P.F. Chang’s China Bistro, Inc.

views updated May 14 2018

P.F. Chang’s China Bistro, Inc.

7676 East Pinnacle Peak Road
Scottsdale, Arizona 85255
U.S.A.
Telephone: (480) 888-3000
Toll Free: (866) 732-4264
Fax: (480) 888-3001
Web site: http://www.pfchangs.com

Public Company
Incorporated: 1996
Employees: 24,600
Sales: $937.6 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: PFCB
NAIC: 722110 Full-Service Restaurants; 551112 Offices of Other Holding Companies

P.F. Chang’s China Bistro, Inc.’s 152-plus restaurant chain, operating in 35 states, owes much of its success to founder Paul Fleming’s unique idea of pairing oriental cuisine with American-style service. At the outset, when he opened the first of the restaurants in Scottsdale, Arizona, Fleming broke with the traditional Chinese restaurant format. With his collaborator, chef Philip Chiang, he devised a comparatively limited menu that featured far fewer dishes than the menus of typical, full-service, Chinese restaurants.

Incorporating an American steak house dining style and a formidable selection of wines and cheeses, P.F. Chang’s offers such additional oriental restaurant anomalies as espresso and cappuccino. Although P.F. Chang’s China Bistros are stylish in decor, displaying motifs from the Ming and Tang dynasties and hand-painted murals, the dishes are moderately priced, partly because one of Fleming’s aims was to provide high quality but affordable Chinese food for “the masses.” In 2000 the company went one step further toward that goal, opening its first Pei Wei Asian Diner, a casual restaurant for quick dining or takeout. By the end of 2006, P.F. Chang’s had opened 107 Pei Wei restaurants. During the fall of 2006, P.F. Chang’s opened a third type of Asian restaurant, Taneko Japanese Tavern, an upscale restaurant serving a variety of Japanese dishes in a warm, pub-style setting.

THE FIRST FIVE P.F. CHANG’S CHINA BISTROS

Fleming, a native of Louisiana who had worked in the oil business, entered the restaurant business in the early 1980s when the global oil glut devastated the petroleum industry in the Gulf of Mexico and sent Louisiana into a deep recession. He managed to gather together enough funds to open a franchise of New Orleans-based Ruth’s Chris Steak House in Beverly Hills, California. Fleming had immediate success in a tough business. Eventually, he acquired the franchise rights for Ruth’s Chris Steak Houses in California, Arizona, and Hawaii, and he also purchased other restaurant franchises, including four Z’Tejas Grills and one Nola’s Mexican Restaurant. However, it was not until he opened P.F. Chang’s China Bistro in Scottsdale, Arizona, in 1993 that he began his own, rather unique chain. As president of Fleming Chinese Restaurants Inc., he started up and managed the first four restaurants in the fledgling enterprise. Fleming claimed that his principal motivation was his fondness for Chinese food, which he wanted to make available to all comers at reasonable prices in a less intimidating format than that of most Chinese restaurants.

As Fleming himself noted, the new restaurant chain did not just spring up overnight. Three years went into conceptualizing and planning, and two more into convincing Philip Chiang, chef and owner of the Mandarin, a popular Beverly Hills restaurant, to serve as Fleming’s principal collaborator. He needed Chiang’s expertise because, although he loved oriental cuisine, he had no experience in the Chinese restaurant market. Chiang’s major role was to help create the recipes for the base of about 60 dishes on the restaurant’s menu. His name, less one letter, became the “Chang” of the restaurant’s name.

The original restaurant caught on quickly. P.F. Chang’s did not accept reservations, a policy that translated into long waiting times for a table. Regardless, P.F. Chang’s became a haunt for media and sports celebrities, who were soon helping to attract patrons willing to wait up to two and a half hours just to get seated. By 1995, the shopping mall restaurant, with just 6,000 square feet of space and 175 seats, was generating $4 million in sales, with about 70 percent coming from evening meals and 30 percent from lunches. During this time, Fleming decided to begin expanding the operation into a chain. He opted to test markets outside Arizona, first taking on the California market, where nouveau cuisine and novelty played well but competition for a market niche could be fierce. Fleming chose Newport Beach as the locale for his second P.F. Chang’s China Bistro, which opened in 1994. The next year he opened two other California units, one at the Irvine Entertainment Center and the other in La Jolla.

