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How Dodo Pizza lost $ 2.5 million in the Chinese market and why it left it

To open Dodo Pizza in China, its founder Fedor Ovchinnikov spent a lot of effort and … money. We have already written about how the fast food restaurant chain developed a strategy to “capture” the Middle Kingdom and made big plans for it.

And now the board of directors of Dodo Brands has decided to withdraw Dodo Pizza from the Chinese market. “In business, you need to be able to say ‘no’ to opportunities,” says Fedor in his Telegram channel. We publish his most interesting conclusions in this material with minor editorial changes.

The first reason is strategic

Fedor Ovchinnikov
Founder of the chain of fast food restaurants “Dodo Pizza”

– Recently, we have been thinking a lot about the long-term strategy of our company, experimenting. It’s time to look at everything from above and answer the question: “What will be our long-term advantage and how will the global product and the company work in the future?”

What did this approach give. We realized that in China we were moving too far from the global business model of Dodo Pizza. In fact, we have turned into an independent startup that connects only the team and culture, but this is not enough to ensure sustainability in such a competitive market as China. There must be some kind of strong synergy with what we do around the world.

Dodo Pizza in Hangzhou was close to our global QSR pizza delivery model (Quick Service Restaurant translated from English“fast food restaurant”.Approx. “About business”). But in this form it did not work, and we began to improve: expand the menu, introduce completely new products for us, change the service system and the production model.

A top-down look at our long-term strategy made it clear that even if we eventually succeed in developing the original Chinese concept, it would be a completely different Dodo Pizza, and in fact we would need to develop two models. At the same time, “Dodo Pizza” in China will associate with “Dodo Pizza” in the rest of the world only a common name and a little “Dodo IS” (the basis of the Dodo Pizza franchise is a cloud-based ERP system.Approx. “About business”). That is, it will be the fourth concept within Dodo Brands, but unlike, for example, Drinkit (a network of digital coffee shops with the ability to subscribe and fully customize the drink.Approx. “About business”) or “Doner 42” (technological network of fast food doner cafe.Approx. “About business”) we will need to develop not in our home market, where we have resources, understanding of consumers and other advantages, but in a completely different cultural and business environment.

Photo from the site
Photo from the site

We have launched a new concept “Dodo Pizza” in the UK. But they did not radically change our model. We did some serious tuning, but remained a pizza delivery. You also need to understand that in Russia, and in the UK, and in many other countries, pizza is top-of-mind (translated from English.“The most recognizable”.Approx. “About business”) product, especially for shipping. In China, the situation is completely different. This changes a lot both in the business model and in the product.

Our Chinese drama had two “seasons”

In 2015, we entered China with the existing Dodo Pizza concept through franchising. We were approached by entrepreneurs who were ready to launch a franchise in Yantai in Shandong province and in Hangzhou in Zhejiang province. A year later, we actually opened exactly the same pizzerias as in Russia.

As I said, practice has shown that our traditional model worked poorly in China. Of course, singles pizzerias without a strong brand are not an indicator. We work in a mass market – you need to open a lot of establishments to get an effect. But the numbers and the experience we got made it possible to assess the potential of the model. In China, the shipping market is completely controlled by aggregators. We realized that we needed to open pizzerias in places with good customer traffic in order to become visible and be able to build a brand in the future – this is how the first episode of Dodo Pizza in China began.

Photo from the site
Photo from the site

In 2018, we decided to relaunch the concept in the Middle Kingdom based on the insights we received. A new concept of the “pizzeria of the future” was born: a small establishment in a place with good customer traffic with a compact efficient kitchen and a new “Roman” dough that took up less space and made pizza faster, as well as a WeChat application instead of cashiers for efficiency.

Despite all the changes, we did not leave the core of the concept – it was “tuning”. We remained a fast food restaurant: we had a one-food menu, which consisted of 80% pizza. It was also handed out to the audience in boxes – we counted on a large share of orders “to go”.

In the spring of 2019, we launched the Pizzeria of the Future in Hangzhou. Practice has shown that our hypothesis did not justify itself – we did not immediately receive the key indicator for us on the return of guests. Of course, we did not expect success right away, did not give up and began to persistently improve and develop the product – to continue looking for our model. We were now receiving data, guest opinions and feedback. We created a strong team and analytics system: launch analysis and hypothesis testing.

We made a huge number of improvements: improved the menu, developed the application, adapted the brand, product marketing, studied and experimented with the formats, launched the tea, changed the service system – but all this did not lead to a noticeable breakthrough.

I will note again that we never expected that one pizzeria in huge Hangzhou could “take off”, but the indicator of “guest return” was always very important to us, which shows the potential of the concept and product.

We kept looking further

We introduced dishes, delivery to tables, added a deep-frying menu, pasta, began to develop a line of salads and planned to make the third establishment in the format of a “democratic pizzeria with waiters”, that is, in fact, to make the same pivot as did Pizza Hut in China (Pizza Hut in China is not fast food in the Western sense, but large classic restaurants with a very wide menu, where you can find, for example, even burgers and steaks).

