Wok - A Sustainable Chain?

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Version: 27/07/2014
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Case
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Wok: A
Sustainable
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ISSN: 2322-9330
Restaurant
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Chain?
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INTRODUCTION
“This is just crazy,” Benjamín Villegas, chef and Wok’s partner, said to himself when the restau-
rant’s strategy head presented his expansion plan to its management team. Wok’s strategy head
started that meeting on January 10, 2012, showing an expansion plan that hinged on opening
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new stores in Medellín, Cartagena, and Barranquilla. For Ricardo Macía, partner and general
manager, there was no question about it: if Wok was to increase its sales, it needed to open new
stores outside Bogotá. Benjamín, instead, felt this would undermine Wok’s very essence. “This is
not what I envisioned for this business,” he thought.
Clearly, Wok’s expansion efforts would test and put a strain on the traditional fish supply chain
the company had built with a fishing community on Colombia’s Pacific coast. A small fishing com-
munity in Guapí (a small town in southwestern Colombia) looked like a viable choice, but this
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AUTHORSHIP This case was prepared by case writer Adriana Rueda, under the supervision of Professors Iván Darío Lobo and Ezequiel Reficco, from
CREDITS the Universidad de Los Andes School of Management. Teaching cases are developed solely as the basis for class discussion and are not inten-
ded to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request per-
mission to reproduce materials, contact coleccion.cladea@gmail.com.
Copyright © 2014 Universidad de los Andes – School of Management. No part of this publication may be reproduced, stored in a
retrieval system, used in a spreadsheet, or transmitted in any form or by any means --electronic, mechanical, photocopying, recording, or
otherwise-- without the permission of the copyright holder.
This document is authorized for educator review use only by Jairo Sanchez, Universidad Externado de Colombia until July 2017. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
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community was besieged by multiple organizational limitations. To be feasible, any growth plan
would have to accommodate both Wok’s sourcing policy as well as its social and environmental
sustainability strategy. The strategy was instrumental to Wok’s market positioning so the stakes
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were substantially raised.
WOK’S EARLY YEARS

Wok was founded in 1998 to offer quality and affordable Eastern cuisine dishes, primarily show-
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casing Thai and Japanese flavors. Asian food (particularly Japanese-inspired dishes) was viewed
as expensive and sophisticated, affordable only for high-income segments. Back then, Bogotá had
seen a couple of restaurants specializing in sushi and tepanyaki open and close down, driven out
of business as a result of the economic crisis that hit Colombia in the late 1990s.
The idea for Wok had grown in Benjamín’s mind several years before the restaurant’s grand ope-
ning. A student in London with a passion for Eastern cuisine, Benjamín, Wok’s founding chef,
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spent his free time in Chinatown, tasting dishes to gain a better understanding of Asian cooking.
After leaving London, he went to Thailand, where he learned the secrets of Thai dishes. The in-
gredients, recipes and overall style of restaurants with communal tables soon gave shape to his
own dream: building “a rather small, secluded place where I can cook what I want”, as he him-
self put it (Villegas, 2005).
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In 1997, Benjamín returned to his native Colombia and started Wok with three partners. In Sep-
tember 1998, at a small, windowless venue, they inaugurated their first Thailand-inspired res-
taurant at Bogotá’s T district, an area that was fast becoming a gastronomy hub in Colombia’s
capital city. Two years later, Wok underwent some ownership changes, as Benjamín’s partners
sold him their shares, and Ricardo Macía, who had managed one of Colombia’s largest restau-
rant chains for 13 years, joined in, along with other minority shareholders. Ricardo brought new
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ideas that strengthened the restaurant’s administration with new processes and systems. The
store was also revamped with a new design that turned the small, dark venue into a bright locale
with large windows and terraces.
These changes soon bore fruits. In the semester following Ricardo’s arrival, sales grew by 30%. A
new store was opened the next year, and, by late 2011, Wok boasted nine stores, 380 employees,
and revenues nearing ColCOP$ 34 billion a year (see Exhibit 2)1. For Benjamín, the key to Wok’s
success laid in its underlying philosophy –“Wok is a right for everyone.” Some observers attri-
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buted this success to the unique combination of Benjamín’s principles and values and Ricardo’s
pragmatic business view, mixed in different doses depending on the issue at hand and the setting.
A few years after joining the partnership, Ricardo took over as general manager.
1
Around US$ 18.3 million (US$/Col$ exchange rate: $1,853)
p. 2
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By 2012, Wok had turned into a significant player in the local restaurant industry, particularly
in the Eastern cooking segment, where it competed against other chains like Teriyaki and Osa-
ki. Within this strategic group, players targeted similar consumer segments, luring them with
similar propositions, albeit competing with different pricing and quality combinations (see Ex-
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hibit 3 for a table displaying price-quality ratio at leading Asian cuisine restaurants). Overall,
analysts viewed this market as very dynamic and highly competitive, with significant advantages
for first-movers. These included location –paramount in the restaurant business- and top-of-mind
awareness –driven by both formal (advertising) and informal communications (word-of-mou-
th and references). Traditionally, this industry focused primarily in Bogotá’s metropolitan area;
however, by 2012, all the chains in this strategic group were considering nationwide expansion,
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especially to medium-sized cities.
FOOD, INGREDIENTS, SUPPLIERS