Fleming knew that effective management and further planning for future growth would require more time than he could give to the tasks. Even in 1995, with the opening of the P.F. Chang’s China Bistro in Newport Beach, he had begun thinking about new possibilities. At the time he owned 13 restaurants, located as far apart as Texas and Hawaii, with an array of ethnic cuisines. His solution to the problem of the company expansion was to hire a team of professional managers. Although he would retain a minority 12 percent ownership of the company, he decided he would step down and let P.F. Chang’s China Bistro become a separate entity outside of his control. His future role would be that of consultant and adviser.

1996–98: RAPID EXPANSION UNDER NEW MANAGEMENT

Early in 1996, the company was incorporated as P.F. Chang’s China Bistro, Inc., which acquired the four units making up the chain. Fleming found the man to head the new executive team, Richard L. Federico, who, in a partnership arrangement with Fleming, took on the presidency of P.F. Chang’s. He joined the company after leaving his posts as president of Brinker International’s (BI) Macaroni Grill 65-unit chain and president of BI’s Italian concepts. Like Fleming, he came to the Chinese restaurant market with no experience in Asian foods. In fact, unlike Fleming, he had never really acquired a taste for it. He did bring managerial experience, however. He was a cofounder of the Grady’s Goodtimes concept, which originated in Knoxville, Tennessee, and was bought by BI in 1988. Joining Federico in major executive positions were Bert Vivian, who served as CFO, and Greg Carey, who took on the job of COO. Vivian, who signed on in April 1996, also came to the company from BI, where he had been vice-president of investor relations. Carey joined Federico and Vivian two years later, in 1998, coming over from his post as COO at Rainforest Café.

COMPANY PERSPECTIVES

The P.F. Chang’s experience is a unique combination of Chinese cuisine, attentive service, wine, and tempting desserts all served in a stylish, high-energy bistro.

At P.F. Chang’s we are committed to providing our guests with an exceptional dining experience every time they walk through our doors. Whether creating custom sauces tableside, guiding guests through the menu or suggesting dishes to enhance your meal, our friendly, knowledgeable service staff and attention to detail are a winning combination.

With venture capital provided by out-of-state backers, the company began accelerating its growth near the end of 1996, when it opened restaurants in Las Vegas, Houston, and Denver. The managers were testing new markets, moving into new locales after careful demographic analyses of their prospective customer pools. They wanted to avoid the fate of China Coast, a chain of Darden Restaurants which tried to expand too rapidly and failed. In fact, P.F. Chang’s had some early growth pains, logging a net loss of $1.7 million in 1997 with revenues of $39.8 million. In part to pay down its $11.6 million debt to $2.6 million and finance the chain’s growth, the company decided to go public.

1998–2000: P.F. CHANG’S GOES PUBLIC

The company made its initial public offering (IPO) in December 1998. By that time, its fiscal picture had improved; its revenue of $32.9 million for the first six months of fiscal 1998 was almost double its sales of the same period in the previous year. Moreover, to the surprise of many analysts, the company’s stock fared extremely well. It grossed $49.8 million for the company when it almost immediately climbed from $12 to $18.50 per share, producing an unexpected windfall encouraging further expansion.

Of course, the chain had been growing. It had begun a major eastward expansion in 1997, with openings in New Orleans; Dade County, Florida; Charlotte, North Carolina; and McLean, Virginia. It had also opened its second Arizona restaurant in Tempe. By the summer of 1998, when it announced plans to make its IPO later in the year, it had grown to 15 units. In that year, P.F. Chang’s also emerged from the red, though barely. Its sales surged to $78.0 million, up from $39.8 million in 1997, but its debt obligations held its net profit down around $100,000.

