Restaurants, Property, and Lower SME tax

Restaurants, Property, and Lower SME tax

(original name):

Lower SME tax of 10%: Will it Help Restaurants?

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That was my first thought when I saw the article in today's SCMP


"A progresive tax system that levies a 10 percent charge on a firm's first HK$2 million of profit is bound to make the SAR mnore competitive, the HKGCC suggested."


They also proposed that the standard rate would be cut to 15 percent from the current 16.5 percent.


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> more : HK Standard

I presume this rate will apply to restaurants.


I am investigating some property related investments with involve restaurants.

Does anyone have some experience in this area of investment ?

One space I am looking at has about 800 sf,


and a rent of about $20,000 monthly.

The current restaurant on the site is losing money for reasons that may be fixable

Here's some more info... on what we are planning:


(to come)

DUPLICATE - from the TKT thread:


Sometimes beauty is in the eye of the beholder.


I have had an eye for cheap properties (which I think is appropriate for a market like this which is vulnerable to downturns.) And usually when something is cheap, there is a reason for it. Some warts you can fix by removing them, and others you have to live with.


For instance, I think the "wart" of being off HK Island, is one that many people can happily live with, and enjoy the savings associated with living "on the dark side."


If you are looking to buy, you should first have some idea of what you are seeking:


Approximate budget?

Purpose: Own use, or investment?

(If you own use, then your own living requirements will matter hugely.)

Age of property, and sort of tenants you want?


These are just a few.


There are also other sorts of opportunities.


RESTAURANT TURN-AROUND

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A small Team of us are considering an investment in a Restaurant turnaround...


The restaurant now caters to a Chinese clientel, and would be revamped to try to get more expat customers. It is a short walk from Olympia Malls 1 and 2, and nearby are very expensive flats in places like Hermitage, Park Avenue, Florien Rise, Island Harborview, etc. The more wealthy people who live in those properties might happily spend as much as 2-3 times the current menu prices. But so far, they are unaware of "local alternatives", and just stay in the malls.


In return for walking out of the mall, and a few steps more, the restaurant clients will be a cheaper menu, and maybe a more interesting dining experience.


The Rent in this restaurant is less than 1/5 what it would be in the mall (I reckon), and so there is an opportunity to make the menu much cheaper. But I need some partners in this small investment, that will help to market the new-and-improved place, and bring friends.


If we are successful with a cheap small-ticket turnaround like this, we may later aim to have our own restaurant, once we have been through a successful learning experience.


At some stage, if property prices fall enough, we might even consider buying a suitable space. But that would be 1-2 years away probably. And we may find we like the restaurant game more than the property game. But we want to be a team of turnaround and marketing-oriented specialists now, not those pouring a $million+ into a new and untested restaurant concept.


We want a few more people to round out the team. We are especially keen to start in the TKT area, given the gentrification dynamics at work. And we prefer to have people who are familiar with the area, and can help to market a restaurant located there.


Two of my Team members have experience in restaurants, mostly successful, and I do not. So on this first one, I want to keep the investment small, and have team members who will add value mainly through market, design, or operational suggestions.


I am not expecting big profits. But we do expect to have fun, and learn something from the experience, while risking only small amounts.

I have nothing to add other than that running a restaurant is a very difficult, laborious and expensive operation. Also, anything that requires a retail location is very susceptible to rent hikes, especially restaurants since they require more expensive renovations. I think everyone has an inherent dream to open a restaurant, but it usually ends up being more nightmare than dream.


With that being said, please open a mexican or BBQ place - HK is lacking.

"I have nothing to add other than that running a restaurant is a very difficult, laborious and expensive operation."


I agree.

And that is why I think it is essential to Team up with people have been successful.


I would be an investor, with limited risk, not the person running the restaurant. My role would be advancing a (small) amount of funds, making some suggestions, and assisting with the marketing.


I do not think it is the right time to be investing big amounts in expensive new restaurants. But a properly structured turnaround will not require that.


Perhaps some people should offer to "pay a visit" to the Restaurant, if we can get it off the drawing board. That is many weeks or months away, if at all.

Even though I wish it were mexican or BBQ, I would not actually recommend that here in HK. I think it is risky to cater to the expat community as the primary customer - your bread and butter should be your local HKers. Yes HKers might go out to the Berliner twice a year and there are hundreds of thousands living in TKT so the math works out, but it ignores that the same people visit a noodle house 100 times a year... I'd aim for large volume and low cost menu. The tea houses, McDonalds, Cafe de Corals are much better successes than any higher "quality" restaurant is.