New dish introduction hinged largely on supply availability. Unlike Peru or Brazil, Colombia does
not feature Eastern immigrants or any direct contact with Asian cuisine. As a result, a large share
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of the required ingredients were not produced –or even known- locally.
For Benjamín, “if you want to deliver a truly Asian flavor, you have to use original ingredients”
(Villegas, 2005) 2.To that end, he focused on local production during Wok’s early years. Colom-
bia and Thailand are located on the Equator, sharing the same temperature range. Benjamín star-
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ted to experiment with products like galanga –Vietnam’s basil- and chili peppers, among others.
While some ingredients (like Thai eggplant) proved successful, others (like Chinese broccoli and
rice) had to go through a more complex development process.
Once some ingredients had been successfully grown, it seemed natural to move on to developing
local suppliers for them. Thus, Wok chose to work with farming communities to build a supply
chain. The company established fair prices, eliminated intermediaries from its value chain, and
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set favorable conditions for farmers: 15-day payment terms, ongoing technical support, and food
safety training.
Unexpectedly, the search for Asian ingredients put Wok on the path to becoming a company com-
mitted to developing traditional farming suppliers or, as Ricardo put it, committed to operating
a healthy restaurant: “true health involves, first and foremost, respect –respecting people, cus-
tomers, suppliers, the community and the environment.”
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WOK’S TRADITIONAL SUPPLIERS POLICY

Starting in 2004, Wok worked to reduce the share of imported ingredients used in its dishes. Im-
ported supplies went down from 50% in 2003 to only 37% by late 2011, with the remaining 67%
2
Villegas Benjamín, “Wok. La historia de una idea” (2005).
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produced locally. Wok’s goal was to reduce its imports to 20% inthe upcoming years, with a view
to substituting all the ingredients that could be produced in Colombia. Carolina Codina, Wok’s
administrative manager, explained,
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It is key for us to build partnerships with our suppliers: small communities preferably
abiding by clean production principles. We want to gradually forge local business ties
to substitute our imports as much as possible in order to reduce our environmental foo-
tprint and contribute to these communities’ economic and social development.
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Based on this policy, alliances were built with communities across Colombia. For instance, Agro-
procesos del Pacífico, a Tumaco-based company (see Exhibit 4 for a map of Colombia), created
a program to replace cocaine crops with coconut palm tree plantations managed by 30 farming
families in the area. Cristian Caicedo, Agroprocesos’ manager, met Tansy Evans, Wok’shead chef,
when the latter was looking for a new coconut milk supplier. At that time, with its output limi-
ted to dehydrated coconut, Agroprocesos was unable to meet Wok’s needs. A year later, Cristian
traveled to Bogotá and learned, as he puts it, “about Wok’s magnitude and what they really had
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going there.” Then, he decided to start negotiations with Wok.
To produce coconut milk, Agroprocesos was forced to expand its production plant, purchase new
equipment, and hire and train new employees. To develop the plant and its new products, it re-
lied on Wok’s quality area for advice, but it was not an easy task. The firm had to change its pro-
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duction process as well as adjust its quality control standards and its food handling processes to
be able to meet Wok’s quality requirements.
Supplying Wok meant nearly a 45% sales increase for Agroprocesos in the first year, with a 50%
headcount rise. In addition, Wok’s technical support would enable the firm to cater to a market
five times larger than Wok’s own market, with competitive prices roughly 15% lower than mar-
ket average.
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A similar case involved Jairo Camacho, a farmer in Chía (see Exhibit 5 for a map of Bogotá’s me-
tropolitan area) who used to grow organic vegetables, flowers and spices. His ties to Wok started
with spinach supplies, later expanding to romaine lettuce, leaf lettuce, and summercrisp lettuce.
By 2012, Wok took 80% of Jairo’s output, and, unlike most farmers in his area, Jairo had gua-
ranteed yearly sales, at an above-market price set at the beginning of the year.
Since he started his business relationship with Wok, Jairo saw his sales rise by 80%, created new
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jobs for five single mothers (washing and preparing the produce for delivery), and hired two ad-
ditional people to help him with planting operations, while he focused on marketing tasks. He
also incorporated greenhouse planting, making his output less dependent on weather conditions.
According to Jairo, his association with Wok afforded him not only financial benefits but also
great satisfaction and personal growth:
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Going to a restaurant and having what they make with the spinach that I provide them
brings me great satisfaction (…) This association proved excellent from an economic
standpoint: Wok’s customers pay for quality, and Wok pays producers for quality as
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well. That’s why it’s so interesting (…) As Wok’s business grows, mine grows as well. It’s
important: we both win. Consumers benefit, and I benefit as a producer.
Several observers also believed that these alliances made sense for Wok’s strategy. According to
María Teresa Reyes, Wok’s head of purchasing, engaging in production processes and working
closely with suppliers enabled Wok to guarantee ingredient quality. As she put it,
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Ever since I joined Wok, we had a really hard time with the spinach needed for bevera-
ges. (…) After working with Jairo for three years, we haven’t had any more spinach trou-
ble. He’s grown with us, and he has started to grow lettuce. We’ve had a really wonderful
experience with every one of these producers.
By late 2011, 10% of Wok’s suppliers were small communities from all across Colombia. In Cundi-
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namarca, Wok sourced potatoes and trout,3 while it promoted projectsin the southern department
of Putumayo to substitute illegal crops for fresh pepper and turmeric. Among the many projects
underway, Benjamín highlighted Wok’s support for indigenous communities in Santa Marta’s
Sierra Nevada –which produced galangal, honey and dry shrimp- as his favorite.
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A LEAP FOR WOK’S CORE BUSINESS: TRADITIONAL

