Company Background
Café De Coral, established in 1968, operates over 140 self-service fast food restaurants in Hong Kong, which is the largest Chinese restaurant chain in Hong Kong. In 1986, Café De Coral became an issued company in Hong Kong Stock Exchange. Later Café De Coral expands its business in various city and countries such as Hong Kong, Macau, Guangdong and other Western countries. The restaurant currently serves about 300,000 customers per day. Café De Coral takes the advantage of broad experience in the fast food industry and makes it to become the biggest and most successful brand in Hong Kong.
1. Perform a SWOT analysis on Café De Coral
1.1 Strength
Awards for its management excellence
In the previous years, Café De Coral has strived for its excellence for the past several decades. In 1994, Café De Coral got the first prize “The Hong Kong Q-Mark for Excellence in Quality” awarded by The Hong Kong Q-Mark Council Federation of Hong Kong Industries. And then at the next several years, Café De Coral continued to maintain its good quality of food and services and got prices every year. Last year, Café De Coral got the prizes called “A Recognized Quality Restaurant for 10 years” awarded by Hong Kong Tourism Board and “Most Popular QTS Merchant Award Online Voting in Mainland China” awarded by Quality Tourism Services Association. Among these two rewards, Café De Coral also got awards from various media like U Magazine, East Week, Ming Pao, Sing Tao, etc. All these rewards can ensure the position of Café De Coral in the fast food field as a top food provider in Hong Kong.
Café De Coral has built loyalty in a strong sense over the years and counting Café De Coral is doing well in its management and marketing strategies. In 2006, Café De Coral launched “Club 100” membership scheme, in order to provide discount. This marketing strategy focuses on consolidating and increasing the loyal customers. Until 2011, the Club 100 members reach 160,000.
Continuing innovation of new products and fine-tuning of existing products
Café De Coral serves foods in excellent quality. It will consider comments from customers and seasons, and then introduce some special types of fast food like hotpot, Big Bowl Feast (known as Poon Choi), Claypot Rice. Other than this, Café De Coral will introduce some innovate products like Baked Pork Chop with Rice, Special taste curry and healthy vegetable rice. The Baked Pork Chop with Rice, for example, is one of the Café De Coral’s signature dishes. The Baked Pork Chop with Rice first launched in 1969. Although it has more than 30 years history, Café De Coral will follow customers taste in order to make changes like the change of ingredients in the receipt to fit the customers’ taste.
Comprehensive quality control
According to the website of Café De Coral, “Café de Coral believes a consistent food quality across all branches can only be achieved by maneuvering professional management, systematic trainings and expert monitoring.”. Café De Coral put a lot of efforts on the quality control. The food processing plant will be completed in the coming April, 2012. The plant will bring the food into a more safety and high quality level. Also, Café De Coral consider seriously on the origin of the food ingredient. By combining with the food safety, hygiene measures, the food is safe and reaches to an international level.
1.2 Weakness
Café de Coral avoid increasing cost of their operations
In order to face the increase in cost, Café De Coral is trying to cut cost or raise the product price. This helps to maintain their normal profit. However, this will affect their quality and standard of services and food. It is because almost of its efforts is put to reduce the cost and raise profit and ignore the service and food quality. According to Ming Pao, the profit growth is zero in 2011. This will lower the completeness of Café De coral in fast food industry.
Ethical problems
In 2011, Café De Coral has involved in the ethical problems. After the introduction of minimum wage, in order to deal with this problem, Café De
Coral decides to cancel employees’ paid mealtimes. This action has angered the general public. Some unions raise protests and boycott Café De Coral. According to the news “HK: Minimum wage law and worker’s meal breaks” by Elmer W. Cagape, “By trying to exercise cost cutting measures at the expense of workers, Cafe de Coral risked its name and reputation.”. This will threaten the Café De Coral’s fast food position in Hong Kong.
1.3 Opportunity
Increase in income
After the financial tsunami, the GPD of Hong Kong increased. According to the website DimSum, “Hong Kong’s gross domestic product (GDP) expanded by 2.6 per cent in the fourth quarter of 2009 after four straight quarters of negative growth.”. This will have a positive growth in the average annual salary of the working sector. As a result, more people are willing and able to purchase food from Café De Coral. The profitability will increase.
The growing industry of tourism
Nowadays tourism industry becomes one of the most important economic growth factor in Hong Kong. According to the Tourism Commission, “In 2011, Hong Kong received a record-high of 42 million visitors from around the world, a remarkable increase of 16.4% over 2010”. Such great number of tourists contributes to the fast food industry and making more potential customer in Hong Kong.
Focus on China’s market
Obviously, China is a huge market for fast food industry. China’s food industry has a positive growth of over 10% over the previous 18 years consecutively. Fast food industry is the main component of the food industry. Until 2009, there had over 2000 KFC fast food shop and 1000 McDonalds’ fast food restaurants in China. Although western fast food has a great influence in China’s fast food industry, Chinese fast food is still the main body of the fast food industry. According to the analysis, there are 78.9% Chinese fast food restaurant and 21.1% Western fast food restaurant in China. Café De Coral can grab the opportunity of the advantages of Chinese restaurant in order to expand intensively on the China
market.