The 1998 stock windfall allowed the company to begin accelerating its growth as well as pay down its debt. Plans called for adding an additional 21 new restaurants by the close of 1999, bringing its total to 36 units, and an additional 15 openings in 2000. They also called for new, untapped market incursions in, for example, large metropolitan areas such as New York, Washington, D.C., Chicago, and Atlanta.

The company stayed on target for the most part. P.F. Chang’s boasted systemwide sales of $153 million in 1999, or an average unit sale of $5.15 million. Although in 1999 it actually put just 13 new units into operation, by summer of 2000 it was running 39 restaurants, with a geographical spread over 30 states.

THE 21ST CENTURY: NEW CONCEPTS

Meanwhile, P.F. Chang’s had a new concept in development: Pei Wei Asian Diner, a casual, quick-service variation on its base restaurant. The first Pei Wei opened in September 2000, in a suburb of Phoenix. At a start-up cost of about $500,000, Pei Wei involved a much smaller investment than its China Bistro counterpart, which required over $2 million for each restaurant opening. Although Pei Wei included sit-down service, it was also designed to appeal to take-out customers. Its menu featured several dishes traditionally found at Chinese restaurants as well as some of the dishes crafted for P.F. Chang’s, scaled down in terms of price and portion size. Pei Wei also offered other Asian cuisines, including Thai- and Japanese-influenced entrées. The company’s management team had toyed with a number of different ideas, including a take-out restaurant bearing the P.F. Chang’s name and a chain of noodle shops. They settled on the Pei Wei idea as a way to broaden their customer base with a new brand that required minimal initial investment. Some analysts speculated that the company developed the Pei Wei concept as a hedge against the possibility of a future slowdown in the growth of the P.F. Chang’s restaurants.

The following years showed no signs of waning growth, however. Revenues in 2001 increased 35 percent, with the share price shooting up by over 50 percent. In 2002 sales figures went up 32 percent with a stock price gain of 53 percent. One reason for the success of P.F. Chang’s was a lack of competition. While thousands of independently owned Chinese restaurants offered similar fare, P.F. Chang’s cultivated a more upscale, cosmopolitan feel than the typical mom-and-pop Chinese restaurants, and few Asian-themed chain restaurants matched P.F. Chang’s consistent success across a variety of markets. In addition, while some customers may have gone to P.F. Chang’s the first time because of the hype, the moderate prices and quality menu items assured repeat visits.

KEY DATES

1993:: Paul Fleming opens first P.F. Chang’s China Bistro in Scottsdale, Arizona.
1995:: Fleming opens three new P.F. Chang’s China Bistros in California.
1996:: Company incorporates and new management team is brought in, headed by Richard L. Federico; restaurant chain is named one of the year’s “Hot Concepts” by Nation’s Restaurant News ; company records first net loss.
1998:: Company goes public and returns to profitability.
2000:: Company opens first Pei Wei Asian Diner.
2006:: The company’s first Taneko Japanese Tavern opens.

Some analysts also cited the company’s ownership model as a reason for its success. P.F. Chang’s opted to own its restaurants rather than selling franchises, but in most cases the company required a restaurant’s management team to invest in that outlet. Mark Sheridan, an analyst quoted in a 2002 Business Week Online article, explained that “the system allows them to attract and retain the best people in the industry. The [managers] think like owners.”

The same ownership model that brought success to P.F. Chang’s was in place for Pei Wei Asian Diner, which grew rapidly. In the summer of 2004, Restaurant Business magazine named Pei Wei the number-one entry in the fast-casual category on its list of the top 50 growth chains. At that time the company had opened 43 Pei Wei restaurants and had plans to open many more, with Pei Wei establishments perhaps some day outnumbering P.F. Chang’s. The formula for its success was similar to that of its big brother: with average customer checks ranging from $7 to $9, the prices were modest, but the restaurants had a more upscale feel than the typical fast-casual eatery.