FISH SUPPLIERS
Wok’s small community-based supply policy took a leap in 2009, when the company considered
expanding it to fish suppliers –a call that would condition its growth plans. Extending its sour-
cing policy to fish suppliers amounted to a significant step for a number of reasons; fish quality
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laid at the heart of Wok’s brand value proposition, which translated into high volume and quality
demands for suppliers. Additionally, fish –as an unstable product- requires professionally-ma-
naged refrigeration and specific requirements throughout the supply chain.
Informal fishing took place in coastal communities, whereas formal activities were limited to im-
porting and distributing fish, mollusks and seafood from overseas. Up until 2009, Wok purchased
frozen fish at international markets. However, it was impossible to determine where, when and
how acquired fish had been captured. The case of depleted tuna schools drove the policy change.
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In mid 2009, Wok’s partners, aware of the environmental impact of industrialized tuna fishing,
decided to withdraw all dishes containing tuna from Wok’s menu. According to Ricardo,
3
The trout is a fish found in areas 2000 meters (6,562 feet) above sea level. It is very common in Central Colombia.
p. 5
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I’m a big biology buff, and I like the sea a lot. I know sea species very well, and I had my
concerns about tuna. Why sell tuna? We started to work on the new menu, and Benja-
mín, who had just gotten his M.A. in Holistic Sciences, showed me some pictures about
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what was going on with this type of fish. I also kept abreast of this issue, so we both dis-
cussed it and said no more tuna at Wok! We decided to remove tuna from our menu be-
cause it was environmentally damaging.
Nonetheless, before taking tuna out of the menu, Benajmín and Ricardo approached Fundación
MarViva4 and followed its advice: using fresh tuna from Colombia’s Pacific waters rather than
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stopping to serve tuna altogether. MarViva worked with Red de Frío, a fishermen’s association
in Bahía Solano (see Exhibit 4) that had received support from Colombia’s Ministry of Agricul-
ture to build a refrigerated chain. Red de Frío had built refrigerated and frozen rooms as well as
brines for ice production and had adapted ice cellars in boats to store freshly captured fish for
up to three days.
MarViva’s goal was to foster the use of traditional fishing techniques to preserve the sustainabi-
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lity of existing Colombian Pacific species, and to enhance fishermen’s business management ca-
pabilities. Based on a study on the local sea ecosystem, MarViva had determined which species
could be fished, when fishing should take place, and minimum fish sizes at the time of capture.
The plan to substitute imported tuna coincided with Nanami’s arrival at Wok. A Japanese sushi
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chef invited to revamp Wok’s sushi menu, Nanami traveled to Bahía Solano to examine available
species and found fish quality to be high enough to stop imports. Benjamín and Nanami elabo-
rated a new menu, incorporating Colombian Pacific species.
Wok started negotiations with Red de Frío. While the local middleman paid COP$ 2,500 a kilo-
gram,5 Wok offered COP$ 22,000 per kilogram6 -–that is, 57% over average market prices and
nearly ten times as much as the amount paid by intermediaries. In exchange, Red de Frío had to
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agree to Wok’s demands: the use of sustainable fishing techniques, capture and shipment date
traceability, fresh fish (no frozen fish), and capturing only the species and sizes established by
MarViva.
By themselves, attractive prices did not suffice to build the necessary business ties between Wok
and Red de Frío. “Earning fishermen’s trust proved to be a hard task,” remembered Carolina. The
first deliveries came in late and did not meet the restaurant’s amount requirements. Faced with
this problem, María Teresa traveled to Bahía Solano and personally meeting this fishing group
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brought a turning point in their relationship.
4
MarViva Foundation is an international, non-governmental, nonprofit organization that focuses on the conservation and sustaina-
ble management of marine and coastal resources, supporting the management and surveillance of several Marine Protected Areas
(MPAs) in the Eastern Tropical Pacific, while internationally raising awareness on ocean preservation and sustainable utilization.
5
US$ 1.3 (US$-ColCOP$ exchange rate: US$ 1 = ColCOP$ 1,900)
p. 6 6
US$ 11.5 (US$-Col exchange rate: US$ 1 = 1,900)
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Carolina and I arrived at Bahía Solano and met the fishermen. I had takenwith me a
presentation about Wok, our food, the origin of our dishes, our headcount, what we do
with fish, etc. (…) After that, everything changed. We started to get their fish deliveries
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on time and in the right amounts (…) In this case, trust is much more important than
any signed business agreement (…) These communities have been cheated by so many
promises and projects that they thought our proposal was just another lie.
Wok also forged closer ties with fishermen, inviting them to visit its restaurants. “They saw that
we served raw fish and could not believe it… Only when they saw it with their own eyes did they
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understand that, as it will be served raw, it must be shipped in the best possible conditions,” no-
ted Carolina.
As a result of its partnership with Wok, Red de Frío went from being a financially troubled as-
sociation to becoming a formally incorporated, profitable company with three core businesses
–fresh fish, frozen fish and fish products. By 2012, Wok purchased 100% of Red de Frío’s fresh
fish output.
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ADJUSTMENTS TO WOK’S SUSTAINABLE SOURCING
POLICY
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Wok used 1,000 to 1,200 kilograms of fish every week, with 60% of this required supply coming
from the Pacific coast through Red de Frío. The rest was supplied by a 32-fishermen community
in Tierra Bomba (Department of Bolívar), in Northern Colombia’s Caribbean coast. Wok conti-
nued to import a few species -like salmon and eel- from fish farms.
The introduction of traditional fishing into Wok’s menu brought about significant changes for
