"Revealing the Secret" Haidilao and Pagoda's partnership model is starting to bottom out

Haidilao’s apprenticeship system and Baiguoyuan store manager partnership system: stimulating everyone’s goodwill and potential

1. Haidilao’s endogenous growth

Speaking of Haidilao, everyone on earth should know it. If you don’t know, come and I’ll treat you to it.

On September 26, 2018, Haidilao was listed on the Hong Kong Stock Exchange. Its market value exceeded HK$100 billion, making it the fifth largest catering company in the world. Its market value was the first hot pot restaurant listed in Hong Kong - Xia Buxiabu’s price-to-earnings ratio is 9 times, and its static price-to-earnings ratio is over 60 times. Stories and legends about Haidilao have been circulated in various versions in the world.

Starting from the Malatang shop in 1994, Haidilao has gradually conquered the market in major cities across the country from Jianyang, a third-tier city in Sichuan, to Xi'an, a second-tier city, and then to the capital Beijing. In the fifteen years since its establishment, Haidilao has grown to 50 directly-operated restaurants, as well as four logistics centers and a production base.

Regarding hot pot catering, Zhang Yong has long asserted that taste is not the most important competitive factor. The level of cooking skills has little impact on hot pot catering. Guests mix their own seasonings and the preparation of ingredients is relatively simple. Therefore, the key points of competition lie in the quality of ingredients and service level.

Many experts and scholars have analyzed Haidilao’s services and written books about it. The conclusions and evidence are generally in three aspects: First, Zhang Yong highly empowers employees. For example, waiters have the right to waive orders. It is very rare in other restaurants; secondly, the company treats employees with dignity, provides superior treatment and a promising career development path; thirdly, Haidilao has only two store assessments - customer satisfaction and employee effort, while financial indicators have never been It is not in Haidilao’s assessment system.

These are indeed important factors driving the development of Haidilao, but they cannot explain how Haidilao can stand as an organization rather than existing in fragments.

When Haidilao grew to 50 restaurants, Zhang Yong found that the previous more laissez-faire management style was very difficult to cope with the scale of operations of more than 50 stores. The company began to improve various administrative functions and try to recruit more people. High-end talents join the management team.

There is a gap between the level of internally promoted talents and the quality of ideal talents, and external airdrops have brought about acclimatization and internal conflicts. Haidilao is naturally not immune to this growing talent paradox. The foundation of Haidilao's talent development lies in internal promotion. As the company grows in size, Haidilao has formed a pyramid-like management structure. Excellent store managers can be promoted to community managers, then to regional managers, and develop upward along the company's management ladder.

Then two questions arise: Can an excellent store manager be an excellent middle-level manager? If store managers all aim to “become officials”, where can they find new store managers? Within the Haidilao system, apart from promotion, there are no other options beyond store manager. Zhang Yong once told the media in 2011, "It is difficult to live up to the reputation. This is the current situation of Haidilao." "I know which toe I have a headache..."

2. There are three little-known issues about Haidilao

There are three little-known issues about Haidilao:

1. People issues - first of all, we must ensure the speed of training store managers;

2. Organizational issues - whether the organizational growth model supports rapid expansion;

3. Cultural inheritance issues - behind high-quality services are matters of dignity, fairness, income, authorization and soft assessment There are countless factors, how can the past advantages be retained when an organization grows up?

In fact, as Haidilao grows from an organic organization to a mechanical organization, inhuman things such as constitution and establishment have been in conflict and competition with human things such as authorization and passion. The question is how to grow without losing yourself?

Zhang Yong’s answer is “Continue interests and lock in management.” This sentence appears in Haidilao’s global prospectus.

Adam Smith proposed in "The Wealth of Nations" that everyone strives to make good use of his capital and realize the greatest value. Generally speaking, he does not attempt to improve public welfare, nor does he know how much public welfare is actually improved. All he pursues is personal gain.

