China Paradigm transcript #99: Business management in a crisis workshop: Running a restaurant in Shanghai
Find here the China paradigm episode 99. In this interview, Cotton Ding, owner of Cotton’s restaurant and bar shares her success story in China and discusses the challenges of running a restaurant in Shanghai during the coronavirus outbreak.
Full transcript below:
Welcome to China Paradigm, the show powered by Daxue Consulting where we interview season entrepreneurs and experienced managers in China about their business and experience in the country.
Matthieu David: Hello everyone. I’m Matthieu David, the founder of Daxue Consulting and its podcast, China Paradigm, and today, I’m with someone who I think will be very interesting to interview. To give you a sense of who she is, Cotton Ding is from Hunan and started her business at the age of 26 and she has been running a restaurant in Shanghai for 17 years.
I don’t think you have many restaurants in Shanghai which have survived 17 years. You studied at the time which now resonates even more than before. You started in 2003 during the SARS (learn more about the SARS impact on China). At least it was during this year that we had this outbreak of SARS and currently, in 2020, we are late March 2020, we are in the middle of an epidemic in Europe and the US and it seems that we have handled it in China.
You have two venues now. You had three in the past and that’s something that can be very interesting to understand as well; how you did manage all of them. A few numbers about the industry. First, this is the Food & Beverage business in China that has been hit hard by the Coronavirus recently. It’s about 90 million people in all China who lost their jobs temporarily and it’s about – in terms of revenues- 70-80% down for the first quarter (learn more about the impact of the virus on the restaurant industry in China).
So, it has been damaging a lot of the industry, an industry which is about 1.8 trillion yuan for January, last year in 2019 in China. It is a sizeable industry that represents about 6% of the economy. So, coronavirus’ impact on restaurants and bars in China has been affecting a lot of people. It has been hard to navigate. Some companies, large companies, were saying that they had only two months of cash, and if the epidemic was here to stay, they would be out of business. So, running a restaurant in Shanghai during these times will certainly be a challenge, but you have been here for 17 years now, managing a few restaurants and we have a lot of questions for you, Cotton. Thank you for being with us.
Cotton Ding: Hi everyone, hello Matthieu. Nice to be here.
Matthieu David: What would you say about my introduction? Anything you would like to add or anything you would like to correct?
Cotton Ding: It’s quite a good introduction. I opened Cotton’s in 2003; 17 years ago, and for the past 17 years we have been here. We now have two locations and it was quite a good journey. The interesting thing is that we opened in 2003 during SARS (learn more about SARS impact on Chinese economy) and now we have the Coronavirus and I mean, quarantine.
Matthieu David: Right now, you are in quarantine because your husband came back from overseas and you have to stay in quarantine with him. China is being very strict about it. I just finished my quarantine.
I’d like to go back to the start. You have been working in a factory in Shanghai 20 years ago, coming from Hunan. Hunan is a province in China that is famous for a few things. Its food is very spicy and it is also was where the mother tongue was born. It’s a big province. I think there are about 60 million people and you came from Hunan to Shanghai to initially work in a factory. Then, you worked as a bartender in Shanghai and you had the idea of running a restaurant in Shanghai when someone asked you, “Oh, you are the owner of the restaurant or the bar? You should do this and that.” Then came to you the idea that you could be the manager. Could you tell us more about the start?
Cotton Ding: Yeah, that’s quite an interesting one. So, I was in Shanghai in ’97. I was a factory worker. So, I was making about 350 RMB per month. So, I had been working at the factory for about a year and then I went back to Hotan and then in 2000 – 2001 I came back to Shanghai, again and then the story, actually, you already described very well how I started. How I started from
working as a bartender in Shanghai to running a restaurant in Shanghai. So, the small story is that I had just graduated and moved to Shanghai. I know the final draw was Graphic Design and I went back to work as a bartender in Shanghai in a restaurant again. Just after seven months.
Matthieu Davi : Sorry to interrupt. There must’ve been a lot of frustration. You studied interior design and you then found a job as a bartender in Shanghai. Wasn’t that frustrating?
Cotton Ding: Actually, it was very frustrating. I came to Shanghai and I was broken all the way. All my money went to university. My dream was broken because I wanted to be an interior designer, but I couldn’t. So, I took a job to
work as a bartender in Shanghai when I was saving money to go to university and my heart was broken with my boyfriend. So, I can say I was broken all the way.
Matthieu David: And you found the energy to be about there for 7 months. 7 months working as a bartender in Shanghai and what happened there?