But at the same time I would not try to compete with HKers at making Cantonese food. Although it is very unromantic, I think something like simple take-out fried chicken stand would be a better success than a standard sit-down western restaurant / cafe. Everyone enjoys fried food, its easy to cook and its addictive to eat. Maybe something like a Chik-fil-a knock off would work.


Another idea is a Chipotle-style burrito restaurant. The chipotle burrito has a flavor profile that I think fits well with Asian food (rice, beans, meat and lots of veggies wrapped in a tortilla like a big dumpling). There is a Chipotle-style restaurant in Causeway Bay buts its price is far too expensive in my opinion - needs to be down in the 30 HKD range to really attract frequent return customers... cannot justify paying 75 HKD for a burrito every week.


I agree with your general aim which is to invest money in real things rather than financial assets. Owning a real business or partnering in one provides you with the potential to receive real cash profits as a return on your investment. Meanwhile stocks generally only provide the hope of capital gains, which is to say that you gotta hope that in the future someone else will pay you more for your stock than you paid to buy it.


People like to trumpet Buffett as a stock investor but he is anything but - he buys and holds whole businesses and controls their cashflows like a hawk. Passively owning stocks gives an investor no access to the profits except for a potentially measly 2% dividend. I strongly agree that directly owning businesses, like a small restaurant, is better. [however I again note that restaurants are notoriously risky and often fail miserably]


Anyways, if you decide to target the low-price menu (<30 HKD) then I'd be interested to know more about the business opportunity.

Can take a look at the type of restaurants that are opening up on High street near Centra Street in Sai Ying Poon. The clientele seems similar to one you mentioned in TKT.

"With that being said, please open a mexican or BBQ place - HK is lacking."


Oh my goodness, please don't. I am fine with Mexican (is that food any good?), but HK already has about 80,000 BBQ places.


Please open Malaysian or French (affordable). Thanks! :)


I agree with Lucane's comment to sell affordable food. I think it's less risky (because you will alwasy have people), and you can actually make more money. I have also been dreaming of opening a cheap delivery/take away, but I would only put the money and let someone else manage it, and I haven't been able to find that someone else. :(


And yes, as Lucane says, most restaurants go bankrupt eventually, so it's a high-risk venture.

Good tips, thanks.


"I'd aim for large volume and low cost menu. The tea houses, McDonalds, Cafe de Corals are much better successes than any higher "quality" restaurant is..."


Yes.

I think an "affordable, but different" restaurant theme might work.


We are thinking: FUSION

... and in the first year might be even: "Experimental Fusion", trying out different menus, styles, and dishes, until we get a formula that works.


We would want a visit to the restaurant to be fun for everyone. And one of our Team has helped to promote his existing restaurants by having a "fan club" of investors, and doing things like having musical evenings.

Musical evenings would be very nice. But I think trying out different menus might be dangerous. I don't usually go again to a restaurant if I didn't like the food. On the other hand, if I like a dish I usually go to the restaurant only for that dish. If others do like me, better keep always the same menu.

OTP,


how about Fish and chips?? (do some Asian variety as well to attract local crowd) couple of them appearing around ML.. the one on mosque street is a bit expensive.. there is one getting ready on caine road..need to see the price..


chipotle sytle mexican is indeed a good low cost operation.. there is one on third street in sai ying pun (decent prices ) and the cwb one is expensive by 40% .. and a bit too big of a space.. and many a staff in the kitchen (hence you pay the extra 40%) .. wish there was a chipotle in HK.. or a chipotle style one in Mosque street with decent price (HKD 50 for good burritto)

Food and restaurants really are a matter of taste but I'm really not a fan of fusion. Its too jumbled and unclear as to what the restaurant is really good at cooking. Also you can really lose a lot of money having to constantly stock a walk-in filled with all different types of meat and produce to cook dramatically different fusion dishes.


I know its far more interesting / romantic / dreamy / wholesome / satisfying to do a specialty restaurant like that, but for a business deal I think it is too risky.


I agree with gdep's suggestion of fish and chips. Something ridiculously easy and addictive as that is a much safer bet. Yes doing fried food is not going to win you any awards or keys to heaven, but as a business proposal it is much more sound.