In the process of working on the long-term strategy of the entire Dodo Brands, we realized that we were carried away and began to move very far from the model that we are developing around the world.

Photo from the site
Photo from the site

Why is it important for us to have one model of Dodo Pizza all over the world?

We have achieved success in Russia and in neighboring countries, but the world and business around is extremely competitive. Success today does not mean success tomorrow. Competition with the strongest companies in the world awaits us. We must very clearly understand our advantages, strengths, properly manage resources and our focus. If we develop a product concept around the world, under the hood of which there will be some common connecting things: a management system, a product, technologies, we will have synergy. This is a strategic advantage. At the same time, we understand that a certain “tuning” is possible or even necessary for each market.

It is too presumptuous to think that we can build a new concept in China without some of the powerful global know-how we create around the world and compete with Chinese companies in their home market.

To give an example: the global company Apple sells the same iPhone in China as it does in the US, and Toyota does not make any other cars in China – they sell Toytota.

We must understand the line between change and “tuning”. All global companies adapt to the market: marketing and distribution are changing, but the core is not changing.

Here I will repeat myself again, but in China we started to change our core too much.

Photo from the site
Photo from the site

The second reason is tactical

Dodo Brands is still a very young and not that big company. We develop at the expense of our own profits. There is no big money behind us. And there are not many of us. Focus is very important to us. We currently have four startups. The closure of China will free up resources: focus, team, and finance for other areas that can generate more bang for the buck.We will focus on IT, new concepts, UK, IMF (International Monetary Fund. Approx. “About business”) and we will be able to more effectively implement Plan-333 (Dodo Brands IPO until 2024 Approx. “About business”).

We must admit that with the resources we have and had, the ratio of effort to results in China is weaker than our other startups, with Dodo Pizza China receiving the largest funding.

Comparison of Hangzhou 1 Pizzeria in China (2 years old) and Leamington Spa 1 in the UK (2 months old)
Comparison of Hangzhou 1 Pizzeria in China (2 years old) and Leamington Spa 1 in the UK (2 months old)
Photo: Fedor telegram channel. insights

China today “burns” more than $ 100 thousand per month. And this does not mean that we did something badly or ineffectively, on the contrary, we worked cool, even mega-cool. Our team at all stages showed miracles, and sometimes real heroism. This is an objective feature of the market.

China is a very difficult competitive market and requires serious capital for development

This is perhaps one of the most developed competitive foodservice markets in the world. For us, “Western” people, Laowai (Laowai in translation from Chinese means a foreigner, more often of European appearance, who does not understand or understands poorly in Chinese and finds it difficult to navigate the customs and orders of everyday life in China.Approx. “About business”), China – complexity in everything.

This is another self-sufficient civilization where the vast majority of people do not speak English. Any action in China requires much more time and effort from us. And this is not only a matter of language, although it is also a serious limitation. It is also other culture, traditions, thinking. Different internet, different advertising, different ecosystems. Finding a premise or building a pizzeria in China is a big challenge. Suppliers, employees, laws – everything is unusual. It’s cool that we dealt with everything. It shows the strength, perseverance, creativity and entrepreneurial spirit of our team, people and the company as a whole.

Photo from the site
Photo from the site

Were we aware of all these complexities when we decided to start in China and launch a new concept? Of course they did. But we have always been and will remain supporters of seeking, trying, learning. If we did not act like this, our company would not exist. I personally do not regret anything, although we have spent a lot of money on the development of Dodo in China (about $ 2.5 million in investments). Everything that is not – is for the best. This is our experience, progress and development. This experience will make us wiser and stronger.

If it were not for China, we would not have relaunched successfully in the UK, where we used the concept and technology we created in Hangzhou. We do not plan to keep the business in the Middle Kingdom in any way, sell to Chinese partners or develop franchising. We are completely leaving this country – in the near future we will close the pizzerias and liquidate the company. And yesterday’s record for sales in Hangzhou will not change that decision.

Photo: telegram-channel Fedor.insights
Photo: Fedor telegram channel. insights

The numbers that you see on the screen of our Dodo IS system are the result of media activities in March. There are no discounts and promotions, the guests have not been informed about the closure yet. The question is not about sales – you have to act in accordance with the adopted strategy.

In business, you have to be able to say no to opportunities for the sake of focus.Britain and China are two of the hardest markets. We will now focus on the UK. When answering the question “Will there be a third ‘season’ of our Chinese drama series?” – necessarily will. When we succeed in the West, we will return to China with more resources and a strong global brand.

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Fidenge Pecold

My profession is a journalist, but my hobby for 8 years has been studying Forex investing and trading. During this time, I managed to gain extensive experience in investing and trading cryptocurrencies and double my capital in the Forex market. To be the author of this magazine, the site owners invited me to participate in one of the 2020 trading webinars, and I will try to reveal the most relevant crypto market news for you.

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