Tsui Wah goes to college as consumers dine out less

The restaurant operator is looking for new business on university campuses amid persistent weakness in its two main markets in Hong Kong and Mainland China

Key Takeaways:

• Tsui Wah’s revenue from the Chinese Mainland declined 15.3% year-on-year to HK$190 million in the first half of its fiscal year through September
• The Cantonese restaurant operator plans to open a store at Shanghai’s Fudan University, marking its first venture into the campus dining market

By Lee Shih Ta

China’s consumption downgrade has been steadily eating away at the nation’s catering industry, turning images of huge lines outside popular hotpot and barbecue chains into fond but increasingly distant memories. Most of Hong Kong’s major operators, including Fairwood (0052.HK), Café de Coral (0341.HK) and Tam Jai (2217.HK), have warned in recent weeks of big slowdowns in both their Hong Kong and Mainland China operations.

Now, the somewhat statelier industry stalwart Tsui Wah Holdings Ltd. (1314.HK), known for its art deco designs, is adding its name to that list with disappointing results for the first half of its fiscal year through September. The company’s latest financial report shows its revenue during the period fell 9.8% year-on-year to HK$450 million ($57.83 million), as its profit slumped 4.8% to HK$6.42 million.

Its numbers seem to be holding up better than some of its peers, at least at first glance. Tam Jai’s profit for the same period fell 55.8%, while Fairwood’s fell 50% to 60% and Café de Coral’s was down nearly 30%.

That relatively better performance might be the result of Tsui Wah’s major downsizing in the past few years, helping to cut its losses by closing underperforming shops. The company had 30 Tsui Wah-branded stores in Hong Kong in 2018, but the number is down to just six now. In other words, the company has shuttered nearly 80% of its namesake Tsui Wah brand Hong Kong stores in just six years.

And while the pandemic that was a major factor behind many of those closures is over now, the slimdown continues. According to Tsui Wah’s latest report, its total stores under management, both by itself and jointly with others across all its markets, was down to 69 by the end of September, three less than at the end of March.

Even after the closing spree, Hong Kong still stands out as the company’s biggest revenue source. During the latest six-month period, its Hong Kong revenue reached HK$240 million, down 6.4% year-on-year, compared with revenue of HK$190 million for Mainland China, which was down 15.3%. During the same period, its revenue in Macau and Singapore combined jumped by 40.7% year-on-year, but accounted for just 2% of its total.

The severe revenue contraction in its Mainland China operation might be one of the biggest headaches for the company right now.

Fading appeal of Hong Kong-style restaurants

There was a time when Hong Kong-style restaurants, with their classic Cantonese cuisine, were all the rage among Mainland Chinese consumers, driven by the popularity of Hong Kong TV series and films and Cantonese popular music. Tsui Wah, in particular, was a must-visit destination for Mainland tourists traveling to Hong Kong.

Piggybacking on the rage, the company opened its first Mainland store in Shanghai in 2009 and went public in Hong Kong three years later, becoming the first Hong Kong-style restaurant to list. It now has more stores in the Mainland than in Hong Kong.

However, the problem of differentiation came to the fore as more copycat chains opened to feed on the Cantonese dining craze, many offering a similar Hong Kong-style nostalgic decor and similar menu items. Hong Kong-style milk tea, pineapple buns and other quintessentially Hong Kong dishes of varying quality could be found in each and every restaurant.

Then Hong Kong TV series and movies began to lose their luster, and the Cantonese dining craze faded. As that happened, some made-in-China Hong Kong-style chains like the Man Tung Ice Room, common in cities such as Guangzhou and Shenzhen, while still retaining their Hong Kong-style decor, no longer advertised themselves as Hong Kong-style restaurants.

Famous Hong Kong restaurants also began losing their appeal to Mainland tourists visiting the city. Nowadays, such tourists often prefer to visit restaurants recommended on the social media app Xiaohongshu instead of going to chains like Tsui Wah. Equally important, Tsui Wah’s prices are relatively high compared with the Mainland knockoffs, which is making it difficult in the current environment when consumers are cutting back on their spending.

Going back to school

The company saw the writing on the wall for Hong Kong-style restaurants a while ago and has been diversifying its brands. Cases in point are its Japanese-style Nijuuichi Don brand launched in 2018 and its Chilli Chilly brand serving Sichuan fare. It also launched its own Tsui Wah Delivery takeout brand in 2022. 

However, none of these new attempts have made a dent. Other than Nijuuichi Don and its Ging Sun Ho King of Bun chains, no other brands have made it into its financial statements.

According to the company, key dynamics such as weakening local consumption, intensified competition and significant shifts in consumer behaviors are adding to the challenges Mainland and Hong Kong restaurants face. The company says it has adopted prudent management approaches and is reevaluating its strategic positioning and trying to operate more efficiently to show it can adopt to changing market dynamics.

It added it plans to re-establish presences in the key Hong Kong tourist districts of Central and Tsim Sha Tsui and strategically reposition itself. Such revitalized locations will feature a refreshed brand aesthetic and exclusive, limited-edition products. It will also launch a Tsui Wah Restaurant within Fudan University in Shanghai, marking its first venture into university dining.

Annual consumption by college students in China will total about 850 billion yuan this year, iiMedia Research estimated in its report titled “Investigation and Analysis on Consumption Behavior of Chinese College Students in 2024.” Looking for a piece of that business, domestic brands such as Haidilao (6862.HK) and the Home Original Chicken Chinese fast food chain have all announced plans to enter university campuses.

Tsui Wah currently trades at a price-to-earnings (P/E) ratio of 7.5 times, lower than the 10.3 times for Tai Hing Group (6811.HK), 13.3 times for Café de Coral and 15.6 times of Tam Jai. Investors don’t seem very bullish on the stock, reflected by a 7.35% drop in its price the day after the company published its latest report. That suggests that investors are losing their appetite for Tsui Wah, despite its attempts to remain relevant in the Hong Kong and Mainland restaurant markets.

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