Technological improvement
Among the past several decades, the technology has improved significantly. Nowadays the transportation and refrigeration technology have improved significantly. As a result, food can go to Tai Po Industrial Estate to have food processing first before deliver to the Café De Coral branches. All these will greatly reduce the cost of operation.
1.4 Threat
Keen Competition
The barrier of fast food industry in Hong Kong is low. Many cooperation or potential competitors can easily enter into the market and enjoy part of the market share. For example, Café De Coral’s main competitors are Fairwood and Maxim’s Catering. These two fast food restaurants opened hundreds of branches in Hong Kong. As these are the direct competitors of Café De Coral which they are selling similar food with each other, they will grab certain amount of profits and market shares in the fast food industry. On the other hand, there are also indirect competitors like Kentucky Fried Chicken and McDonalds’. Although they are not selling the similar food to Café De Coral, they still share the same market share of fast food industry. The keen competition threatens the profitability of Café De Coral.
Increase in both fixed cost and variable cost
In recent years, after the financial tsunami, the economy of Hong Kong starts to recover. The rental and payroll cost increased to a skyrocket high level. In 2011, the rental cost is expected to increase 15% in the coming 12 months. On the other hand, the variable cost also rises. It is because the depreciation of Hong Kong Dollars. This will lead to the import inflation, which means the cost of purchasing ingredient from mainland and other countries will increase. For example, the pork price increased by 15% and the food ingredient price increased by 5% in 2010.
Minimum wage law
Apart from the food ingredient cost, the variable cost mainly includes the
wage of employees. After the minimum wage law, the variable cost greatly increased. There are over 15000 employees in Café De Coral, which counts about 20% of the salary cost. Such minimum wage can lead to a great increase in salary cost.
2. What competitive advantage(s) does Café De Coral have?
Cost Leadership
Café DE Coral act aggressively on lowering the cost. In 1979, Café De Coral established its first food processing plant. In recent years, Café De Coral constructed two new food processing plant in Guangzhou and in Tai Po Industrial Estate. The food processing plant in Guangzhou has been operating since May, 2011. On the other hand, the one in Hong Kong will be completed in April, 2012. Once these food processing plant are fully operated, they will ensure and strengthen the safety, food quality as well as lowering the production cost. As a result, the production efficiency and capacity will be increased in order to achieve for the operational excellence and high quality of service. This will provide a great support of the restaurant chains on both Hong Kong and Mainland. The production logistic will also be improved and save more cost. Apart from the food processing plants, as Café De Coral is the market leader in the Chinese fast food industry, it can buy raw materials like pork, beef and other food ingredients at bulk. As the economies of scale, Café De Coral has a greater bargaining power so that it can get these in a low price.
Product Differentiation
Club 100 membership scheme
Café De Coral first introduced “Club 100” membership scheme in February, 2006. Customer can join by only using their Octopus Card and pay an annual fee. Members will receive the latest promotion exclusively. Until 2011, the Club 100 members reach 160,000. These members can have some feedback or repay promotion so that loyalty can easily be established.
Better service
Compared to other Chinese fast food restaurants like Fairwood and Maxim’s Catering, Café De Coral’s commitment is “Achieving A Hundred Points of
Excellence”. The campaign mainly focuses on the service quality in order to achieve full mark. In order to achieve the full mark, Café De Coral introduce “Mystery Shoppers” program which conducts the real service quality and employee’s attitude. Also, during the year, there are training activities like management skills, operational safety and mentorship program. These trainings are mainly for improving the front-end quality of services in Café De Coral. Such campaign and training is effective. Café De Coral rewarded “Hong Kong Service Awards (Fast Food Chain)” by East Week by 4 consecutive years from 2008 to 2011. Also there were service awards awarded by different organizations in 2005 to 2007.
Extensively expansion in China’s market
According to the competitor “Fairwood”’s annual report, there are only 16 fast food stores operating in Mainland China. The market share of Fairwood in China is insignificant. On the other hand, Café De Coral takes China’s market seriously. Since 1992, Café De Coral started to expend its business in China. In 2002, Café De Coral relaunched the new store opening program, aiming at opening new stores every year in China. Benefiting by the program, Café De Coral fast food restaurant now spread in the provinces like Zhuhai, Shenzhen, Dongguan, Zhongshan, Jiangmen and Fushan. According to the Annual report of Café De Coral, “the total number of the Group’s outlets in China is over a hundred, with 101 stores in Southern China and 9 stores in Eastern China.”. Such expansion may put pressure for Fairwood and other Hong Kong companies to expand in China because Café De Coral has already grab the majority of the market share in China.
Strengthen of the position for its Signature Dishes
Café De Coral’s Signature Dishes like Baked Pork Chop with Rice, Shanghai style Spare Ribs, Dairy Brisket Curry, Crispy Roasted Pork and New Zealand Sirloin Steak have a strong position in the Chinese fast food industry. These products change and innovate continuously very often. The changes satisfy the customers’ need for new products. As the result, Café De Coral can consolidate the existing market as well as bringing slightly different dishes to customer continuously.