Cotton Ding: So, I think the key point for me or the key turning point in my life was that I decided that I was tired of being broken. So, I decided to find the job I wanted. Then, I would take the job I am doing to be my dream job. So, that’s the decision that changed everything. I loved to work as a bartender in Shanghai and I was good. So, once you change your mind, your life changes.
Matthieu David: What do you like about it?
Cotton Ding: Everything. I love the interaction with the customers. I love being behind a bar. So, I always help people. So, behind the bar, it is a stage. Who you are and how you… we are in the business currently with people to connect with them, talk with them and make them feel good.
Matthieu David: I see. It makes sense now that I understand the transition better. You like sociability. You like to interact with people and then it makes sense that at some point you wanted to run a restaurant in Shanghai or have your own venues because you like to listen to your clients and customers and interact with them. I’d like to now give a sense to the new current business situation now because that is usually actually the question I started with.
I went to one of your venues two years ago and I saw the picture of the other ones. It’s beautiful. Inside is beautiful. We see that you like the design, the colors, the lights. There are gardens as well. So, restaurants with gardens. You have a capacity you said, of 200 people for each place. You can go up to 800 if it is booked for an event. Would you mind sharing a bit more about now; 2020? What is the size of your business? Any numbers in terms of team revenues and as we said, the number of seats. You already disclosed it. It is 200 people at each venue.
Cotton Ding: Yes, for both of the locations, they are beautiful and historic and so the capacity is about 200 if we sit down and id there is a party going on; so, we could host around 800 or even 1000 Khotan. So, if you imagine the scope of the businesses we cater about; between both venues about 400 guests per day and on a weekend, we are catering about 800 guests a day and the average bill is about 200 RMB per person. So, you do the math.
Matthieu David: Okay good. For people who are good at math, they would calculate, but basically, you are about 40 000 if I make a calculation, per day. You would certainly be about 80 000 more every day on the weekend. To make people understand where you are; the location is in Xinhua road. It’s a very good location. I think it is expensive to rent it. You started 17 years ago. So, I believe cost-wise and we understand that now your top revenue is 200 people around 200 RMB per person, on average. What about the cost? I feel a lot of businesses don’t survive ten years or even five years or even a year because of the rent increase. Could you share more about the cost of the rent and how you have been able to manage it over the last 17 years in a very good place?
Cotton Ding: So, the rent increase between both places almost doubled for the last nine years. So, it’s quite a big increase, compared with how much we or our prices increase. We try to house the business. We look at the rent and we try to match the rent to 20% of the revenue.
Matthieu David: I see. That is a good metric.
Cotton Ding: Yes, if you manage your rent, 20% of the revenue, you are in a very good financial business shape.
Matthieu David: That’s your goal, right? Your goal is to stay at 20%.
Cotton Ding: Yeah that’s the goal. So, we have to with the increase in the rent. We need to increase our Food & Beverage businesses in China. Push more business. From the beginning, we don’t open for lunch. We don’t open for afternoon tea. So, we open only for 6 pm, right? So, we started to open for lunch from 11:00-14:00 and then afternoon tea. So, you expand your business hours.
Matthieu David: What we are saying for the Food & Beverage businesses in China is that there is nothing more expensive than an empty seat, right? So, that is what you did. You tried to have someone in a seat all day long; for lunch, for afternoon tea, and so on.
Cotton Ding: Yeah and the ones that we did very well were for brunches. So, I think the one in the year that we had just opened, we had very few customers for brunch and now our brunch is active every day and every weekend. So, this year due to the coronavirus’ impact on restaurants and bars in China, what we try to do is open for brunch every day. So, that again, the business hours and we tried to do it. If the formula is working, then you push in more.
Matthieu David: I’m not getting it; the link with the coronavirus’ impact on restaurants and bars in China. You open for brunch every day now, including the weekdays because people don’t have to go to the office, right?
Cotton Ding: Yeah, even during the weekdays we are open for brunch now. Before we were only open for brunch on Saturday and Sunday and Saturday and Sunday we are always full. We already have 200 guests, just for the brunch.
Matthieu David: Very interesting. That’s why I am liking your story. You can innovate step by step with key changes like this. Like the coronavirus’ impact on restaurants and bars in China is happening. People have more free time because they don’t go to the office during the weekday, right? They are not authorized to commute too much, to go too far or whatever. So, let’s do brunch every day and that is very, very interesting learning.
Cotton Ding: Yeah and what we are doing now is that we are trying to do it in a new way. So, delivery was a disaster before. We never really paid any attention to delivery and then this year we tried to go to delivery. The number is still very small, but it is increasing every day. So, we see the effort.