No, please don't do that greasy stuff. I don't think HK people like them. You have a few expats and a couple of HK young people who studied in England and want to look cool. Unless you open in a place with a lot of expats, you won't make any money.


I agree that fusion is a waste of time. You don't know what you are eatinig. With fusion you are only looking for people who want to look sophisticated. Most locals won't bother. Burritos or some exotic (unavailable in HK) cheapish snacks, or cheap (but authentic) French seem to be better options for me.

HKers don't like greasy food? KFC and McDonalds are probably the most popular restaurants here by sales volume and number of locations. I think that speaks for itself.


And on a backup you can always sell buckets of chicken / fish and chips to the helper outdoor parties on Sunday.


Edit:

Anyways, I think a Chipotle style restaurant is a great idea. Chipotle is healthy enough that you don't feel guilty eating it and it is big enough that you feel you got your money's worth. From personal anecdotal experiences, Koreans and mainland Chinese that I've taken there really love it (not American born).


It is also relatively easy compared to a normal sit-down restaurant. Its menu is also limited such as to prevent losing big money on rotting food that sits in your walk-in... and also its compact enough that it doesn't overwhelm your clientele.


Can save money by focusing on take-out rather than dine-in, pass savings on to the consumer. Low price big volume, that'd be an interesting business.

"I agree with gdep's suggestion of fish and chips. Something ridiculously easy and addictive..."


I don't think so. Not for me.

It is too unhealthy.

My "vote" - and I can only vote as far as my own share in the equity - would be for something healthier. I would plan to eat there myself, so the food needs to be healthy. (My girlfriend is even more fussy on food than I am.)


Anyway, I am enjoying the discussion and the suggestions, so keep them coming.


It sounds like there may be demand for a Mexican, Chipolte-type restaurant in HK, but not in Tai Kok Tsui, I think. Chinese people have a hard time digesting torilla's the (fussy?) girlfriend tells me. I reckon well over half of our customers would be local Chinese. (But maybe Chinese who have studied abroad and want something different from the local fare.)

I live in TKT as well and you have to consider the demographics. Depending on where you want to situate your restaurant. If you are looking for anything in the older area near cosmopolitan estates, there aren't many westernized restaurants there. Off the top of my head, the ones that I sometimes go to is Kona Bay and Captain...can't really remember the name. The rest are all small chinese shops, viet/thai and noodle places like ramen.


If you are looking for a western restaurant, you would have to go near Olympian mall area, such as close to phase 3. Then again, you have a plethora of foreign options.


Personally, I don't think a mexican style restaurant would be profitable in Olympic/TKT area.

Hi, RF


Yes, I am very familiar with Ivy Street, near Cosmo Estates.


But that is not where we have in mind.


As you say, we are more interested in the area closer to the Malls, etc. For obvious reasons, I do not want to be too specific at this point. Perhaps I can be more specific on the location, once we are sure we are going ahead with a particular location.


I do agree with your comment about a Mexican restaurant being unlikely to succeed.


With a Fusion-type menu, we can start with a mainly local cliental, and add expat customers are we get better-known

@ OffThePeak


I'm following this with interest. FWIW, I know four people who have invested in restaurants. One is successful and expanded to operate from four (?) locations, one shut down within two years, one needed new capital to keep afloat and the fourth is still standing as a small hole in the wall place in SOHO.


I hope your venture goes well.

OTP,


You should then do simple steak in a chinese/western way.. something like Wings does with chicken steak.. they freakin do amazing business.. have eaten in their CWB and Wanchai restaurants.. 1 main meat (chicken steak served in different options - rice, spaghetti, vermicelli) with condiment side dishes (pork patties, chicken wings, tofu, veggies etc)


you can do pork chops/ chicken beef steaks etc.. add soup if required.. make sure the locations have school closeby.. Wings' half clientele are school kids who eat pretty quickly or take away..

(No. I am not planning to start a Coffee Shop business, but I watch videos like this occasionally, to see what I can learn - Maybe others can also get something from them.)


Coffee shop business plan - how to set up coffee shop for $25,000


= https://youtu.be/ZqZwpEb1imw?si=nU9q2_FOTkL6I0gT =


TIPS:

+ Opened in older location, taking over existing operation

+ Negotiated a 5 year lease, cheaper than 2-3 years

+ Used a "free" interior designer

+ New contractor, looking to get into the business

+ Lease-purchased equipment

+ Familar with area, knowing what local customers want