Leeann Chin, Inc.

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Leeann Chin, Inc.

3600 West 80th Street
Suite 210
Bloomington, Minnesota 55431
U.S.A.
(612) 896-3606
Fax: (612) 896-3615
Web site: http://www.leeann-chin.com

Private Company
Incorporated: 1980
Employees: 1,200
Sales: $65 million (1999 est.)
NAIC: 72211 Full-Service Restaurants

Leeann Chin, Inc. is a leading Midwest brand of high quality, quick service Chinese food. The company, which has embarked on a third try at expansion, owned and operated 52 units, located in the Minneapolis/St. Paul, Detroit, Michigan, and Kansas City, Missouri areas, about midway through 1999. The company also operates a 28,000-square-foot production center to pre-prepare and quick freeze products which are then combined with fresh produce at restaurant locations. Founder Leeann Chin continues to oversee recipe and menu development for the company.

Translating Skills into Business Ventures: 1950s–Mid-1980s

Lee Wai-Hing, born in 1933 in Canton, China, learned about the business of food at age 11, when she was working in her father’s wholesale grocery market and restaurant. Within a few years her life would change dramatically. In 1949 the communists came to power in her home of Canton. Two years later, the 18-year-old Lee Wai-Hing, now in Hong Kong, married Tony Chin. In 1956, the couple and their small daughter, Laura, immigrated to the United States.

The Chin family, sponsored by Tony’s sister, moved to Minnesota. Tony worked at his sister’s Minneapolis restaurant, and Leeann altered clothes for upscale downtown department stores. Having earned a loyal following for her work, Chin set up her own business. She did sewing and alterations out of her home while raising five children.

During this time, Leeann treated her sewing patrons to Chinese pastries and appetizers. Impressed with her talent many of them encouraged her to teach cooking or even open her own restaurant. In 1972, Leeann began teaching classes at friends’ homes and then through community education programs. “News of the charming cook who held the secrets to such delicacies as stir-fried frog’s legs, winter melon soup, and shrimp almond ding quickly spread through the Wonderbread world of the Upper Midwest,” according to Nina Shepherd in a 1986 Corporate Report Minnesota article. General Mills Creative Learning Center learned of her skills and offered her a teaching position, which she held from 1972 to 1979. (In 1980, General Mills purchased and published her recipes under the title Betty Crocker’s Chinese Cookbook.)

During the 1970s, Leeann’s reputation grew as Minneapolis and St. Paul daily papers published her recipes, and local television shows brought her on for guest appearances. Leeann continued to teach adult education classes in the metropolitan area, but began moving into party, banquet, and reception catering as well. In early 1979, the developers of a mall located in the affluent Minneapolis suburb of Minnetonka asked Leeann to open a cooking school in their building. Seeing too many barriers to success—for example, another cooking school already operated in the Bonaventure Mall—Leeann proposed she open a restaurant. The developers agreed, but she had some other roadblocks to circumvent first.

Neither Leeann’s husband nor her in-laws, who were already in the restaurant business, supported the idea. Despite the resistance, Leeann went ahead with the venture. Among the five investors ready to move forward with her were Minnesota banker Carl Pohlad and his friend actor Sean Connery, who had, according to Shepherd, sampled her cooking at a party. The investors’ portion, a $165,000 Small Business Administration loan, and Chin’s own contribution, came to a grand total of $305,000 in capital.

The 80-seat, buffet-style, Leeann Chin Chinese Cuisine opened in October 1980. Designed by Twin Cities architect John Shea and decorated with Chin’s own collection of Oriental art work, the “restaurant has been praised as much for its decor as for its food,” observed Shepherd. The food, primarily meats and fresh vegetables, was lightly spiced with garlic, leek, ginger and wine; the restaurant was among the first in the Twin Cities to offer authentic Sichuan (or Szechwan) and Cantonese cuisine.

The endeavor was an immediate hit, grossing $1.5 million in its first year of operation. Behind the scenes another story was brewing. Chin found herself engaged in conflicts with investors over the management and future direction of the restaurant. The disputes led to Chin’s near exit from the business. Instead of buying her out as she requested, the investors chose to relinquish their own interest in the operation.

In late 1983, Chin was fully in charge and spent $300,000 on an expansion to 130 seats; 20 more seats were added in 1984. A second restaurant opened in downtown St. Paul in March 1984. Located in a renovated train depot, the new site was just as successful as the Bonaventure location, grossing $1.5 million its first year. Gross sales for the first store were now $2 million.

Meanwhile, Chin’s success had drawn the interest of a well-established company. Minnesota-based Dayton’s asked Chin to open a takeout operation in the food market area of its downtown Minneapolis department store—nearly one-fifth of the Bonaventure store’s revenue was from takeout sales. Chin signed on to create her first takeout store in June 1984. The Dayton’s 700 Under the Mall location quickly began seeing an average of 1,000 customers a day.

