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Food & Drinks

Opening a Hong Kong restaurant? Why rent isn’t your biggest worry – here’s what you need to know

With one cafe or restaurant for every 600 residents, Hong Kong has more per capita than most cities. So the biggest challenge, once you’ve dealt with licensing, contractors, renovation and hiring, is whether diners will come

PUBLISHED : Saturday, 24 March, 2018, 5:17pm
UPDATED : Monday, 26 March, 2018, 10:35am

Landlords are often blamed for putting Hong Kong restaurants out of business by doubling their rent, but it’s not as common a story as we may believe, restaurateurs say.

“The three biggest costs are fairly standard – food, salaries and rent. Of these, rent is the most ­stable and predictable, because many restaurant operators ­negotiate long-term leases of five to 10 years,” says Christopher Mark, co-founder of Black Sheep Restaurants.

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Nevertheless, ask an established Hong Kong restaurateur for advice about venturing into the business and you will quite possibly be told: “Don’t!” That is because setting up a food and beverage outlet in the city is an arduous, patience-testing journey. With one outlet for every 600 residents, Hong Kong has one of the highest concentrations of cafes and restaurants in the world.

Christian Talpo, founder of Pirata Group – responsible for new favourites such as TokyoLima in Central and Pici in Wan Chai, as well as nearby Pirata and The Optimist – says anyone considering getting into the trade should first decide whether they truly want to take the plunge and have the resolve to see it through.

“I personally tried to open four or five restaurants before I even got to Pirata,” he says.

Talpo and his business partner, Manuel Palacio, say they have lost great chefs, spaces and investors trying to get restaurants up and running. Twice, landlords have signed contracts with other parties one hour before Talpo walked in with a cheque.

Another time, they walked away from a site after disagreeing about the suitability of the venue. Days later, Palacio was covertly approached by investors to go ahead with the project without Talpo. Loyal to his business partner, Palacio declined.

On another occasion, after putting down a one-month deposit on a space in Star Street, Wan Chai, the duo’s licence consultant informed them that the site was unsuitable for licensing and the pair lost their deposit.

You have to be very real with yourself about what you’re able to achieve with the resources you have available, and then remain very flexible to make it happen
Manuel Palacio

Other restaurateurs have similar stories.

If these are not a deterrent, the first step in the journey is to set up a company and get a Certificate of Incorporation from the Hong Kong Companies Registry, they say. This should be done as soon as possible, because it can take at least three months just to open a bank account in Hong Kong.

The next essential step – if it hasn’t already been done – is to create a highly detailed business plan, says Lindsay Jang, the restaurateur behind Ronin and cult favourite Yardbird, to determine specific next steps.

“A good business plan will help you navigate: how much capital you need to raise; how long it will take you to pay back your initial investment; what volume of business you need to do to be profitable, and if it’s even worth doing based on known costs,” she says.

“If the projected [profit and loss projection] makes sense, start looking for space and raising money,” Jang adds. She strongly recommends hiring “a good lawyer to guide you through the lease and fundraising process”.

Palacio says flexibility is crucial. Italian restaurant Pirata, envisioned as a ground-floor location in Central district, ended up on the top floor of an anonymous commercial building in Wan Chai.

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“You have to be very real with yourself about what you’re able to achieve with the resources you have available, and then remain very flexible to make it happen with these resources,” he says. “It’s taken four years and six restaurants to be sitting in Pici Central, which is the site we originally wanted for Pirata in 2014.”

Jonathan Bui says a reputable food licence consultant is essential. If he hadn’t hired one, he might not otherwise not have known, for example, that Chinese restaurant operations typically use much more electricity and gas than Western restaurants.

Bui is the co-founder and managing director of Buick Management, which owns Pak Loh Chiu Chow – a popular chain of Chiu Chow restaurants in business for more than 50 years in Hong Kong.

Restaurants, without a team who bring it life, are nothing but walls and chairs.
Lindsay Jang

“There are areas where specialists are needed for aspects that many people don’t think of. For example, you need a ventilation consultant to check if the water can chill to a low enough temperature to produce the right amount of air conditioning for the restaurant, and to evaluate how much air flow/pressure is needed for the kitchen and dining area,” Bui says.

It’s only when these details have been resolved that the restaurant can begin to take physical form. This starts with “bids from general contractors, interior designers, kitchen contractors, etc”, says Jang. “Consider hiring a project manager if you’ve never executed a build-out before.”

The licence consultant usually deals with the more bureaucratic aspects of approval – such as licensing, hygiene, fire and safety. This process is fairly straightforward if the criteria are met, the Pirata Group founders say.

“It’s not like in Europe, where you’re sometimes catering to the whims of whoever your consultant is each time. In Hong Kong, they are fair, and they mostly abide by the rules,” Palacio says.

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The starting point is a General Restaurant License, obtained from the Food and Environmental Hygiene Department. Other licences may be required if the restaurant will serve liquor on site, or use an open area for alfresco dining. Even some preparations for bakery products, for example, require separate licensing.

When it’s time to turn the empty shell you’ve inherited into your dream restaurant, Biu says an interior designer will typically need two to three months to get the job done, from taking measurements to design submission and approval from owner and landlord, a layout plan, and ordering the materials to build the space. Then it’s the turn of the contractors.

“It’s best to find a few contractors to tender for your space so you can compare the prices and to see if it is cost-efficient. It is also good to compare among contractors so you are able to get rid of unnecessary items from quotes,” Bui says.

“One main contractor, who handles coordination of the renovations, is vital to monitor the whole project and work with all other consultants to ensure a smooth transformation.”

Kitchens account for the bulk of expenses, from grills to dishwashers to cold rooms, but money can often be saved by discarding certain materials. Designers tend to pick the most expensive marble, for example, which isn’t always necessary.

Items that are ethically sourced also come at an extra cost, but are increasingly in demand among some diners.

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“Then it becomes a big race,” says Palacio, alluding to the rent-free grace period most landlords allow new tenants (standard for most commercial real estate deals in Hong Kong, rent-free periods can last anywhere between one month and one year).

“Once you’ve signed on the dotted line for the site, you have to move as quickly as possible to get everything designed, built and approved. If you’re not open by the time the grace period ends, then you’re losing money – fast.”

Then comes what is arguably the most important part: forming your team. “This is the hardest component of opening a restaurant in Hong Kong,” says Jang, who suggests spending two to three weeks training staff before the opening.

The pair behind Pirata Group agree, with Palacio declaring finding staff to be “the most difficult and rewarding part of opening a restaurant”.

“Restaurants, without a team who bring it life, are nothing but walls and chairs. Chefs, wait staff, hosts, bartenders – these people are the restaurant,” he says.

Due diligence when it comes to hiring, in terms of ensuring the vision of those being hired aligns with the core values of the business, is key to a spirit of family and trust, says Bui.

Then spread the word, through a public relations agency, social media marketing, word-of-mouth communities, influencers, and so on.

Jang’s memories of opening involve more frenetic activity than stress. “Usually we’re too busy to be stressed out about the opening. We spend the adequate amount of time preparing, training, tasting and practising, so we’re ready when we open the doors. We never open before we’re ready,” she says.

Bui says that opening the doors is easily the most exciting moment, but also the point where you brace yourself for the challenge.

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“There are no promises that your business will succeed. It’s exactly the same as in life, and every time all you can do is the best you can to make a project work.”

Or as Palacio says: “Then you say your prayers and hope people will come.”