The rising number of restaurants opening in the SAR reinforces the notion that Hongkongers love to eat out, but restaurateurs are having to be more creative and offer better standards, ambience, food and service to attract today's diners, writes SIMON NGAN

Hong Kong's reputation as the undisputed culinary capital of Asia has been bolstered over the last few years, despite media reports that restaurants are closing faster than waiters can get dishes to the tables. Restaurateurs in the SAR defied gloomy economic conditions by increasing the number of outlets from 8,666 in June 1998 to 10,899 in June 2001. The rise has not increased overall restaurant receipts -- which have remained static over the period at around HK$5.6 billion annually -- but more chefs in the kitchen does mean more competition.

To entice customers to open their wallets in a belt-tightening climate, the food services industry has been forced to offer better deals to ever-more demanding customers.

"We're having to work a lot harder for the dollars," says Mark Holmes, director of food and beverage at the Grand Hyatt Hong Kong. "Customers are looking for more value-added, all-inclusive incentives in their packages. They are also more inclined to negotiate."

But this does not mean customers just want the cheapest price. Typically, diners opt for mid-priced menus, and Mr Holmes says if you can't offer them what they want, they will just go to the competition. "They are in the driver's seat and as a company we have to embrace these changes to still generate revenue," he added.

Turnover this year at the hotel's restaurants has remained largely the same as in 2001, despite the depressed market. "Average checks (total spent per person) are actually up over last year although average covers (number of people) are down. And we have done this without increasing the price menu," Mr Holmes said.

"Fortunately, many of our regulars are in the income bracket that I don't think have been affected to the extent where they are watching every cent. People who used to go out four or five times a week might have cut that down to two to three times a week, but at the end of the day they are still spending the same amount of money."

For the Heichinrou chain of Chinese restaurants, keeping a tight rein on costs has the added benefit of exerting greater control over food quality. Billy Cheong, senior vice president and managing director, says, "Our supplies are sourced mainly overseas and we do this through our own staff. By doing so, we do away with the middleman."

This, in turn, allows the restaurants to offer competitively priced menus, using better produce, without eating into profits. For the restaurant chain, maintaining a high standard of quality takes on even greater significance in a challenging market.

"Competition conducted solely on price is in itself limiting and unhealthy. Restaurants should find ways of raising quality and adding value without sacrificing margins. This gives customers a bigger bang for the same buck," he said. "I think operators (of traditional Chinese restaurants) need to understand that they are not in the business of merely filling their customers' stomachs. They also need to change the established norm of pursuing a certain level of turnover on a per table basis. To do so would only reduce them to nothing more than fast food outlets."

In the midst of a flagging industry, the fast food sector stands out as one bright spot in the food and beverage business.

Michael Chan, chairman of Cafe de Coral, says fast food's revenue share of the market has jumped from 7 per cent of total F&B receipts in 1986 to 17 per cent today. Furthermore, there is ample room for growth when compared to other developed economies such as the U.S. and Japan where takings in the fast food industry account for 40 per cent and 25 per cent, respectively, of overall restaurant receipts. As Hong Kong's dominant fast food operator, Cafe de Coral, with its 117 quick service restaurants, enjoys a 21 per cent market share and serves an estimated 9 million customers a month.

While Cafe de Coral lacks pricing power, Mr Chan is also averse to price-cutting as a principal means to winning market share.

"Service and quality are invariably sacrificed in a sustained price war. We prefer to adopt a policy of maintaining prices while enhancing quality and creativity. We do this by increasing portion size, offering up-market food items, and providing options for inexpensive menu upgrades. We have also re-designed our restaurants to create a more comfortable and relaxed ambience," he said.

The prolonged economic slump has also reshaped dining culture and trends in recent years, which is resulting in traditional Chinese restaurants slowly losing their market dominance. According to Mr Cheong, the new generation of Chinese restaurants differ from their predecessors in terms of size and function.

"If you take one of our more recent restaurants at Heng Fa Chuen, at 3,300 square feet it occupies considerably less floor space than our 30,000 square feet property at Admiralty, the Metropol Restaurant. However, it is multi-functional in that it combines a bar and restaurant under one roof. The objective is to offer the customer the option of using the restaurant, the bar or both."

His new restaurant has also departed from conventional interior design, to create a cosier, contemporary dining environment. He hopes this strategy will broaden his customer demographics to include those from various ages and income groups. At the same time, he is focused on building up the chain's brand equity, an initiative that more and more of Hong Kong's restaurants are resorting to in the effort to cultivate a loyal customer base.

In the case of Cafe de Coral, branding represents the core marketing strategy to differentiate itself from the crowd. It incorporates mystery shopper programmes and tracking schemes to monitor and evaluate the performance of individual stores, which are then measured against the competition. Branch managers and staff are motivated to deliver or excel on standards because their pay is tied to how well they perform. The company keeps its finger on the pulse of the latest customer trends and tastes through views and suggestions gathered from focus groups and through its own research.

Given the intense demand for innovation and variety as well as low barriers to entry, a new format, theme or menu, when introduced and proven successful is often quickly copied by other operators. While Mr Chan acknowledges this to be an issue, he says that a "moat" is created around the business through continuous investments in technology and improvements to planning and processes.