A Changing Menu: Late 1980s–Mid-1990s

Success carried a new load of burdens. Chin ran a tight operation, and she was stretched to her limits. She needed help. After rejecting a number of possible partnerships, Chin struck a deal with General Mills, Inc. The billion-dollar food company bought her name and the three units in 1985. Chin was appointed president of the Leeann Chin, Inc. subsidiary. The selling price was not disclosed, but the company’s fiscal 1985 revenues had been $5 million.

General Mills, which was also developing the Red Lobster seafood and Olive Garden Italian restaurant concepts, believed their financial strength and marketing savvy mixed with Chin’s reputation for quality was the right recipe for a successful national Chinese restaurant chain. Competitor Pillsbury had the Quik Wok concept in the works.

General Mills opened additional locations in the metropolitan area and expanded outside Minnesota for the first time. But the effort to crack the Chicago market fell flat, and the company diverted its attention to the other concepts and closed the one buffet and five carry out units located in Illinois. Unlike pizza or burger vendors, approximately 90 percent of the country’s Asian restaurants were in the hands of small business owners. Pillsbury’s entry into the Chinese restaurant business had nosedived.

Chin, who had no decision-making authority as part of the General Mills operation, was feeling frustrated. After careful consideration, she felt ready to take back the company she founded. When she heard a buyer had stepped forward, Chin asked for the chance to purchase the business. A bank loan and funds from Dimension Capital in Bloomington, Minnesota, financed the deal which was completed in March 1988. Company sales for 1987 had been just over $14 million.

A recession battered the U.S. economy in the early 1990s, but Leeann Chin’s company weathered the storm. “Laura Chin, vice president of Leeann Chin Inc., spends part of every day refusing offers from real estate agents and building owners around the Twin Cities. With commercial space in abundant supply and proven tenants a rare commodity, a Leeann Chin restaurant just might be the area’s most sought-after retail tenant,” reported Corporate Report Minnesota in January 1992. Leeann Chin recorded only slightly weaker sales volume while the restaurant industry as a whole dropped eight percent in 1991. The company’s figures were helped by new carry out units in the upscale Twin Cities supermarket Byerly’s.

Ron Fuller was named president of Leeann Chin, Inc. in January 1993. The former General Mills executive was no stranger to Chin: he had served as the chain’s general manager while it was under Big G’s ownership. In an August 1996 Corporate Report article, Fuller said of his second stint with the company, “[it] was to a point that Leeann realized that a transition needed to be made to professional management.”

In early 1994, the $25 million business employed 750 people, operated 20 carryout units, three restaurants, and a catering center. A board of directors was being organized, and Fuller, who had been busy improving operating systems and bringing on new managers, moved to raise private capital.

Three institutional investors, Weston Presidio Capital of San Francisco, Chase Capital Partners of New York, and U.S. Venture Partners in Seattle, pumped in $11 million in 1995. The lion’s share was earmarked for the expansion of the Twin Cities and Seattle markets. The company had entered the Seattle market in 1994. Leeann Chin now spent about half her time there.

Company Perspectives:

Each year since 1985, Leeann Chin has been voted the “Best Chinese Food” and the “Best Takeout Food” in Minneapolis.

The company has also won numerous local and national awards for best restaurant design, and Leeann Chin herself was voted Minnesota Entrepreneur of the Year.

While the company is now a rapidly growing restaurant chain, it retains the spirit and the outlook of a small family owned business. The company has always been, and continues to be, actively involved in all of the communities in which it operates, and is a substantial contributor to local civic, neighborhood and charitable causes in these communities.

Fuller had other plans as well. Some of the capital would be used to develop a new concept which he hoped to take national. The Asia Grille by Leeann Chin would feature a full bar and restaurant, food from five Asian countries, a takeout counter, and small oriental market. The national scene included only a few Chinese food chains such as Panda Express and General Mills’ China Coast.

But by mid-1996, it was clear that Leeann Chin, Inc.’s second try at expansion was in trouble. Leeann Chin was negotiating a buyout. She wanted to sell her remaining 40 percent stake in the company. The investment firms owned just over 50 percent and Fuller and other managers owned the rest of Leeann Chin, Inc.

According to the Schafer article, tension began to build in the company during the transition of leadership from Chin to Fuller. The new investors, who were cultivated by Fuller, worked closely with him and bypassed Chin. A number of Chin’s longtime middle managers departed as operational difficulties compounded during the company’s entry into the Seattle market. In addition, Leeann Chin’s name was eliminated from the new Asia Grille concept.

