Growth | September 2013 | By Daniel P. Smith

Translating the American Dream

Thirty years in, Panda Express continues to dominate the fast-growing Asian category.

Peggy and Andrew Cherng helped build Panda Express into an Asian food giant.
Peggy and Andrew Cherng have built Panda Express into the largest Asian cuisine chain in the U.S.—by a huge margin. Frank Ishman
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The tale of Andrew and Peggy Cherng reads a bit like a classic American story. The two immigrated to the U.S., began dating in college, married, raised three children, and pursued professional and personal success by opening their own business.

Of course, not every classic American story spawns a $2 billion, family-run enterprise.

This year, Panda Express, the largest of the Cherngs’ holdings in the Panda Restaurant Group portfolio, celebrates its 30th anniversary. It’s been a monumental rise for Panda Express, which began in a Glendale, California, mall food court and now has nearly 1,600 stores across 42 states.

In 2012, the Rosemead, California–based chain recorded U.S. system-wide sales of nearly $1.8 billion, almost a 20 percent jump over 2011. Those numbers put Panda Express among the nation’s 25 largest quick-service operations and solidified its position as the unquestioned leader in the Asian quick-serve category. In fact, the chain’s 2012 sales tally more than tripled the combined output of its next two Asian quick-service competitors, Pei Wei Asian Diner and Sarku Japan. (The chain’s 2012 results also nearly doubled those of P.F. Chang’s, the nation’s largest full-service Asian chain.)

Andrew and Peggy Cherng—who emigrated from Taiwan and Hong Kong, respectively—first met at Baker University in Baldwin City, Kansas. While Peggy would eventually earn her doctorate degree in electrical engineering and transition into positions with high-tech firms such as McDonnell Douglas and 3M, Andrew, who owns a degree in applied mathematics, teamed with his father, master chef Ming-Tsai Cherng, to open the full-service Panda Inn restaurant in 1973.

For nearly a decade, the father-son tandem guided the Pasadena, California, eatery together, earning high praise for their innovative Mandarin and Szechuan cuisine style. But in the early 1980s, Andrew grew interested in a new entrepreneurial endeavor—quick service—for which he needed his wife’s talents. So in 1982, Peggy departed the corporate world and helped Andrew launch Panda Express the following year. With its Chinese dishes, Panda Express presented an alternative to the hamburgers, hot dogs, and pizza offerings that blanketed the quick-service landscape.

The Cherngs, who share the CEO title, worked to differentiate their concept with unit-level cooking dedicated to authentic Chinese recipes and a focus on quality from kitchen staff trained in wok cooking. Panda Express also looked to counter the long-held perception of Chinese food as fried, oily, and unhealthy. The eatery served a variety of vegetables, including mushrooms, broccoli, and string beans, chopped in-house daily, a practice that continues today.

As Andrew directed the restaurant’s operations, Peggy wrote the company’s first software programs. Collectively, the husband-and-wife team developed the infrastructure to support the scale for a national concept.

Like its original location in Glendale, California, the first Panda Express units were in mall food courts and other nontraditional venues, including airports, college campuses, and theme parks. The chain was even one of the earliest entrants into the supermarket arena.

“The biggest challenge we faced early on was getting the right sites and getting them at the right economic positioning, which remains an ongoing challenge,” Andrew Cherng says.

Entering malls and nontraditional venues before opening street-side restaurants proved to be a shrewd, winning move for the Cherngs and Panda Express. It built traffic for the then-emerging concept and elevated brand awareness. Panda Express soon captured a following for its menu and capitalized on Chinese cuisine’s charge into the mainstream.

Chris Miller, executive vice president of restaurant industry market research firm Sandelman & Associates, says Panda boasts a successful track record of making Asian cuisine accessible to the masses. For instance, the restaurant’s most popular entrée, Orange Chicken, merges two familiar, widely accepted tastes in one dish. Panda Express sells more than 65 million pounds of its Orange Chicken each year.

“Most people are looking for the safe adventure when they dine out, and that’s what Panda Express delivers time and again,” Miller says.

Miller also credits Panda Express with stretching its appeal beyond the core Asian demographic. According to Sandelman’s consumer tracking figures, the brand continues gaining a strong following among Asian, Hispanic, and Caucasian diners. “From leveraging lovable pandas in the name to the color schemes, Panda has created a concept that is approachable,” Miller says.

But Panda’s climb into the restaurant industry elite has not been without its hardships.

To grow into a national brand, the Cherngs needed to develop the systems and structures to operate more effectively, a recognition that prompted investments in areas such as supply chain management and information systems. More importantly, for a restaurant enterprise relying on corporate-owned stores, Panda needed to construct a positive working environment that would cultivate and nurture employees.

“We needed to have a culture of developing people so that workers could step up and become operators, as well as business people,” Peggy Cherng says.

To foster an engaged and loyal workforce, Panda paid its hourly staff at least 50 cents—and in some cases up to $1—above the minimum wage in each market. And well before the term Obamacare entered the nation’s consciousness, Panda Express offered health insurance to employees who worked more than 30 hours per week.

“We understand that happy associates equal happy customers,” Peggy Cherng says. The Cherngs’ restaurant group now employs more than 23,000 people.

The Panda way, Andrew Cherng says, is about continuous learning, leading a healthy lifestyle, developing other people, advancing oneself, and acknowledging others.

“We believe Panda is almost like a school in which we teach people to not only do a better job at work, but also to do a better job in their own lives,” he says.

