| BUSINESSWEEK ONLINE : JUNE 14, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- ASIAN COVER STORY
'We Want to Turn a Crisis into an Opportunity' (int'l edition) Michael Chan, 47, is not your typical Hong Kong executive. The chairman of Cafe de Coral Holdings, the biggest food chain in Hong Kong, Chan is an urban planner by training, working for city governments in Edmonton, Alberta, and Hong Kong before joining management at his father-in-law's company. Chan has cautiously steered Cafe de Coral through Hong Kong's recession. As boss, he allows himself one indulgence: the former city planner has become the chief corporate decorator, planning the designs for everything from new restaurants to corporate headquarters in a former warehouse in Hong Kong's New Territories. From there, Chan recently spoke with Business Week Asia Correspondent Bruce Einhorn. Here are edited excerpts of their conversation: Q: Once the Asian crisis hit Hong Kong, how did Cafe de Coral management react? A: When the recession started creeping in, some people said it was business as usual. For ourselves, we knew that this recession would be here for a period of time. We had an internal, crisis-management discussion. We prepared a five-year plan, to focus everybody to stick to our core business -- the mass-market food business. We severed nonperforming assets right off the bat. We closed three shops that weren't generating a lot of profit. We swapped restaurants for better locations when the landlords weren't prepared to reduce rents. Q: You were criticized in the past for being too cautious. Do you feel vindicated by Cafe de Coral's performance since the recession's start? A: I have been trying to toe the line for years to stick to our core business. There was such a boom time in property [before the crash], and there was a lot of talk why don't we diversify into speculating in property. The pressure was there. Everyone wanted the company to grow in a glamorous way. There was [also] talk within the company to go upscale. But all along I have been saying, stick to our core business. That is the demographic we know, the low to middle market. That is the strength we have. Q: Yet, strangely enough, your fast-food outlets in China are pretty pricey. A: We have learned a lesson in China. The logistics [of operating in China] are not as effective or efficient. Because of the pricing level, we were positioning ourselves almost as a Planet Hollywood. Consumers perceived Cafe de Coral as an upmarket restaurant. So we've closed three restaurants and now just have nine in China. Q: Many Hong Kong companies have suffered poor labor relations during the recession. How have you managed to cut costs without provoking the anger of your 6,000 employees? A: We were not about to be in a situation with pay cuts severely impacting morale of our staff. We extended working hours -- from nine hours to nine and a half hours -- and promised we would have profit-sharing with our workers. We had done that at a management level -- 40% of branch managers' pay is derived from profitability of the branch. So, when our interim results came out with a 30% increase in profits, we took 7% of our absolute profit and distributed it to workers. That was about 1.5% to 2% of their salary. Q: During the recession, you are opening new restaurants. Why? A: We want to turn a crisis into an opportunity, by escalating our development pace. This was a record year. We opened 32 operating units, and in years past we opened 12. It is difficult to open just one a month, let alone three a month. But it is worth it to make the extra effort. We are trying new restaurant concepts, because in the worst times, it is good to test out restaurant concepts. The entry point is much lower. Q: You created the design for your new buffet-style restaurant, Bravo le Cafe. It's not often that the chairman does that kind of work himself. Why did you do it? A: I'm the in-house interior designer. Design is a very rewarding exercise. You are creating something out of nothing. I tried for a European look, a very cosmopolitan kind of quick-service restaurant. I even went to Singapore and Japan to look at restaurant concepts and their interior design. Q: How has the business climate changed as a result of the Asian crisis? A: Our mindset has to change from an inflationary period to a deflationary era. Our pricing can be increased. In the past 12 months, we have had no price increase. We will have to build our strength in costs savings, profit-margin improvement. In 1994, our profit margin was 5.5%. Last year it was 8%. In two to three years, I want to reach 12%. Q: What are you doing to improve Cafe de Coral's productivity? A: We have launched a widescale computerization program, to computerize central purchasing, production, and warehousing. We will have much better measurements of our food costs. Because of better control of inventory, we will save up to 1% of our revenue. This year we are launching process re-engineering. We are looking at outsourcing our back-office functions and payment methods. There is not much point in us having a huge accounting department. We can outsource. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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