It has often been said that the fast-food business was recession-proof – no matter how bad the economy was, people still needed to eat, although many probably ate cheaper, or less.
That appears to be true for Fairwood Holdings, a star fast-food chain stock in Hong Kong, which has reported its first interim profit decline for the first time in 10 years.
Fairwood reported a 14% fall in profit to HK$117.1 million (US$14.96 million) for the six months ended on September 30. Turnover, however, surged 4.8% to HK$1.47 billion.
The fast-food chain with 138 outlets in Hong Kong had been able to grow its profit since the financial tsunami a decade ago, but the disappointing result hinted that the company was unable to control its operating costs despite a growing top line. Shares in Fairwood fell as much as 8.8% on Tuesday from its one-month peak.
The company’s management said its same-store sales were dragged down by renovation work in six restaurants, resulting in a profit decline. They also said it was not a good time to increase meal prices as stock and property markets remained weak.
By comparison, its bigger rival Café de Coral announced a 16.2% growth in profits to HK$239 million in the six months ended on September 30.
The chain, which has 355 outlets in Hong Kong, reported a tiny 1.7% growth in revenue to near HK$4.2 billion.
High commercial rentals – Hong Kong has regularly been rated as having some of the highest in the world – regularly took 20% of the operating expenses of restaurants, not to mention escalating food and labor costs, which surged faster than retail prices.
Fast-food and noodle players Tam Chai Yunnan Mixian and Tam Jai Sam Gor Mixian, which were both snapped up by Japan’s Toridoll last year, reported a profit of 1.8 billion yen (US$16 million) on a turnover of 11 billion yen in the six months ended om September 30.
There was no comparison figure available for the two noodle shops because it was their first year of consolidation into the Japanese company.
Although the Hong Kong fast food industry is struggling to maintain its profitability, its outlook might not be as bad as some may have thought. That is because commercial rentals are soft and that works in favor of chains like Fairwood and Café de Coral, which look to expand or renew at cheaper rents.
The poor outlook only makes them look better.