Matthieu David: I’d like to go into delivery and online later on more deeply, but first, I’d like to finish on the revenue and cost. So, you said about 20% for the rent and what about the team? You said that the rent has doubled over ten years. To be honest, I am not that surprised and I feel even you matched quite well the increase because I think my apartment over ten years, it may have more than doubled or it has doubled, I would say as rent, but I would have expected that a place like you would have more than doubled.
So, that’s not something I am very surprised at. You said that you were making 450 GMB in ’97 and so I believe that the salaries may have increased even more for Food & Beverage businesses in China. Would you mind sharing more about the cost salaries ad what do you have to do? What do you have to pay when you buy people in the restaurant business? To give more insight and background stories, I remember talking to people in Beijing. I used to work in Beijing. They told me that they have to pay for the rent for the workers, they have to pay for waiters and waitresses, they have to pay for the chauffeur and to find the dormitories and to provide them and of course, there is a salary. Would you mind sharing a bit more about what your costs?
Cotton Ding: Compared to the number of how much the salary we paid to now, it has increased by 400%.
Matthieu David: Sorry, 400 times? So, plus 300%? Four times, right?
Cotton Ding: Yeah, four times. When I first started in food and beverage in 1998, my salary was about 500 and in 2003, if you hire someone you pay about 1500 RMB and now, you cannot find anyone below 5000, I think.
Matthieu David: When you say 5000, you say with taxes and so on or it is net for them; net 5000?
Cotton Ding: It is net.
Matthieu David: Do you provide accommodation?
Cotton Ding: We provide a dormitory. We provide a food allowance and so the salary structure of what we have is very flexible. We have a basic salary, but we also have a bonus and other benefits.
Matthieu David: I see. Are there other costs we are missing here that are viable costs for the food you buy, the drinks you buy, and so on? Are there other costs we are missing except for the fixed cost?
Cotton Ding: We always talk about it… the fixed cost is always different from the salary, right? So, that’s a fixed cost and the food and drink cost is between 21%-31%.
Matthieu David: Wow you are very precise. Why 21-31%?
Cotton Ding: Different restaurants have different price structures and it depends on how well you look after the costs.
Matthieu David: Okay, interesting.
Cotton Ding: So, really very well managed restaurants. They could go for the drinks, down 21%. That’s what we talk about. Very good managers of the restaurant and if you go to 31%, you’re still okay, but over 31%, it’s difficult for business. You don’t have any margin.
Matthieu David: I see. I think one of the difficulties of managing a restaurant is to make sure you don’t waste food (learn more about waste food in China). You don’t waste your drinks. When you open a bottle of wine, you make sure to finish it because you cannot re-use it the day after. Would you mind sharing how you manage your inventory and purchasing every day when you are not sure of how many people are going to come and how many will order?
Cotton Ding: Okay, we talk about managing a lot. I remember a few years ago people asking me, “How do you manage so many people?” We have around 50 food staff and actually, around 30 casuals and so my answer is always, “No, I don’t manage it at all. I really don’t like the word ‘manager’. I would more say the style of how I empower people.” So, in my business, we talk about the cost and I allow them to decide. The Chef knows. After one week he knows how many fish per day we sell and what is the most popular and what is the ingredients we use. They understand it better than me. So too, with the bartender because he is the one who manages the daily operation.
Matthieu David: I see.
Cotton Ding: We have a procedure for running a restaurant in Shanghai. We have checklists. We have minimal storage for each item, but people are the key ingredients in this process.
Matthieu David: How do you make it happen? How do you empower them because the difficulty or I mean the idea is nice and I think a lot of entrepreneurs want to do that but implementing it is hard because it is hard to make everyone aware and responsible for the fate of the company? Is it that you do a profit-sharing model? Is it because of you… is it the way you interact with them? You let them speak. How do you do it?
Cotton Ding: There are a few ways. I mentioned about salaries earlier and so, not everybody has a fixed salary, of course. You have a basic salary, but then you also have a bonus and an incentive. So, when business is good, your income is better and so, everybody is striving to have better good business because if business is good, then everybody’s income is better and the same with chefs. So, if the cost is lower, they have also a better bonus.
Matthieu David: I see. Would you mind sharing about how sizeable the bonus can be? Are we talking about +10%, +20%, +5% for them on a monthly basis?
Cotton Ding: So, the bonus should be, structural you have a basic salary and then there is a 30% difference in a good month and a bad month.
Matthieu David: It is very sizeable. Which month is good, for instance? Is it December? Is it February?
Cotton Ding: The best month are September, May, and October. So, when the weather is good, we have good business because we really depend on the garden. So, when the weather is bad, then the business is not so good.
