Fast-food outlets such as Cafe de Coral are anticipating a significant impact on their profits if the city's minimum wage rate is set at the union-proposed level of HK$33 an hour.
The Legislative Council passed the minimum wage bill last week, with the new law expected to take effect in the first half of next year. The Provisional Minimum Wage Commission is due to recommend the actual rate of the wage to Chief Executive Donald Tsang Yam-kuen by the end of next month.
While the legislation will lift the pay of low-skilled individuals, employers in the catering industry have warned against the request by labour groups, saying that they could not afford to pay workers an hourly rate of HK$33.
Joseph Cheng Yu-shek, chair professor of political science at City University, said Hong Kong's low-paid workforce would be better served by an improved social welfare system because employers could take advantage of loopholes in the law.
For example, they could switch employees from working full time to part time. Low-skilled individuals working at fast-food outlets therefore might not be better off even if the minimum wage is set at the top level demanded by trade unions because employers are likely to cut down on employee benefits.
Cafe de Coral chairman Michael Chan Yue-kwong said the company had no plans to lay off staff or reduce benefits. But analysts believe the introduction of a minimum wage, especially at the higher rate, will add an extra cost of up to HK$400 million for Cafe de Coral, which has a workforce of 15,000. Since labour constitutes more than 80 per cent of the fast-food chain's costs, analysts estimate that if the minimum wage is at HK$33, costs will surge by at least 44 per cent.
The firm's net profit for the year ended March was HK$512.7 million, paying shareholders 92.16 HK cents per share. Even with a 5 per cent price rise in its dishes, analysts believe it might struggle if such levels of profits and dividends are to be maintained and the company might have to consider redundancies and cut employee benefits. 'How badly [Cafe de Coral's] profit will be hurt will depend on the wage level, which it is very sensitive to,' said Winnie Fong, an analyst at Taifook Securities.