China's restaurant chain beefs up 2013 expansion

Xiao Nan Guo Restaurant Holdings Ltd, a mainland-based restaurant chain, plans to accelerate its expansion again next year by opening over 20 new restaurants in Hong Kong and on the mainland, up from the 15 this year.

The company opened 22 new restaurants in 2011, but due to the uncertainty of the mainland's economic situation, it slowed down its expansion pace in 2012, Kang Jie, Xiao Nan Guo's chief executive, told a press conference in Shanghai.

"At the beginning of this year, we set a target of opening 22 new restaurants (in 2012), but later we decided to take a more conservative approach (based on the economic situation) and the target was revised to 15 (new restaurants)," said Kang.

He said expansion is the company's major driving force of growth and as the mainland's consumer confidence is expected to be stronger in 2013, Xiao Nan Guo is poised to open more than 20 new restaurants next year, under the brands of "Shanghai Xiao Nan Guo" and "The Dining Room".

By now, the company owns 63 Shanghai Xiao Nan Guo restaurants, two "The Dining Room" restaurants and three "Maison De L'Hui" restaurants.

Kang said the investment to open each "Shanghai Xiao Nan Guo" is 10 million yuan ($1.6 million), and the cost to open a "The Dining Room" is around HK$5 million ($645,150).

"On average, a new 'Shanghai Xiao Nan Guo' restaurant will reach the break even point within three to six months after its opening," he said, adding that the two "The Dining Room" it owns in Hong Kong all recorded profit during the first month after the opening.

Since the investment for opening "The Dining Room" is low, it is able to record profit within a short period of time.

Xiao Nan Guo has decided to open six to nine "The Dining Room" in Hong Kong and Shanghai next year.

But the company currently has no plans to open new "Maison De L'Hui" restaurants in 2013, as this brand targets the high-end consumer market on the mainland, which is being impacted by slow economic growth as well as a decrease of consumption by government officials using public funds, said Kang.

Despite its fast pace of expansion next year, Xiao Nan Guo's gross profit margin is expected to stay stable at its current level, said Kang, explaining that the inflation on the mainland is likely to be maintained at a low level and the company's cost will be tightly controlled through standardization of operations and centralization of supply purchases.

sophiehe@chinadailyhk.com