Hai Di Lao (in Chinese: 海底捞) is a popular hot pot restaurant chain with 130 eateries in 35 Chinese cities, and 6 branches overseas. The hot pot restaurant business is extremely competitive because it is quite challenging to distinguish oneself from others in taste. Hai Di Lao, however, stood out due to its exceptional customer service, introduction of showmanship into the restaurant business, and standardized lean supply chain management.
Although Sichuanese hot pot is historically mostly consumed in southeastern part of China, Hai Di Lao targets the customers in the more developed regions of the country where hot pot is more of an “occasional treat”, and where customers value “service” as much as the food itself. On average, a diner spends approximately RMB100 to 150 ($16~$23) at the restaurant , making Hai Di Lao sit at the premium end of the hot pot business with 20~30% higher than the market average. It justifies its premium pricing with exceptional service, fresh ingredients, and an overall pleasing customer experience. All these three competitive advantages are effectively supported by its operating model. At the same time, the high margins gives the company the resources to operate in its unique way.
Service Beyond Imaginations
Hai Di Lao boasts itself for providing customer services beyond a typical Chinese diner’s expectations, even when the patrons are waiting. The chain invests heavily in its waiting areas. Unlike most hot pot restaurants where waiting customers don’t have seats to sit on, waiting areas at Hai Di Lao are well-decorated, and can account for 1/3 of the total space of the restaurant. It also provides WIFI, manicure/shoeshine/hand massage services, board games, and a variety of snacks and drinks, all for free ! This unrivaled waiting experience created significant amount of buzz for the restaurant among young diners, and received critically good feedback given that hot pot is a type of food for a group of families and friends. The services provided at the waiting area gives the consumers a chance to relax and connect without feeling wasting times.
After an average wait time of 45min to 1 hour, diners sit by the hot pot table, and are given free full size aprons to prevent themselves from staining their clothing and protective baggies for their cell phones. From time to time, a server will perform the restaurant’s signature Olympic-style “noodle dance”, winning lots of “wows” from the patrons (see below).
In addition to providing these services for free, Hai Di Lao also designs its employee incentive schemes to support its unique value propositions on services. The branch managers are not evaluated on the revenues of the branch. Instead, “customer satisfaction” and “employee satisfaction” are the two main metrics that determines the management team’s compensations. The company understands the the front-line waiters and waitresses know the customers’ needs and problems the best. Therefore, they are given the authorities to do whatever makes the customers happy, including paying the meals for the customers on behalf of the restaurant without the involvement of the manager.
Hai Di Lao understands that loyal employees make happy customers. Therefore, it offers a highly competitive compensation packages for its best employees. The perks of working for Hai Di Lao may include free apartments, nannies, and sometimes parental subsidies. A dedicated fund was set up to help employees with personal emergencies. China’s restaurant industry observes notoriously high turnover rate. Hai Di Lao, however, has much lower turnover rate than its competitors—almost zero at the management level. Hai Di Lao’s service-centric business model will not be sustainable without a loyal employee base 
Supply Chain Management
To improve the scalability of the business model and consistency in service and food quality, all the Hai Di Lao branches are directly managed, and shared a centralized of distribution network. No franchises are allowed. Four distribution centers are established in Beijing, Shanghai, Xi’an and Zhengzhou to cover the four regions. All the ingredients are sourced, washed, processed based on the company protocol, and then packaged, and delivered to the individual branches based on demand forecast from each branch. Unlike most of the local Chinese restaurant chains, Hai Di Lao adopts a very standardized and data driven supply chain management system to keep low inventory, and ensure high quality products across its 130 branches.
Applying standardization to its ingredient processing and preparation eventually allows Hai Di Lao to provide delivery services to customers, which has been unimaginable for hot pot. The delivery service helps the brand reach many more customers, and extend its “beyond your expectations” services value proposition beyond its offline branches. According to a branch manager, the delivery service is actually a money loser but it provides convenience to the customers, and they believe doing what makes customers happy will eventually create values fro the brand.
 Personal store visits in 2014 and 2015