In addition, as explained to Restaurant Business by Pei Wei president Russell Owens, “The infrastructure was already in place from the Bistro, so we got to focus all of our attention on things specific to Pei Wei and invest heavily in the people side.” The company hired management teams with substantial experience in restaurant development, and, like the P.F. Chang’s restaurants, these managers had a financial stake in the business. Many analysts also speculated that the success of both P.F. Chang’s and Pei Wei could be partially attributed to an expanding interest in ethnic dining among American consumers, a trend that brought greater numbers of diners into each restaurant and enabled the company to open eateries in a broader range of locations.

By the fall of 2005, the company had announced the impending opening of its first entry in a third category of Asian dining. Taneko Japanese Tavern, with a planned per-diner bill of $30, would be costlier than P.F. Chang’s and Pei Wei, though the company planned to endow the restaurants with a comfortable, inviting atmosphere. The first Taneko opened in the fall of 2006 in Scottsdale. In addition to standard Japanese-restaurant cuisine such as sushi, tempura, and noodle dishes, Taneko’s menu highlights robatayaki, dishes cooked on a grill or in a wood-burning oven.

The opening of the first Taneko Japanese Tavern came amidst signs of trouble in the restaurant industry in general and at P.F. Chang’s, Inc., in particular. During the summer of 2006, for the first time in several years, same-store sales at both P.F. Chang’s and Pei Wei decreased, and total sales for the company fell shy of forecasted figures. Analysts speculated that the company’s rapid expansion, with multiple restaurants in high-return markets, had resulted in some cannibalization, with new P.F. Chang’s restaurants chipping away at the profits of existing locations. The company continued its plans for expansion, however, believing that a slight reduction in the business of the older restaurants would be considerably offset by the profits earned at new outlets. After opening 20 new P.F. Chang’s China Bistros and 30 new Pei Wei Asian Diners in 2006, the company planned to continue in a similar vein for 2007, opening about 20 new P.F. Chang’s and nearly 40 Pei Wei’s. Considered a powerhouse of the restaurant industry, P.F. Chang’s, Inc., had every intention of weathering whatever storms came its way.

John W. Fiero
Updated, Judy Galens

PRINCIPAL SUBSIDIARIES

Pei Wei Asian Diner, Inc.

PRINCIPAL OPERATING UNITS

P.F. Chang’s China Bistro; Pei Wei Asian Diner; Taneko Japanese Tavern.

PRINCIPAL COMPETITORS

Brinker International, Inc.; Benihana Inc.; Carlson Restaurants Worldwide Inc.

P.F. Chang’s China Bistro, Inc.

views updated Jun 11 2018

P.F. Chang’s China Bistro, Inc.

5090 North 40th Street, Suite 160
Phoenix, Arizona 85018
U.S.A.
Telephone: (602) 957-8986
Fax: (602) 957-8998
Web site: http://www.pfchangs.com

Public Company
Incorporated: 1996
Employees: 5,000
Sales: $153.3 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: PFCB
NAIC: 72211 Full Service Restaurants

P.P. Chang’s China Bistro, Inc.’s 40-plus restaurant chain, operating in 19 states, owes much of its success to founder Paul Fleming’s unique idea of pairing oriental cuisine with American-style service. At the outset, when he opened the first of the restaurants in Scottsdale, Arizona, Fleming broke with the traditional Chinese restaurant format. With his collaborator, chef Philip Chiang, he devised a comparatively limited menu that featured far fewer dishes than the menus of typical, full-service, Chinese restaurants. Incorporating an American steak house dining style and a formidable selection of wines and cheeses, P.P. Chang’s offers such additional oriental restaurant anomalies as espresso and cappuccino. Although P.P. Chang’s China Bistros are stylish in decor, displaying motifs from the Ming and T’ang Dynasties and hand-painted murals, the dishes are moderately priced, partly because one of Fleming’s aims was to provide high quality but affordable Chinese food for “the masses.” Fleming, who still owns about 12 percent of the chain, serves as a consultant, as does Chiang. The company is managed by an executive team headed by CEO and president Richard Federico, CFO and secretary Bert Vivian, and COO Greg Carey.

