Shanghai Street View: Addictive Advantage

I thought I’d read about every kind of food safety scandal imaginable until I saw a new report on an eatery here in Shanghai that found a creative way to encourage customer loyalty for its crayfish dishes. I had to smile to myself as I read the report, and even had to slightly admire this restaurant for its creative, albeit illegal, approach to building up repeat business.

At a broader level, this “Case of the cagey crayfish shop” shines a spotlight on a more widespread phenomenon in China that amuses both me and many of my western friends. Put simply, we marvel at the inability of Chinese entrepreneurs to differentiate themselves from their rivals, with the result that many shops often look identical to one another and give little reason for customer loyalty.

As any western entrepreneur will know, such customer loyalty is critical for any company’s long-term success. If any readers out there sense that I’m deliberately withholding details on this particular case to keep you reading, then you’re right. After all, I need to develop my own base of repeat readers to ensure my livelihood.

So all of that said, let’s take a closer look at this latest food safety scandal at a restaurant called Duanshi Crayfish in the Xuhui district. Duanshi was one of several eateries that were fined and black-listed last month for violations that could endanger the health of local residents.

In this particular case, the owner at Duanshi decided to encourage loyalty by literally getting customers addicted to his wide range of crayfish dishes and soups. To do that, he secretly added poppy shells to his food, which has a similar but presumably far more mild effect than the more addictive power of poppies used to make powerful drugs like opium.

Officials were tipped off to the restaurant’s crafty practices by local diners, and tests later revealed the presence of 2 banned substances in Duanshi’s dishes. Fans of the restaurant’s addictive food will be disappointed to learn that Duanshi was stripped of its catering license, and its owner was banned from the industry for 5 years.

Obviously I’m being slightly sarcastic in praising the owner of the Duanshi, since it’s never correct to use such covert and potentially harmful tactics on unsuspecting people to win business. But at the same time, the owner’s approach does spotlight the tough challenge that many Chinese shop and restaurant owners face in trying to differentiate themselves from their rivals.

Such differentiation is a cornerstone of good business, as it gives customers a reason to choose your shop or restaurant over the competition. Accordingly, nearly any entrepreneur in the west will think long and hard about how to stand out from the crowd with unique themes, services and products before setting up a retail shop or other business.

But many Chinese don’t seem to understand this idea, perhaps because market-driven competition is so new here. Most of the basic eateries near my home serve nearly identical food, and none makes any attempt to differentiate itself with unusual décor or special attention to service. As a result, many places often close within a year of opening, to be replaced by new, equally unexciting restaurants.

I became more aware of the issue one year when a friend visited from the US and we went to the Great Wall near Beijing. She seemed puzzled when she noticed that all the souvenir stands were selling identical products, a common sight at most tourist attractions in China. She asked me how individual shop owners could hope to do good business when they had nothing special to offer.

It was only then that I realized the concept she was asking about really applied to many small businesses in China. I also understood why I usually avoid local restaurants and shops and prefer to eat at big restaurant chains and shop at malls. While such chains are homogenous from one outlet to the next, at least they have unique personalities that I enjoy and make me want to go back.

All of this brings us back to the Duanshi, which may find it hard to ever re-enter the restaurant business after also being fined 50,000 yuan in addition to its 5 year industry ban. This business owner surely got his just desserts by being shut down. But at least he tried to set himself apart from the crowd, even if his tactics weren’t legal. That’s something more business owners need to do to create a more vibrant and viable landscape in Shanghai’s rapidly evolving small business community.