Matthieu David: You said you motivate your team by a bonus. So, for profit-sharing, you look at the revenue, manage the cost and in some way, you give them a percentage. It is interesting because it is exactly what we do, actually, in our company. What else do you do to create this team spirit where people are willing to share and contribute and so on?
Cotton Ding: We have a company culture training and so every year, if we have a new team member, I make sure that with me they go through the company culture training. So, for me, I don’t’ believe people will work for me forever, and also, I don’t believe they will work for me. They work for themselves and a better future and I am a provider of a good platform for them. So, they use it and once they are ready, they could start running a restaurant in Shanghai. They can take off. So, that’s our atmosphere at Cotton’s.
Matthieu David: I see, interesting. I am not sure opening a restaurant now is in some way as reachable that when you did in 2003?
Cotton Ding: What I see is that when people work for somebody else, it is a different feeling than it is to work for yourself. For everyone in Cotton’s, they feel they are working for themselves. It is a very different working atmosphere.
Matthieu David: There is a saying from people from Wenzhou saying that they would prefer to sleep on the floor and have their own business than working in a company for someone. It seems that it’s a little bit your mindset rally, to master your own destiny and your own life and your own business if I’m correct?
Cotton Ding: Yeah and also it is a friendly working environment. You interact with people and that is what we try also to do.
Matthieu David: I’d like to talk a little bit about what has happened in January, February and march in China and what is happening now in the rest of the world and the coronavirus’ impact on restaurants and bars in China. So, I’d like to talk about it with two perspectives. The first one is a Chinese perspective to understand what happened and the second one is an inspiring perspective to inspire people in the West and all over the world, actually; business owners and restaurant owners on how to manage and if they could manage it the same way in their own country. I’d like to share a few numbers.
So, as we said, the food and beverage industry is about 6% of the GDP in China so it is sizeable (impact of the coronavirus on the F&B industry in China). It is about 9 million people who have been laid off during that time. It has been very strongly impacted. We have seen the same in the West. The weight for different segments, for instance, for fast food (learn more the about fast-food industry in China). 62% of the restaurants were shut down at some point during the epidemic. Coffee shops were like 83%, bars were like 66% and basically, we are talking about two thirds to 80% of shut down for a few weeks and some for a few months. I’m talking about Wuhan.
China is specific because it’s very digitalized. Delivery is working. I mean, I don’t know how you would say it, but it is very common to get delivered and you have digital payment very widespread. So, in some way, it will be different than Europe and the West. Which is not as developed on those elements. Would you mind sharing about how you manage those hard times and the coronavirus’ impact on restaurants and bars in China? What decisions did you make when you knew it would be hard and you knew you would be shut down?
Cotton Ding: We sat down actually, January 2004 and there was a new one out and I knew we would not be open for the whole of February. So, we’d be closed for 5 weeks and we opened on 1 March and so now, we have been open for one month now. So, the moment I heard about this outbreak, I panicked. I really was… I couldn’t sleep and I was really worried about my business because I know that in 2003 during the SARS, 35% the Food & Beverage businesses in China didn’t survive. They closed their doors forever. I know something very big is coming and we should be in survival mode.
Matthieu David: Seabay, a very big restaurant chain very openly communicated in the press saying that they have three months of cash if they are still closed and I was very surprised that I saw a lot of people buying Seabay online. I think it was a very smart move, actually, from the manager to say, “We only have three months to survive” and I feel the deeper boat online and got delivered through Seabay. Would you mind sharing a bit more about the actions you made because the restaurant was shut down, but does it mean that delivery was shut down as well?
Cotton Ding: The Food & Beverage businesses in China were shut down and our delivery was also shut down. So, basically, we closed for 5 weeks. Seabay was alright and most restaurants only had three months’ cash to run. Since we are a business for 17 years and also, our business is very seasonal. We have summertime very good business and wintertime, very slow business.
So, in our business, we have money saved for a rainy day. We have a little bit extra cash saved because we know that business is not always good and we save cash for two reasons. One is we save for a rainy day and the second one is that we save if the opportunity comes, maybe we move to a new location and so when the business is good in the summer, we always try to save. We don’t spend it all. We always try to save and I think that is something which we have been doing for ten to fifteen years and this is something we saw last time and this time, we have a better chance to survive, long term.
Matthieu David: I heard an interpretation that February is a low season and I am speaking for a lot of Food & Beverage businesses in China because people don’t work. I have a sense of that has a bit softened the coronavirus’ impact on restaurants and bars in China; the economic impact. Is it correct?