1993–95: The First Five P.F. Chang’s China Bistros

Fleming, a native of Louisiana who had worked in the oil business, entered the restaurant business in the early 1980s when the global oil glut devastated the petroleum industry in the Gulf of Mexico and sent Louisiana into a deep recession. He managed to gather together enough funds to open a franchise of New Orleans-based Ruth’s Chris Steak House in Beverly Hills, California. Fleming had immediate success in a tough business. Eventually, he would acquire the franchise rights for Ruth’s Chris Steak Houses in California, Arizona, and Hawaii, and he would also purchase other restaurant franchises, including four Z’Tejas Grills and one Nola’s Mexican Restaurant. But it was not until he opened P.F. Chang’s China Bistro in Scottsdale, Arizona, in 1993 that he began his own, rather unique chain. As president of Fleming Chinese Restaurants Inc., he started up and managed the first four restaurants in the fledgling enterprise. Fleming claimed that his principal motivation was his fondness for Chinese food, which he wanted to make available to all comers at reasonable prices in a less intimidating format than that of most Chinese restaurants.

The original restaurant quickly caught on. Although it took no reservations, it became a haunt for media and sports celebrities, who were soon helping to attract patrons willing to wait up to two and a half hours just to get seated. By 1995, the shopping mall restaurant, with just 6,000 square feet of space and 175 seats would be generating $4 million in sales, with about 70 percent coming from evening meals and 30 percent from lunches. During this time, Fleming had already decided to begin expanding the operation into a chain. He opted to test markets outside Arizona, first taking on the California market, where nouveau cuisine and novelty played well but competition for a market niche could be fierce. Fleming chose Newport Beach as the locale for his second P.F. Chang’s China Bistro, which opened in 1994. The next year he opened two other California units, one at the Irvine Entertainment Center and the other in La Jolla.

1996–2000: Rapid Expansion under New Management

Early in 1996, the company was incorporated as P.F. Chang’s China Bistro, Inc., which acquired the four units making up the chain. Fleming found the man to head the new executive team, Richard L. Federico, who, in a partnership arrangement with Fleming, took on the presidency of P.F. Chang’s. He joined the company after leaving his posts as president of Blinker International’s (BI) Macaroni Grill 65-unit chain and president of BFs Italian concepts. Like Fleming, he came to the Chinese restaurant market with no experience in oriental foods. In fact, unlike Fleming, he had never really acquired a taste for it. He did bring managerial experience, however. He was a cofounder of the Grady’s Goodtimes concept, which originated in Knoxville, Tennessee, and was bought by Blinker International in 1988. Joining Federico in major executive positions were Bert Vivian, who served as CFO, and Greg Carey, who took on the job of COO. Vivian, who signed on in April of 1996, also came to the company from Blinker International, where he had been vice-president of investor relations. Carey joined Federico and Vivian two years later, in 1998, coming over from his post as COO at Rainforest Cafe.

With venture capital provided by out-of-state backers, the company began accelerating its growth near the end of 1996, when it opened restaurants in Las Vegas, Houston, and Denver. The managers were testing new markets, moving into new locales after careful demographic analyses of their prospective customer pools. They wanted to avoid the fate of the China Coast, a chain of Darden Restaurants which tried to expand too rapidly and failed. In fact, P.F. Chang’s had some early growth pains, logging a net loss of $1.7 million in 1997 with revenues of $39.8 million. In part to pay down its $11.6 million debt to $2.6 million and finance the chain’s growth, the company decided to go public.

