Cafe de Coral sacrifices margin for profit in tough half year
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Cafe de Coral Group sacrificed margin to maintain sales in the first half of this year, resulting in a 34.5-per-cent decline in profit attributable to shareholders.
Group sales remained relatively stable in the six months to September, up 1.6 percent to HK$4.264 billion with profit down from $228.7 million to $149.7 million.
Chairman Sunny Lo Hoi Kwong said weak consumer sentiment impacted the company’s quick-service restaurant network and casual-dining business in Hong Kong, resulting in declining sales.
“In order to maintain sales and protect market share, the group launched more value meals and promotions, which affected margins in the short term. On the other hand, operating costs including labor and rent have been rising, resulting in a decline in profit during the period under review,” he said.
The Cafe de Coral chain itself reported flat growth for the half-year. After consolidation of stores last year, the company opened seven new ones in the first half, ending the period with 165 – three more than at the end of March.
More new stores are planned for the rest of the financial year, mainly in community areas with high potential and better returns, and the brand will launch on Foodpanda and mobile apps in the current quarter.
“After consolidation of stores last year, the company opened seven new ones in the first half, ending the period with 165 – three more than at the end of March.”
The Super Super Congee & Noodles chain opened three new stores taking its network to 48, but same-store sales fell by 1 percent year on year.
The company’s Chinese-cuisine brands, Shanghai Lao Lao and Mixian Sense, ended the period with 13 and 20 shops respectively (up from 12 and 17 in March). Kwong said the brands are expected to deliver a more solid contribution to the group’s casual dining portfolio in the future.
Non-Chinese brands The Spaghetti House and Oliver’s Super Sandwiches, now have eight and 14 shops respectively (up from seven and 13 in March) and despite the periodic closure of some key shops during the half, The Spaghetti House’s repositioning as a family restaurant and its 40th-anniversary promotions generated a positive market response.
Meanwhile, revenue from Mainland China increased by 3.6 percent to $611.9 million, despite a 4.5-per-cent decrease in the value of the Renminbi against the Hong Kong dollar.
“Our Southern China fast-food business carried the strong momentum of the previous financial year into the first half of FY2019/20, achieving a 9.6-per-cent increase in revenue to RMB516 million, with same-store sales growth of 6 percent as existing outlets maintained healthy growth and new shops performed well,” said Lo.
Five new shops opened in strategic city locations including Guangzhou, Shenzhen, and Zhuhai – taking the network to 107 as at September 30 – a net increase of 10 stores since March.
An additional 16 shops are planned to open during the second half of the fiscal year and the group has established strategic alliances with eight real-estate developers operating in the Greater Bay Area to jointly collaborate on network expansion.
Questions & Answers
Q.Why did Cafe de Coral's profit decline despite stable sales in the first half?
Why did Cafe de Coral's profit decline despite stable sales in the first half?
Profit declined because the company sacrificed margins to maintain sales and market share through value meals and promotions. Also, operating costs like labour and rent increased during this period.
Q.What is the company doing to expand its store network and reach customers?
What is the company doing to expand its store network and reach customers?
The company opened seven new Cafe de Coral stores and three new Super Super Congee & Noodles shops. They also plan more new stores, mainly in community areas, and will launch on Foodpanda and mobile apps.
Q.How did Cafe de Coral's business in Mainland China perform compared to Hong Kong?
How did Cafe de Coral's business in Mainland China perform compared to Hong Kong?
Revenue from Mainland China increased by 3.6 percent, with the Southern China fast-food business showing a 9.6 percent revenue increase and 6 percent same-store sales growth, contrasting with declines in Hong Kong.
Q.Which of Cafe de Coral's brands showed same-store sales growth during the period?
Which of Cafe de Coral's brands showed same-store sales growth during the period?
Only the Southern China fast-food business reported same-store sales growth, achieving 6 percent. The Super Super Congee & Noodles chain, however, saw same-store sales fall by 1 percent.
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