However, the pursuit of personal interests will lead him to invest his capital in the most beneficial use to society... He is guided by an invisible hand to try to achieve a goal that is not what he originally intended. purpose. This is the best explanation of Zhang Yong's "continuing interests". As for "locked management", it reflects the ability of a large platform organization to formulate game rules in the direction the organization hopes to implement assessment, inspection and error correction.

3. Solve the "master-apprentice" dilemma

In terms of training new store managers, the person with the most say is the old store manager, but the dilemma of "teaching the apprentice and starving the master to death" The essence of this is to solve this problem - how to motivate old store managers to teach new store managers everything they have? Moreover, this kind of mentor-apprentice relationship should never be a one-and-done deal. It may also include follow-up support after taking office.

In the catering industry, problems that may not be encountered once in several years (such as fire, food safety, guests slipping in the store, etc.) can make inexperienced store managers overwhelmed and even cause confusion. It becomes a crisis of public opinion and damages the value of the entire brand.

The thinking mode of old store managers must be encouraged to change from self-interest to altruism, so that the overall level of the entire store manager can be improved. To this end, Zhang Yong has set up an "altruistic" profit-sharing mechanism.

The store manager of an A-level store is qualified to be a master. The master chooses his own apprentice. The company does not interfere with the selection, but the number of "family" is limited to 5 to 12 people, and the coaching team will set up a qualification examination for the apprentice. Certification is carried out, and those who pass the qualification become reserve store managers.

Master’s salary is divided into basic salary and variable salary. The variable salary belongs to the category of profit sharing. The store manager can choose the higher of the following two options: 2.8% of his own restaurant’s profit, or according to the following formula Calculation: 0.4% of own restaurant’s profit + 3.1% of apprentice’s restaurant’s profit + 1.5% of apprentice’s restaurant’s profit.

The company uses 5% of profits as an overall bonus pool to motivate the store manager level. The master gets 0.4% of his store's profit (based on a mature store with a profit of 1 million yuan a month, the store manager's floating monthly income in this area is only 4,000 yuan). Although the amount of the incentive for this part of the floating salary is not large, setting up this part of the incentive is of great significance to the company - although the company does not assess the financial indicators of the store manager, the store manager is at least obliged to ensure the health of the financial operations of his store.

In terms of motivating the master’s “coaching behavior” (taking the apprentice), 3.1% of the apprentice’s store profit is automatically included in the master’s variable salary. If the apprentice takes on another apprentice, 3.1% of the apprentice's store profit will automatically be included in his master's variable salary, and 1.5% will automatically be included in his own master's variable salary. In this way, the variable salary that the master receives from the store where his disciples work may be much greater than his own basic salary. In Haidilao, there are dozens of store managers with an annual salary of several million, which is comparable to executives of Chinese listed companies.

The "altruistic" incentive mechanism encourages old store managers to train apprentices. Although Haidilao has opened more than 100 self-operated new stores in 2017, the speed is breathtaking: Haidilao has completely handed over the power of store expansion to Haidilao. With stores, the huge development department disappears, and the risk of corruption in the development department is minimized. The headquarters only retains a small development team to coordinate special situations and implement certain store expansion initiatives that reflect the company's strategy.

The headquarters has arranged for mystery shoppers to assess two indicators: customer satisfaction and employee effort. As long as the store reaches A-level stores, it is eligible to propose opening a new store. The manager of the new store will be appointed by the old store manager, and the headquarters will generally support it.

But Haidilao’s speed of opening new stores is not as fast as the speed of training store managers.

With the mechanism of extracting profits from the disciples’ and disciples’ stores, the old store manager (master) became more enthusiastic. The apprentice shop improves its rating (removes C) and trains waiters. The rating of the apprentice's store does not affect the rating of the master's store, but only if the apprentice's store also reaches level A, can it be qualified to develop apprentices, allowing the apprentice to increase his personal income (3.1% of the apprentice's store profit), and then let the master further increase his personal income (1.5 % of Tusun stores’ profits).

The profit of the apprentice's shop has the greatest impact on the master's personal income, and has a smaller impact on the apprentice himself. The company does not assess store profitability indicators, but the apprentice must ensure that the profit of his store reaches a healthy level, otherwise it will be difficult to retain employees, let alone customer satisfaction and employee efforts? Employees often automatically start applying for movement between Haidilao stores.