the restaurant’s operating dynamics. For the first time ever, the availability of a key ingredient
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was not fully certain –rains and town holidays could curtail the amount of fish reaching Bogotá.
In addition, the specific transportation and processing logistics required changes in work sche-
dules and new production processes.
Transportation
To avoid freezing fresh fish, shipments to Bogotá had to be made at most two days after fishing.
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Bahía Solano was located in Western Colombia’s Chocó Department, accessible by sea from Bue-
naventura’s port (a 24-hour trip) or by plane (on small cargo and passenger aircraft departing daily
from Bogotá and Medellín). When Red de Frío started servicing Wok, fish deliveries were made
via Arcas, the sole cargo company that reached Bahía Solano. The flight arrived in Bogotá’s air-
port at 11:00 p.m., and a Wok truck had to pick up the fish to take it to the plant, where the quality
assurance area ran temperature tests to make sure the fish had not suffered during the journey.
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Traditionally, Bahía Solano’s fish was frozen and shipped in sacks, but this packaging damaged the
only plane owned by Arcas, forcing the company to shut down. The only option left was Satena, the
sole passenger airline that flew from Bahía Solano to Bogotá with four flights a week. However, this
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airline refused to carry fish unless it was packed in special cellars. This implied an additional cost for
Red de Frío, making it unfeasible. Wok provided the organization with the packaging design used
with another fishing community in Cartagena and met with Satena’s officials, persuading them to
carry fish exclusively for Wok in these special containers at COP$ 4,100 per kilogram.
A few years later, a new airline started servicing Bahía Solano, with daily flights to Medellín. From
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Medellín, fish was flown to Bogotá on Copa Airlines’ or Avianca’s flights, making supply times
more reliable, “unless the rain prevents flight departures for several days,” explained María Teresa.
Processing
Shipments arrived in Bogotá with whole, eviscerated fish, and Wok’s processing plant handled
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filleting operations. An average 40% to 60% of the fish weight was waste –head, skin and bones.
While whole-fish deliveries were more costly, this practice brought a number of benefits for Wok,
as María Teresa noted,
This helps to ensure quality and freshness. While not impossible, it is very hard to keep
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a fillet fresh. Instead, when you see the whole fish, you can tell if the eyes are bright or
sunken, if the skin or scales look this way or that, etc. The entire animal stays a lot coo-
ler, because fibers remain intact.
Dealing with fresh fish added complexity to quality assurance and food handling processes, as
explained by Mercedes Mateus, Wok’s chef:
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You have to make sure that captured fish are refrigerated, picking it up at the airport
and checking its quality. When a shipment arrives, the fish has to be carefully and or-
derly placed in the refrigerator. It may seem irrelevant, but the way the fish is placed in
the refrigerator is very important: it must be stored in such a way that it doesn’t break
(…) If we don’t handle it with care, storing it as we please, too tightly or skewed, it just
breaks, and it doesn’t look as nice after cooking. It has been really challenging to get peo-
ple to understand how important it is to carefully handle and store arriving products.
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Despite its difficulty, the introduction of fresh, traditionally captured fish seemed to pay off. Wok’s
gross margin, which was already above the industry average,7 rose even more (see Exhibit 2 for
company financial data). “Three or four months after introducing fresh fish, we started to notice
a positive impact on our sushi costs, which can add up to as much as 20% of Wok’s sales,” explai-
ned Ricardo (see Exhibit 6 for a sushi serving cost breakdown). While Wok had gone from pa-
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7
According to the Business Bureau, the average gross margin for the sector is 43%.
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ying COP$ 100,000 for a kilogram of imported tuna to purchasing domestic, fresh tuna at COP$
22,000 a kilogram, the company had to bring the fish from a seaside community to its produc-
tion plant in Bogotá by plane –incurring in expensive transportation costs. Also, while importers
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used to deliver clean fish, Wok had to clean the fresh fish it bought, which in practice implied
using around 50% more fish in the process. All other variable costs did not change as a result of
this new approach to fish supplies and remained steady.
EDUCATING CUSTOMERS
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At Wok, many believed customers accounted for the greatest challenge in this transition. Most
viewed domestic fish as a lower quality product. Additionally, switching from imported to local fish
meant that it was no longer possible to make sure that all menu dishes would be readily available.
Wok did not want to cater exclusively to higher-income segments. As Ricardo pointed out, “Wok’s
success hinges on reaching a much larger crowd.” However, the business had leaned towards po-
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pulation groups with greater purchasing power, as signaled by its store locations. By late 2011,
Wok owned six stores in Northern Bogotá (the city’s most affluent neighborhoods), one in the ci-
ty’s financial district8 (where large companies have their offices), another one in Chía (a nearby,
upper-middle class town), and another one at Gran Estación, a middle-class shopping mall in Bo-
gotá’s western area. Wok’s clientele encompassed a variety of specific customer profiles, including
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“frequent customers,” who visited Wok at least twice a week and seemed to base their preferen-
ce on its stores’ pleasant atmosphere and contemporary Asian design. According to Juan Carlos
Pug, manager of Wok’s store on Calle 118, these customers accounted for 50% of Wok’s clientele.
Other customer types had not been accurately surveyed, but experienced Wok employees loose-
ly described them as follows. A sizable group –albeit smaller than the first segment (roughly ac-
counting for 30% of Wok’s customer base)- could be portrayed as “knowledgeable”: loyal Wok
