SHERPA'S LONG CLIMB
Mark Secchia talks about his Shanghai delivery service
From CHINA INTERNATIONAL BUSINESS January 2010 Print & Web Edition
By Mina Choi
Sherpa's HQ on the Puxi side of Shanghai — with 100-plus staff — is humming along at its usual pitch of organized chaos as founder Mark Secchia gives a visitor a tour. "Here is the new-staff training department, where everyone who works at the call center gets three months of English training," he explains. "Here's marketing," he continues, "they're responsible for getting new restaurants signed up; here is ODD, the Order and Dispatch Department. It's quiet now because it's only 3pm, but by 8pm they'll be taking an order every fifteen seconds." Once orders are taken, it's then up to the company's 140-plus couriers, whizzing around the city on scooters in their bright orange and black uniforms, to maintain Sherpa's Delivery Service's reputation for prompt and efficient restaurant delivery.
Sherpa's began as part of Secchia's course work for an MBA degree at China Europe International Business School (CEIBS) in 1999. An American from Michigan, Secchia landed in Shanghai in 1996 and bounced around doing odd jobs like teaching English and working for magazines, before deciding to get serious and get his MBA degree. Halfway through his coursework at CEIBS, Secchia presented a business plan for a delivery service in Shanghai that would make it easy for non-Chinese speakers to order food and have it delivered. The concept was simple: the service would handle and execute all the phone orders for the restaurants and distribute their menus in exchange for a cut of the restaurants' total bill. In addition, there would be a minimum delivery charge.
Now almost ten years later, Sherpa's is a thriving business in Shanghai,
with almost no rivals – at least with the non-Chinese-speaking
market. In 2009, Sherpa's had nearly USD 7 million in revenues. Nearly
300,000 copies of their menu book, which started as a simple pamphlet,
are distributed around Shanghai, and the company has since expanded
to other cities, namely Suzhou, Hangzhou, and most recently Beijing.
The company will shortly be launching a website, with a separate team
to handle orders placed through there. Though the restaurant menus will
be available on the site, Secchia will keep printing the menu booklets.
"We may stop printing the books some day," he says, "but
for now they are the main source of our sales, so we are keeping them."
THE "LIGHT BULB" MOMENT
The idea for the service came to Secchia one night when he and his girlfriend, both then working in Shanghai, felt too tired to go out. They decided to telephone Lan Na Thai for delivery. The trendy restaurant, located in the stately Ruijin Guest House, told them it was not possible. However, the cheerful waitress who answered the phone confided that they often got callers requesting delivery. Suddenly, a light bulb went off inside Secchia's head: "what if?" The idea kept simmering until it became a business plan that Secchia submitted as part of the class work for his MBA degree. The idea also excited two of his classmates, Stephen Sun and Benny Ji.
While everyone else in their MBA class did an internship with an established company, Secchia, Sun and Ji decided to combine forces to launch Sherpa's to fulfill their program's requirement for practical business experience. With USD 50,000 in loans from family and friends, Sherpa's Delivery Service Company officially incorporated a few months later, at the end of 1999.
The company name was inspired by a small domestic squabble Secchia
had with his girlfriend, now his wife. While in Guam on holiday, she
asked him to carry one too many bags for her and Secchia snapped: "What
am I, your sherpa?" The name stuck in his head, just like the delivery
A ROUGH RIDE
The 36-year-old Secchia admits it hasn't been easy to take a whimsical idea and turn it into a profitable business. Though the concept for Sherpa's was sound, customers and restaurants took a long time to warm up to it. "There were no sales," Secchia says, recalling the early days. So he had to take on other jobs to tide himself over, working as marketing manager for English language magazine City Weekend and even running a plastics mold export business which "crashed because of raw materials pricing."
"I thought of closing it down at least two or three times," the 36-year-old says. When asked how close he came to giving up, Secchia just says, "We pay all our restaurants the following month, so we were always cash-flow positive, but we were losing money every month." Not only that, he had daily nightmares about not being able to pay his staff. "I gained a lot of weight and my hair fell out."
However, by 2001 Sherpa's finally started breaking even, with revenue
growing 20% month-on-month. And by 2003, around the time of SARS —
when people preferred eating at home to crowded places — the company
finally turned profitable. Secchia attributes the upturn in the business
to the steady increase in the number of foreigners in Shanghai over
the last ten years. "Our customer base might have been something
like 30,000 ten years ago. Now it's more like 300,000. And we're a business
that's dependent on heavy volumes."
