And there was also a point in there where they went public, gave them a bump, and then they were sold, and business was taken private, and it’s changed hands a few times.

Dave Young:

Well, one thing I’ve always known is that they’re not like every Chinese restaurant you’ve ever been in. Even every small town in America has a Chinese restaurant that they always seem to almost even share the same menus.

Stephen Semple:

Same thing here.

Dave Young:

Right. And-

Stephen Semple:

No matter how tiny the community is, there’s a Chinese restaurant.

Dave Young:

And-

Stephen Semple:

But it would have those things like chow mein, and-

Dave Young:

[inaudible 00:11:43], and Kung Pao chicken, and…

Stephen Semple:

Yeah.

Dave Young:

Sure.

Stephen Semple:

She took those things that were very common and very familiar and left them off of her menu, which was a bold move as well.

Dave Young:

Yeah, because otherwise we’d all be going in there ordering the Kung Pao chicken.

Stephen Semple:

We wouldn’t be having the Peking duck. Right. We wouldn’t be having the Peking duck.

Dave Young:

Yeah.

Stephen Semple:

So it was really interesting what she did, she leaned in to the difference in terms of opening it, because her mission was to bring this food, didn’t open in Chinatown, and left some popular things out, added some interesting things. But let’s face it, she struggled, and then there was the breakout moment. But here’s the part about all of this, now sometimes the trick is you have to be able to survive. If you’re able to survive, and you’re doing something truly remarkable, that breakout moment often happens. Now, advertising and promotion can accelerate that breakout moment, because it exposes people to this new idea, and entices them to come in. But if you do something… But it really and truly has to be remarkable. If you do something remarkable, and you do it really well, and if you can survive through the slow times, you get those breakout moments.

Dave Young:

Yeah. Yeah. It’s a really cool story. And the place has always felt… Yes, it’s Chinese, but no, it’s different.

Stephen Semple:

Yeah. Well-

Dave Young:

You can see the Ruth’s Chris DNA in the place, right? The-

Stephen Semple:

It’s funny, I had no… And I’ve been in a couple of P.F. Chang’s, and I had no idea the relationship with it. And as soon as I read that, I was like, “Oh, that makes…” It was sort of one of those. As soon as it’s presented that he was involved, it was like, “Oh, that makes so much sense, and I can see it.” It’s sort of funny how you didn’t see it, a lot of these things, hidden, and then it’s revealed, and suddenly it’s obvious, right?

Dave Young:

Yeah. In the last episode we talked about… I think it was one of the last episodes, we talked quite extensively about brand extension.

Stephen Semple:

Yes.

Dave Young:

And this is another good example of what we know would not have worked, and that would’ve been a Chinese restaurant by Ruth Chris.

Stephen Semple:

Correct. Correct. That’s a great observation. Yes. It would not have worked.

Dave Young:

Ruth’s Chris Chinese would not have worked.

Stephen Semple:

Right.

Dave Young:

You couldn’t leverage the good name of a steakhouse into a Chinese restaurant.

Stephen Semple:

No.

Dave Young:

Because that would not work. But you can take the DNA from the steakhouse, the high-end ritzy steakhouse, and apply it in measured ways to a high-end Chinese restaurant. And that’s exactly what they did, they took the luxury part of it, and made a luxury Chinese restaurant.

Stephen Semple:

Yeah. How the food is presented, how the place is decorated, although it would be decorated regionally different, and how the staff are trained, and all of those… And how the kitchen is run. I bet you if you walk into the two kitchens, you’d go, “Oh, I totally see…” I bet you the methodology in terms of how the kitchen is managed and all those other things is probably exactly the same. Yeah, so you’re right. You’re taking the DNA, and then basically modifying the presentation of that DNA to fit that thing, and giving it its own identity. And the problem that people make is they’ll look at it, go, “Well, the DNA is the same, so why can’t you just name it same?” And it’s, again, it’s like you talked about before, those hidden barriers. We think about the places of steakhouse, what’s the expectation? The expectation is steak, fine wines, potatoes, shrimp, lobster. Yes, there’ll be also vegetables, and grilled things, and all this other stuff, right?

Dave Young:

Yeah.

Stephen Semple:

You could even put in an appetizer of Peking duck and it would be fine, but you can’t make it a Chinese restaurant.

Dave Young:

Yeah, I think-

Stephen Semple:

Just like you couldn’t go the other way.

Dave Young:

You and I should buy Ruth’s Chris Steakhouse.

Stephen Semple:

Why should we do that?

Dave Young:

Just so we could change the name to Dave’s Steve’s Ruth’s Chris Steakhouse.

Stephen Semple:

Yeah, I’m going to pass. As awesome in ideas that sounds, as amazing as we would be at running-

Dave Young:

Another brand violation. I can see it now.

Stephen Semple:

Is this like a restaurant?

Dave Young:

All right. Well, thank you for sharing the P.F. Chang story. Now I’ve got to find one near me, and… I don’t want the bag of frozen stuff from the restaurant, I want to go in.

Stephen Semple:

God, no. You want to go and do the restaurant.

Dave Young:

Yeah, I want the experience.

Stephen Semple:

And they are good. They are fine.

Dave Young:

Yeah, yeah, every time I’ve been, but I just haven’t been very many times.

Stephen Semple:

Right.

Dave Young:

All right. Thank you.

Stephen Semple:

All right. Awesome. Thanks, David.

Dave Young:

Thanks for listening to the podcast. Please share us. Subscribe on your favorite podcast app, and leave us a big, fat, juicy five-star rating and review at Apple Podcasts. And if you’d like to schedule your own 90-minute empire-building session, you can do it at empirebuildingprogram.com.