diners who appreciated fresh fish as a quality treat found at few restaurants in Bogotá. Two mi-
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nority groups rounded up Wok’s clientele: customers who valued sustainability and were drawn
by Wok’s “environmentally-friendly” stance, and the so-called “expecting customers” who visited
Wok stores following friends’ recommendations and returned only once in a while.
Wok’s prices had always been lower than its competitors’. The firm’s partners agreed that this
iswas a matter of respecting customers. As Ricardo put it, “it’s about pricing responsibly to make
the business viable with reasonable margins (…), but we try to be respectful and fair, heeding
Wok’s market conditions rather than competition drivers.”
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The introduction of traditional fishing into Wok’s business scheme ended up reducing its sushi
menu from six to four pages, forgoing some of the most popular products. Also, it made it impos-
sible to guarantee dish availability. “It wasn’t a logical decision,” sentenced Ricardo, who added,
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8
The restaurant by the Museo Nacional. (National Museum).
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A marketing expert would say, “you’ve made a mistake, because you areyou’re losing sa-
les,’ but I think that our message goes beyond selling. I could easily call a supplier and
have him bring octopus from somewhere, telling customers it’s local, but we prefer to
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respect our customers, clearly telling them, ‘you see, octopus is available only for two
months, but we can offer you snapper and other products, and we’ll have the octopus
again as soon as it’s available.’ From a marketing standpoint, this is a weird strategy. On
the one hand, we wondered if it was wise to jeopardize our sales, but, on the other, we
were certain this was the right way to go about it.
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Customers reacted immediately. “They questioned the fish we served, as they believed it was bo-
cachico9 instead of the species we announced on the menu,” Antonio Docampo, chief operating
officer, recalled. Customers were very reluctant to embrace this change. As Ricardo elaborated,
“I would walk in, and a customer would challenge me, ‘how did you dare make this dish without
salmon?’ And I would explain to her, ‘this is what happens to salmon, and, so, we’re now offering
a carpaccio made with another fish.’ And she would go, ‘Ok, fine, but I’d rather have salmon.’”
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Many people became upset when they learned that not all menu dishes were available. “Custo-
mers tend to be conceited, and, if the menu says tuna, they just want tuna,” argued Carolina,
who added, “we made a change, saying ‘we’re going to offer the species that are naturally avai-
lable around the year.’ (…) People ordered snapper, and we told them, ‘we have golden dorado
instead.” Referring to this policy, a Wok store manager mused, “If you’re asking whether we lost
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customers as a result of this choice, I’m not sure, but it wouldn’t be farfetched to say that we
have… I haven’t seen some faces again.”
“As consumers, we all think that since we are paying we have to be given exactly what we are as-
king for,” argued Trini Gálvez, service manager, who believes customers should be educated “lo-
vingly and patiently.” To roll out this policy, Wok launched an “educational” campaign to raise
awareness with messages on menus and placemats or conveyed by service personnel, describing
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the consequences of indiscriminate fishing, the reasons leading to the introduction of traditionally
captured fish, and the impact of this choice on fishing communities in Colombia’s Pacific and At-
lantic coastlines. A study on the company concluded that “Wok is a place to both eat and learn.”10
BEYOND FOOD
With the introduction of traditional fishing products into Wok’s menu and the need to “educate”
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customers, Wok pushed the envelope beyond food. Its messages grew increasingly broader, always
revolving around sustainable development. For example, the company launched a publication,
jointly produced with Natibo Foundation, to disseminate the work of organizations focusing on
9
Bocachico (Prochilodus magdalenae) is a freshwater fish, largely viewed as low quality meat, typically found in the Magdalena River,
one of Colombia’s major rivers that runs from south to north, crossing nearly three-quarters of the nation’s territory.
p. 10 10
Research study conducted by Universidad de los Andes’ Design School. Information provided by Wok.
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sustainable development and to foster a greater understanding of Latin American issues(such
as its endangered species, like Titi monkeys and jaguars, or indiscriminate shark hunting practi-
ces, among others). This publication was distributed freely at every Wok restaurant. By 2012 the
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company also created “Mundo Wok” (Wok World) to strengthen its ties with suppliers, emplo-
yees, and customers via lectures, cooking events, and good food.
Wok also conducted a number of customer campaigns to reduce the use of napkins and straws.
It replaced plastic bags with recycled-paper and cloth bags, and decided to make all placemats
and menus with recycled materials. Internally, the company created a “green group” of waiters
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and heads of service that were trained for a year on sustainability issues to support Wok in carr-
ying out its internal programs anddisseminating company activities with their fellow employees
and also with customers. Wok also organized training sessions to educate employees on recycling
principles so that they could promote recycling practices at their homes.
The company also instituted tree-planting, recycling and energy-saving programs. The oil from
fryers was donated for biodiesel applications, and restaurant effluents were treated with fat-ea-
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ting bacteria placed in traps, while accumulated muds were collected every three months by a
company that specialized in environmental issues for compost applications.
GROWTH
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In early 2012, Wok partners wondered what would be the best expansion strategy for their busi-
ness to compete against other restaurant chains. In the food industry, expansion to the national
