If you came to Beijing for the Summer Olympics in 2008, you would be hard pressed to find an affordable variety of palatable non-Chinese food. However, as China’s economy develops, as more of its citizens go abroad, as their desire for something different multiplies, there is a surprisingly huge gap between what they want and what is available.
“The demographic of consumers has changed a lot in the last 10 years. We’re seeing a more educated class of consumers in China,” says Stewart Johnson, co-founder of Hatchery, a food and beverage incubator based in Beijing. “They’ve spent time abroad and are used to more innovation in their city, whether its events, the arts, there’s a broader demand.”
However, that doesn’t mean that you can just open a business and be an overnight success. In fact, it’s quite the opposite. History is littered with the failures of a China entry strategy: Home Depot, Best Buy, Groupon, eBay, Tesco, and Marks & Spencer.
As any entrepreneur learns very quickly, the biggest challenges to creating a successful business are market fit and execution. Tech startups, by their very nature, are already optimised for efficiency and speed. Doing the same in food and beverage is almost impossible.
“A lot of people fail because it’s a bad idea. It’s a complete waste of time if you have a concept that just won’t work. The problem with food and beverage is that lean startup is very difficult,” says Stewart. ”The upfront costs are just so high. For a space in a popular area like Sanlitun in Beijing, you’re looking at least RMB 2 to 3 million (US$430,000) in costs before you even open.”
This is where Hatchery comes in. Started as a way to bring interesting food concepts to Beijing, they have quickly turned from experimenters to facilitators. They believe that creating China’s next Starbucks actually shouldn’t be that hard.
“We want to incubate and accelerate that next restaurant,” says Stewart. “It doesn’t need to be that difficult, setting up a new restaurant, setting up a new food business, you don’t need to recreate the wheel. We want to help people get around that by systemizing as much as possible.”
Creating a feedback loop
With their 5 stage “HatchTrack” system, Hatchery believes they are well positioned to not only develop interesting F&B concepts, but also to iterate, validate, and grow them into businesses in their own right.
By leveraging their burgeoning community to collect data, Hatchery is well positioned, and experienced, to test and iterate ideas until they can be successfully spun out.
“We’re building a community of users and customers. So we’re always going to maintain contact with them, whether that’s in the restaurant or in an app we’re working on,” he says. “The main thing for us is that before they come, they know what’s going on here, they can follow everything, order from WeChat and, should be able to vote up products.”
Community is the key
Their community is Hatchery’s biggest competitive advantage. With a glut of options, but only a few channels for discovery, it can be quite difficult for potential customers to find you. However, with Hatchery, their incubator is a known and well-respected quantity granting entrepreneurs immediate access to consumers, access that could be difficult otherwise.
“The 2C part of the B2C is much harder to access in China,” he says. “If you make products, then you’re always stuck behind the business trying to sell the product. Access to the consumer can sometimes be more important than having the best product.”
And it’s not just access either, but an engaged pool of consumers that like your product and, through crowdfunding or direct investment, have a deep sense of ownership.
“There’s only a certain type of customer who will like certain types of food, so if you can quickly find that and they can quickly get engaged with a concept, that’s more valuable,” Stewart says. “Having a thousand of your target segment customers quickly on-boarded and engaged is way more valuable than have 10,000 from every single segment across the China market.”
China’s next Starbucks
Iteration, aggregation, access: put all those together and Hatchery is hoping that they have the secret formula for China’s “Next Big Thing.”
“The big question for the China market is how do you find the next Starbucks,” says Stewart. “We hope that it will come out Hatchery so we’re putting a lot of resources into early stage growth, but in the future, there might 100 stores and become more valuable than Hatchery itself.”
Image Credit: Hatchery
1. Uber was not included in this list because it could be argued that Uber’s exit was neither an exit nor a failure. They now own almost 20 per cent of Didi, are losing money at a slower rate, and “lost” not because of market strategy.
The article This F&B incubator wants to find China’s next Starbucks was first published on TechNode