My favorite eating place is getting listed, but wait...

March 04, 2016 15:30
Classified Group is biting off more than it can chew by the timing of its planned listing. Photos: HKEJ, Classified Group

You will like the food but I'm not sure you will like the stock.

I'm referring to Classified Group, whose siblings include Wan Chai landmarks The Pawn and SML and The Fat Pig restaurant in Causeway Bay.

They're part of Press Room Group owned by second-generation tycoons Alan Lo and Paulo Pong.

Lo is a son of Gold Peak (00040.HK) chairman Victor Lo and Pong is a son-in-law of New World Development (00017.HK) chief Henry Cheng.

Classified Group (not to be confused with SCMP's Classified Post) is planning to list on Hong Kong's Growth Enterprise Market as soon as June, according to the Hong Kong Economic Journal.

Now for some disclosure: Like many expats and local professionals, I am a fan of Classified Group. I like the food.

Its unlisted parent likes to say that the group serves only the very best food and offers the utmost dining experience which "celebrates the arts, culture and history in a casual setting".

I need no convincing but I had to mention it because of what I'm going to say next.

Classified Group is biting off more than it can chew by the timing of its planned listing.

It comes at a time when Hong Kong is suffering from declining tourist arrivals and lackluster consumption.

Sure, falling rents -- rental is the biggest cost component of most Hong Kong businesses -- might help shore up the bottom line but you still need customers to bring in revenue.

Most Hong Kong restaurants work for their landlords but the phenomenon exists across the board.

So Classified Group's situation is not unique. In fact, the pain of diminishing tourism revenue is being felt in the whole body corporate.

Fortunately, Classified's mass market position protects it from the furious re-branding that is taking place in many establishments.

It neither gets stung by their astronomical rent or gets booted by the landlord as happened to Dan Ryan's, a venerable restaurant in Pacific Place, and may be soon Grappa's, another Hong Kong icon.

Swire Properties Ltd. (01972.HK), which owns Pacific Place, has been picking off tenants that don't fit its new brand profile.

Apparently, being a longstanding tenant (Swire calls them partners) does not count. If you're not an ideal fit, you're out.

Many restaurant franchises from Tsui Wah to Fook Lam Moon are listed companies. But not many serve western food, so their earning potential is rather limited.

The upscale Admiralty outlet Ruth’s Chris Steakhouse, the largest listed steakhouse in the United States, has been having the best run.

The share price of the US giant is up 250 percent over the past five years.

Food is one of the most competitive markets in Hong Kong and everywhere else.

Even McDonald's has closed several shops in recent years while many hotpot restaurants need to constantly reinvent themselves in order to survive.

It's doubtful Classified will be as much a hit to investors as a stock as it is as a restaurant.

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EJ Insight writer