Panda Restaurant Group eyeing progress of two prototype restaurants launched this past fall; company will likely choose one of the prototype concepts to use as template for remodeling existing stores and building new ones, industry official says

LOS ANGELES , December 11, 2012 () – Panda Restaurant Group, the Asian-themed restaurant company that brought orange chicken, eggrolls and chow mein to the American heartland, is cooking up something new.

The Rosemead company opened two prototype restaurants this fall--one in Texas and another in Tennessee--in anticipation of a major overhaul for its Panda Express chain.

Darren Tristano, executive vice president of Chicago market research firm Technomic Inc., said the company will likely choose one of the two prototype concepts to use as a template for remodeling existing stores and building new ones.

"I think when they figure out which prototype is more in line with the consumer, they'll use that as a way to gauge other stores," he said.

The 30-year-old chain is due for a fresh look, but Tristano said there's more to it than that.

"The fast-casual category has continued to grow, and there are a number of restaurateurs who are looking at Asian as a way to expand into fast casual," he said.

Chipotle Mexican Grill of Denver, Colo., for example, opened an Asian-themed concept in Washington, D.C., a year ago called ShopHouse. The concept has yet to expand beyond its original location, but serves as an early sign of coming competition for Panda, which for decades has dominated the Asian limited-service food scene.

With more than $1.5 billion in sales in 2011 and expectations to exceed that number this year, the privately held Panda chain is almost five times bigger than its closest competitors, Scottsdale, Ariz.-based Pei Wei Asian Diner and Broomfield, Colo.-based Noodles & Co. They're not likely to gain much ground, either, as Panda continues to grow.

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David Landsberg, chief financial officer for Panda, said in an email to the Business Journal that the company will continue to expand its footprint each year, as it did even through the recession.

"We are proud to be a growth company," he said. "This year, we will have opened 108 company-owned stores."

To keep pace with its steady expansion, the company has placed local newspaper ads for restaurant manager trainees in Los Angeles, with plans to transfer them to markets in Texas, Arkansas and Oklahoma.

Landsberg said the company typically hires locally for store-level employees, but managers require more extensive training best done at company headquarters.

"We take our vision of being loved by our guests seriously and believe that starts with providing our associates with the best possible mind-set, skill set and tool set," he said.

Sit-down spinoff

Panda Restaurant Group was founded in 1973 by husband-and-wife team Andrew and Peggy Cherng, who were No. 23 on the Business Journal's list of Wealthiest Angelenos in May with a net worth estimated at more than $2.1 billion.

The company started with Panda Inn, a full-service restaurant in Pasadena that still serves Mandarin and Szechwan cuisine. Today, the Cherngs own and operate six Panda Inn restaurants in Southern California. Panda Express was formed as a spinoff of the fancier restaurant and first opened its doors in the food court at the Glendale Galleria in 1983. The chain now has more than 1,500 restaurants in 42 states, Puerto Rico and Mexico. A third concept for the restaurant company, Hibachi-San, opened in 1992 and now has 27 locations in 12 states. Panda Restaurant Group employs more than 21,000 people.

Panda Express initially thrived in mall food courts across the country, but quickly began expanding into street-front spaces. In 1997, the company opened its first drive-through restaurant. Today, only about 230 of the chain's restaurants are mall locations; 400 have drive-through services.

It's difficult to pinpoint what category--fast food or fast casual--best describes Panda. Its price point, about $9, makes it more expensive than fast food, but the chain's many food court sites make it feel like fast food. That ambiguity is likely a factor in driving the company's efforts to refresh the brand.

While the company declined to discuss specific details about its prototype restaurants, it's clear that the concepts are meant to help modernize Panda.

The prototype in Batch Springs, Texas, dubbed "Bright and Fresh" by the company, features two circular booths, a communal table and sleek surface finishes. It also posts the menu on digital boards that can be changed quickly. The company calls the Cordova, Tenn., prototype "Blocks of Flavor."

Rolling out a new look for 1,500 restaurants won't be cheap.

Dave Kenny, of Eagle Rock food service consultancy Kenny & Associates, estimates the company could spend somewhere in the neighborhood of $100 million to refresh its existing Panda Express restaurants. But Panda can afford it.

"A lot of the restaurant business is so overleveraged, but that's not the case with Panda," he said. "It's a very solvent company. They self-finance, so they can build wherever they want and they don't have to go to the banks to grow."

By BETHANY FIRNHABER Staff Reporter

(c) 2012 CBJ, L.P.

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