Cafe de Coral to shut all outlets in eastern China as the Hong Kong flavour goes out of favour

The company announced on its official WeChat account that it would “close all eastern China stores in late October”, and urged customers who are its members to cancel their membership and get a refund

PUBLISHED : Wednesday, 18 October, 2017, 8:39pm
UPDATED : Thursday, 19 October, 2017, 9:45am

Cafe de Coral, one of Hong Kong’s most popular fast food chains, said it would close all of its restaurants in eastern China by the end of this month, as its business on the mainland had struggled to capture the palates of Chinese diners.

Shares of Cafe de Coral opened up 0.2 per cent on Thursday at HK$24.35, following a 1.3 per cent gain on Wednesday. The stock has declined 11 per cent since October 19 last year.

The chain would “close all its eastern China stores” in Shanghai, Nanjing and Wuxi by late October, according to an October 14 announcement on its official account on the WeChat social media service, urging customers to cancel their memberships to obtain a refund.

The closure of the eastern China stores is a “short term strategic adjustment” to redirect its focus on the southern China business, the company said in an emailed statement.

Established in Causeway Bay in 1968, Cafe de Coral operates 359 chains in Hong Kong, with 99 restaurants on the mainland as of March. Most of its China network is in Guangdong province, with around 90 outlets and the remainder in eastern China.

The company, listed on the city’s stock exchange in 1986, also operates restaurants under different brands, including The Spaghetti House, Manchu Wok, Oliver’s Super Sandwiches and Ah Yee Leng Tong.

It’s been a part of Hong Kong’s daily life for half a century, as its casual no-fuss offerings appeal to working class budgets. But it’s struggled with Chinese customers outside the Cantonese-speaking Pearl River Delta, which accounted for 12.4 per cent of its total revenue as of March.

Net profit fell 2.7 per cent last financial year to HK$503.8 million (US$64.5 million). Its China sales fell 12.5 per cent in the same period, even as Hong Kong revenue rose 7.3 per cent. Sales in southern China fell 8.7 per cent to HK$870.6 million.

“In mainland China, we achieved strong same store sales growth, despite heavy competition in the food and drink industry for space and customers,” the company said in its June earnings statement. “Other challenges affecting this market included changing consumption patterns, such as the rapid rise of e-commerce and online-to offline (O2O) deliveries to consumers.”

Still, the profit margin in China has increased, giving Cafe de Coral a “solid platform” for expanding its business, the company said.

“We will step up our network expansion in Guangdong to achieve our objectives in this market. At the same time, we will launch more local promotions and marketing campaigns and develop new products that align more closely with local tastes,” the company said in its filing.