HK catering industry records profits

Major players in Hong Kong's catering industry have managed to grow their profits despite wrestling with rising operating costs. Both Fairwood Holdings Ltd and Cafe de Coral Holdings Ltd have posted a healthy profit gain in the first half.

Fairwood posted a net profit of HK$64 million ($8.26 million) for the six months ended Sept 30, 2012, up 10.3 percent from the restated HK$58.1 million a year ago, the fast food chain operator told the Hong Kong Stock Exchange on Tuesday.

Total revenue edged up by 6.9 percent to HK$972.8 million, with gross profit margin improving to 14.5 percent from the previous 13.7 percent.

The result compares with those of the city's biggest fast food restaurant operator, Cafe de Coral, which said on Monday that profit rose 16 percent to HK$221 million over the same six-month period, while total revenue also gained 8 percent to HK$3.14 billion.

Both catering services groups cited soaring raw material costs, rising rents and higher wages as challenges to the business operations in Hong Kong as well as on the mainland. At the same time, both groups expressed their support to the government's plan to lift the minimum hourly salary from HK$28 to HK$30 in the city.

Raymond Chan, chief executive officer of Fairwood, said the proposed HK$2 hourly salary increase is unlikely to bring much impact to the group, as only about 15 to 20 percent employees were affected when the minimum hourly wage was increased from HK$23 to HK$28 previously.

However, Fairwood will slow down the pace of new stores opening in both Hong Kong and mainland in the second half, as it had already opened seven new outlets in the city and mainland during this period, respectively, Chan said during a media briefing on Tuesday,

The fast food chain will also not select prime places to open new shops as the landlords in Hong Kong are raising rental prices aggressively these days, Chan added. During the first six months, Fairwood renewed leases for 19 existing shops in Hong Kong. Average rents for these stores rose about 7 to 8 percent over the previous contracts, according to Chan, who added that 10 more outlets in the second half of its financial year will also need to renew their contracts.

Cafe de Coral's Chief Financial Officer Mike Lim said Monday that the company would maintain its announced plan to open 20 outlets in Hong Kong and 30 on the mainland for the whole year, after 14 outlets in Hong Kong and 15 on the mainland were opened in the six months through September.

Linus Yip, a strategist from First Shanghai Securities, said catering services are one of the most promising sectors within the consumer goods market as they are daily necessities.

"Challenges for these fast food chains are how to control the costs, which are easily affected by rising material costs as well as government policies," Yip told China Daily in a telephone interview.