Two of the city's biggest fast-food chains yesterday said they will raise prices by 2 to 5 per cent in the next four months as inflation and the introduction of a minimum wage eat into profits.
In the six months to September 30, Cafe de Coral suffered the first drop in profit growth since the Sars epidemic in 2003.
A wage increase of 19 per cent for half of its 7,800 employees and rising food costs and rents drove the chain's net profit down by 15 per cent year-on-year to HK$190.8 million. Its profit margin also went down by 2 percentage points.
Fairwood, another corporation with fast-food stores in Hong Kong, also saw net profit plunge 17.65 per cent during the same period to HK$58.2 million. However, excluding a one-off gain from property sales last year that inflated its profit in the previous period, it would have been a 5.7 per cent increase of net profit. Nevertheless, rising costs still drove down its profit margin by 1 per cent.
Cafe de Coral chairman Michael Chan Yue-kwong said he expected wages to rise about 10 per cent in the second half of the financial year but that a robust expansion plan in Hong Kong and on the mainland meant the chain would pass on some of the costs to customers.
'The rise will only be between 50 HK cents and HK$1 per dish,' Chan said. 'Pork prices have jumped by 30 to 40 per cent since last year, while beef has risen by about 20 per cent.'
Both companies blamed the minimum wage law, in effect since May, for rising costs.
Cafe de Coral said a minimum hourly rate of HK$28 would add an extra HK$120 million to the costs for the year to March. The chain, which plans to recruit up to 1,000 people in the next four months as part of expansion plans in Hong Kong and on the mainland, has already raised prices by 3 to 5 per cent this year.
Both companies are banking on the mainland for future growth. Cafe de Coral plans to double the number of outlets there to 200 by 2014 while Fairwood expects to more than double the number of its existing 17 stores on the mainland to 40 by then.
But despite the quick expansion, Cafe de Coral said its mainland business would take 10 more years to exceed its sales in Hong Kong.
Fairwood, which is also involved in the property business, has managed to control its rental costs better than its rival. Still, Raymond Chan Chee-shing, the chain's chief executive, said its 107 restaurants in Hong Kong posted year-on-year same-store growth of 6 per cent in the six months to September, but rents also went up by 6 per cent.
The company said it would have to raise prices by 2 to 5 per cent in the next four months, although the changes may be phased in. It said it will open stores in cheaper locations such as upper floors or in shopping malls. It will also develop new dishes and seek cheaper food sources to contain expenses.
Cafe de Coral declared an interim dividend of 17 HK cents and Fairwood, 22 HK cents.
Cafe de Coral will shell out this much extra, in HK dollars, on wages for the year to March to pay the minimum hourly rate of HK$28