- Billionaire owners taking stakes in smaller restaurant chains
- Company is also testing delivery service in major cities
Panda Express, which built the largest Chinese-restaurant empire in the U.S. over the past three decades, is hedging its bet on Kung Pao chicken by buying stakes in companies that sell everything from pizza and salads to cheesecake.
Panda Restaurant Group Inc., a privately held company run by billionaires Peggy and Andrew Cherng, has started investing in small restaurant companies, recently taking stakes in Pieology Pizzeria and Just Salad. The two chains have 111 outlets combined -- a fraction of the 1,757 Panda Express restaurants -- which is one reason they gave the deeper-pocketed company a seat at the table.
Panda Express plans to make additional minority-stake investments in growing fast-casual and fast-food chains, according to Peggy Cherng, co-chief executive officer of the Rosemead, California-based company.
“We are able to share our experiences with a young restaurant chain, and we are able to help them grow," she said in an interview. "Along the way, we’re also learning from them.”
From Just Salad, for instance, Panda Express picked up tips about delivering hot food swiftly to customers. The Chinese-food chain is testing the service in New York, Los Angeles, Chicago, Dallas and Houston, and will soon roll it out in San Francisco and Portland, Oregon.
Panda Express may not operate on anything close to the scale of McDonald’s or KFC, but in the world of fast or casual Asian food, it rules. U.S. sales climbed 15 percent in 2014 to $2.28 billion, outpacing rivals Noodles & Co. and Pei Wei Asian Diner, according to Technomic Inc., a food-service consulting firm. Its share of the domestic fast-food market increased to about 0.9 percent in 2014 from 0.4 percent in 2005, Euromonitor data show.
The company has succeeded with its Americanized version of Chinese fare by slowly but steadily adding stores over three decades, said Darren Tristano, Technomic’s president. Panda Express made the cuisine easily available -- and familiar -- by starting out with quick-serve outlets in shopping mall food courts, then expanding to stand-alone restaurants.
Now it has spaces in airports and supermarkets, too. The signature dish is orange chicken, and the company boasts that it sold 67.9 million pounds of the tangy boneless bites in 2014. Other popular menu items include grilled teriyaki chicken and broccoli beef.
Andrew Cherng, Peggy’s husband, opened the first Panda Express in the Los Angeles suburb of Glendale in 1983. Andrew, who was born in China, got started in the business a decade earlier, opening a Panda Inn restaurant in nearby Pasadena with his father. Peggy, meanwhile, is a native of Burma, now known as Myanmar. The Cherngs have a net worth of at least $2 billion, according to the Bloomberg Billionaires Index.
It makes sense for the Cherngs to spend some of their fortune on new ventures, said Malcolm Knapp, president of consulting firm Malcolm M. Knapp Inc. and founder of the Knapp-Track restaurant index.
“This is their world,” Knapp said. “They know how to evaluate restaurant concepts.”
Panda has also put money into chains outside the U.S., including Japan’s Uncle Tetsu and Ippudo. Uncle Tetsu, which sells cheesecake and other sweets, has a location in Canada and will open its first U.S. unit in March, in Honolulu. The first U.S. Ippudo, a ramen-noodle shop, is opening in Berkeley, California, in June.
For Pieology, where sales tripled in 2015 to about $100 million, the deal with Panda will “continue the acceleration of growth,” said founder and CEO Carl Chang. Neither company would disclose the terms. Pieology has 84 stores, aiming to open 137 this year and as many as 120 annually for the next five.
Just Salad, with 27 restaurants, sold Panda a stake of about 33 percent for an undisclosed amount. The chain opened its first Chicago location in 2015 and will have as many as five more by year-end, said Nick Kenner, the co-founder and CEO. Sales increased more than 30 percent in 2015, and his goal is to surpass $50 million this year.
“We weren’t looking for an investor to tell us what our menu should look like; we don’t need help with that,” Kenner said. “What we needed help on was developing a national infrastructure.”
The Cherngs, whose U.S. Panda Express units are 95 percent company-owned, can teach their new partners how to expand, Knapp said.
“They have a lot of knowledge,” he said. “The benefit for them is they make money.”