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Pouring out of lifts at the start of the midday rush, Hong Kong workers bounce lunch suggestions off each other: Noodles? Sandwich? Lunchbox? Pizza? Food court? And more often than not, Cafe de Coral features among the few brand names listed as options.

It may be a household name today, but the fast food giant of today started out as a small restaurant serving up simple fare back in 1968. The restaurant was among the first in the territory to operate on a self-service style, which, at the time, raised many eyebrows.

"Macdonald's landing in Hong Kong at that time inspired our confidence in self-service catering," said Michael Y K Chan, chairman of Cafe de Coral Group.

Expansion for the next 18 years was modest, but started to take off in 1986 when the company became the first of its kind at the time to be listed on the Hong Kong Stock Exchange.

Cafe de Coral diversified its business by taking over well-known restaurant chains like Ah Yee Leng Tong, The Spaghetti House, and diversifying into the institutional catering arena, while continually growing its traditional fast food operations. It also expanded into the North American market in 2000 by taking over Chinese restaurant chains, Manchu Wok and China Inn, in Canada and the U.S. respectively. The group currently operates over 510 outlets worldwide, making it the largest Chinese quick service restaurant group in the world.

Still room for growth

Cafe de Coral occupies a 21 per cent market share in Hong Kong with 120 quick service restaurants serving an estimated 9 million customers a month, primarily in the 19 to 39 age group.

But Mr Chan says he thinks the local food services industry still offers plenty of room for growth, even though restaurateurs face enormous challenges.

The fast food sector, especially, suits the fast-paced Hong Kong lifestyle well, as evidenced in the fast food group's revenue share of the market, which jumped from 7 percent of food and beverage receipts in 1986 to 17 percent today.

Nonetheless, the percentage is still low when compared to other economies such as the U.S. and Japan where takings in the fast food industry account for 40 and 25 percent, respectively, of the total restaurant receipts.

Mr Chan is also bullish on the Mainland's food services market and opened its sixth Caf?de Coral restaurant in Zhongshan in late 2002. With China now in its second year of WTO membership, the group is looking to open two to three more outlets this year to fine-tune its operations and menus, after which it will accelerate its expansion in the Mainland. Part of this effort will involve forming a sino-foreign joint venture to run "New Asia Dabao," the largest Chinese quick service restaurant chain in Shanghai, by mid-2003.

The group also has its sights set on boosting its presence in the North American market by doubling over the next five years the number of shops it currently has under the brand of Manchu Wok and China Inn to 400.

However, Mr Chan says Hong Kong will still make up 85 percent of the group's business, contributing 60 percent of its profits, compared to 40 percent from overseas.

Loyal customer base

The prolonged economic slump in recent years has had little bearing on Cafe de Coral's business. The group has recorded double-digit growth in profits for the past seven years in a row, amounting to HK$280 million in 2002, and has invested heavily in computerizing and upgrading its operations.

"Branding has played an important role in our growth and is a core strategy to cultivate loyalty among our customers," Mr Chan said. "Also, we put a great deal of emphasis on constantly updating our menus by incorporating the latest dining trends and tastes so that our customers can never say they get bored of our menu."

Besides gathering views and suggestions through research and focus groups, the company also runs mystery shopper programmes and monitoring schemes to keep track of the performance of individual stores.

Mr Chan said being more creative and offering better food, service and ambience at a stable price is more important than lowering prices to attract customers during the current economic gloom.

"I refuse winning market share by price-cutting. By doing so, food quality has to be sacrificed, which is unhealthy to the entire food and beverage sector," he said.
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