Hong Kong’s fast-food and casual-dining chains are likely to see a drop in rental costs in response to growing turbulence in industry profitability.
Major casual-dining operator Fairwood Holdings reported an interim profit decline for the first time in a decade, with a 14 per cent fall in profit to HKD117.1 million (US$14.96 million) for the half year to September. The figure arose despite a 4.8 per cent growth in turnover to HKD1.47 billion ($188.08 million).
Fairwood rival Cafe de Coral last month reported a 16.2 per cent growth in profit – but sales rose by a meagre 1.7 per cent.
Analysts say the results suggest difficulties in controlling operating expenditure, 20 per cent of which tends to go towards commercial rentals in the industry. At the same time, food and labour costs are growing faster than retail prices.
The situation is likely to encourage landlords to be more flexible in rent negotiations, but this comes at a time when general retailing in Hong Kong is recovering from the slump and tenants from other categories may be prepared to pay more for premises.