Fairwood says prices have to rise
Fast-food chain Fairwood Holdings says it will raise prices and step up automation to offset higher costs caused by inflation and the minimum wage legislation.
The company saw its shares surge as much as 22 per cent yesterday after it reported net profit growth of 43.4 per cent to HK$70.7 million for the six months to September. Turnover was HK$811.1 million, up 4.4 per cent compared with the same period last year, thanks to higher average spending and better customer traffic.
Despite expressing optimism about the outlook for next year, the fast-food chain admitted it was under mounting pressure from surging food costs, rising rent and the minimum wage legislation.
Chief executive Raymond Chan Chee-shing said food and rent costs increased nearly 10 per cent over the past six months and might jump another 20 per cent to 30 per cent over the next half-year. The company also faced a sharp rise in labour costs as a result of the introduction of a wage floor rate of HK$28 per hour from next May.
Chan expected labour costs to climb to 23 per cent of total costs next year from the current 21 per cent and profit margins to be dragged down to 4.8 per cent from 6.8 per cent currently.
'We will raise the menu price by another 2 per cent to 3 per cent,' he said.
Rival Cafe de Coral, the largest fast-food chain in the city, recently came in for criticism for cancelling the paid lunch break enjoyed by its staff after offering them a pay increase to meet the wage requirement.
Fairwood said around 4 per cent of its 1,000-plus employees would receive a pay increase in accordance with the wage requirement.
'For this moment, we do not have any plan to change our staff's working hours and lunch break arrangements,' Chan said.
The company offered a 3 per cent to 5 per cent pay increase to employees in the first half of this financial year and a similar percentage pay rise is expected in the second half, Chan added.
Aside from raising menu prices, Fairwood will also step up automation and streamline processes in its restaurants and central food processing plant to cut costs and enhance productivity. The chain will also offer international cuisine to attract more affluent consumers.
Fairwood operates 95 fast-food outlets in Hong Kong and 16 on the mainland. The profit from its Hong Kong restaurants reached HK$54.47 million while the mainland outlets contributed HK$9.82 million for the reported period.
It plans to open eight to 10 restaurants in Hong Kong and five to six restaurants across the border during this financial year.
The company proposed an interim dividend of 20 HK cents and a special dividend of 8 HK cents per share for the period.
Its share price closed yesterday at HK$11.26, up 11.49 per cent.