level brought the promise of significant economies of scale in marketing, operations or product
development. It was also common knowledge that, in this business, “beating competitors to the
punch” brought a significant advantage, as it was hard to displace a firmly established player in
the market.
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Forall the minority partners, the time had come to play in the big leagues. With the economies
of scale drawn from expansion, Wok could cross national borders to neighboring countries and,
eventually, across Latin America. This group of partners viewed expansion to other cities as the
only way to turn Wok into a leader among full-service restaurants, effectively competing with
best-selling chains like Archies, Crepes & Waffles, and El Corral (see Exhibit 1). According to
their plans, six new stores could be opened in two cities over the next three years, with a view to
operating over 17 restaurants in Colombia’s five topmost cities in five years. Wok’s sales growth
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and liquidity would enable them to make these investments with no need for loans, and expec-
ted returns seemed very attractive.
Minority partners truly appreciated Wok’s existing community-based, traditional supply pro-
grams. In addition to realizing their intrinsic value, they knew these programs had borne a posi-
tive impact on Wok’s image. For many, Wok had earned the “sustainability champion” title in its
p. 11
Case: AN0003
t
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industry. Clearly, sound social responsibility programs brought many advantages that supported
brand expansion –Starbucks’ successful expansion in South America had amply proven that fact.
Relying on its “flagship” programs, Wok could combine its local “socially responsible” offering
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with a more standard offering that resembled its competitors’. This would afford Wok the neces-
sary flexibility for effective nationwide expansion.
Instead, for Benjamín, Wok’s business expansion implied turning its back on its recent efforts
and accomplishments. “This is absurd! This plan goes against Wok’s very essence!” he said, re-
fusing to believe that the only path to growth lay in new stores. On the one hand –he argued, with
yo
a number of restaurants scattered around intermediate cities, it would be no longer possible to
effectively control supplier and employee quality. On the other, it would be next to impossible to
ensure the continuity of Wok’s traditional fishing programs.
Wok’s partners, whose views had consistently been aligned, seemed to draw apart at this junc-
ture. Minority partners valued Wok’s community engagement efforts and firmly supported their
continuity. However, they saw no point in tying the company’s growth (and its long-term viabi-
op
lity) to those programs, which they considered as valuable withina broader Wok’s supplier rela-
tionship portfolio.
Faced with this growth approachUnder the expansion plan, Wok’s fish sourcing policy would
cause undeniable bottlenecks. In the short term,traditional fishing communities would be hard
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pressed to raise their scale while preserving price and quality. Red de Frío might have some ad-
ditional capacity but certainly not enough to satisfy Wok’s demand with a countrywide chain of
restaurants. María Teresa had found a small 50-fisherman community in Guapí (see the map on
Exhibit 4) that might be able to provide fresh fish for Wok’s new restaurants. This communi-
ty had potential. In size, it could match Wok’s largest supplier, Red de Frío, producing a similar
output. Yet, this community was not formally organized, did not know much about traditional
fishing practices, and the local transportation infrastructure was sketchy. Taking into account
No
previous experiences, it would take this community at least two years to become a Wok supplier.
Still, it was the only one that seemed poised to eventually meet Wok’s sourcing needs.
The company was well aware of the fact that its community-based sourcing scheme hinged on
interpersonal relationships, mutual trust, empowerment and continuous support. As a result,
these practices were not automatically replicable: they required a carefully built dynamics ba-
sed on collaboration to overcome each community’s unique and specific challenges. To this end,
Wok needed to focus its efforts, and this formula made it impossible to work with more than one
Do
community at a time.
Wok’s minority partners believed the company could not afford to wait two years for the new tra-
ditional suppliers’ “ecosystem” to be built: the competition was about to take a leap into regional
markets and threatened to grow stronger in the segments targeted by Wok, reaping first-mover
advantages that would prove hard to match. Additionally, this sacrifice did not make much busi-
p. 12 ness sense –why should Wok undermine its sales and profitability to earn a reputation as a “so-
Case: AN0003
t
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cially responsible” company) that it already and indisputably held? Wok could not be accused for
being insensitive or irresponsible if it maintained its community-based programs while also re-
lying on conventional suppliers for greater expansion. For the minoritythese partners, the costs
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and risks involved were clear, but the benefits were not.
The decision to double the number of restaurants over the next five years was made, but how that
would be done remained unclear. Everyone at Wok knew that the time had come to talk speci-
fics. An extraordinary meeting was convened by January 2012. All partners came to the meeting
to find a way to put an end to this deadlock.
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op
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No
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p. 13
Exhibit 1: Full-service restaurant
industry players’ positioning1
t
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Exhibits’ In 2010, Colombia boasted 25,113 restaurants that qualified as “full-service restaurants” (Euro-
Section monitor, 2011). During 2010, this market’s value rose to Col$ 14.808,6USD$ 8.5 billion, with
Crepes & Waffles as uncontested leader, holding a 55% share of sales and followed by other chains
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like Archie’s and Pizza 1969.
Table 1. Full-service restaurants’ segment sales leaders
# of stores
Sales
by 2011
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Players 2009 2010 2011
Crepes & Waffles 137,862 153,964 171,183 62
Andrés Carne de Res 44,671 63,822 68,383 3
Archie’s Pizza 39,488 41,239 48,757 32