Cotton Ding: Yes. Indeed, February is always slower. So, when we predict cashflow we already in February we won’t generate a lot of income. So, we already saved for February.
Matthieu David: It is as if the crisis in Europe or the US would happen in August where actually a lot of companies are closing and business is very slow. I feel in some way, that has softened the coronavirus’ impact on restaurants and bars in China. What about the after-crisis? So, let me understand. You shut down for 4 weeks. No business at all. Nobody could join your restaurant and you couldn’t deliver either. You had to pay your rent, you certainly had to pay most of the salaries.
What about 1st of March and the month of March? What did you see in the habits of people? How did it change? One learning we have is you said earlier that you implemented brunch all over the week so that because people don’t go to the office anymore because they work in a more remote way, they would come actually, in the morning to your restaurant or they would look for a place and in a coffee shop, I think it took time for Starbucks to reopen fully. So, coffee shops may not have been opened as well. What else has changed in terms of consumer habits, in terms of the way of running a restaurant in Shanghai? You mentioned as well delivery. You did more delivery. Would you mind sharing it?
Cotton Ding: We always used to be an evening business. So, revenue was always like 80% or even 90% and now, we already notice in the day time; brunch time has increased. Basically, since March our brunch business is better than last year in the day time and so we increased our brunch business and people feel more… after time people don’t feel… people don’t want to go out. In the day time when the sun is out, the people fear going out for brunch and going out to have a coffee. So, we have to really push our brunch. That’s the one thing we did and for delivery, but we still are working very hard. Delivery is not there. Before, it was 0.1% and now maybe we have 0.5% of our business, but it still couldn’t pay the bill.
Matthieu David: Why do you say couldn’t pay the bill, because delivery (learn more on food delievery in China) in some way, you just shared a percentage of the revenues with a delivery platform. Is it because they take 10-15% that is damaging so much your margin that you cannot be profitable?
Cotton Ding: Because of our business model, I think. Our business model is still… it is not only food, but it is the social perspective. People can always have a burger and a sandwich at home, but the social aspect cannot be taken away.
Matthieu David: I see, so the drinks basically, right? When you socialize, you consume drinks and alcohol and this is where the margin is higher than food. When you deliver only food, you may have a lower margin.
Cotton Ding: Yeah.
Matthieu David: Okay, I’ve got it. What about working with a platform? How do they work? What do you have to consider when you work with those platforms and who much margin does it take you?
Cotton Ding: So, with Ele.me, last year they take 18% and this year they took 20%.
Matthieu David: Okay, they increased.
Cotton Ding: Yeah, the same with shoppers. I think shoppers also do 20%.
Matthieu David: It’s huge. 20% of revenues, right?
Cotton Ding: Yes. It is very big and the service took 20% and Shoppers has them encouraged. So, if you are doing more delivery in percentage, then they will come, but we are still in this 20% range.
Matthieu David: Does it change because of the weather? I heard from someone who managed coffee shops that… the coffee price point may be lower than you so we are talking about 10, 15, 20 RMB. She has to pay more when it is raining. Is this the case?
Cotton Ding: No, it is the same, basically.
Matthieu David: Yeah, we understand that you change your opening hours and what you offer to be more balanced throughout the day; one thing. Another thing, running from the Coronavirus and change in consumers. The second element is more delivery which is a bit obvious in China because it is so well-organized and so easy to deliver. Does it mean that Shoppers are bringing you new clients or is it your own clients go to the platform to buy from you?
Cotton Ding: Maybe a little bit of both. I don’t really know the number yet. The database is still in the back office, but I think it is all clients.
Matthieu David: Okay objectives should be also to bring new clients and that is why they may justify the 20% which is pretty high.
Cotton Ding: I agree. It is helpful in the future because we have not been working with them for very long. We still only tried to push for last month. So, it’s still too short to say.
Matthieu David: You mentioned in one interview in the past, that you have been able to go through a lot and without being hit by license violations, development, etc. Would you mind sharing about the big mistake that restaurants are making, that shut them down, not only businesses? So, we understand if you don’t make a profit you have to shut down. That is the case for many businesses and now what about a license violation that you say, the open development. Are there three common threats to Food & Beverage businesses in China?
Cotton Ding: I am more conservative when doing business because there are so many elements for a business to fail. For me, before I sign a contract, I need to make sure we could have the proper license. So, this is something that I will not risk.
Matthieu David: Is it hard to get it? Why do people manage their restaurants wihtout it? Is it hard to get?
Cotton Ding: Yes, it is. It is hard to get.
