The new P.F. Chang's restaurant in Mexico City
Cesar Martinez is no stranger to the kitchen. For the past six years, he has worked as a chef in French and Cuban restaurants in the U.S. Now back in his native Mexico, Martinez is finding himself in foreign territory: he has just landed a job as a wok chef at the first overseas P.F. Chang's outlet in Mexico City. "I've been reading books and doing research online," says Martinez, 38, "because I've never worked with Chinese food. I've never worked with a wok."
Unfamiliarity with Chinese cuisine will be the biggest challenge for P.F. Chang's, the largest Chinese restaurant chain in the U.S., as it heads south of the border. Up until the financial crisis, the $1.2 billion company had a fantastically successful run at convincing Americans to pay upmarket prices for a version of Chinese food designed for American taste buds. But with business slowing down in the U.S. due to the recession and pressure from investors to increase sales, the company is now embarking on an expansion plan to sell its flavor of Chinese fare in several emerging markets. Over the next decade, it plans to open 30 restaurants in Mexico and another 34 in the Middle East, beginning with Kuwait City in December. It is also looking at several Asian countries.
On Oct. 21, the first Mexican P.F. Chang's opened in a glitzy new mall in the capital's financial district. The chic restaurant, similar to other branches in the U.S., features large Chinese murals, terra-cotta warriors, mood lighting and a lengthy wine list. It's an anomaly in Mexico, where the bar for Chinese food is set low. In the handful of eateries that dot Mexico City's two-block Chinatown, it's common to start a meal with deep-fried wonton-dough sticks and a hefty bowl of neon-red sweet-and-sour sauce. "The biggest challenge will be performing as well as in the U.S.," says the new branch's manager, Iván Alvarado. "We have to explain a lot of things to customers at our tables because here in Mexico, we drink soda with Chinese food."
But this is still Americanized Chinese food that's being translated to Mexicans. In 1993, Ruth's Chris Steak House franchisee Paul Fleming (his initials make up the P.F.) founded P.F. Chang's China Bistro in Scottsdale, Ariz., with the help of Chinese-American consultant Philip Chiang (Chang was derived from Chiang). An alternative to Chinese food-court fare and high-priced formal dining, Fleming's casual-dining chain of bistros soon became a comfortable, go-to place for happy hours, family outings and birthday dinners. You'll find many of them in unexpected places, like Alpharetta, Ga., and Rogers, Ark. Most of the time, there's nary an Asian face in the room, but the point was never to target Chinese customers by serving authentic cuisine. That's why every outlet features a prominent bar and a Top 40 sound track with Sheryl Crow and U2. The cuisine, a hybridized version of Chinese food that would be unrecognizable in most parts of China, includes cheese-covered Sichuan Chicken Flatbread, Dynamite Shrimp served in a martini glass and, for dessert, the Great Wall of Chocolate. In fact, as far as chefs go, the company says the less exposure to Chinese food, the better. "We've hired some Chinese chefs in the U.S., but we weren't successful because they had their own habits, and old habits are hard to break," says Roberto DeAngelis, P.F. Chang's director of international operations. "So we'd rather have someone new."
The company's chopstick-optional culinary formula, combined with an upscale ambiance and prime locations, has resonated well with customers and investors since the company went public in 1998. There are now 194 bistros in 39 U.S. states, along with 164 outlets of its more casual line of restaurants, Pei Wei Asian Diner, which launched in 2000. But as with many restaurant chains, the recession slowed the pace of expansion after consumers started ordering cheaper dishes and cooking for themselves at home. The stock fell to an eight-year low of $15 in November 2008 (it has since rebounded to roughly $30), and in the first three quarters of this year, revenue has dropped nearly 2% year over year. New overseas markets like Mexico are a gamble that will determine whether the chain continues to grow or stagnates in a domestic market where more diners are eating in and a tight lending environment is making it difficult to open new locations. The company's partners in Mexico and the Middle East are financing the cost of the new restaurants, though P.F. Chang's will earn up-front territory fees and royalties from sales.
So why start with Mexico? P.F. Chang's says it was as simple as finding the right local operator. In Mexico, that company is Alsea, which operates more than 1,000 Domino's, Starbucks and other American food outlets throughout Latin America. "It just so happens that Mexico makes a great deal of sense because it's closer [to the U.S.]," says DeAngelis. Greg Ruedy, a restaurant analyst at the Stephens financial-services firm in Little Rock, Ark., says it's logical for the company to start in Mexico given the number of American tourists there, the flow of Mexican migrant workers returning home from the U.S. who are already familiar with the brand and limited expansion prospects Stateside. "Most large, casual diners see that international growth is a much larger opportunity than the domestic opportunity," says Ruedy.
Still, Alsea is not taking any chances. To educate Mexicans about the particular brand of Chinese food that P.F. Chang's serves, last month it hired a flatbed truck to drive around Mexico City with a massive statue of a horse and models dressed as terra-cotta warriors who handed out Chinese takeout boxes filled with chocolate fortune cookies. Unlike fast-food giants such as McDonald's and KFC, which localize their menus in other markets, the Mexican menu of P.F. Chang's is nearly identical to that in the U.S., except that customers will get more hand-holding with longer item descriptions. "We've been representing brands 100% as they are, especially at the beginning," says Alberto Torrado Martínez, CEO of Alsea. "We don't tropicalize anything. Mexicans are going to try something they haven't tried."
The company isn't waiting to see if Mexicans and Kuwaitis like its food — it's already negotiating a deal to expand to the Philippines, and it's exploring options in Canada, Puerto Rico, India and Singapore. As for China itself, "Time will tell," says DeAngelis. But there's at least one food-industry model that suggests that the company may stand a chance at selling Americanized Chinese food to Chinese in China. After pulling out of the Mexican market in 1992, Taco Bell relaunched in the country two years ago and now has plans to expand to 300 outlets. If Mexicans are willing to spend their pesos on authentic American chimichangas, maybe it's not a pipe dream for Chinese to dig into some Sichuan Chicken Flatbread. With a knife and fork, of course.