December 18, 2016 10:00 am JST

Panda Express takes second shot at Japan

American-style Chinese food chain still faces many challenges

ELISABETH ROSEN, Contributing writer

Panda Express has elbowed its way into Manhattan and is now trying again to crack Japan. (Photo by Elisabeth Rosen)

NEW YORK -- On weekend afternoons, the Panda Express restaurant a few blocks from Grand Central Station bustles with customers eyeing steam trays full of orange chicken and fried rice.

Known best for its presence in suburban American shopping mall food courts, the California-based chain raised eyebrows when it opened several locations in New York City last year. In a city known for boasting some of the top restaurants in the world and where many diners pride themselves on their sophisticated knowledge of Chinese cuisine, Panda Express' Americanized version of Chinese fare did not seem like a natural fit and the company had previously retreated from New York in 2001 after a four-year effort.

But in the past year, the chain has opened three locations in Manhattan, replacing the signature no-frills seating and fluorescent lighting typical of its food court outlets with sleek, modern decor. Now the company is attempting a similar feat in Japan, where it opened a branch in a mall food court in Kawasaki, south of Tokyo, in late November and is preparing to add several more locations.

As in New York, this will be Panda Express's second attempt to crack Japan. Panda Express previously opened a handful of outlets in Japan, but by 2010 they had all been shuttered. Many observers remain skeptical that the brand can succeed in the country's competitive local dining sector.

"The concept of American-Chinese food is a tough sell here," said Chris Francis, managing director at brand strategy agency Flamingo Tokyo.

For the new push, Panda Restaurant Group established a joint venture with Chikara no Moto, the management group which controls ramen chain Ippudo. A spokesperson for Panda Express said the company is counting on its new partner to provide "strategic insight" into the market.

"We feel our team has learned a lot about this culture's food preferences," he said.

Foreign expansion

Panda Express, with a network now of more than 1,900 outlets, has been quite successful in the U.S. Domestic sales surged 10% in 2015 to $2.5 billion and in the decade from 2005 to 2015, the company nearly tripled its share of the U.S. fast-food market to 1.1%. Over the past five years, it has expanded into Mexico, Canada and Dubai; in 2014, Panda Express opened a branch in Seoul.

In Japan the brand faces a challenging environment. American-style fast-food dining is not as popular as elsewhere due to relatively high prices and quality concerns stirred up by scandals such as the revelation in 2014 that McDonald's was using expired meat imported from China. Instead, Japanese frequently opt for cheaper fare at convenience stores, which are perceived as more reliable. Convenience store fast-food sales grew 5% in 2015, more than any other fast food subcategory, while burger chain fast food dropped 11%.

Unlike McDonald's and KFC, which were able to gain market share in Japan simply by emphasizing their American cachet, Panda Express faces a far more competitive environment. When consumers do eat out, they tend to favor trendier brands like Shake Shack, said industry consultant Jotaro Fujii.

To be successful in the Japanese market, Panda Express would need more understanding about Japanese culture in general and the local fast-food industry, he said. "It seems very difficult, because their partner is just a ramen noodle chain. They don't know the [quick service restaurant] business," Fujii said.

Panda Express will also face competition from domestic chains like Bamiyan and Gyoza no Osho, which already have dozens of locations selling inexpensive Chinese dishes such as fried rice and dumplings.

"If we think of reasonably priced Chinese food, that's what we think of," said Reiko Nakamura, managing director for Japan at brand consultancy SGK. "They sell foods everyone knows, and they are very cheap."

Taste preferences

Convincing Japanese diners to opt for American-style Chinese dishes such as the company's signature orange chicken could be a major challenge but the company is debuting two new dishes in Kawasaki, "sweet and pungent shrimp" and "char siu glazed salmon." 

"The Japanese love things that are new. But orange chicken would not hold much appeal, I'd imagine," said Michael Booth, a food writer and the author of "Sushi & Beyond: What the Japanese Know About Cooking."

"If you want to catch the Japanese palate, you need umami, not sugar," he said.

In health-conscious Japan, the restaurant would need to heap plates with vegetables in addition to fried meats and rice, said Noriko Silvester, founder and managing director at public relations agency Candlewick.

"Nutritious balance is important, even for takeout food," said Silvester, who advised Ikea in its second attempt to enter the Japanese market as well as other foreign brands. "Japanese have specific tastes: less oily, colorful, freshly cooked. When I see the Panda Express menu, the colors are not so brilliant," she said.

If anything could draw Japanese consumers to Panda Express, she believed that it would not be the food, but the associations that the brand evoked, especially among younger consumers deeply familiar with American media.

"The Japanese fast-food industry is so competitive that taste and price are not enough, and it would be hard to compete on quality or speed. But they could associate it with recognizable images from TV and movies," Silvester said. "For example, we know Chinese food in America is served in a white takeout box with a wire."

Cultural appeal

Along similar lines, Flamingo Tokyo's Francis recommended that Panda Express capitalize on Japanese cultural associations with America by referencing specific places such as Los Angeles in its marketing and promotional materials.

"There's a lot of interest in foreign city cultures, and in California specifically, as part of how Japan consumes Americana," he said. "If possible, they should bring something specifically American to make a genuinely interesting hybrid, like California roll sushi."

But even if Panda Express succeeds in attracting customers initially, will they be convinced to return when the novelty wears off?

Toshiyuki Nakamura, senior consultant at Hakuhodo Consulting, a branding advisory, pointed to Haagen-Dazs as one such success story. By positioning itself as a sweet treat that Japanese consumers could enjoy daily, the brand was able to carve out a sustainable market position. In contrast, doughnut chain Krispy Kreme successfully launched its business by appealing to Japanese consumer demand for gift-giving, but struggled to expand because there was no clear place for it in daily life.

"In the short term, [Panda Express] can generate buzz with area-focused marketing and photogenic consumption," Nakamura said. "But when they look for further growth after it's no longer new, it's important for Japanese consumers to see it as a daily meal."

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