tech-driven foodservice
franchises (all very much alive)
tech-driven foodservice
franchises
(all very much alive)

Why Dodo leaves China

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On April 1, at the Dodo board of directors meeting, we decided to shut down Dodo Pizza in China. Why have we made such a decision? What’s the reasoning behind it? And why now?

First, strategy

We’ve been pondering over our company’s long-term strategy a lot lately. Our company’s history is full of experiments, and now it’s time to take it all in from the bird’s-eye view and think about what place our global product and company itself will take in the future.

What does this approach give us? We’ve realized that in China we’ve deviated too much from Dodo Pizza’s global business model. In fact, Dodo Pizza China has already transformed into an independent startup, and the only elements connecting it to our global business concept are its team and our culture. It’s not enough to obtain stability in China’s highly competitive market. And we need some strong synergy between all our projects all over the world.

Initially, our new pizza shop concept in Hangzhou was similar to the model we were developing in other countries (QSR pizza delivery). It didn’t work out, so we began to improve our model. We expanded our menu, introduced products completely new to us, and revamped our service and production model. Now, looking from the bird’s-eye view, it becomes clear that even if this original Chinese concept succeeds, in the end, we will have an entirely different Dodo Pizza. 

Effectively, we would have to develop two different Dodo Pizza models — one for China, and the other for the rest of the world. And then Dodo Pizza China will become effectively a separate concept, related to all the rest of Dodo only by virtue of its name and, to a small extent, by our Dodo IS digital platform.

Essentially, that would make it the fourth Dodo Brands concept. But, unlike Drinkit and Doner 42, we would have to develop its core not in our home market where we understand our customers and have resources and other advantages — but in China, in a completely foreign business and cultural environment.

Perhaps you want to ask, what about Dodo Pizza in the UK — after all, we launched a new concept there as well. But in Britain, we didn’t need to alter our model so drastically. We’ve extensively ‘customized‘ our business model, yes, but its core hasn’t changed. There, we’re still a pizza delivery service. And besides, in the UK, as in Russia and many other countries, pizza is a top-of-mind product, especially when it comes to delivery. In China, not so at all. And this called for a lot of changes, in the business model as well as in the product itself.

There were two ’seasons‘ in our Chinese series. In 2015, we came to China with the Dodo Pizza original business model — via franchising. Entrepreneurs from China contacted us, ready to launch franchised pizza shops in Yantai, Shandong, and in Hangzhou, Zhejiang. So in 2016, we launched our Chinese pizza shops which were essentially the same as our Russian ones.

As it turned out, in China our traditional model worked poorly. Of course, one or two pizza shops without a strong brand don’t prove anything. It’s a mass market we’re working in — you have to launch a large chain to get results. But statistics and experience we’d accumulated let us assess our model’s potential. In China, the whole delivery market is controlled by aggregators. And we realized that to be visible and to be able to build our brand we needed to open our shops in locations with high footfall.

That was the beginning of Dodo Pizza China’s second developmental stage. In 2018, in the light of our insights, we decided to relaunch our concept in China. We created a new ‘pizza shop of the future’ concept — a small pizza shop located in an area with high footfall, boasting a small and efficient kitchen, and offering a new type of dough (’Roman‘) that allowed us to bake pizzas quicker and save space in the shop, plus the WeChat app instead of cashiers, also for increased efficiency. But we never gave up the core of our concept. All changes notwithstanding, it was still just ’customization." We were still a QSR pizza — in our pizza shop, we sold pizzas in boxes, expected a large share of to-go orders, and had a single-product menu with 80% pizza products in it.

In spring 2019, we launched our ‘pizza shop of the future.’ Our hypothesis didn’t play out. We didn’t get the necessary number of returning customers, and that was our key metric all along. Of course, we didn’t expect to succeed immediately. So we didn’t give up — we began to improve and develop our product further and search for our model.

Now we started to receive data, feedback from our guests, and comments. We built a strong team, a whole system for launching and testing our hypotheses, and an analytics system. We made a lot of improvements — we developed our menu and app, adapted our product marketing and brand to the local market, learned and tried out new formats, introduced new teas, and changed the service system. But whatever we did, it didn’t bring us closer to any significant breakthrough. Again, we never expected a single pizza shop in Hangzhou to skyrocket but the returning guests metric was always extremely important to us as it should have proved our concept and product potential.

