It's convenient for Tsui Wah Holdings Ltd - Hong Kong's largest casual dining chain - to blame rising wages and rents for its decline. But, stock analysts who have been following the catering sector said the company's problem lies in its outdated business model which, they argued, is no longer relevant in today's information age.

Earlier this week, publicly-listed Tsui Wah posted a year-on-year, 48-percent drop in profit to HK$42.23 million for the first half of the fiscal year ending March 31, 2017. Tsui Wah said that after a shareholding reshuffle, its controlling shareholder had canceled an earlier plan to sell the company.

The company has said it would focus on opening up smaller restaurants, ostensibly, to compete with the independent caterers that have sprouted up in various newly gentrified residential and commercial districts. But, analysts are unconvinced that smaller Tsui Wah outlets can help it win back its lost customers.

Tsui Wah's declining popularity can be attributed, at least partly, to the many culinary websites that have given independent eateries free publicity and made it easier for curious diners to find them. While competing with these caterers, Tsui Wah may enjoy a price advantage, but its largely standardized menu and service offer little appeal to the patrons of its potential rivals.

At the lower end of the scale are the Chinese fast-food chains that are already encroaching upon the market segment used to be dominated by Tsui Wah, by serving food of comparable quality and at lower prices. Cafe de Coral - the largest local fast-food chain that's also troubled by escalating wages and rents - has done considerably better than Tsui Wah.

Cafe de Coral posted a profit of HK$232 million on sales of HK$3.89 billion for the six months ended Sept 30 - up 11.8 percent and 4.3 percent, respectively, from the period a year earlier. The company said it plans to open another 25 outlets in Hong Kong before the end of the fiscal year.

Squeezed between the independent caterers and the fast-food chains, Tsui Wah would need to revise its business strategy, no matter how well it had worked for the company in the past. But, before it can produce a credible plan, investors are well-advised to look elsewhere.

(HK Edition 11/30/2016 page9)