The store manager family operates as a team and adopts a consultation mechanism, which greatly reduces the need for support from the company’s headquarters functional departments.

Zhang Yong is not worried about nepotism at all. The clear profit mechanism of mentor and apprentice makes it absolutely impossible for the old store manager to just find a relative to fill the position of the new store manager, because the apprentice store is the main business of the old store manager. Choosing the wrong source of income will directly affect your own vital interests.

4. Piece rate and lump sum system

Most of the wages of waiters in the catering industry are three to four thousand. The average salary of Haidilao's waiters is relatively high and the difference is wide. The best waiters can earn between 13,000 and 4,000 yuan a month. In the past, Haidilao stipulated that one waiter should look after three tables, and fixed salary accounted for the vast majority.

After adopting the piece-rate wage system, three waiters looked after 10 tables. Although the average workload did not increase significantly, they all contracted these 10 tables at the same time, and their enthusiasm was very different. The leading waiter is called "little customer service", and the remaining two are called "eldest apprentice" and "second apprentice". For the entire team, each plate of food served to the guests can earn variable wages on a piece-rate basis, and the customer service staff has the power to allocate these variable wages. He can pay fixed wages to his two apprentices, and the remaining variable wages are his own.

Moreover, due to the piece-rate wage model, Haidilao's waiters are most concerned about the location of the store, the turnover rate and the leadership level of the store manager to ensure the level of opening a new store.

5. Be the world’s hotpot

As of May 2018, Haidilao has opened 19 stores overseas, mainly in Southeast Asia.

It is not difficult to open a store overseas. The difficulty lies in finding suitable store managers and waiters. What is even more difficult is moving the domestic incentive program overseas. The first-generation store managers who open stores overseas are all sent from China, and the second-generation store managers are often trained locally.

Although overseas store openings are also accelerating (40 overseas stores are planned to be opened in 2018, 12 of which are in North America), Zhang Yong believes that overseas stores still have not captured the mainstream local customer base, and the store opening speed is not the same as that in China.

Moreover, the North American market that he has always intended to enter has not really broken through - there are only 4 stores in North America, and their profitability is not as good as those in Southeast Asia. Zhang Yong believes: "If you want to become a mainstream brand in the United States, you must let Americans eat it." So, can the overseas market expansion mechanism and store manager training mechanism adopt domestic models? Can mainstream American society really accept spicy Chinese hot pot?

Someone asked, what is Haidilao’s overseas development strategy? Zhang Yong's answer is simple: "We will make as many plans as we have store managers." Matching people and organizations is a subject that a service company can never avoid even if it develops overseas.

1. Pagoda’s store manager partnership system

Currently, Pagoda has more than 2,800 online and offline integrated stores, with sales of nearly 6 billion yuan in 2017, and its market share is the largest among fruit brands. Ranking first in the industry in retail, it has successively acquired fruit chain brands Beijing Guoduomei and Chongqing Chaoqi Fruit. The development of Pagoda can be divided into four stages:

The first stage is from the establishment of the company in 2001 to 2008. It is an exploratory stage. Pagoda launched the franchise model and suffered losses for 7 consecutive years. 100 stores have been opened;

The second stage is from 2008 to 2015, when all franchise stores are bought back and transformed into fully independent self-operated stores, and the number of stores is opened to 1,000 in 2015;

< p> The third phase started in 2016. After obtaining Series A financing, it began to expand aggressively due to the intervention of the capital market, with the total number of stores exceeding 2,800;

The fourth phase started in 2018 and obtained 15 After raising RMB 100 million in Series B financing, it restarted social franchising and further accelerated its expansion.

Pagoda has developed rapidly in the later period. Although it has the help of capital, it is not just money that can quickly open stores one after another. Pagoda’s innovation in chain operations and incentive models cannot be ignored. .