Adds Thien Ho, Panda’s senior manager of corporate relations: “We’re here to sell Chinese food, but we’re also here for a greater cause.”

Just after the turn of the century, with the company’s sales hovering near $200 million, the Cherngs led Panda Express into new territory, aggressively pursuing end-cap and freestanding street stores that would extend the chain’s presence beyond its nontraditional outlets. In an effort to maximize visibility, the company landed sites that would accommodate freestanding dive-thru units, including out-lots at shopping centers anchored by well-trafficked retailers.

“In the malls, we were limited by mall traffic and development,” Peggy Cherng says. “By moving to the street, our growth opportunities expanded, and we had a better opportunity to penetrate a given market.”

Miller says Panda Express’s aggressive development strategy has resulted in a concept that’s easier than ever to find. From 1,000-square-foot mall counters to freestanding, fast-casual units with drive-thru lanes, Panda Express operates its own stores across a variety of venues, which has cemented its position as an industry heavyweight.

“Panda units are flexible and adaptable, and they have a tendency to be in convenient spaces on restaurant rows, where they continue to compete for the same A locations that many of the other big restaurant players desire,” Miller says.

What Starbucks has done for quick-service coffee—delivered a centuries-old product to the masses—Panda Express continues to accomplish with quick-service Asian food.

As American diners’ interest in high-quality ethnic foods rises, Panda Express stands to benefit from that swelling desire for global tastes, says June Jo Lee, vice president of strategic insights with The Hartman Group, a Bellevue, Washington–based consumer research and consulting firm.

“Consumers want variety and are looking for different tastes. What Panda does so well is that they’re familiar, yet different,” Lee says. “Panda Express is not the place you go for a far-out Asian experience, but it’s also not a hamburger or a chicken sandwich. They hit that balance of comforting and challenging
just right.”

With its exhibition kitchens and vegetables on display, Panda Express also highlights freshness and quality, two characteristics Chinese food has sometimes struggled to secure in the U.S. marketplace. “There’s a health halo Panda Express has been able to create, and they’re brilliant at fresh fast food,” Lee says. “People see the brown rice and the broccoli and think of Panda Express as a little healthier than other options.”

In recent years, the chain has intensified those health-focused efforts, led by the launch of more than a dozen Wok Smart dishes containing less than 250 calories per serving. Panda Express is also exploring the idea of reducing sodium in its food.

“This is a key part to being able to offer our guests variety,” Ho says. She adds that Panda Express continues leveraging the culinary innovation of its full-service sibling, the six-unit Panda Inn chain, to drive menu development at Panda Express and reinforce the quick serve’s commitment to premium ingredients.

The ongoing efforts at self-advancement continue to drive positive results for the Cherngs and Panda Express. According to Sandelman reports, Panda Express reached an all-time high in total trial in 2012, which was also the company’s 12th consecutive year of positive same-store sales growth. Panda has accomplished these gains even with growing competition from a number of fast-casual Asian outlets, such as Tin Drum Asiacafé, ShopHouse Southeast Asian Kitchen, and Asian Box.

“For my buck, that’s a clear indication that they have a runway and plenty of room to reach more of the population, even in their core markets,” Miller says.

With Panda Express’s past success and bright potential, it’s no surprise that others have looked to leap onto the company’s fast-traveling bandwagon. To date, however, the Cherngs have resisted the thought of aggressive franchising, largely out of concern that the quality of their restaurants’ food, service, and environment would become too unwieldy. Only about 50 Panda Express units operate outside of the Panda Restaurant Group, which also oversees Hibachi-San, a quick-service eatery with Japanese grill favorites that now has more than two-dozen units across the country.

“By staying [company owned], we’re able to push our philosophy into every associate personally rather than relying on franchisees,” Peggy Cherng says, adding that, as a practical matter, Panda possesses reliable bank support that limits the need to grow on the backs of franchisees.

The Cherngs have also declined overtures to go public, content to maintain their leadership roles and carry out their vision.

“Our philosophy is to keep things private and to run our stores and business the best we can,” Andrew Cherng says.

The private ownership and unified purpose bodes well for Panda’s continued evolution and development, particularly as it chases its long-term goal to build a worldwide concept. While the brand remains best known on the U.S. coasts, the Cherngs see ample opportunity to grow in the nation’s center. After opening 108 new units in 2012, Panda Express is on pace to debut more than 100 units this calendar year. And though Panda’s international presence is slim—two units in Japan and four in Mexico—the Cherngs are excited about the potential to expand abroad.

“There’s great opportunity for us to grow and show who Panda is,” Peggy Cherng says. To modernize “who Panda is” in the U.S., the company last year began testing its new “Bright and Fresh” restaurant prototype. The eco-friendly, contemporary design uses bold color accents, natural bamboo products, and integrated landscaping. After test units showed a 9 percent jump in sales, Panda Express started rolling out the “Bright and Fresh” model system-wide earlier this year. By the end of 2013, 75 remodeled units and 85 new Panda Express stores will sport the look.

The company has also unveiled the 2020 Vision—a two-pronged visionary statement that asserts Panda’s ambitions to be a world leader in people development and to be beloved by guests—as well as its “Make Life Delicious” brand promise. While Peggy Cherng says the “Make Life Delicious” tagline is an internal mantra to motivate staff performance, it is just as much a calling for staff and guests to pursue a better life.

“We think of Panda Express as one part of a joyful life,” she says.

The classic American story, indeed.