Financial recipe for chicken hotpot chain

Technology | Gary Poon 15 Apr 2019

The Great Restaurant Development, a speciality chicken hotpot restaurant chain, is seeking to list on the main board.

The company operates seven restaurants in Tsuen Wan, Mong Kok, To Kwa Wan, Hung Hom, and Causeway Bay. They serve eight styles of chicken hotpot, while the price of a half-set chicken hotpot ranges from HK$138 to HK$290, a full-set chicken hotpot costs from HK$210 to HK$518.

"We believe that our self-formulated chicken sauce complements and intensifies the flavor and texture of chickens in our hotpot," the company says in the prospectus. "To complement chicken with the most suitable sauce, we researched and developed our own recipe of chicken sauce that brings an iconic taste to our hotpot."

The company adds that the main type of chicken used as the hotpot ingredient is Long-gang chicken and says it has insisted on using chilled chicken instead of frozen ones to preserve the freshness and tenderness.

The capital raised from the float would be used for establishing six speciality hotpot restaurants under the brand and five casual dining restaurants, refurbishing the existing restaurants, setting up a new head office, strengthening marketing and promotion, upgrading the information technology systems, and for general working capital.

The net profit was HK$22.9 million in 2018, a drop of 13.7 percent year-on-year. Revenue was HK$174.27 million in 2018. Raw material cost, staff cost and rents represent 28.4 percent, 22.3 percent and 16.1 percent of revenue, respectively.

Other expenses and costs, and taxation represent 16.83 percent and 3.97 percent of comprehensive income last year.

The average spending and the average seat turnover rate are HK$238 per customer and 1.58 times per day. The restaurants at Tsuen Wan Tai Hung Fai Centre and Mong Kok recorded highest sales, with HK$31.87 million and HK$48.57 million of revenue in 2018, respectively.

Apart from the restaurant in Causeway Bay, the investment payback period of each of its hotpot restaurants ranged from 10 to 26 months with an average of 16 months.

The Causeway Bay branch, which opened in 2016, still had not achieved investment payback and expects a 56-month time frame for payback.

The company says the relatively longer breakeven period and investment payback period of the Causeway Bay branch is because of higher rents on Hong Kong Island. The average spending per dine-in customer in a visit was at a level similar to the company's other restaurants.

According to the Frost & Sullivan research report, the Great Restaurant Development ranked fifth in the general hotpot restaurant market in Hong Kong with 2.3 percent of the overall hotpot restaurant market share.

The report shows that the revenue of hotpot restaurants in Hong Kong grew by 4.6 percent annually from HK$5.9 billion in 2013 to HK$7.1 billion in 2017 while the top eight hotpot restaurant brands accounted for almost 20.5 percent of the overall hotpot restaurant market share as at December 31, 2017.

The largest hotpot restaurant brand, with 27 restaurants, mainly offers Cantonese cuisine, hotpot, seafood, and dim sum, representing 4.4 percent of market share.

The hotpot restaurant market in Hong Kong is expected to grow at a compound annual growth rate of 4.4 percent from 2018 to 2022. Revenue is expected to reach HK$8.9 billion by 2022, the report says.

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