Wednesday, 15 April 2015

Update: P.F. Chang's Canada is not bankrupt; new strategic partner sought

Contrary to an original report on the website, the P.F. Chang's China Bistro operation in Canada is not bankrupt. The two Montreal area locales - one on Rue des Jockeys off Decarie and  another at Carrefour Laval - as well as the Toronto spot- are alive and well.
Director of Operations  Cary Mausner and CEO Michael Aronovici.
"We filed a Notice of Intention to make a proposal to our creditors in order to obtain the courts` protection so we could gain time to find a strategic partner or a buyer," said  Michael  Aronovici, the CEO of Interaction Restaurants. "We are firmly in control of our business and have already had several discussions with potential strategic partners or buyers in this vein. We will continue to operate our restaurants in the ordinary course of business while the process is underway.  We expect things to be settled in the next six months or so."

Let me be frank. P.F. Chang's was always one of my favorite restaurants and a must visit eating experience whenever I was in the United States. I have been to all three Canadian locations. The food and services is impeccable  and the entire experience second to none: won ton soup, the  signature chicken lettuce wraps,  Mongolian beef, crispy honey shrimp and  double pan-fried noodles among my top choices.

"Even though our original expectations for the business have not been fulfilled, PF Chang’s has been well received in Quebec, as well as in Ontario," says Aronovici. "I truly hope that with the addition of a strategic partner, it will have the runway required to continue its growth."

Since I posted this blog there have been a number of  unfair comments directed towards P.F. Chang's. I took the time to speak to different people familiar with the restaurant business in Canada and here is some of what they said:

  • Canada is a vast country that is sparsely populated.  When retailers and restaurateurs operate in Canada, the landed cost for goods will always be more expensive (this is especially true when the goods come from the U.S.) because of transportation inefficiency which in turn drives up cost of goods.  Simply put, it costs a lot more to distribute goods to  30 million people across our country as compared to 30 million people in California.
  •  Canada has a protectionist system in place for dairy, eggs and poultry.  Successive governments have decided to not tamper with the system, even though it places an unfair burden on the end consumer and destroys industry creativity.  This artificial pricing system dramatically drives up the price of these commodities in Canada as compared to the U.S..  or example, chicken costs more than double in Canada as compared to our neighbors in the south.
  •  Canada has a more socialized approach which creates a higher minimum wage and significant benefits such as health care, parental leave, generous unemployment benefits and so on.  The average minimum wage in Canada is somewhere around the $10 mark as compared to a state like Florida where the tipped minimum wage is $5.03 with virtually no benefits.  P.F, Chang’s is an extremely labour intensive concept as they prepare virtually every dish from scratch with the exception of  their cakes. 
  • As a result of the above noted factors, their menu is in fact more expensive in Canada as compared to the U.S. but they do offer good value as compared to other polished casual concepts such as Baton Rouge, The Keg and others.  To compare P.F. Chang's strictly to other Chinese restaurants is not valid in the opinion of most experts due to the vast difference in the quality of ingredients used, the nature of the physical asset, the type of service offered and myriad of other factors.  This said, P.F. Chang's Canada is certainly competing well on price when compared to the finer dining Asian establishments in Montreal and Toronto.
  • One should also find it ironic to hear criticism about the P.F. Chang's pricing when at today’s exchange rate, the cost of a P.F. Chang’s meal in the U.S. is higher than it is in Canada.
  •  The food quality is absolutely identical in Canada to that of the U.S..  Based on the many stories I have done on P.F. Chang's, they are maniacal about the quality of their ingredients and the manner in which they cook and serve their food.  They use the exact same inputs as the U.S. with the exception of chicken which must be sourced in Canada.  Plus, they only use fresh chicken breasts in their dishes. "How does that compare with the processed, frozen, dark chicken meat that is commonly served in local Chinese restaurants?" one expert asked me.  "There is no magic to restaurant food economics – an all you can eat buffet is serving low quality food otherwise they could not survive.  The recent article regarding veal scaloppini actually being pork in many restaurants serves to illustrate the point perfectly."
  • Officials at P.F. Chang's also want to point out that the issue with their business in Quebec has nothing to do with the build out costs for the restaurants as they were very well capitalized and had very little debt.  The issue is more about the state of the consumer in Quebec as compared to the rest of Canada.  "There is a reason retailers and restaurants have been performing worse in Quebec and it has everything to do with the economic prosperity of the province and its consumers," someone close to the chain said.  "The gap between performance in Quebec and the rest of the country has never been greater in my opinion and it does not bode well for the future of Montreal."


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