Furthermore, Chin’s daughter Katie joined the company in October 1995 only to depart in February 1996 over differences with Fuller. Longtime employee and daughter Laura Chin had left in August 1995 to lead the Leeann Chin Foundation. Leeann Chin herself took a leave of absence from her half-time position with the company, beginning in January 1996.

Schafer wrote, “Fuller admits to one goof: opening Seattle supermarket carryout units under the Asia Grille name. They will have to be closed, he says. Yet the company will be profitable in the fiscal year ending this August with roughly $37 million in sales.”

At the end of 1996, Leeann Chin’s, Inc. owned and operated 25 Leeann Chin Chinese Cuisine and two Asia Grille Express units in the Twin Cities; two additional Asia Grille Express sites in Chicago-area Byerly stores; and three full service Asia Grille restaurants, one in Seattle and two in the Twin Cities. Two more Asia Grille restaurants were being built in Seattle. Ron Fuller resigned as CEO of Leeann Chin’s, Inc. late in December, and the company founder returned as head of the board of directors in January 1997.

Third Time’s the Charm?: Late 1990s

Stephen A. Finn came aboard as CEO in June 1997. Finn led the Bruegger’s Bagel Bakery catapult from 39 units and $28 million in sales to 500 units and approximately $300 million in sales during the period from 1992 to 1997. Previously, he served nine years with Burger King.

Finn planned to succeed where others had failed. In addition to new restaurants and grocery store carryout units in the Midwest, Finn envisioned bottled sauces on grocery store shelves, gourmet kitchen specialty shops, cookbooks, videos, and perhaps a line of cookware and ceramics or a television show.

Finn, in an April 1998 Corporate Report Minnesota article by Jennifer Waters said the Asia Grille concept was a “huge strategic blunder” which almost “bankrupted the company” and “set back the brand.” The board of directors which had backed Fuller’s idea were now realigned behind Leeann Chin’s original concept.

“The story here is that the strength of her visions has never gone away,” Philip Halperin, a general partner with Weston Presidio Capital told Waters. “And now her visions and her concept have matched up with a wonderful management team.”

Finn, unlike Fuller, saw Chin as a pivotal aspect of the expansion drive. “She is the brand, the master chef, the external relations, the teacher,” he says. “She is a major asset who will help raise the awareness of the brand and guard against being just a new Chinese restaurant in new markets.”

The board of directors dropped the Asia Grille concept entirely in early 1998, having converted express operations to Leeann Chin’s units and entered into negotiations to sell the concept itself.

In September 1998, Leeann Chin bottled sauces, Asian Salad Dressing, Imperial Sauces, and Peking Sauce had hit the shelves of Byerly’s and Lund’s supermarkets in the Twin Cities. (A year earlier, Leeann Chin began opening units in Lund’s food stores, following the acquisition of Byerly’s by Lund Food Holdings, Inc.)

Leeann Chin, Inc., which had raised $9 million in venture capital in July 1998, had been expected to go public, but market conditions changed all that. Instead, the company would be looking for “a strategic buyer” to allow investors to cash out, according to Finn in an October 1998 Star Tribune article. High profile players Planet Hollywood and Rainforest Cafe had been poor performers on the stock market, and the restaurant sector had soured.

Three Leeann Chin units opened in the Kansas City, Missouri, in early 1999, and the first Detroit-area location opened in late April. These areas were demographically similar to the Twin Cities. The Troy, Michigan, unit cost $370,000 to build and equip. The well-dressed new locations served such signature items as Chinese Chicken Salad, Lemon Chicken, and Cream Cheese Puffs.

Broadening the Brand, Building for the Future

Over the years, Leeann Chin had become a household name in the Twin Cities area. Finn hoped she would become just as well known in their new markets. The initial wave of the expansion drive was off to a good start, ahead of schedule in terms of number of units in place and profitability, according to a May 1999 City Business article by Jennifer Franklin. Company profits were in the double digit range, and Finn was estimating sales of $80-$90 million by the year 2000.

Finn had 24 new stores, in the Leeann Chin Chinese Cuisine quick service or grocery store carryout formats, on the menu for 1999. Twelve were to be built in the Twin Cities, nine in the Kansas City area, and three in Detroit. Thirty-three more units were planned for 2000. The company’s onion and garlic chips, a tie-in with sauce already on the market, would hit retail shelves in 1999. Leeann Chin’s third cookbook was slated for publication early in 2000.

“However,” wrote Franklin, “Bill Carlino, managing editor for Nation’s Restaurant News, is skeptical about whether Leeann Chin can go national. ‘There has never been a successful national Chinese chain. Every neighborhood has its own Chinese restaurant—a favorite little Chinese place to go. There’s no reason to go to a chain.’” Finn believed otherwise. He was pushing forward, and founder Leeann Chin, whose stake in the company was now down to about ten percent, was out on the road visiting the new restaurants bearing her name.