Matthieu David: Why is it hard, because it takes control, it takes time and it is expensive?
Cotton Ding: It is difficult because you need food and drink license, then they’re also very strict on the location size, but I think it definitely was worth it to go through all the troubles. Of course, it was a lot of trouble. It took one month, two months, three months to get a proper license for my Food & Beverage businesses in China, but always get a license because the law stops business and the risk is too high not to have that.
Matthieu David: Yeah there is a misconception between the West and I mean, the West toward China and business in China. A lot of Western people still think that China is not very regulated, but actually, you have a lot of regulations and you have to follow them in China. You have taxes and salaries. You have social insurance to pay, which is not small even compared to Europe. It is actually comparable to Europe and that is a misconception. Do you feel the same?
Cotton Ding: I think maybe before 2010 or back in 2003 it was a cowboy country. There were a lot of grey area. People could get away with running a restaurant in Shanghai without a license, but this is a risk matter for each individual and after 2010 after the world expo, if you don’t have a business license you are shut down.
Matthieu David: One thing I’d like to dig in more is especially because you have a background of interior design. You insist on some articles on having your own identity. So, I understood that you have your own identity with your team? You have your own values. You have your own culture and you have developed it. What about the identity towards the customers; the people who join for lunch, for lunch and now, brunch. Would you mind sharing about the identity over the last 17 years and why you have built this identity? Is it because of yourself? Is it because of actually, the contact of the customers? Is it because it is working and you have found an opportunity?
Cotton Ding: You have been to Cotton’s and so both Cotton’s are located in historic homes, basically. So, you don’t feel like you are going to a restaurant. You feel like you are going to your home; maybe your grandma’s home. So, that is the idea I try to create is we go to a friend’s home. We go to a friends’ living room. So, this ambiance is what I try to create.
Matthieu David: I see and you do it yourself for the interior design and so on or do you hire people to do that?
Cotton Ding: I have a designer that I work with from England. We have been working together for all my projects. So, Peter; a good friend of mine. He understands what I want very well and we work together to create a living environment, a home away from home. That is what I always tell Peter.
Matthieu David: What changes have you followed in the identity of the brand since 2003? I believe it has changed. In one article you said that in 2003, let’s say 90% of your clients were foreigners and I mean now, the date of the article is a few years ago. You had 40% of local people from Shanghai. I believe that is affecting also the way you communicate your identity; your brand identity. Would you mind sharing about your clients, how they have evolved, and how it has evolved the identity?
Cotton Ding: Well, when we just opened it was like almost 100% for foreign communities. Now, we have about 55% foreigners and then we have 45% of the Chinese community and they are very important. So, with the new clientele and a new community. So, we have to design the menu to also appeal to them, even the way of service.
Matthieu David: Very interesting. Can we dig deeper into it? What are the elements that had to change?
Cotton Ding: Definitely we had a lot of different juices. We had various different teas. We need also in the menu the Asian favorite. So, a few Asian dishes to be added in there for the clientele.
Matthieu David: Spicier, compared to… Chinese would feel like French food very untasty because it is not spicy enough, for instance. What do you feel you had to adapt and not only because it is Asian only, but because the effect of Western food and the enjoyment of Western food is different?
Cotton Ding: So, for most clients, they come to Cotton’s and they come here not to eat Chinese food, but they come here actually for less than food. They like original Western food. So, I think they are clear about their ingredients and so where does the tea come from and that is something. They come for Western food and to try different ingredients, I think.
Matthieu David: I am curious about yourself and the way you are running a restaurants in Shanghai. You said that it is mostly for dinner in the past. Does it mean that you were staying in the restaurant and then sacrificing all your evenings to the restaurant? How do you manage your life with a business which is the opposite of a personal life because you have to be there when people have free time and so you don’t have free time when the rest of the world has free time? How do you manage that?
Cotton Ding: I think that’s the nature of the the Food & Beverage businesses in China. Everyone in food and beverage; you know, we never have Christmas and we love our Chinese New Year. We are working. We rarely have holidays and when everyone is on a happy holiday, we are working. I love it. I’m not a morning person.
Matthieu David: It is interesting. I think that is something we don’t see, but you choose business as well when you start a business which may fit also who you are. You are a morning person or if you are an evening person. If you are a person who likes to socialize or if you are someone who likes more technical things and not too socialized. Is that also a choice you have to make and be aware of when you start a business, right?
Cotton Ding: I agree. I think so. I think you have to understand who you are and what is your nature and the best quality or passion you can offer. If you do something that is against it, it is difficult, right?
