Cafe de Coral China closing east China stores

Cafe de Coral China is closing its stores in the nation’s east to focus on the southern China market.

With 359 restaurants in Hong Kong and 99 on the mainland, the Hong Kong fast-food chain announced on its official WeChat account that it is closing its restaurants in Nanjing, Shanghai and Wuxi this month. It advised customers to cancel their membership and obtain a refund.

A spokesperson says the closures are temporary and a “short-term strategic adjustment” to put a focus on business in the south. “We are performing well in the southern China market, and generally in Mainland China we are achieving positive growth,” she says.

In its annual report in March, the company said competition was likely to remain keen in Mainland China, but it was optimistic about the prospects in the country because of its “long history and strong foundation”. Mainland same-store sales growth had been satisfactory and profit margin had improved.

The report said the company would build its brand presence in strategic locations in Southern China, increase brand penetration in second- and third-tier cities, enhance brand loyalty and win over new customers.

Highly competitive

Cafe de Coral works in a highly competitive segment, says OC&C Strategy Consultants partner Pascal Martin. “You can find similar dishes in street shops at very low prices in China. This is different from western fast-food chains which do not have to compete so much with low-priced local equivalents.”

He suggests the chain might need to adjust its flavours to accommodate tastes for various regions in China, which all have different preferences.

Martin also says the Cafe de Coral model also requires expensive space, and consumer habits are changing with the growth of online ordering and take-out. “Maybe the chain’s new strategy will take this into account more fully.”

Another issue he raises is that the brand may not have much power in China yet. “Insufficient investment in marketing – particularly online marketing in China – and lack of brand recognition may not have achieved the level of traffic needed to run the restaurants successfully.”

OC&C research last year into the foodservice landscape in China noted that consumers eat out almost three times a week on average, and are becoming more sophisticated amid increased awareness and openness toward international brands. Its report found that Chinese consumers actively seek out new restaurants and are receptive to new formats and concepts.

“Moreover, food quality, a wide choice of categories and service quality came up as the three critical factors, while serving speed, convenience and pricing were rated less important.”