The company made its IPO in December of 1998. By that time, its fiscal picture had improved; its revenue of $32.9 million for the first six months of fiscal 1998 was almost double its sales of the same period in the previous year. Moreover, to the surprise of many analysts, the company’s stock fared extremely well. It grossed $49.8 million for the company when it almost immediately climbed from $12 to $18.50 per share, producing an unexpected windfall encouraging further expansion.

Of course, the chain had already been growing. It had begun a major eastward expansion in 1997, with openings in New Orleans; Dade County, Florida; Charlotte, North Carolina; and McLean, Virginia. It had also opened its second Arizona restaurant in Tempe. By the summer of 1998, when it announced plans to make its IPO later in the year, it had grown to 15 units. In that year, P.F. Chang’s also emerged from the red, though barely. Its sales surged to $78.0 million, up from $39.8 million in 1997, but its debt obligations held its net profit down around $100,000.

The 1998 stock windfall allowed the company to begin accelerating its growth as well as pay down its debt. Plans called for adding an additional 21 new restaurants by the close of 1999, bringing its total to 36 units, and an additional 15 openings in 2000. They also called for new, untapped market incursions, in, for example, large metropolitan areas like New York, Washington, D.C., Chicago, and Atlanta.

The company stayed on target for the most part. Although in 1999 it actually put just 13 new units into operation, by July of 2000 it was running 39 restaurants, with a geographical spread over 30 states, and was still planning to reach a goal of 54 units by the end of the first quarter in 2001. All added restaurants, as in the past, would be company owned. With systemwide sales of $153 million in 1999, or an average unit sale of $5.15 million, prospects for realizing company goals for 2000 looked good. One problem did loom on the horizon, at least for the company’s very successful restaurant in Santa Monica, California, where a public ordinance setting a minimum hourly wage of $10.69 was about to go into effect. Such an ordinance would force the restaurant to double the pay of some its staff, which would either cut deeply into its profits or, alternatively, force it to raise its prices or downsize its staff. “Living wage” ordinances, already in place in some 41 U.S. cities, were likely to spread, hitting the restaurant industry hard since it has a history of running on low wages. If P.F. Chang’s China Bistro were to up its prices to counteract increased labor costs, it would certainly erode its “oriental-food-for-the-masses” customer base to which founder Fleming hoped to make his appeal.

Company Perspectives:

At P.F. Chang’s China Bistro we offer a high level of service that is educated in the cuisine and accommodating to your every, unrealized need. Sauces are made tableside and servers make recommendations for selecting dishes that will balance your meal. The result of Paul Fleming’s vision is a restaurant that has been embraced by the public as well as critics across the country. P.F. Chang’s has received local market awards such as “Best New Restaurant” and “Best Chinese Restaurant,” and has been nationally recognized as a Nation’s Restaurant News’ “Hot Concept Winner.”

Perhaps addressing that problem had something to do with the company’s decision to develop a new concept—a casual, quick-service variation on its base restaurant, known as Pei Wei’s Asian Diner, the first of which was scheduled for opening in late 2000, at Chandler, in the company’s home state, Arizona. At a start-up cost of about $500,000, Pei Wei’s would involve a much smaller investment than its China Bistro counterpart. Although it would include sit-down service, it would also appeal to take-out customers. Most importantly, its menu, though featuring some of the same dishes as its bigger brother, would scale down both their prices and their portions.

Principal Competitors

Advantica Restaurant Group, Inc.; Benihana, Inc.; Darden Restaurants, Inc.; Carlson Restaurants Worldwide Inc.; Panda Management Company, Inc.

Key Dates:

1993:: Paul Fleming opens first P.F. Chang’s China Bistro in Scottsdale, Arizona.
1995:: Fleming opens three new P.F. Chang’s China Bistros in California.
1996:: Company incorporates and new management team is brought in, headed by Richard L. Federico; restaurant chain is named one of the year’s “Hot Concepts” by Nation’s Restaurant News but company records first net loss.
1998:: Company goes public and returns to profitability.
1999:: Chain increases to 29 restaurants by year’s end.
2000:: Company plans to open its first Pei Wei’s Asian Diner.