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THE INTERVIEW

Civil engineer Simon Wong built a small family restaurant business into a HK$1 billion company

Simon Wong and Karen Chan are the new force behind family businesses that are competing for the appetites and wallets of HK consumers

PUBLISHED : Friday, 24 January, 2014, 11:48am
UPDATED : Saturday, 25 January, 2014, 5:14am

Simon Wong Kit-lung is an executive director of restaurant management firm LHGroup. Under his management, the company has grown to 30 restaurants, including Banqueting House and Gyu-Kaku, and has more than HK$1 billion in annual turnover. Wong is the son of one of the company's founders. Below are excerpts from his interview with the South China Morning Post.

 

You are a civil engineer by background. Why did you decide to join the family restaurant business?

I have restaurant DNA in my blood. Growing up, I ate more dumplings than rice. But obviously when I came back [from working as an engineer on the mainland], I was not going to give up 10 years in engineering to be a small cat under my father.

Before I joined them, I asked the older generation if they wanted to continue in the food and beverage business. They had made money and could earn enough from rental income without needing to work. But they told me they loved food, and they wanted to continue.

I told them we needed to have a revolution, and it would be a painful process, and they supported me. This was important, as I defined what I wanted to do from the very start. I had very clear expectations that I would change the company.

 

What have been the major changes in Hong Kong's dining culture in recent decades?

When I was young, we only had Chinese restaurants. The first Lucky House seafood restaurant (an LHGroup brand) in 1986 had a sushi bar with a Japanese chef. At that time, going to a Japanese restaurant was like a dream.

In 2008, I started Kabushikigaisha (an umbrella group of Japanese restaurants), and then we franchised Gyu-Kaku. We now have eight branches in Hong Kong. I also started MouMouClub, a shabu-shabu all-you-can-eat buffet. These are now market leaders. I also started the Banqueting House.

In the past 10 years, the whole culture has completely changed. With websites like OpenRice, the industry has become more professional and specialised. Now when you want Shanghai noodles, a brand name will pop up in your mind.

Our clients are also more demanding. People travel a lot more and have tasted the real local food. They know what it looks and tastes like.

 

How have your costs changed, and has the introduction of the minimum wage had an impact?

Higher-level staff wages have not increased much. Restaurant manager wages have increased 20 per cent over five years. With junior level staff, the rate is much greater. Five years ago, at our Japanese restaurants, a dishwasher got HK$7,000 a month. Now they get HK$16,500. A waitress would get HK$9,000. Now they get HK$11,000. A chef would get HK$9,000, and now, [they start at] HK$13,000.

I must emphasise that you can't blame the minimum wage too much. I think quantitative easing in the US made the Hong Kong dollar very cheap, and the investment level in Hong Kong has been very high. We created a lot of jobs and do not have the labour to fill the jobs, so logically salaries must go up.

With the minimum wage, you can now find easier jobs that pay well. For example, security guards, before the minimum wage, would earn only HK$5,000. Now you can get HK$10,000 or more. It is a good choice, compared with standing and working in a restaurant.

 

With increasing costs, why is opening a restaurant still a popular business?

Many people think it is a good business as you don't need to chase clients for payment, or people think they can cook better than the chef or provide better service.

Opening a restaurant business is completely different from cooking at home. In the 1990s, it took six months to get back your investment capital. Now, it takes three to four years. According to government statistics, 40 per cent of restaurants are losing money.

I have friends who say that when they retire, their dream is to open a small café to serve friends. In reality, this is such a difficult industry that many dreams become nightmares after six months.

You have to handle a lot of people. They work long hours, and the business is a live business. There is no quality control to ensure a bad quality product does not go out. One bad word from a staff member can destroy a brand you have worked on for years.

 

What can you tell about the economy from people's eating habits?

In the past, we joked that when the [stock market's] Hang Seng [Index] went up, so did our sales. Recently, the very high inflation and increase in residential rent have reduced consumption. People are spending less on average.

Our own prices have increased on average 5 per cent each year, more or less in line with inflation. Our rental costs are 10 to 15 per cent of sales. This year, there is more space to negotiate with landlords. Two or three years ago, there was no negotiation, especially in popular areas such as Causeway Bay or Tsim Sha Tsui.

Our labour costs are easily 30 per cent of sales.

With our restaurants, we have separate marketing and operating teams for each brand. We don't want the Chinese restaurant team running a Japanese brand, even when we have two restaurants next to each other. This is one of the reasons we are running smoothly at the moment.

 

What plans do you have for expansion in the years ahead, and will you enter the mainland market?

Twenty years ago, we had three restaurants in Guangzhou, but they were closed down. Now, given the effort required to open a restaurant on the mainland, I do not think it is a wise idea or productive use of time.

Food and beverage on the mainland is not easy. Food safety is an issue, as is the quality of products being used. I personally cannot see how I can ensure through the procurement process that everything going into my shop is good quality, and I do not have time myself to live on the mainland. If I have a brand with an easy operation model, then I might consider it.

A good restaurant there has higher margins, and if you have a brand related to Hong Kong, you can charge more. Look at Tsui Wah, they are just a cha chaan teng, but on the mainland they represent Hong Kong food, and they are very successful.

For now, we will focus on Hong Kong. The next two years, I anticipate a fast growing market. This year, we hope to open five to 10 new restaurants. We are looking to work with some new Japanese chains to bring new brand concepts to Hong Kong.

We are also using some of our profits to buy our own real estate. I think it is wise to buy property to counter the rises in rent. At the moment, all 30 of our restaurants are on rented premises.

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