Fairwood plots mainland growth

PUBLISHED : Monday, 20 August, 2007, 12:00am
UPDATED : Monday, 20 August, 2007, 12:00am

Fairwood Holdings is joining fast-food rival Cafe de Coral in accelerating expansion in the mainland, tempted by lower labour costs and surging economic growth.

Fairwood, which is opening new stores in the Pearl River Delta, plans to boost the number of mainland outlets fourfold to 40 in three years and open restaurants in Beijing. The plan came as the company's stores in Guangzhou recorded 'better than expected' sales, according to chairman Dennis Lo Hoi-yeung.

Mr Lo said Fairwood's 10 outlets in Shenzhen and Guangzhou mainly attracted Hong Kong customers visiting the mainland and it wanted to tap more local customers.

He said profitability in the mainland was higher than Hong Kong as it had much lower labour costs. Gross profit margin at its mainland operations was 12 per cent compared with 7 per cent in Hong Kong.

Fairwood's mainland rush coincides with Cafe de Coral's plan to double the number of outlets to 200 in five years. Cafe de Coral, the world's biggest Chinese fast-food restaurant chain, will focus on expanding its network in Guangzhou, Shenzhen and Shanghai, according to chairman Michael Chan Yue-kwong.

'Fairwood and Cafe de Coral will compete in the Pearl River Delta, but their main competitors will be local restaurant chains that are also expanding aggressively,' said an analyst.

Mr Lo said Fairwood, which has an outlet inside a Wal-Mart store in Beijing, was finalising plans to open a 7,000 square foot outlet in a shopping centre in the capital early next year. He said Fairwood's expansion strategy would focus on southern and northern regions.

Fairwood posted a 45.6 per cent increase in earnings from its core business to HK$84.7 million for the year ended March. The results were bolstered by a three-year store and menu revamp leading to a 22.1 per cent gain in sales to HK$1.2 billion.

The mainland accounted for 10 per cent of operating profit last year.

Between April and June, Fairwood's same store sales on the mainland grew 15 per cent compared with about 7 per cent in Hong Kong. However, Mr Lo warned that margins would be under pressure as pork prices on the mainland had surged.

'We will raise product prices by 10 per cent to offset increases in raw material costs, but the profit margins may be lower than before,' he said.

Mr Lo said the company planned to spend up to HK$30 million to buy a food-processing factory in the mainland to support the expansion and replace its Hong Kong factory in Tsuen Wan.