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SCMP Reporter

THE EARLY 1970S were heady times for Dennis Lo Hoi-Yeung, then a twentysomething fine arts student in New York City.

Back in Hong Kong, his family's newly launched fast-food business, Fairwood, was riding high as the local economy surged ahead, a booming export powerhouse. But the throes of the Cultural Revolution were gripping the mainland and there was a creeping unease in Hong Kong that any day the chaos might spill across the border.

Mr Lo was an ocean away, steeped in his studies at the Parsons School of Design. But his creative impulses kept turning themselves towards the family business.

A flash of inspiration gave him a plan for a fast-food restaurant in New York.

'I wanted to call it the House of Mao,' recalled Mr Lo, now 54 and the chairman of Fairwood Holdings. 'We would package 'Gang of Four' set meals. Because I was a graphic designer, I was full of crazy ideas for the red colour schemes.'

Indeed, Fairwood's business has made great leaps forward since those early years, even though the House of Mao did not pan out. Today, the fast-food chain is in the second year of a comprehensive rebranding push that has delivered annual sales growth of 12 per cent to 15 per cent.

Fairwood's 68 stores, at which an average lunch set costs around $25, generate about $2.25 million in sales every day.

The company has been aggressive in rolling out a sharp new restaurant layout at about 35 of its Hong Kong outlets. Renovation costs about $1 million per store but results in an almost overnight revenue increase of about 20 per cent. All stores have  become smoke-free.

A new health-conscious menu features trendy Korean- and western-influenced dishes. Fairwood now puts a heavy focus on cutting out processed foods, flavourings and starches in favour of simpler, fresher ingredients. 'We're changing the eating culture of the fast-food generation,' said Mr Lo, who  holds about 44 per cent of the company.

Hong Kong's homegrown fast-food chains, like Fairwood and Cafe de Coral, sprouted up in the 1960s and 1970s from local cha can ting culture. Pork chop or curry brisket with rice were menu mainstays.

The customer base was blue collar: the thousands of assembly-line button stitchers and gadget makers that powered Hong Kong's growth in those export-reliant  days.

As a young graphic designer with revolutionary-kitsch ideas, Mr Lo might have seemed an unlikely candidate to helm the restaurant chain. But after a two-year stint in the advertising business in New York, he returned to Hong Kong in 1977, earned an MBA and, in 1981, joined the family business.

At the start, Dennis was mentored in the business by his brother, Alfred, who owned a stake in Fairwood but was an executive with the larger, family-linked competitor Cafe de Coral. By 1986, however, Alfred had moved to Canada and Dennis was left to run Fairwood on his own.

Mr Lo pushed successfully to get the company listed on the Hong Kong stock exchange in 1991. The stock surged in the first two years and at one point scraped $50 per share.

Fast food was a play on the Hong Kong economy, which was roaring during the Asian tiger years of the 1990s. But Fairwood's shares entered a downward spiral that deepened after the Asian financial crisis and, by the time Sars hit in early 2003, they had  bottomed at less than a dollar.

The reality was that Fairwood's working-class customer base was gone; the factories had all moved north of the border. Increasingly, Hongkongers were abandoning the chain's smoky, noisy, canteen-style restaurants.

Fairwood's decades-old logo depicting a smiling, red-and-yellow clown face stuck out like an eight-track player in the CD era. Swanky SoHo cafes had already taken off, fusion foods were in style and modern diners were demanding more. 'The brand itself was old and was always seen as uncompetitive against the market leaders,' said Mr Lo.

The dramatic relaunch, which Mr Lo calls 'the big bang', has paid off handsomely in the Hong Kong market. Subtracting the costs of renovating and rebranding from top-line revenue increases, Fairwood's real sales growth is still  7 per cent to 8 per cent. In the last two years, the company's share price has more than tripled.

Fairwood now plans to expand its presence in Hong Kong in retail hubs, targeting several strategic locations.  Mr Lo hopes to add 12 stores by 2007.

Fresh from marinating 100 chilled French chickens in fresh rosemary and lemon juice, Mr Lo  said he liked fresh herbs and grew them at his home in Repulse Bay.

The $100 chickens were destined for a working feast with chefs at one of the firm's test kitchens. The price of the birds means they are too expensive to be used in the restaurant.

The idea, he explained, was to teach the staff how to experiment with new flavours and fresh herbs that he hopes will appeal to young, white-collar professionals.

The new approach will be tested on an old standby: spaghetti. 'We've been doing Spaghetti Bolognese since the 80s but it's always baked together with the sauce so the pasta is soggy.' The makeover is a simple one: cut out the starch, use fresh sauce, plop a roasted tomato on a bed of al dente pasta and sprinkle with fresh herbs and olive oil.

The fresh ingredients change the cost structure so that the price will increase from, say, $24 to $26. That is a substantial difference in a high-volume business like fast food. Mr Lo expected 'the product can command the premium'.

However, that principle does not necessarily apply in the mainland, as Fairwood learned the hard way. In 1993, the company opened restaurants across Guangzhou, Beijing and Shandong province. It was a struggle from the outset.

Locals were put off by the minimal service and baulked at paying 20 yuan for a dish that cost a quarter of that price at the neighbourhood noodle stall. Fairwood lost quite a bit of money and was forced to close all but four Guangzhou stores, which remain profitable.

'The PRC market is massive but you have to decide how you are going to tackle it,' said Mr Lo.

One mainland business  in which the company has found considerable success is institutional catering, which, in a way, brings the chain back to its blue-collar roots.

Fairwood has a long-term contract with Johnson Electric to provide three meals per day to about 20,000 staff at its Shenzhen manufacturing plant.

Fairwood built and staffs the kitchen and the success of the two-year-old venture prompted the company to provide a similar service to three other factories, albeit on a smaller scale.  There is no shortage of factories in the Pearl River Delta. 'The market is huge,' said Mr Lo. 'But it's a pure volume business and we have to decide how much we can allocate to that.'

In the future, Mr Lo believes the Hong Kong fast-food industry will continue to reinvent itself away from its canteen-style past. He pointed to McDonald's new McCafe chain in  its home market as an example of a similar evolution but maintained that Hong Kong restaurants changed much faster than those in the United States.

Price cutting is the past and product premiums are the future. 'The younger generation is more sophisticated,' he said. 'We want to provide an environment that's trendier, like lounge dining.'

Alas, Chicken Maonuggets were never meant to be.

Biography

Dennis Lo Hoi-yeung is chairman and chief executive of Fairwood Holdings. A family business, Fairwood is one of Hong Kong's oldest fast-food chains. Mr Lo owns 44 per cent of the company, which  has 68 outlets in Hong Kong and  four in Guangzhou, and  engages in institutional catering  in Pearl River Delta factories.



Fairwood boss gives thought for food