Read the case study below, then answer the questions that follow.

Little Sheep

Little Sheep is a restaurant chain that specializes in Mongolian hot pot. The parent company, Little Sheep Group, was founded in Inner Mongolia, China in 1999 as a private company. The restaurants specialize in serving hot pot, a traditional Inner Mongolian dish served in metal pots. Each hot pot is filled with hot aromatic broth and a variety of other fresh ingredients. The popularity of these hot pots was so significant that the chain grew rapidly throughout mainland China, Hong Kong and Macau via a plural model of ownership and franchising.

When entertaining Indonesian business clients on a trip to Shanghai, an entrepreneur was introduced to the Little Sheep brand. His clients insisted on waiting over an hour for a table at the restaurant, despite being the type of people who do not like waiting. Recognizing the popularity of the Little Sheep brand in China, the growing Sino- Indonesia trade, and the size of the Chinese population in Indonesia, this entrepreneur spotted an opportunity and approached the franchisor.

Once the franchise contract was signed, the franchisee set about finding an ideal location for the first Little Sheep restaurant in Jakarta. This franchisee also had to determine how to source ingredients, particularly meat for the hot pots. In due course, a 120-seat, Little

Sheep restaurant opened, but it was positioned more high end than the brand in China. The franchisee had to recoup the higher cost of the meat imported from Australia and New Zealand and considered that customers would be willing to pay a higher price for the brand in Indonesia.

The franchisee was correct in this assumption and the restaurant attracted people from all across Jakarta, many who became regular customers. To meet the demand from customers, a second, 140-seat restaurant was opened in another central location.

This second restaurant proved to be a success as well, so this entrepreneurial franchisee approached the franchisor again, but this time with a view to expanding the number of franchised units he operated via a master franchise agreement. The franchisee also recognized that while the upmarket restaurant concept was popular with the Chinese population, many other local people could not afford the restaurants prices. Recognizing potential demand from this sizable market, the franchisee set about developing a smaller restaurant concept.

The new concept comprised an 80-seat restaurant, which required less operating space and in secondary cities in Indonesia where rents would be cheaper. In addition, menus were adapted so that set menu packages were included at a more affordable price. While the original restaurants charged around US$15.00 per head, the newer, adapted Little Sheep restaurants were able to charge around US$ 8.00 per head by using cheaper ingredients. The growth of these newer branded Little Sheep restaurants was financed through sub-franchised agreements.

Since that time, the Little Sheep restaurant chain continued to grow. It was awarded the most popular hot pot restaurant award by the Chinese Restaurant Association in 2007. It was listed on the Hong Kong Stock Exchange in 2008 and realized 2% of the dining out receipts in China in 2010. Today, Little Sheep has over 300 restaurants and has expanded further afield to the US, Canada, the UK, Japan and South Korea. In 2011, the company was acquired by Yum Brands Inc, the US fast-food franchise conglomerate for $587 million.

Questions

1. So far, you have learned that there are three basic types of franchises. Referring to the case, which of the three types has Little Sheep adopted? Explain the chosen type and justify your choice. (Score: 25 marks)

2. Your textbook has identified several benefits of buying a franchise. Referring to the case, what were the major motives (benefits) that drove the Indonesian entrepreneur to buy the Little Sheep Franchise? Justify your answer. (Score: 25 marks)

3. Explain how the franchisee demonstrated entrepreneurial characteristics during the development of the original Little Sheep Restaurant in Jakarta, and identify the characteristics that make the relationship between the franchisor and franchisee an entrepreneurial partnership. (Score: 25 marks)

4. What bootstrap marketing strategies can this entrepreneur profit from in order to build a competitive edge? Discuss and defend your choice. (Score: 25 marks)