Healthy light meals keep winning over young Chinese. Why hasn't the pioneer, Wagas, expanded?

The founders don't trust franchising, and they won't take outside investment.

Wagas, a Western-style brand built around healthy light meals, and Baker & Spice, another brand owned by the same company, plan to open 30 new stores in China before the end of the year. Co-founder Jackie Yun says half of that is already done. On the day of the interview, Jackie wore her hair very short; she is thin, and looks almost like a boy.

Wagas was born in Shanghai in 1999, out of an idea from a young Dane named John Christensen. At the time you could count the brands selling healthy light meals on one hand. Jackie, an Australian, joined Wagas as manager of the first store and later became John's founding partner.

Jackie calls the 30-store plan "a leap." In nearly 20 years, Wagas has opened only 56 stores and Baker & Spice 14 — and those totals include the stores opened this year.

"Some friends of mine, business partners among them, have been saying for a few years now that Wagas could grow faster. But I don't think we're ready." Jackie insists Wagas is a chain business, and at the same time refuses to grow it by franchising.

Franchising is the most efficient way to expand a restaurant business. McDonald's opened its first store in 1955 and had 1,000 by 1968; in its 23rd year the number reached 5,000. Yang Mingyu Braised Chicken Rice, founded in 2011, spread like a virus to 6,000 stores this year, and has even reached the US West Coast.

But it is just as well known that holding quality steady under franchising is one of the hardest problems in the restaurant business — it makes complicated demands on the menu, the supply chain, and the management of franchisees. Running your own stores buys control instead: how fast you can react, how often you refresh what you sell. From what Jackie said in the interview, she treats control as the thing that has kept Wagas stable.

Eighteen years in, Wagas has entered 10 Chinese cities, yet it is still a regional brand. Almost half its stores are in Shanghai, and the stores elsewhere cluster in the busiest shopping districts — Sanlitun in Beijing, Taikoo Hui in Guangzhou, MixC in Shenzhen, Taikoo Li in Chengdu. Even so, each city has only a handful.

Sticking to company-owned stores is not unusual among healthy-meal companies. Element Fresh, which arrived a year after Wagas and is seen as its most direct rival, has only about 40 stores, most of them also in Shanghai.

But over the past three to five years demand has grown, newcomers have poured in, and franchising has become common in this business.

Shanghai alone has produced three chains built on salad. Salad+, founded in 2014 by Lu Jiajie after she came back from studying in the US, has six company-owned stores in the city. Meal Salad opened its first store in Lujiazui in 2014; alongside seven company-owned stores in Shanghai it has nearly 10 franchised ones in cities including Wuhan, Ningbo, and Tianjin. Dakai Shajie, founded in 2015, has 50 stores, and co-founder Xiao Yu plans to pass 200 next year. Then there is Tianxin Yaogun Shala, a Beijing salad brand that has moved from online to offline in the past two years, and Haosepai Shala, which started in Shenzhen.

They appear to be chasing the same customers — white-collar workers aged 25 to 35, more conscious of their health, willing to pay for food that stands for a more refined life — but the new brands share one trait: a far simpler menu, and a supply chain that is simpler to match.

"I think if we had moved too fast back then, the Wagas brand might not exist today," Jackie says. "We don't franchise and we don't take third-party investment. John [the other founder] and I have complete control of the company."

Jackie spends most of her time on the menu. She likes to have "a little bit of everything": juices alone come in 16 kinds.

Apart from seasonal items, Wagas changes its menu twice a year. But the company has no systematic development process; most new dishes come from a founder's flash of inspiration. The two of them travel often to Europe, Australia, and elsewhere in the world, and whenever they catch something new they may try to build a dish for the local market. The iced fruit tea Wagas launched this summer, for instance, came out of cold brew coffee.

"We call each other, or chat on WeChat, about whether to try something, then set aside a day to meet the head chef, taste and adjust, and put it on the menu." The whole thing rarely takes more than a month, Jackie says, and anything that sells badly comes off at any time. "Half our company's blood is Australian, half Danish. We trust our own feel for where things are going, and we don't spend much time on market research and analysis."

