Published in the South China Morning Post May 2008
Even as the catering industry in Hong Kong continues to boom, it is being battered on all sides by rising costs. “Business is very good now but there are increases in rents, salaries, utilities, pretty much everything,” said Linda Kwan, marketing director at Igor’s Group of restaurants
Landlords have taken advantage of the current economic resurgence in Hong Kong and are demanding ever higher rents. With 37 restaurants in Hong Kong, the King Parrot Group is in the unhappy situation of facing rent increases of at least 30 to 50 per cent for all its locations as its leases continue to expire this year.
“Landlords are getting very bold and are asking for very, very high rents compared with the SARS period when they were giving discounts and cutting rates,” said Joseph Cheung, managing director of the King Parrot Group.
In addition, Mr Cheung added, many landlords were now updating their properties and expected their tenants to do the same. “They like the tenants to also upgrade, even though we have been there for years. If you want to stay in a particular location, you need to redo your restaurant so that it has a more stylish décor,” he remarked, adding that key to the restaurant business was its “location, location, location.”
“If you like the location, you have to do what the landlord wants, otherwise they will find a new operation to take over your spot. Nowadays, it is the landlord who dictates. They may even suggest name changes, changes to the décor, the menu and so on,” he continued.
“In addition to the higher rents, you also practically need to build a new restaurant. It is just like starting all over again,” Mr Cheung said.
However, more than just acceding to landlords’ whims, upgrading a restaurant is critical to its survival in Hong Kong’s very competitive market. “There are more than 10,000 licensed operators in Hong Kong. There are always new restaurants coming up for customers to try. After ten years, you need to upgrade,” Mr Cheung commented.
As costs pile up, restaurant operators need to find ways to deal with it. “Basically, food and beverage prices will have to go up by a minimum of 20 to 25 per cent, otherwise it will be very difficult to survive,” observed Ms Kwan. According to her, the biggest increases are not in salaries or rent but in commodity prices.
Sir Hudson, which manages 20 restaurant cafes in Hong Kong, on the other hand, has decided to contend with rising costs through internal controls. “For us, our strategy is more an internal one,” stated Pully Poon, general manager of operations at Sir Hudson.
“We will strengthen our back-end, implement stronger overall control and enhance group efficiencies through economies of scale which we now enjoy, but not to transfer our higher costs structure to our customers,” he declared.
According to Mr Poon, many restaurant operators have publicly stated that their profit margins this year will be less than in previous years, due to high overall costs and having to share a limited cake with many more new competitors.
Other operators, like restaurant group Tao Heung, strive to increase sales revenue by maximising operating hours. “Our branches run five sessions everyday – from the morning “yum-cha” session to the late night supper session,” explained Eric Leung, chief executive officer of Tao Heung, which operates 42 Chinese restaurants in Hong Kong.
The company also has a centralised food processing and logistics centre in Fo Tan, with another recently opened in Dongguan, which allows for some 12 per cent of the kitchen area in all its branches to be freed up for bigger and more comfortable dining areas. “Spacious and more comfortable outlets encourage better sales,” explained Mr Leung.
Marketing and promotion has become critical as restaurants compete with each other for a bigger share of the business. “We need to do more promotion to get more business any way we can,” said King Parrot’s Mr Cheung. “If you don’t reinvest in your business, the business will go somewhere else. We have to find ways to keep our customers and to attract more new customers to out restaurants. It’s non-stop,” he added.
Restaurateurs will do whatever it takes to stay in business because the outlook for the catering trade is extremely promising. “The next few years look optimistic for the food and beverage industry in Hong Kong,” predicted Igor’s Group’s Ms Kwan.
“Western-style dining and drinking have been embraced in Hong Kong and customers will demand more now in terms of quality of food, service standards as well as the ambience of a restaurant,” she added.
“The industry in Hong Kong has always been very robust, very strong. Hong Kong is the dining paradise of Asia. In the future, we continue to expect good demand and good business,” agreed Mr Cheung.
“We get 25 million tourists a year and the locals also need to dine out. Young people, especially, love to eat out all the time. The outlook is good,” he said.
Tough Job Keeping Staff
With Hong Kong’s unemployment rate currently at a ten-year low of 3.4 per cent, restaurants in the city are finding it an uphill task recruiting and keeping staff.
“Ten years ago, a lot of people were interested in working in the industry, but in the last few years, no one has been coming for interviews,” said Joseph Cheung, managing director of the King Parrot Group.
The group, which manages 37 restaurants in Hong Kong and is looking to recruit about 200 new employees this year, got a dismal response to job advertisements for staff, ranging from dishwashers to managers, which it bought in three local newspapers over the Chinese New Year period.
Only 10-12 people showed up for interviews over a four-day period, compared with three years ago when around 120 job hopefuls responded to the same advertisement, Mr Cheung revealed.
“The overall labour market is tight, beginning Q2 last year, with direct competition from Macau and mainland hospitality projects,” explained Pully Poon, general manager of operations at Sir Hudson, a 20-outlet restaurant café group in Hong Kong.
The scramble for workers within Hong Kong’s booming catering industry means that local restaurateurs are being forced to improve their human resource policies in order to secure quality employees.
“We tell new recruits that they have a future in the company,” explained Mr Cheung. According to him, King Parrot opens about three to four new restaurants every year, so “there is a lot of potential for career growth.”
In addition, the company has put in place an incentive program that rewards staff who meet business targets with payouts. King Parrot, which currently employs about 900 full-time and 200-300 part-time workers, also provides staff training, regular performance appraisals and improved benefits and competitive wages.
“The most critical reason for leaving a company is not salary,” declared Lau Lee Fong, senior general manager at The Spaghetti House. “If staff do not feel attached to the company, they will consider other opportunities,” she explained. “We believe in a teamwork, an enjoyable work environment, job satisfaction and immense prospects for our staff.”
With 25 branches in Hong Kong, three in Shenzhen and one in Guangzhou, The Spaghetti House has over 850 employees, 30 of whom have been with the company for over 15 years. “This is strong proof that they enjoy working here,” pointed out Ms Lau.
The company plans this year to open two more outlets in Hong Kong and one more in Guangzhou, and is looking to hire another 50 staff here and another 80 in Guangzhou.
Over at Tao Heung Group, a Chinese restaurant group in Hong Kong that manages 12 restaurant brands, it is pretty much the same story. CEO Eric Leung said that in order to retain staff, the company has a fair and well-structured promotion platform, offers comprehensive training and links salaries to sales revenues.
“With these policies, we hope to stress long-term career development, help our staff improve their skills and knowledge and increase staff’s morale and motivation,” Mr Leung elaborated, adding that the company attracts newcomers by offering higher salary levels for front-line staff, -generally 10 to 15 per cent higher than industry average.
Sir Hudson, too, has said that it would continue to focus on developing its talent attraction program through training and career planning this year. “It is always a big task finding good people with the right fit who match the company culture,” observed Mr Poon.