Matthieu David: Yeah, it’s not only about the product and the profit, right? It is also about the fitting of your own way of life because if it fits, you will thrive and if it doesn’t fit you will suffer from it and it’s already hard to start a business.
Cotton Ding: I believe a business is not a job. It is not like, okay, you go to work 09:00-17:00. It is a lifestyle, for me, I don’t really consider myself going to work or an off day. You are working 3-4 hours and so it is a lifestyle you create for yourself. So, it is better to be suited.
Matthieu David: I have a few questions to end the interview. I believe we sent them to you earlier. What books or it could be books, it could be movies, it could be poems; whatever has inspired you in your entrepreneurial journey? It could be meeting with people, but what has inspired you the most?
Cotton Ding: Yeah, it is interesting because I really love reading and I read a lot. So, the last time we spoke there were many categories and so for me, what has inspired me is when people enjoy what they do. That is also empowering.
Matthieu David: If you had one book to recommend to emphasize this element, to do what you love and by the way, the name of the third venue you have; Litchi, was coming from Yun Gu Fei, which was one of the concubines of the emperor a long time ago and you got the label, Litchi, from the south of China. It was very expensive at the time. So, I see that from what you do, you try to find a route to give the sense to find something which is a bit more with substance. So, would you mind sharing with us one book, if you have, which is representing or embodying what you just said or two books, if it easier?
Cotton Ding: Wow, I have tried to find something. Okay, let me just… give me a second. I just pulled out a book from my bookshelf. The strategy of War. Robert Greene. For me, I think this is a very good business book. I believe in a way, life is a war, and business is a war, too. To really be able to win the battle, you really need to understand your own strengths and also your opponents.
Matthieu David: What do you fight for because when there is a war, we fight for something? Is it for making your mark in the world? What do you fight for?
Cotton Ding: I believe what we fight for, of course, is to overcome the Coronavirus. To survive, to be here, and to make a difference. To keep intact for whoever works for you; like your staff and then also give a positive impact to your customers to be remembered as this is something that we fought for; to be remembered, not forgiven.
Matthieu David: To be remembered. Interesting. What do you read to be up to date about business in China? For instance, we are in a world that is changing fast. Myself, I am reading tech Crunch, for instance, to understand about technology. I am reading the New York Times to understand more about the world. I am reading the Morning Post to know more about China. What would you read to know more about China and your industry? Would it be your WeChat groups? Would it be LinkedIn? A lot of people tell me that, but it could be…
Cotton Ding: If I tell you the answer you are going to laugh at me. I read WeChat.
Matthieu David: Yeah, but actually that’s something I found out. A lot of people say WeChat and LinkedIn for some reason. The reason is that you have your own group which focuses on a topic. I believe you have groups about food and beverage and restaurants and then you can interact with your people who provide you information to say is it true? How did you do it? You cannot do that with a journalist. You cannot do that with a paper and finally, you get the news quickly because when something happens, you know it and it’s now. Journalists may take a few weeks to react.
Cotton Ding: Yeah that’s very true because we have a lot of different groups; a restaurant group, a customer group, supplier group, management group, and the communication is very fast and direct and you have really a close connection with your customers.
Matthieu David: True. One thing I see as a danger is that I am seeing some people spreading fake news and false information and so, I am balancing it a little bit of Google search, sometimes to make sure that it is really something issued by the government because sometimes I feel there is a little bit, especially during the time of the Coronavirus, when we have to act fast and there is a bit of fear everywhere. They get fake information.
Cotton Ding: Yeah, I saw it during the Coronavirus. Everybody is trying to send information and that creates panic and it creates unnecessary panic and then people all react. I was finding fault with that because of panic; there is no good outcome that comes from panic. We could only do what we could manage and especially in this difficult time. We have to be positive.
Matthieu David: Exactly. My conclusion is that critical thinking that is the ability to be critical in screening information and to use critical thinking can be key; more and more key and more and more important in the coming years, to make sure that when there is information that looks a bit weird or surprising to be able to know that, “This one I need to be able to check.” About China, what books would you suggest to foreigners to read about China? What would you recommend? It could be a book. It could be a movie as well, but what would you suggest foreigners read, to watch, to do, to know more about China?
Cotton Ding: The book is called Dark Heart and a Thick Face. It is a business book on how to understand how to do business and all the Chinese philosophy and how to do business in China.
Matthieu David: By whom?
Cotton Ding: I can’t remember the author, but the name is called Thick Face and a Black Heart.
Matthieu David: Thick, like a bit fatty, right?
Cotton Ding: Yeah.
