Cafe De Coral Partners With Gourmet Master on Coffee Shop Chain

Cafe de Coral Holdings Ltd. (341), a Chinese fast-food chain based in Hong Kong, will partner with Gourmet Master Co. to open 25 coffee shops in the city to compete with Starbucks Corp. (SBUX) and Pacific Coffee (Holdings) Ltd.

Cafe de Coral and Taiwan-based Gourmet Master will invest HK$15 million ($2 million) each for 50 percent of the joint venture. The first store will open in September, and the group aims to have 25 shops in Hong Kong in three years, said Lucia Cheung, a spokeswoman for Cafe de Coral.

The fast-food chain is looking to diversify its portfolio as growth moderates. Its 151 Cafe de Coral outlets serving Hong Kong-style dishes are facing cost pressures from rising food prices and a higher minimum wage.

“They are actively looking for a growth opportunity,” Jacqueline Ko, a Hong Kong-based analyst at Kim Eng Securities, said in a phone interview.

Ko downgraded Cafe de Coral’s stock to “sell” from “hold” this week after the company released its 2010 annual results. Sales for the year ending March 31 were HK$5.33 billion, compared with HK$4.88 billion a year earlier, according to a company statement.

The chain reported flat growth in profit -- HK$514 million -- for the first time since 2003, the statement said.

‘Tough Competition’

“Last year’s same-store sales growth missed its guidance,” Ko said, adding that customers were put off by an increase in menu prices.

Cafe de Coral rose 0.9 percent to HK$19.62 at the close of trading in Hong Kong. It has gained 2.1 percent this year, compared with a 2.3 percent decline in the benchmark Hang Seng Index.

Gourmet Master operates 325 of its 85C coffee shops in Taiwan, more than 200 in China, one in the U.S. and four in Australia, Michelle Hsieh, a company spokeswoman, said by phone today.

Starbucks and Pacific Coffee operate about 100 stores each in Hong Kong, Roxan Hsu, Taipei-based analyst for Goldman Sachs, wrote in a report today.

“The HK venture is likely to face tough competition,” she wrote. “We believe HK is a mature market for the coffee business.”

Gourmet Master shares are down 14 percent this year, compared with a 1.7 percent decline in Taiwan’s benchmark Taiex Index.

To contact the reporter for this story: Michelle Yun in Hong Kong at myun9@bloomberg.net

To contact the editor responsible for this story: Dave McCombs in Tokyo at dmccombs@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.