We continued exploring. We started delivering to the tables (which is to say, employed waiters), introduced dishes and utensils, pasta, and deep-fry menu; we began to develop a salad line and were planning to open our third pizza shop in an ‘affordable pizza shop with waiters‘ format, thus making practically the same pivot Pizza Hut made when it came to China. For those of you who don’t know, Pizza Hut in China is a chain of big casual dining restaurants with an extensive menu that includes even burgers and steaks. But testing our hypotheses, we got carried away, venturing too far from the model we were building all around the world. Working out the long-term Dodo Brands strategy, we’ve realized that.

Why is it important to us to have a single model for Dodo Pizza everywhere? We succeeded in Russia and its neighboring countries, but the world and business are very competitive. Today’s success does not guarantee us success tomorrow. We’re in for fierce competition with the most powerful companies in the world. We must clearly understand our advantages, and we must manage our resources and focus wisely. We will achieve synergy provided that all over the world we will be developing a product concept with the same binding elements under the hood — the same management system, product, and technologies. It’s a strategic advantage. In the meantime, we realize that every market may or should need some ’customization’ on our part.

However, it’s presumptuous to think that we will be able to develop a new concept for China and compete with Chinese companies in their home market without some strong global know-how we’re creating all over the world. Apple, a global corporation, sells the same iPhone in China as it does in the US, and Toyota doesn’t produce some specific car for China — no, it still sells the same Toyotas there. Of course, all global companies adapt to a particular market and change their marketing and distribution according to the circumstances; but they don’t alter their core concept. We should be aware of the line between customization and core changes. In China, we began to change our core concept too much.

Second, tactics

Dodo Brands is still young, and it’s not a very big company yet. We finance our ventures from our profits. We don’t have big money behind us. And we are not that many ourselves. Focus is extremely important to us. At the moment, we have four startups. Closing our China project will free attention, people, and money for other areas where our resources and efforts can bring more results. We really need to focus. Closing our China project will allow us to implement our Plan 333 more efficiently because we will redirect those freed resources to other lines of effort (our tech platform, new concepts, the UK, and international franchising).

We have to accept that, our efforts and resources then and now notwithstanding, our coefficient of efficiency in China is lower than with other startups. And that’s considering that of all our startups, Dodo Pizza China was financed most generously. Today, China burns through more than $100K a month. And that is not to say that we did something badly or inefficiently. On the contrary, we worked hard, even super-hard. All the way, our team had been performing miracles — and sometimes they acted like true heroes. But such is an objective peculiarity of the Chinese market.

First of all, China is a very complex and competitive market, and building and developing something there calls for serious investments. This is, perhaps, one of the most developed competitive markets of public catering in the world. Secondly, China remains tricky for us, Western citizens, “laowais,” every step of the way. China is an entirely different and self-sufficient civilization. Most people there do not speak even basic English. Every action demands more time and energy from us. And this is not just the matter of language either, though the language barrier is a significant limitation in itself. But also, China is another culture, tradition, and mentality. Different Internet. Different advertising. Different ecosystems. 

It’s a real challenge to find a space to rent or to build a pizza shop there. Suppliers, staff members, and laws — everything is different. It’s super-cool that we’ve managed to cope with all that. It undoubtedly demonstrates the strength, persistency, creativity, and entrepreneurial spirit of our team, employees, and company in general.

Were we aware of all these difficulties when we decided to launch our pizza shop in China and implement our new concept there? Of course, we were. But we always were and always will be the proponents of exploration, of trying things out and learning. Without such an attitude our company could not be. Personally, I don’t regret anything, though we’ve spent a lot on Dodo Pizza China development (about $2.5 million worth of investments). Everything is for the best. This is our experience. This is our progress and growth. This experience will make us wiser and stronger.

Without China, we wouldn’t have a successful Dodo Pizza relaunch in the UK where we used the concept created in Hangzhou.

We are not planning to keep our business in China in any way, sell it to our Chinese partners, or work on franchising. We leave China altogether. In the near future, we will close our pizza shops and liquidate our company there.

You surely have a question. Will there be the third season?

Of course, it will. One day we’ll be back.

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Kirill Vyrypaev, CFO Kirill Vyrypaev, CFO
Stay as informed as our CFO
Sales and store count, year-over-year growth, P&L, and other key data — along with industry insights and Dodo Brands news, in our monthly newsletter
Kirill Vyrypaev, CFO
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