Pagoda also adopted the franchise model in the early days. As the number of franchisees increased, maintenance costs were high, franchise fees were low, and the supply chain was unstable, resulting in seven consecutive years of losses. Based on the original franchise model, Pagoda has systematically summarized and adopted a "quasi-direct operation" business model, which allows store managers to become the main investors, which is actually equivalent to a store manager partnership system.

2. Baiguoyuan store manager partnership system

1. Store equity structure

There are three parties involved in store investment: the company’s regional managers and regional franchisees and the store manager. The store ownership structure and division of labor are as follows:

A single store participant is responsible for the capital investment of a single store

3% of regional franchisees store location selection, store legal person

Area manager 17% area store management

Store manager 80% store operation

For annual profit distribution, Pagoda collects 30%, and the remaining 70% is distributed according to the store equity structure.

2. Store Manager Training Plan

Pagoda’s requirements for store assessment require each store to provide a new store manager (partner) candidate for the company every year. Generally speaking, the training cycle to become a store manager is 8 months to 1 year. The company will check whether the new store manager trained by the store meets the requirements based on the actual situation, and then decide whether it can invest in and manage new stores.

3. Subsidizing store losses

The most attractive aspect of Pagoda’s store manager partnership system is that if the store loses money, Pagoda will bear it. The specific policies are as follows:

(1) Pagoda does not charge franchise fees, and the revenue comes from 30% of the store’s annual profits;

(2) Pagoda does not rely on commodity price differences to earn profits. The profit sharing obtained from stores accounts for about 80% of Pagoda's total profits;

(3) A dividend base is established, with a base profit of 6,400 yuan distributed, and the base profit is assessed annually based on the store's operating conditions;

(4) If the franchise store loses money, the loss will be borne by Pagoda. If it still loses money after 3 years, it will be evaluated whether to close the store.

4. Store equity exit mechanism

In the Pagoda store manager partnership system, the store manager’s equity changes dynamically, and can be advanced or withdrawn. According to the operating value of the store, When the store manager withdraws his equity, the store manager's early investment will be returned to the original amount, and he will receive a one-time compensation of three times the store's dividend income. For example, if the store manager's annual dividend income from a store is 100,000 yuan, and he is asked to give up his shares in the store and explore new markets, Pagoda will give him a one-time compensation of 300,000 yuan, which is equivalent to the store's future 3 annual income, and at the same time, the original amount of capital invested in the early stage will be returned.

3. Discussion and reference

1. It is innovative for store managers to participate in store investment

From the perspective of employees, the store manager partnership system has actually become a store Investors enjoy operating profits. From the perspective of Pagoda, it can not only solve the problem of capital investment for opening a store, but also achieve top-down consistent operations through employee management. It can also stimulate employee work efficiency and reduce store operating costs.

At the same time, each store trains one new store manager every year, which solves the company's difficulty in quickly training new store managers and lays the foundation for the rapid development of new stores.

2. The loss subsidy policy is a guarantee

Pagoda’s loss subsidy policy is very attractive to all parties involved in the store. There is no need to worry about operating risks. The loss subsidy policy can stimulate all parties involved in store investment. "Investment" gives Pagoda's "quasi-direct operation" model high replicability.

3. The equity exit mechanism is an accelerator

Since the partnership model is adopted to make franchisees employees and employees franchisees, a supporting store equity exit mechanism is needed to make the model "roll" stand up.

Store managers and employees need promotion channels. Store managers with strong abilities and more retail experience need to give full play to their value, allowing them to explore new markets and take on more "challenges." However, these capable store managers can obtain very good returns in the original stores, and are usually reluctant to give up their shares in the original stores to new store managers. Therefore, from the perspective of system design, store managers with strong abilities should be encouraged to have the courage to "challenge".

The "exit mechanism" is actually equivalent to the "accelerator" of store expansion, allowing better employees to rush to the front line of the market and improving the success rate of store expansion.

Drucker said that the essence of management is to inspire goodwill in everyone. After stimulating goodwill, potential will be released. Haidilao and Pagoda inspired store managers and even ordinary employees, turning them from manual workers into knowledge workers, bringing vigorous vitality to the development of the organization.