The One Food Court Stall That Became a 2,400-Store Empire

Panda Express has more than 2,000 locations across America and you [music] cannot buy a single one. Not for a million dollars, not for 10. It refuses to sell a franchise to anybody. [music] Every single store is owned by the company itself. It's still run by the same family that started [music] it today and has never gone public. It quietly became one of the biggest Asian restaurant chain in the country by doing the exact thing that every growth expert tells you to never to do, [music] keeping total control, giving up all that easy franchise money on purpose. [music] And friends, if you're building a restaurant, this is one of the most counterintuitive decision in the business because the fastest way to grow is to franchise. And Panda looked at the fastest way and said no. Hey friends, welcome back to the receipt, the series where we take apart the businesses [music] behind the restaurants that you know. I'm Wilson, two decades in food and beverage, built my dessert chain before it was acquired and I've sat on both sides of this exact question. When you're growing, someone will offer you a check to put your name on their store. It is the most tempting thing in the world because it's [music] fast, it's not your risk to take, and it costs you the one thing that you can never buy back. That's the control. What I want to show you is how one single family restaurant became a multi-billion [music] dollar chain by refusing that early check for 40 years. And what that refusal actually bought them. Now, let's dive right in. [music] The story starts in 1973 in California. A family opens a sit-down Chinese restaurant called Panda Inn. It's the Cherng [music] family. Andrew Cherng, an immigrant who studied in the United States, and his father is a chef, a classic restaurateur. It does well enough that 10 years later in 1983, a shopping mall developer notices it and asks Andrew to open up a fast counter service version inside the food court. That fast food version is now called Panda Express. And here's a part that I really love because it's born inside a mall food court, the least glamorous real estate in America at the time, next [music] to the pretzels and the smoothies. Nobody in that food court in 1983 is thinking that this is the future biggest Asian chain [music] in the country. And Andrew doesn't run it alone. His wife, Peggy, an engineer with a [music] PhD, ends up building the systems, the data, the technology, the operational spine that lets this entire thing scale later without falling apart. So, from the very start, you have two things that fused together. A chef's family recipe and an engineer's obsession >> [music] >> with consistency. Remember that combination because it's the entire reason why the control strategy actually works. Now, here's where Panda actually makes the choice that defies everything. Through the '80s and '90s, Panda Express starts to really pick up. And the second something works within the industry, the offer comes. Franchise it, sell the name, let outside operators put up their own money and open more Panda Expresses all over the country. You collect a fee and a royalty, and now you grow 10 times faster without spending any of your own cash. That's the pitch, and almost every big chain that you can name today did exactly that. Subway, McDonald's, Dunkin's, most of them are franchise machines. That's the standard playbook. But, Panda says no to all of this because every single Panda Express is owned and operated by the company itself. No franchisees, no outside operators, nobody who bought the right to use a name and cuts a corner on a slow Tuesday just to protect their own margins. So, the question really comes, why give up on all this free growth money? One word, consistency. Peggy's whole system only works if the company controls every store, the training, the recipe, the work temperature, the timing of the line. The minute you franchise, you're trusting a stranger's incentives over your brands. Owning every single location is slower, it's harder, it's more work. You fund every single new store out of your own profit instead of someone else's [music] bankroll. It means that every Panda hits the same standard and every dollar of profit stays within the company and inside the family. [music] Friends, that is the same bet that In-N-Out has made. Refuses to franchise, owns everything, grows slower, stay in control. And like In-N-Out, Panda decided that control was worth way more than the speed. Friends, if you find any value in this, make sure you smash that like button, subscribe along the journey, and drop me in the comments section below. Would you rather [music] grow slower to keep total control or to take the franchise check early on and scale faster? Tell me honestly, so then that way [music] I know what to cover next. Here's the thing that most people don't know about Panda Express. It's single most famous dish actually doesn't even exist in China. Orange Chicken. It's the dish that Panda is known most for, the thing that half the country orders. And it isn't a traditional Chinese recipe after all. It was created in 1987 in a Panda kitchen credited to a chef named Andy Kau. It's an American dish invented in-house for this specific chain. You cannot get the original anywhere else because it all started in the Panda kitchen. And that's the second half of the control strategy and it's very easy to miss. Because Panda doesn't just own the stores, it owns the food, the [music] recipe, the signature product that is proprietary, developed inside the company, not licensed from anyone, not copied off a menu, not even from its [music] own culture. So, think about what they control now. They control the real estate [music] because every store is theirs. They control the operations because Peggy built the system. And they control the product because they invented this hero dish all by themselves. There's no franchisees [music] who can water things down. There's no supplier who owns the recipe and can raise the prices on them. There's no outside partner who can walk away with the Crown Jewel. When you own the building, the systems, and the recipe, no one can hold you hostage. And that's not three separate decisions. That's one strategy, control applied three times. So, what did 40 years of refusing the easy money actually buy them? Today, Panda Express is the largest Asian restaurant chain in America, more than 2,000 locations, and by some counts, over 2,400 [music] locations. And it is still privately held, still controlled by the Cherng family, and never took that franchise money, never went public, and never gave up on the wheel. And because they own every single store, every dollar of profit compounded back inside the company instead of being split with thousands of franchisees. Slower growth, yes, but undiluted ownership of an an enormous business. Now, I want to be fair about the cost because control is not free. Company-owned growth is genuinely slower and more capital-intensive. Panda couldn't blanket the country as fast as a franchise chain could. There are towns that competitor reached years before Panda did. But friends, that's the trade-off. And they made it with their eyes open. They traded speed for standards and reach for control. Now, 40 years in, the thing that they kept, total ownership of a consistent, self-funded, family-controlled empire, turned out to be worth far more than the growth that they gave up. So, what does this actually save you from? Three lessons. Number one is that control compounds the same way that money does. Every year you keep ownership instead of selling it off, the standards hold and the upside stacks. A company-owned store in year one is just slower. A company-owned chain in year 40 is unforgettable because nobody was ever allowed to dilute it. Time becomes a secret ingredient. Panda's control looked stubborn early on, but now looks genius later on. Lesson number two, decide up front what you will never license out. Panda's answer was everything, [music] the stores, the systems, the of Yours might be smaller, maybe it's one signature product, or your hiring, or your quality standard, but you have to decide very cautiously because someone's going to show up with a check. Now, I'll be honest with you, when 720 Sweets was growing, I got offered partnership deals right away, franchising, and I took that franchise money. And looking back in hindsight, I realized that I could have done way more if I didn't take on the burden of a franchisee early on [music] in our career. Now, lesson number three, franchising isn't good nor bad, it's a trade-off. So, name the trade and be very clear on that. Franchising buys you speed and reach with someone else's money. It costs you control and consistency. [music] That's the deal and trade-off. Panda decided control was worth way more. A different business might decide speed is. So, don't just sleepwalk [music] into it. Know exactly what you're trading away. Friends, take this as a reference. Before you sell the rights to use your name, ask what you're really handing over because sometimes the slow way is your moat. So, there it is, friends. Panda Express has thousands of locations and not one of them is for sale because it refused to franchise, owns every single store, invented its own most famous dish. It stayed in the family the entire way. It traded speed for control, and control is exactly what made it the biggest [music] Asian chain in the country. The refusal became the strategy. If you guys got any value in this, make sure you guys smash that like button so then that way it tells me to keep making more of these for you. With that, friends, we'll see you in the next one.