Convincing restaurants to sign up was initially difficult. He says Chinese restaurants were particularly difficult because they were afraid the company would not pay them. Secchia recalls one experience of trying to advance money to one Chinese restaurant to win their trust. "The manager took the RMB 5,000 (USD 732.5) I handed over and we never heard from them again. I certainly won't make that mistake again." Sherpa's commission charge for a single delivery ranges from 15% to 33% of the total restaurant bill, though Secchia says the latter number "is really to scare off the restaurants that do less than RMB 2,000 of business with us every month. Most restaurants fall in the 15-17% scale." Do some of the restaurants balk at his commission rate and start their own delivery service? "Some do. And I always encourage them to do their own deliveries because they find out soon enough how difficult it is. They don't have the scale. They can't have guys sitting around doing nothing for hours or suddenly take on ten deliveries in an hour. Most of them try it out and come back to using us."
Feng Jianwen, owner of the Yunnan restaurant Southern Barbarian in Shanghai, is a big fan of Sherpa's. Feng signed up with them over a year ago and estimates that about 15% of his business is now done through the delivery company. He says what he likes most about them is that it makes his business "weather-proof." Feng says that while normally 15% of their business comes through the delivery service, "on a rainy night, Sherpa's is 50% of our business."
Secchia, who can effortlessly switch between English and Mandarin,
takes a completely hands-on approach to recruiting restaurants into
the Sherpa's fold. "We call them, we tell them how to lay out their
menus, and we translate the items into recognizable English," he
says. In a turn-about from the early days, Secchia says that now most
of their new restaurants approach him.
These days, about 90% of the restaurants in Sherpa's menu books are Western, but menu entries are in both Chinese and English. As for the customers, they tend to be a diverse group. "I can't say whether they are foreigners using Chinese names, or overseas Chinese, or locals who have been abroad. Our customers are people who have that Western sensibility, who like the fact that our staff can speak English. I wouldn't necessarily call them foreigners," says Secchia. A casual glance at Sherpa's customer list shows many Chinese names. "We're catering to people with an American attitude: ‘save me time and I'll give you money'," he adds. "For a lot of the Chinese, a meal is more process-oriented – going to the wet market and cooking."
NO EXPERIENCE REQUIRED
Secchia has developed an unusual strategy for staff retention and courier recruitment. "We only take people with no job experience," he says. "This way we can train them from scratch." As for couriers, he only hires those recommended by other couriers.
It's never a problem recruiting new ones because he says couriers can easily take home RMB 4,000 a month – "twice what they'd make as unskilled laborers in a factory." The couriers get more than half of the RMB 15 delivery fee Sherpa's charges for each order, plus a salary. And Secchia says he often hosts outings for the Sherpa's team, such as ski trips, pirate boat excursions and paintball. The requirements for the couriers are that they look presentable, have good manners, and have their own liquid propane gas-fueled mopeds. Asked about Sherpa's retention policy, Secchia frowns and says, "It's not a problem for us because there's nothing else you can do after you leave here. You can't really work for the competition."
Besides commissions and delivery fees, Sherpa's also has a few other revenue streams, such as ads in their widely-distributed menu book. In addition, Sherpa's sells drinks directly to customers. But Secchia says it's not a huge money-maker. "The margin is higher on the drinks but it's one or two RMB and the courier has to stop off at the local convenience store to pick it up," he explains. Secchia's philosophy for Sherpa's is that they should concentrate on what they do best – take orders and deliver on time. "I never want to become a marketing company; we want to focus on the dirty, nasty details of the delivery business."
There are cost-saving strategies as well. "When our courier is
done with his delivery, he calls us at this number to let us know that
he's finished his order, but we never pick up the phone so it doesn't
cost him," Secchia confides. And the IT department is in charge
of what Secchia describes as "very complicated" formulas for
dispatching couriers and their goal of trying to shave a minute off
the target delivery time. This past Halloween night, Sherpa's Shanghai
completed nearly 1,000 deliveries.
Secchia wants to continue expanding the business to other cities. The company has been operating in Hangzhou for two years, and acquired another delivery service in Suzhou to expand there. They are currently setting up shop in Beijing, where they have had to deal with a host of different issues – including the vast distances and the different mode of transportation. "In Shanghai, you can't beat a moped," Secchia says. However, in Beijing the couriers will have to use electric bicycles – no contest against a car.
Nonetheless, for Secchia, it seems most of the worries are now behind him. In 2009 Sherpa's business grew 60% from the previous year, and with more than 500 people in his employ, Secchia is feeling gung-ho about the future.
Some time ago Secchia went home to Michigan and talked to his parents
and relatives. He couldn't resist taking a dig: "Remember that
money you lent me ten years ago? You could have given it as a loan or
taken a share in the company. If you had taken the shares, it would
have had a much better return."
For a complete list of Business Articles by Mina Choi click HERE