op
Wok 24,256 27,991 33,470 9
Sales figures in COP$ millions. Source: Colombia’s Business Bureau.
Eastern Cuisine. According to Euromonitor, by late 2010, 873 Colombian restaurants speciali-
tC
zed in Eastern cuisine, raking in nearly USD$ 500 million a year in sales.2 Despite an Asian coo-
king boom that started in 2009 and translated into numerous restaurant openings, this segment’s
growth rate had been low as compared to overall industry figures: Eastern restaurants recorded
a 5.4% CAGR in 2005-2010, while full-service restaurants’ GACR stood at 17.4%.
Wok competed head to head with restaurants that had no more than two stores and specialized in
some sort of Asian food. Worth mentioning among these were Watakushi, famous for its quality
No
Japanese cuisine, and China Club, which focused on Chinese dishes. However, two other restau-
rants served, like Wok, food from several Asian countries, offering dishes that closely resembled
Wok’s menu. Teriyaki started in 1999 and by 2012 operated four restaurants in Bogota and one
in the city of Cartagena. Founded in 2000, Osaki was owned by Grupo Takami, a holding featu-
ring six restaurants in Bogota. Osaki’s and Teriyaki’s restaurants were located a few blocks away
from Wok’s, as shown in Exhibit 5.
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1
According to the EuroMonitor classification, full-service restaurants are those within which customers can be served their meal at
the table, receive waiter/waitress services, and a typically pay at the end of the meal. They are focused mainly on dishes rather than
drink preparation. Full service restaurants offer higher quality food than fast-food establishments.
p. 14 2
Col$ COP $929 billion annually. US$-Col exchange rate: US$ 1= 1,900./ year. USD/COP: $1.900.
Exhibit 2: Company
financial data
t
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Exhibits’ Balance sheet
Section
2010 2011 2012
rP
Cash 10 12 16
Banks 586 439 743
CD 952 1,524 1,856
Investments 1.0 13.4 -
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Accounts Receivable 974.0 1,093.7 978.8
Inventories 518.0 692.7 729.3
Deferred 160.7 36.1 96.1
Total current assets 3,201 3,811 4,420
Property, plant & equipment 2,233 2,935 4,365