More dishes mean a more complicated kitchen. That is why fast-food brands keep their menus short.

Lu Jiajie and Xiao Yu both told QDaily this was one reason they chose to build on a single product, salad.

"I think Wagas runs closer to a full restaurant — one store needs a lot of people, front and back, to keep it going. Salad can be standardized to a very high degree; five or six people are enough for a store. And one central kitchen, if its capacity is used properly, can supply one or two hundred stores without trouble." Xiao Yu thinks that may be one reason Wagas has not expanded quickly.

Jackie would not discuss the supply chain, or any operating figures tied to performance. What she was glad to bring up is that repeat customers make up as much as 80% of Wagas's business — counted as people who eat there four or five times a week.

Landlords notice the steady crowd too. Yao Ying, leasing director at Shanghai Joy City, says Wagas has the air of a "traditional old shop." Doing market research, she once heard a customer tell her: "Wagas's pasta is to Westerners what Shanghai-style noodles are to Chinese people — ordinary and classic."

Among the malls we interviewed as Wagas's business partners, and among consumers, the impression of Wagas is mostly "fairly stable" and "not much change."

An 80% repeat rate also says something about the pull on new customers: it is limited. Entering new markets appears to be how Wagas mainly finds new users, while Shanghai — where it started, and its most mature market — is also the most competitive one. Its chances of drawing a broader mix of consumers and moving toward "mass-market" spending do not look good.

For a brand and a company still growing, that is not necessarily good news.

Lu Jiajie disagrees. The nature of healthy light meals, she says, makes it hard to hold on to customers who are only following a fashion; what it has to win over are customers who genuinely believe in a healthy way of living. Which implies that, however loud the health trend gets, that group has not grown quickly.

Add the "boutique salad" positioning, and there, Lu Jiajie says, is the reason her company has not opened stores fast in its nearly three years. Salad+'s stores sit mostly in high-end office-and-mall complexes like IFC and the Shanghai World Financial Center, serving the white-collar workers in those towers who want a healthy lunch. "Eating salad is a habit, like drinking coffee," Lu Jiajie says. Salad+'s repeat rate is now 70%.

"A high repeat rate is a good thing, and I'd rather build a stable brand than an internet-famous one," Xiao Yu says. "But 80% is hard for me to imagine — it is generally very hard to reach. Spending by our members was 30% last year; this year it has stayed around 50%."

Both of them think Wagas and Element Fresh raised China's first generation of customers for light, healthy meals, and that over the past decade and more the two have played the part of teacher more than anything else: neither passed 10 stores in its first 10 years.

"This market is changing faster and faster now, but whether you look at where they put their stores or what they charge, I think Wagas and Element Fresh are aiming at an audience near the top of the pyramid," Xiao Yu says.

To stay as close to those customers as it can, Wagas has two rules for picking a site: "it has to be on the ground floor, and the foot traffic has to be heavy." In the early years Jackie rode her bicycle around what used to be the French Concession looking for the right storefront, and a fair number of those stores have never moved since — the one on Fanyu Road, across from the Shanghai Film Art Center, for example.

Besides malls, a big street corner is usually ideal. The Jiaozhou Road store where we did this interview sits on a corner, on the Metro Line 7 route toward Jing'an Temple, the core shopping district. Jackie says that one also took her a long time to get.

Yao Ying, the leasing director at Shanghai Joy City, told QDaily that when Joy City began leasing its south building around 2010, Wagas — a brand the mall had invited in — came with a hard requirement of its own: an outdoor area. Joy City weighed everything and arranged a spot with an outdoor feel.

The Joy City store is closed for now. It is moving to the ground floor of the more upmarket north building and will reopen in December. The new store sits next to another Western restaurant, Shidou Jishi, and the two face a new office building about to open, which puts them on the main path of business foot traffic.

Wagas's average check suits mid- to high-end commercial property: around 80 yuan, above what most white-collar workers pay for lunch, but not far above. 100 yuan may be the important dividing line. When Joy City was first leasing, it ruled out two Western chains on its shortlist, Element Fresh and Blue Frog; Yao Ying said that was because Element Fresh's average check can top 100 yuan.

