Restaurant Chains Are Frowning Over Young Diners. They Should Look at How Wagas Feeds Them | 2015 Youth Series

We tried to pin down five things young people will pay for. That is how business works.

It has not been a good year for the restaurant industry.

First, the 2013 "Eight-Point Regulations" and the "alcohol ban" are still biting, and high-end dining remains in an awkward spot. So Qiaojiangnan and Meizhou Dongpo started selling takeaway lunch boxes, and Quanjude put its roast duck on Tmall. Xiang E Qing lost money and closed restaurants, then invested in environmental protection, tourism and film, and finally switched to big data. Shanghai's Xiao Nan Guo has turned more of its attention to mass-market brands such as "Nan Xiaoguan" and "Xiaoxiao Nanguo."

Quanjude's flagship store on Tmall

But what about the fast-food chains with "clean hands"? They have plenty of problems of their own.

McDonald's, the standard-bearer of traditional fast food, did better in the first three quarters of this year than last, yet revenue and profit still fell across the board: profit dropped 33%, 13% and 23% in those three quarters. In the third quarter, same-store sales rose 0.9%, ending seven straight quarters of decline, but the underlying weakness remains.

Then there is KFC. In October, Yum, which owns KFC, Pizza Hut and Taco Bell, announced it would spin off its China business. Behind the move: Yum China has recovered from the 10% revenue drop that followed last year's Husi scandal, but this year's average sales growth of 2% is still far below the 9.6% analysts expected.

Among homegrown fast-food brands, consumers have sobered up from so-called "internet restaurants" and grown wary of trendy food that offers gimmicks instead of flavor. Rice-based chains such as Real Kungfu, Yoshinoya and Gutian Daoxiang have become places you eat because "we're here anyway, so let's grab something." They offer nothing new, run on habit, and struggle to grow. In November, Real Kungfu's former chairman Cai Dabiao announced that his 14% stake in the company would be auctioned, with a starting price of 217.56 million yuan. By that measure, Real Kungfu's valuation has shrunk by nearly half in three years.

A "Real Kungfu" fast-food restaurant

Meanwhile, new "competitors" are blurring the edges of the restaurant business. FamilyMart has opened 818 stores in Shanghai, and fresh food, including oden, steamed buns and boxed meals, makes up 40% of what each store sells. Walk a few steps downstairs to a convenience store and get a meal over with quickly? That doesn't sound like a bad option.

Traditional fast-food brands are suffering setbacks on one side and facing new rivals on the other. It looks like a complicated problem, but it boils down to one thing: young people don't like them. Fix that, and everything else follows.

Young people are getting pickier. They want food that is healthy and respectable, a comfortable room, a place to talk business or go on a date, and they want it to taste good. Having "seen plenty of good things," they expect more of restaurants, and the fast-food chains that first introduced them to eating out, and grew up alongside them, can no longer keep up.

But without young people, the business is hard to run, so everyone is trying something.

McDonald's launched all-day breakfast in the United States and opened its first concept store, Next, in Hong Kong, with a minimalist design, wireless chargers and self-ordering kiosks. In July it opened its first build-your-own-burger restaurants (CYT) in Shanghai and Guangzhou.

A build-your-own-burger store in Shanghai

KFC has gone for something louder. In China it launched a pink rose-and-cheese grilled chicken-thigh burger; in Germany, a "family bucket you can print photos on." Pizza Hut, with 15,000 stores worldwide, has adopted a new logo and new packaging, all to look younger.

Real Kungfu and Huang Taiji are trying their hand at incubators. In March, Real Kungfu set up a Chinese fast-food startup park in Guangzhou. Huang Taiji has invested in brands such as "Mr. Niu Dun," the "Dahuangfeng" mini hotpot, the "Conglai" dumpling house, "A Bowl of Maocai's Little Happiness" and "Jiao Ge Yazi" (Get a Duck). In Beijing's CBD it has opened several "factory stores" that only do bulk production and delivery, and has plugged newer brands such as Sweetheart Rock Salad and Singapore Mama Baked Buns into the same platform. Both companies want to build up more momentum, so that Chinese fast food can enter the stage with a louder voice.