op
Intangible assets 1.5 - 59
Property, plant & equipment appraisal 605 2,130 2,128
Total non-current assets 2,839 5,064 6,553
TOTAL ASSETS 6,040 8,875 10,973

tC
Short-term financial liabilities 158 258 519
Suppliers 1,637 1,876 1,855
Accounts payable 397 408 493
Taxes 930 1,229 1,712
Labor liabilities 553 672 812

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Other accounts payable 158 186 221
Total current liabilities 3,833 4,629 5,613
TOTAL LIABILITIES 3,833 4,629 5,613
Capital stock 400 400 400
Reserves 143 200 506

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Equity appraisal reserves 169 153 153
Fiscal year results 581 1,331 2,013
Previous years results 310 34 159
Appraisal surplus 605 2,130 2,130
TOTAL EQUITY 2,207 4,247 5,360

p. 15
t
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Exhibits’ Income Statement
Section
rP
2010 2011 2012
Operating income 27,991 33,470 39,999
Cost of sales 12,507 14,862 16,800
Gross profit 15,484 18,608 23,199

Administrative expenses 1,564 1,969 2,461
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Selling expenses 12,255 13,864 17,006
Operating profit 1,665 2,775 3,732
Non-operating income 212 212 242
Non-operating expenses 1,014 1,248 1,205

op
Income before taxes 864 1,740 2,769
Taxes 283 409 755

Net income 581 1,331 2,013
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No
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p. 16
Exhibit 3: Price-quality ratio at
leading Asian cuisine restaurants
t
–illustrative dishes
os
Exhibits’
Section
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Price
Price
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Quality Quality
tC Price
Price
No
Quality Quality
Prices are quoted in COP$, based on an analysis made by the case writers with menu prices as of
May 2012. Quality scores have been drawn from qualitative assessments based on the opinions
of experts, who awarded Wok the 2011 La Barra prize to the best casual food restaurant.
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p. 17
Exhibit 4: Map of Colombia: Wok’s
major suppliers
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os
Exhibits’
Section
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op
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No
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p. 18
Exhibit 5: Map of Bogotá:
Stores owned by Wok, Osaki and
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Teriyaki
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Exhibits’
Section
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op
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No
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p. 19
Exhibit 6: Approximate cost structure
of sushi serving
t
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Exhibits’
Section
Price per kilogram COP100,000
rP
Serving grams (8 pieces) COP100
Serving price COP20,000
Fish cost per serving COP10,000
Other variable costs COP3,000
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Gross profit COP7,000
Gross margin 35%
These figures are based on imported tuna prices, used before Wok switched to its local sourcing
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scheme. (Elaborated by the case writers, based on data provided by the company).
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No
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p. 20

Wok - A Sustainable Chain?

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Wok - A Sustainable Chain?

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Case: AN0003

WOK’S EARLY YEARS

FOOD, INGREDIENTS, SUPPLIERS

WOK’S TRADITIONAL SUPPLIERS POLICY

A LEAP FOR WOK’S CORE BUSINESS: TRADITIONAL

brought a turning point in their relationship.

Table 1. Full-service restaurants’ segment sales leaders

Crepes & Waffles 137,862 153,964 171,183 62

Andrés Carne de Res 44,671 63,822 68,383 3

Archie’s Pizza 39,488 41,239 48,757 32

Sales figures in COP$ millions. Source: Colombia’s Business Bureau.

Banks 586 439 743

CD 952 1,524 1,856

Investments 1.0 13.4 -

Inventories 518.0 692.7 729.3

Deferred 160.7 36.1 96.1

Total current assets 3,201 3,811 4,420

Property, plant & equipment 2,233 2,935 4,365

Property, plant & equipment appraisal 605 2,130 2,128

Total non-current assets 2,839 5,064 6,553

TOTAL ASSETS 6,040 8,875 10,973

Short-term financial liabilities 158 258 519

Suppliers 1,637 1,876 1,855

Accounts payable 397 408 493

Taxes 930 1,229 1,712

Labor liabilities 553 672 812

Other accounts payable 158 186 221

Total current liabilities 3,833 4,629 5,613

TOTAL LIABILITIES 3,833 4,629 5,613

Capital stock 400 400 400

Reserves 143 200 506

Equity appraisal reserves 169 153 153

Fiscal year results 581 1,331 2,013

Previous years results 310 34 159

Appraisal surplus 605 2,130 2,130

TOTAL EQUITY 2,207 4,247 5,360

Operating income 27,991 33,470 39,999

Cost of sales 12,507 14,862 16,800

Gross profit 15,484 18,608 23,199

Operating profit 1,665 2,775 3,732

Non-operating income 212 212 242

Non-operating expenses 1,014 1,248 1,205

Taxes 283 409 755

Serving price COP20,000

Fish cost per serving COP10,000

Other variable costs COP3,000

Gross margin 35%

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