Matthieu David: What productivity tool do you like most to use? We understand that we use WeChat, but WeChat seems to be an unproductive tool because it takes too much time. Sometimes you wonder what to doon WeChat. Do you have some productivity tools? I am especially interested in this question because I have a sense that you are very good with your numbers. You say 45% is our local customers 55% are foreigners. Someone who does not look at numbers will always say it is 50/50 or half-half. You come up with very precise numbers. So, what do you use as a productivity tool or digital tool to understand your business and to be productive?
Cotton Ding: I don’t use many tools. Because basically, I spend most of my time in the restaurant and so my back office is quite bad, but now thanks to the Coronavirus, I have time during quarantine to understand the numbers.
Matthieu David: That’s a very good point. This time of shut down, you can worry a lot and spend your time worrying, but you can also look at your numbers and think about what is next or what changes you can make. By the way, after the Coronavirus crisis, have you seen more business or less business?
Cotton Ding: I will say that this will be a very good year. I am quite positive about 2020. I know we had a very tough start, but I am still quite positive for this year.
Matthieu David: About March? What about March? Was it better this March than last March?
Cotton Ding: No. My business is 50%.
Matthieu David: I see because some people argue that people have been home for one month with only sad news and so they would like to go out, to do things, to meet with people, but it is still not the case, right?
Cotton Ding: Not yet. It is much more positive. I saw that maybe April, people were already going out and celebrating and now because it is not only happening in China. It is also happening globally. So, if we could go back to normal, that is already positive.
Matthieu David: If you had extra time to do something else, what idea would you like to work on, or what business, or what may be action you would like to dedicate more of your time to?
Cotton Ding: For me, it will be always Cotton’s. That is something I know. So, just focus on things you know and get better.
Matthieu David: So, really focused. That’s one other rule of success, right is to focus.
Cotton Ding: Focus. So, I think this year maybe I could be better. I may even because of this Coronavirus, we may even have a different opportunity to open a new one. We don’t know, but we keep our eyes open.
Matthieu David: Do you think you have an opportunity because rent is going down? Do you see that rent is going down or is it that people consume differently so you believe that they may behave differently?
Cotton Ding: I think the rent is going down.
Matthieu David: Okay, it is very clear?
Cotton Ding: 10 or 20% should be expected. There’s a lot of empty shops out of there now.
Matthieu David: I have two last questions. I really love this question and I really would like to have your view on it. Over the years; 17 years of managing your business, what has been more surprising for you to see happening in China? I was very surprised by how people got used to paying digitally (learn more about the China’s digital transformation). When I arrived in China 10 years ago, for instance, people were paying cash when they got deliveries. What do you feel has been very surprising to you; a success over the years in China?
Cotton Ding: One thing is about popularity. I remember in 2003, my opening I had to send out 1000 mails to let people know that I opened and now, we just use WeChat to say, “Okay, we have a party. We have a promotion.” So, I think the way people communicate is amazing. It is amazing how efficient, how immediate and how can you reach data from abroad. That is something that like really blew my mind, I think.
Matthieu David: Perfect. What have you seen as a failure in China? It could be a business or something in society that you have witnessed and you wouldn’t have expected it to fail?
Cotton Ding: I remember when I was very young, I remember Friday and I was like, “Wow, that is very good business” and they were so busy, but they didn’t make it in Shanghai.
Matthieu David: Which one? Which business?
Cotton Ding: It’s called Friday.
Matthieu David: What is it about?
Cotton Ding: It’s a restaurant.
Matthieu David: Okay. Oh, is it Thank god it’s Friday?
Cotton Ding: No, not this one.
Matthieu David: was from overseas ?
Cotton Ding: Yeah, so you are surprised to see a brand that really is successful overseas, but you are thinking as well that you are really happening in China, but it is somehow, past tense.
Matthieu David: My conclusion on brands that enter under China is that they need to really on the core community which knows them from overseas, but they also have to reinvent their brand. Some brands which are famous in the West are not known here and they have to redo again. They can only rely on people who have studied and worked overseas as Chinese or foreign people. So, it’s a whole new job for them.
Cotton Ding: Yeah and also you see the goods like the ones which maybe I don’t want to give all the names, but the ones who are really popular ten years ago and now they are quieter in the background. I think this is because they stop seeing the market anymore. They fail to change with the market.
Matthieu David: Thank you very much for your time. It was very interesting. I learned a lot. I think people listening to us have learned a lot as well. I hope the crisis is going to be resolved soon. I think China is in a good way and I share your optimism at least for China. I hope you enjoyed it and I thank everyone for listening. Take care and stay safe.
China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.
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