People also expect novelty from new brands. This year Xiao Nan Guo brought in ORENO, a brand of the Japanese restaurant group Ore no Corporation (ORENO CORPORATION). At 200 yuan a head it isn't especially expensive for a spot like Shanghai's Xintiandi. And Jollibee, the Philippine company that owns Yonghe King and the Beijing congee chain Hongzhuangyuan, took over Dunkin' Donuts, which had stayed on the margins in the eight years since it entered China, and announced plans to open more than 1,400 stores in China over the next 20 years.

ORENO at Shanghai's Xintiandi

Mobile payment and food delivery, the two eating habits young people know best today, are also where fast-food brands are putting effort. This year McDonald's signed up for WeChat Pay and KFC for Alipay; McDonald's even opened a WeChat Pay flagship store in Guangzhou and built its marketing around the theme. Real Kungfu has kept pace: all its stores have Wi-Fi and accept bank cards, WeChat Pay, Alipay and other payment methods.

In delivery, almost every fast-food brand has a place on the three big platforms: Baidu Waimai, Ele.me and Meituan-Dianping. Together these three hold 85% of China's food delivery market and firmly control the field, which makes in-house services such as McDonald's "McDelivery" and Real Kungfu's "Gongfusong" less necessary. The rise of a few dominant delivery platforms also leaves fast-food brands unable to show their personality, manage details or control the customer experience. In the end they are reduced to food suppliers and lose what made them distinctive.

Fast-food brands are working hard to show off. They want to prove they are cool, that they understand young people, and that they know where the restaurant industry is heading. But in reality they and young people are always out of step. Talk to young people about flavor, and they say they want speed; talk about speed, and they want health; talk about health, and they tell you it isn't cool enough.

The brands simply can't keep up with how fast young people change their minds.

Some, of course, are doing well. Burger King read consumers' love of spicy food correctly and became a hit in North America and Latin America, with global revenue growth above 10% in each of the three quarters. In China, Wagas is one of them.

Wagas is a Western-style casual dining brand founded in Shanghai in 1999. Besides 41 stores in Shanghai, Beijing, Nanjing, Wuxi, Suzhou, Shenzhen and Chengdu, it runs 12 Baker & Spice bakeries and 10 restaurants under its family of brands, all in Shanghai.

A Wagas store

On Dianping, Wagas costs about 70-80 yuan a head and rates around 4 stars. Yet you rarely see this not-so-cheap restaurant empty. Its WeChat official account posts about once a week. The lead article often passes 10,000 reads, and even the weekly special-menu post gets 2,500-5,000.

Wagas is not the only casual fast-food brand worth praising, and what it does, other brands are doing too. So why has it won a good name while most of the industry is frowning?

In market size and scale, Wagas of course can't compare with fast-food giants such as McDonald's and KFC. But we wanted to understand how it won young people over. In other words, what exactly has Wagas gotten right with young customers?

1. Talking about health is fine, but making it interesting and fun is what matters

On Wagas's menu, its best-selling salad, the "Chicken Mango Kale Salad," is labeled a "superfood," because kale is packed with fiber and vitamins A and C. The roast salmon salad, rich in vitamin B12 and vitamin D, and the broccoli, lentil and bacon salad carry the same label.

Wagas makes a point of health and nutrition. It lists each dish's ingredients in detail on the menu and explains their benefits to customers in plain popular-science terms. Much of this is meant to set it apart from traditional "Western fast food," which is plainly weak on health and nutrition.

And health and nutrition really are what young people care about now. In 2014 the research firm Nielsen surveyed people of different ages in 60 countries about health and found that young people, both under 20 and aged 21-34, cared a great deal about it and were more willing than others to pay more for healthy products.

