22 October 2018
Café de Coral has faced headwinds in some markets in mainland China, leading to several store closures. Photo: Reuters
Café de Coral has faced headwinds in some markets in mainland China, leading to several store closures. Photo: Reuters

Café de Coral suffers temporary pain amid growing competition

Café de Coral, Hong Kong’s biggest fast-food restaurant group, has seen its share price tumble to a 52-week low. The company has suffered a setback in mainland China expansion, prompting several store closures there. Elsewhere, it is facing intensified competition in the mass-market business.

Fortunately, the restaurant chain has already come up with a multi-brand strategy, which should enable it to win in the long run. But in the meantime, the casual dining empire would suffer some pain as it tries to reinvent itself.

Café de Coral’s share price has lost 14 percent over the last twelve months, against a 31 percent gain in Hong Kong’s benchmark Hang Seng Index. Despite being a household name in the city, the company currently has a market value of only about HK$13 billion.

For the year ended March 2017, Café de Coral saw its net profit decline 2.7 percent to HK$504 million, while revenue rose 4.3 percent to HK$7.895 billion. In the previous fiscal year, the fast-food chain posted an 11.7 percent fall in net profit.

The company announced last month that it is closing all its eastern China stores to “put a focus on the southern China market”.

Café de Coral, which was founded in Hong Kong in 1968, opened its first store in mainland China in 1992. The company positioned itself as a medium-range eatery and achieved big success in the early days. In particular, the brand performed quite well in southern China, where customers are more familiar with its name.

The company, however, encountered a setback in expanding into eastern and northern China. The fast-food chain needed to make big adjustments in the menu to cater to local tastes in northern China. In addition, customers were less familiar with the brand in those regions and the firm’s pricing strategy also made the outlets less appealing.

After closing its eastern China stores, Café de Coral will have almost all of its remaining 90 mainland restaurants getting concentrated in the southern parts of the country.

Nowadays, many shopping mall operators are allocating more space to food & beverage outlets in order to boost traffic in the malls, as traditional retailers have been hurt by e-commerce. Many of these restaurants offer attractive prices in order to lure customers, and are competing with head-to-head with the fast-food chains.

Café de Coral now owns a wide range of restaurant brands such as Super Sandwiches, Super Super Congee & Noodle, Mixian Sense, Shanghai Lao Lao, etc. That enables the firm to expand its market share in various market segments. Also, the group has an advantage in scale, offering benefits when it comes to procurement, as well as established professional management.

To improve its prospects in China, the restaurant chain should place various bets on the market with a multi-brand strategy. It can achieve great success if one or two brands become really popular on the mainland.

This article appeared in the Hong Kong Economic Journal on Nov 20

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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