Making use of the reputation of company
Café De Coral makes use of the reputation. For example, the National Farm Chicken, Canadian Grain-fed Beef Hot Pot or Hong Style Cuisine, they are using the reputation of the company and then finally launch to the market. They draw the attention quickly on the TV advertisements, by using pleasant background music and excellent graphic, bring customers pleasant environment to have their food.
3. Make suggestions on what strategic approach(s) do you think will be most viable in the future for Café do coral. Cost Leadership Strategy
Café De Coral should continue to expand in both Hong Kong, Macau and Mainland China. If Café De Coral expands, it can buy more raw materials in bulks, the transportation cost per raw material will lower. Also, with the bulk purchase, Café De Coral can have an opportunity to find cheaper suppliers as it has a greater bargaining power. On the other hand, in cost saving’s view, Café De Coral should practice centralized procurement, that is forming a specialized procurement group to purchase raw materials and the restaurants is responsibility only for ordering and selling the food. This will save much of the human resources in the company.
Differentiation Strategy
Treating well to mainland customers
In Hong Kong, Café De Coral should provide simplified Chinese menu in the tourist area. Also, the staff have to be trained in order to speak well in Putonghua. Furthermore, Café De Coral should provide coupons which can be used in both Hong Kong and China. The consistency of service will make the mainland customers feel cordial like at home.
Enhance the position of the service industry
In the past decades, service industry was considered as a low-skilled industry, especially for those in Chinese catering sector for which is totally different from the Western ones. In recent years, thanks to the promotions and trainings by Quality Tourism Services Association or other trade associations, the position of the service industry is enhanced. As a result, more people like the people within the industry and the public know
and realize customer service is a specialized field and requires professional knowledge. This act will bring more respect to the front-line employees.
Understand the customers’ need
Being able to understand the needs of services of the potential customers is the prerequisites for raising quality. Café De Coral should conduct surveys regularly to track on the changes of the customers’ taste, spending pattern and preference. With the increase in the information of customers, Café De Coral can change the receipt regularly in order to fit the taste of customers.
Change in customer’s taste
Nowadays people become wealthier than before. They cherish for the healthy life style. In order to capture these potential customers, Café De Coral should provide more healthy products. Overall, it has to continue to innovate for its products.
Explore the alternative market
Apart from the restaurants, Café De Coral can consider provide foods in Universities’ canteen or secondary schools’ canteen. By exploring these markets, it can introduce its Signature Dishes to students in order to increase to loyalty of customers.
Conclusion
To conclude, strategies applied by Café De Coral helped it to achieve a steady growth of Chinese fast food industry. Café De Coral is now going to international, with more innovative products and promotions. It continues to serve in its best and provide high quality products that leave the deep impression of taste to every inspiring customer. Therefore, Café De Coral’s success is mainly base on the product innovation and marketing excellence, backed up by its high quality food and services. Chinese fast food industry changes fast and competitive, because of the increasingly complicated customers like healthy life style ones and tighter profit margins because of the potential competitors and to sustain its leadership position in such
harsh business environment. Café de Coral needs to find ways in order to improve its customer experience and finally enhancing the operating efficiency and reducing costs. The Chinese fast food industry is trying to create an image that provides consumers with a more comfortable environment and friendly feel about their product in order to boost sales. The Chinese fast food industry is no longer have to keep the status quo, but to create, to change, to innovate so as to fit the customers which require more service quality.
Reference
Café De Coral Strategic Plan, viewed 26/3/2012
http://ivythesis.typepad.com/term_paper_topics/2010/12/caf%C3%A9-de-coral-strategic-plan.html
The Cafe De Coral Marketing Strategies, viewed 26/3/2012
http://ivythesis.typepad.com/term_paper_topics/2009/05/the-cafe-de-coral-marketing-strategies.html
Café De Coral Overview, viewed 26/3/2012
http://www.cafedecoral.com/web/ci/coporate1.htm
Café De Coral – About Us – Awards, viewed 26/3/2012
http://www.cafedecoralfastfood.com/companyinfo6.php?lang=en
Survival Strategies of Fairwood – PPT Presentation, viewed 26/3/2012 http://www.powershow.com/view/21573-YzY1N/Survival_Strategies_of_Fairwood_flash_ppt_presentation
Success and Failure in the Chinese Fast Food Industry, viewed 26/3/2012 http://wenku.baidu.com/view/79306823af45b307e871975f.html
Café De Coral analysis, viewed 26/3/2012
http://www.oocities.org/terichie64/R-Cafe.htm
“HK: Minimum wage law and worker’s meal breaks” by Elmer W. Cagape Apr 14,
2011, viewed 26/3/2012 http://asiancorrespondent.com/51885/minimum-wage-law-and-workers-meal-breaks/
Fast Food in Hong Kong, China, viewed 26/3/2012
http://www.euromonitor.com/fast-food-in-hong-kong-china/report
QTSA Newss (July – September, 2005)
http://www.qtsa.com/cm/newsletterfile/1128580130.pdf