Of course, health and nutrition, like everything that is good for you, come with a hint of lecturing and can be a little dull. So how to make them interesting is worth thinking about. You can get a glimpse of Wagas's approach from its juices, its Weekly Special menu and a few marketing campaigns.

At Wagas, almost every drink has its own name. The blend of pineapple, passion fruit and pear is called "Doctor's Orders"; the mix of avocado, lemon and apple is called "Zen." These can hardly escape the charge of being gimmicks, but they do make a meal a little more fun.

Wagas's juice menu

The Weekly Special menu, written straight onto the store wall, also offers a small surprise. It changes with the season and the ingredients on hand, runs for a limited time, and is not part of the regular menu. In the week of December 28 to January 3, for example, it offered a kale and spinach soup, a fried-fruit platter, a pork sandwich, a spicy beef rice dish and four salads.

On the marketing side, in March Wagas teamed up with the Japanese cosmetics brand Shiseido to launch a co-branded drink, the "Red Skin-Revival Juice." Besides selling it at every Wagas store in the country and at its sub-brand Baker & Spice, Wagas dressed up two stores, in Beijing's Sanlitun and Shanghai's Jing'an Kerry Centre, as themed stores on "immune energy for urban women," covered in Shiseido logos and matching red decor.

Wagas's collaboration with Shiseido in March this year

In October, Shanghai's K11 mall held the exhibition "Crossover Master: Genius Dalí" on its ground floor, and Baker & Spice teamed up with K11 to launch a Dalí bread: the Pa de Crostons that Dalí painted again and again.

These small touches, surprising and playful, add a bit of humor while Wagas talks to you in earnest about health and nutrition. They also feel gentler than fast-food brands whose marketing exists only to push a new product, and they make people want to come closer.

And although traditional fast food is now treated as roughly the same thing as junk food, it still has something worth learning from: its speed. So Wagas positions itself as a Western-style casual restaurant, and sandwiches, pasta and salads make up most of its menu. The open kitchen is always busy, and customers can usually get their food within 15 minutes.

2. Young people don't care what counts as a proper meal. Whoever they bring and whenever they come, it just has to feel "right"

For more and more young people, the idea of three square meals has blurred. They have brunch after 10 a.m. on weekends, grab a boxed lunch in a hurry at noon on weekdays, and take afternoon tea between 3 and 5. In other words, they may want to eat at any hour.

Wagas's answer is a breakfast menu before 11 a.m. Monday to Friday and brunch from 8 a.m. to 5 p.m. on weekends. At weekday lunchtime it offers four express lunches at 58 yuan each: the Today's Special set, the Wagas Champion set, the vegetarian set and the John set, and it promises pick-up or packing within 10 minutes.

In the afternoon and evening there are a dozen or so fresh juices, coffees and teas to choose from; add a slice of cake and you have afternoon tea. And most stores close at 10 p.m., so young people who can't leave work on time can still get something to eat after missing dinner.

Compare the fast-food brands that also want to cover the whole day. A few years ago Pizza Hut pushed afternoon tea hard, but the offerings were poor, it became neither here nor there, and most people still went for pizza at mealtimes. Starbucks, which started as a coffee shop, has the opposite problem: you can't get full.

So a menu with both light and filling food is Wagas's advantage. Young customers have no hour of the day they need to avoid it.

3. Next to bright yellows and oranges, cool black, white and gray look hip to young people

In the 2010s, a trend took hold in the restaurant world: fast casual restaurants began replacing fast food. Fast casual places pay more attention to how comfortable customers are while they eat, and so put more effort into interior design.

Wagas has said publicly that its company culture has a strong Danish heritage. A big reason is that its founder, John Christensen, is Danish, which gives it a head start in Nordic design.

Sofas, tables and chairs mostly in black, white and gray, an industrial-style bar and a coffee-brown menu all set Wagas apart from fast-food restaurants in heavy reds and yellows. It is hard to say which taste is more "upscale," but young people steeped in Nordic-style interiors in recent years seem to feel closer to this cool, minimalist look.