That choice has to do with how the property itself is positioned.

When Shanghai Jing'an Kerry Centre was leasing in 2013, it chose to take in Wagas and Element Fresh at the same time. Deng Rushun, general manager of operations at Jing'an Kerry Centre, told QDaily that Wagas is defined as a casual cafe and Element Fresh as a more formal business restaurant, so the two do not compete inside the mall. Their sales per square meter at Kerry Centre are said to be similar.

Healthy light meals are now a fixed slot in the tenant mix of commercial property, but this fussy approach to sites has in fact slowed Wagas down.

Because a commercial property sometimes takes longer to mature than its owners predicted, opening stores this way can badly hurt the foot traffic of a store already in place. Wagas went through one or two bad years after it first moved into Joy City: the huge Suhewan redevelopment was under way, roads were sealed off and buildings torn down, and road widening plus construction on Metro Lines 8 and 12 cut off the traffic to the ground-floor Wagas entirely. The crisis lifted only when the subway lines opened.

A few years ago Wagas had wanted to move into more new cities alongside commercial property developers, but the blow to brick-and-mortar retail, and the vacancy rates in second- and third-tier city properties, made Jackie more careful about that.

The company chose a different way to grow.

Besides Baker & Spice, it owns eight other family brands across different cuisines: the Italian restaurants mr willis and BANG, the pizza restaurant LA STRADA, the garden restaurant Henkes, the Thai restaurant MiThai, Amokka Cafe, the sushi restaurant Sushi RAKU, and the Nordic restaurant Pelikan. All are in Shanghai, with average checks of roughly 100 to 300 yuan, which sets them apart from Wagas.

mr willis, MiThai, and Amokka Cafe all sit on Anfu Road in Shanghai — which also has a Baker & Spice — and together they have made that stretch one of the busier ones. The stores also share a decor style, similar but never quite the same, fond of mixing the nostalgic with the modern, and they use much the same furniture suppliers as Wagas.

On Dianping, plenty of customers mention the roast chicken at BANG, mr willis, and MiThai, and Baker & Spice sells a Thai-style salad made with lemongrass. Like the decor, each is different, and all of them resemble one another.

A restaurant-industry manager who asked not to be named claims that "almost every one" of the Wagas group's stores makes money.

Jackie would not say much about these restaurants, beyond that the company's core brands are still Wagas and Baker & Spice.

Wagas has rarely done marketing since it opened; a drink made with Shiseido already counted as one of its bigger cross-brand campaigns. But this April it ran a three-month campaign with Mobike, turning its Shanghai Jing'an Kerry Centre and Beijing Sanlitun stores into themed concept restaurants. Inside, Mobike's unmistakable orange-red and black set the tone and bicycle parts served as decoration; outside stood tables with bicycle seats for chairs. At the same time Wagas launched a set menu called "Modern Family," built on fashionable healthy ingredients such as kale and chickpeas.

Shanghai Jing'an Kerry Centre said Mobike proposed the campaign, and that Wagas was more the party carrying out the plan. Judging by the reaction at the time, it brought Wagas a crowd that is fairly active on social media. Perhaps encouraged by that, Wagas is now working with the variety show Celebrity Fitness Club (《明星健身房》).

Kerry Centre and Joy City both say that if they open new malls, Wagas will still be their first choice for healthy light meals — but their demands on tenants keep rising, and they care more now about what a new brand does to a mall's existing mix. Deng Rushun said he hopes Wagas can "go a bit further, bring in some new concepts, and upgrade and remodel the stores it already has."

For Jing'an Kerry Centre, "dining is a book of colors": what matters is "what is still missing beyond the seven colors we have, not bringing in another Baker & Spice and repeating a color."

"Every company has its own timing," Jackie said, meaning its own moment to expand. But two weeks after she first named the goal, she updated us on Wagas: because some shopping malls have pushed back their openings, the plan drawn up at the start of the year will now have to wait until 2018.

As for why a company that opened 56 stores in nearly 20 years now plans to open 30 at once — that, it seems, is another question altogether.

Images in this article come from the companies; the cover image is from Wagas and Unsplash.