Changing courses

Amid claims the merger of the Cafe Deco Group and Chevalier Pacific has led to friction, the company says any changes result from financial decisions, writes Nan Hie-in

PUBLISHED : Friday, 17 May, 2013, 12:00am
UPDATED : Friday, 17 May, 2013, 4:55am

Just as fusion dishes are built on marrying flavours from some very different cuisines, mergers require the integration of companies whose cultures may be poles apart.

But achieving a successful balance is no easy matter. At Cafe Deco Group, one of Hong Kong's more established restaurant operators, managers have had to negotiate a rocky path since its merger with the listed Chevalier Pacific Holdings three years ago.

The marriage with Chevalier Pacific, which operates the Pacific Coffee chain along with outlets from its acquisition of the Igor's food and beverage business, produced a network of 35 outlets spread across Hong Kong, Macau, the mainland and Australia. Cafe Deco's operations have since seen something of a shake-up.

It has made several closures over the past year: Italian eatery Peccato and Southern American venue Bourbon, both on Elgin Street, have pulled down their shutters, as has Sakesan, a robatayaki grill and bar in SoHo, along with Eivissa lounge on Wyndham Street. La Bodega, a Spanish-themed venue, also shut a few months ago after eight years in Lan Kwai Fong.

But Cafe Deco has opened new outlets, too. Branches of Berliner, the group's German chain, emerged in Discovery Bay and Wan Chai late last year. Burger Box outlets sprang up at the Star Ferry pier in Central and in the World Trade Centre, in a space previously occupied by one of its Wildfire restaurants. The group is considering adding Burger Box branches, and a new concept venue may be rolled out this summer.

Some industry observers suggest the company is making a strategic shift from a portfolio of largely quirkier, boutique restaurants to one made up mainly of chain operations. Chains are generally more economical and easier to manage because operations are standardised, unlike boutique venues that require specialist staff. It also mirrors a trend in retail, where spaces in prime commercial districts are dominated by the rich chains.

At the same time, post-merger tensions have spawned complaints from former employees that the atmosphere within the new entity is "cold" and "bottom-line driven". Former employees have also suggested to the South China Morning Post that unhappiness has fuelled a loss of talent, with about 20 workers, including some senior staffers, having resigned or been dismissed in recent months.

The landlords have decided to develop the site, or the leases have expired
Martin Allies, former CEO, Cafe Deco

But Cafe Deco Group director of marketing and public relations Sheila Chan says the turnover is "minimal" considering the company employs more than 1,000 people. Besides, she adds, high turnovers are common in the competitive food and beverage industry.

Catherine Yuen, another company spokeswoman, denies internal discord but acknowledges activities such as year-end gatherings were absent last year. That was because managers were busy integrating disparate operations, she says

"It's not just [merging several] groups under one umbrella. We spent a lot of time merging all these systems together - the accounting system, the human resources system, websites and different programs at the back-end."

Perhaps a clash of cultures is inevitable with a change of leadership. Martin Allies stepped down as CEO last year after nearly two decades with the Cafe Deco Group.

A former chef, Allies moved into hospitality at the Hyatt and Mandarin Oriental hotels before joining Cafe Deco in 1994. He rose through the ranks to become its chief executive. He says he had withdrawn from the group's day-to-day operations by last October, though the change was not officially announced until December. Robert Chang Wan-lung, a core director at Chevalier Pacific, will supervise Cafe Deco Group operations until a new CEO is found. Chang is more of a generalist businessman than Allies. He spent 17 years at the Hong Kong Trade and Development Council in various managerial posts. He joined Chevalier Pacific's parent, the Chevalier Group, in 2005 as a business development manager, and ran Pacific Coffee after it acquired the chain.

Allies, who remains on the Cafe Deco board as a shareholder, insists the group's recent restaurant closures have been in response to the current tough business environment, especially the steep increases in rents.

"It was pure economics that drove recent decisions," he says. "Either the landlords have decided to develop the site, or the leases have expired and we decided not to renew because of drastic increases in rent."

Clayton Parker, managing director of Eclipse Restaurant Group, echoes the sentiment. Ten years ago trendy restaurants had to be in ground floor spaces in SoHo, he says. But restaurants have been squeezed by steep rent rises and other cost increases as mainland visitors fuel inflation in Hong Kong.

"In this climate, the traditional model for operating a restaurant is outdated," Parker says. "Opening a restaurant in Kennedy Town or cooked food hall at Central Western Market is not the traditional model, nor are unlicensed private dining studios that are popping up."

But these "alternative dining concepts" are less rental dependent, and offer ways to stay competitive, Parker says.

Adapting to the circumstances, Cafe Deco Group has introduced more outlets outside prime areas such as Central. Its Berliner chain is a case in point: aside from a branch in Wan Chai, other outlets are located in Sai Wan Ho, Discovery Bay and Olympian City.

J.P. Lim, a partner at LMM Consultants, which was brought in after the merger to help the restaurant group get back on track, says Cafe Deco is "consolidating" operations.

"It's expanding, but with the right foundation. You can't keep opening outlets when you're unsure the model or cost structure is correct," he says.

His team prescribed operational improvements at the outlets. Key performance indicators such as spending on food, labour and rental costs are monitored. If the numbers are off industry benchmarks, management is alerted to get those costs back in line, says Lim.

Food purchases have also been centralised to achieve economies of scale, he adds. "When you buy meat and vegetables, the prices are always more competitive than if they are [purchased] through a small competitor."

Besides the move to more suburban venues and a shift in emphasis to chains, pared-down menus may be another way to trim costs. Many Cafe Deco Group establishments were previously known for their extensive multi-cuisine fare.

Top Deck in Aberdeen was typical of this thinking; in the past, its menu featured Indian, Thai and Middle Eastern food, plus grilled meat and seafood items. That mix vanished in November when new menu replaced the selection of ethnic favourites with a seafood-focused selection.

How well such tweaks across the various outlets will agree with Cafe Deco customers' palates remains to be seen.