Inside a Wagas store

The dark interior also makes the dishes stand out and draws more attention to the food.

The mismatched tables and chairs, set at staggered angles, also break up the uniformity and take away the coldness and shabbiness of a chain. As a popular saying goes, "Who goes to McDonald's for a date these days..." Wagas makes people feel respectable. Its distinctive layout suggests care, and it is a place you can take people to without embarrassment. So whether you are talking business, meeting a date or just sitting for a while, Wagas works, and more and more of life can happen there.

4. Young people are actually lazy. A prominent spot, no wandering through back streets, just a short trip up or down the stairs, is best

Wagas's prices point it squarely at young office workers, so its stores are almost all in shopping malls and office buildings.

In Shanghai, where it has the most stores, Wagas and Baker & Spice are in almost every big mall, including Jing'an Kerry Centre, Réel, Grand Gateway Plaza and Central Plaza, and Wagas also shows up in landmark districts such as Lujiazui, Jinqiao in Pudong, the Yangpu university district and Hongqiao Airport.

In Beijing, Wagas has opened in R&F Plaza, Taikoo Li Sanlitun, Kerry Centre and Raffles City, again all malls. The first Baker & Spice in Beijing chose The Grand Summit in the Diplomatic Residence Compound in the Yansha area, a shopping and lifestyle complex aimed mainly at foreigners.

Even so, 16 years after its founding, Wagas has only 41 restaurants in 7 cities. You may have noticed that Wagas is almost always on the ground floor of these malls. What's more, most of its stores face busy main streets, so you can see its black logo from far off and reach it quickly once you spot it. For young people who spend much of their day agonizing over "what to eat for lunch" and "what to eat for dinner," it is almost as if someone made the decision for them.

5. Like many brands young people love in other industries, what Wagas ultimately sells is a lifestyle

A young person used to Western meals of appetizer, main course and dessert served in sequence would probably think Wagas nothing special. But for many people, Wagas still served as an introduction: it is where they first met avocado, kale and the like. To show it is qualified to teach, though, Wagas has to look professional.

In Shanghai, Wagas runs 10 family restaurants, such as La Strada at 130 yuan a head, the garden restaurant Henkes at 170 yuan a head, and Bang at 130 yuan a head. They are not chains, and they hold higher standards in everything from decor and food to service. As Wagas sub-brands, they also make the parent brand look more professional.

Wagas has also put its head chef, Craig Willis, out front. He recommends dishes and shares recipes in its quarterly magazine, The Journal. According to the latest report from JWT Innovation, the future-trends unit of the creative agency JWT, one major trend in the global restaurant industry is that "chefs are becoming opinion leaders." By deliberately putting Willis in the spotlight, Wagas signals a professionalism a world away from that of a line cook.

After bread, Baker & Spice's biggest category is wine and other drinks, a field where "the water runs deep," with many tricks and a sprawling body of knowledge. In The Journal, Wagas tries to explain it in plainer language. Selling products is the goal, but the information it shares along the way also wins people's trust.

The Journal, a quarterly published by Wagas

Wagas has also reached beyond food. Besides dishes, The Journal carries plenty of lifestyle content, and even its photography can't help recalling Kinfolk, the fashionable lifestyle magazine of recent years. Selling a lifestyle? Young people really do pay for that now.

And as everyone from McDonald's and KFC to small restaurants signed up for WeChat and Alipay, Wagas launched a membership rewards program in June, with member cards tied directly to its official WeChat account. By November it had more than 100,000 registered users. Delivery, though, does not seem to be a priority. Its main partners are the Shanghai delivery platform Sherpa's and Alibaba's own, not especially strong, "Koubei Waimai."

So, taken point by point on what attracts young people, Wagas is not always the best. Its cleverness lies in getting every point right and doing each with real care, and winning a good name among young people follows naturally. Sometimes that is all a small business secret amounts to. But we all know it is easier said than done.

Cover images from: f600, tom, whiteismycolour, facebook, Wagas, Instagram, blogspot, dribbble, chinasspp