You’re walking through the busy streets of Hong Kong – It’s lunchtime.. You spot a familiar light yellow-logo – Café De Coral.
You step inside, grab a quick meal of curry chicken with rice, and you’re back exploring in 15 minutes. Simple, affordable, and satisfying.
For decades, this has been the Café De Coral story.
But today, this Hong Kong fast-food giant is fighting one of the toughest battles in its 56-year history.
The culprit?
A wave of ultra-cheap “two-dish rice” shops that are reshaping how Hong Kongers eat.
Interestingly, not all F&B operators face the same danger.
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From humble beginnings to F&B empire
Café De Coral’s journey started back in 1968 when founder Victor Lo Tang-seong (羅騰祥) had a simple dream: feed Hong Kong’s working class at prices they could afford.
The first restaurant opened in Causeway Bay in 1969. And it struck gold. Since then, the chain grew steadily through the 1970s and 80s.
In 1986, Café De Coral became the first fast-food company to list on the Hong Kong Stock Exchange. But the real expansion came in the 1990s through smart acquisitions.
In 1990, Café De Coral bought Ah Yee Leng Tong (阿二靚湯), a popular soup chain. A year later, it acquired The Spaghetti House, bringing Hong Kong-style Italian food into its portfolio.
Later on, in 1998, it launched Super Super Congee & Noodles (一粥麵), targeting the Chinese cuisine market.
By the 2000s, the group added Oliver’s Super Sandwiches and expanded across borders.
Today, Café De Coral operates around 566 outlets across Hong Kong and mainland China under multiple brands.
It serves an estimated 300,000 customers daily in Hong Kong alone. The group became one of the largest Chinese fast-food operators worldwide.
But here’s where the story takes a dark turn.
The “Two-Dish Rice” Threat: A Perfect Storm
Since 2023, a new dining trend has swept Hong Kong: “two-dish rice” shops.
These are simple takeaway joints where customers pick two pre-cooked dishes plus rice for just HK$30-40. The numbers tell a shocking story.
Before the pandemic, only about 300 such shops existed. Today? Over 1,000 outlets crowd Hong Kong’s streets. They are everywhere – in industrial districts, shopping centers, even prime Central locations.
Why are they winning? A key reason is people have turned more pessimistic towards the economic outlook – choosing to go on a budget instead of spending.
And this hits Café De Coral in the one place it hurts most – its high cost structure. The thing is, fast-food chains like Café De Coral operate on economies of scale.
They have big kitchens, lots of staff, and high fixed costs. When customer traffic is strong, profits are good. But when fewer people walk through the door, those fixed costs don’t go down.
Here’s the math: If Café De Coral’s rent, salaries, and utilities cost ~HK$500,000 per month, they need to serve enough customers to cover that.
Let’s say it normally serves 10,000 customers at HK$55 each, generating HK$550,000 in revenue with a 10% profit margin. That’s HK$50,000 profit.
Here’s the thing: if customers drop by just 20% because they’re eating “two-dish rice” instead, revenue falls to HK$440,000.
But those fixed costs? Still HK$500,000. Suddenly, the restaurant is losing money. This is exactly what’s happening.
Industry president Simon Wong Ka-wo said: “Traditional eateries face new competitors, including ‘two-dish rice’ takeaways, which grab dine-in business with cheaper prices”.
What’s more, Hong Kongers are also spending more across the border in Shenzhen, further squeezing local restaurants.
In fact during its latest financial results, Café De Coral issued a profit warning projecting 65-70% profit decline and 30% EBITDA drop.
Having said that, this is also why I believe Tai Hing – Hong Kong’s largest multi-brand casual dining operator – has a far better advantage, which I wrote earlier here.
Café De Coral: From pandemic survivor to crisis mode
Café De Coral’s financial journey over the past six years reads like a rollercoaster ride. During the COVID-19 pandemic, its revenue was HK$7.96 billion.
Meanwhile, net profits hit HK$73.6 million. Further on, its revenues collapsed 16% to HK$6.71 billion, yet net profit jumped to HK$359 million.
How?
Government subsidies, rent concessions, and cost cuts. The company was on life support, but numbers looked decent.
However, FY2021/22 brought real pain. Café De Coral’s revenue recovered to HK$7.51 billion, but net profit crashed to just HK$21.2 million – a 94% drop.
Then came the “two-dish rice” storm. On 6 November 6 this year, Café De Coral dropped a profit warning.
For the six months ending September 2025, the company expects adjusted EBITDA to drop 30% compared to the same period last year. Even worse, net profit is forecast to plunge 65-70%.
The culprits? A “mid-single digit decrease in revenue” and weak consumer sentiment.
The company’s statement was sobering: “The restaurant sectors of Hong Kong and the Chinese Mainland were hit by weak consumer sentiment and fierce price competition”.
For FY2024/25 (ending March 2025), final results showed revenue declined 1.4% to HK$8.57 billion. Net profit dropped 29.6% to HK$232.7 million.
The net profit margin fell to just 2.72%. The stock price crashed to a 22-year low near HK$5.96.
Café De Coral’s dividend story under pressure
Despite financial challenges, Café De Coral has maintained its dividend commitment.:
- FY2020/21: HK$0.38 per share (61% payout ratio)
- FY2021/22: HK$0.28 per share (700% payout ratio!)
- FY2022/23: HK$0.38 per share (200% payout ratio)
- FY2023/24: HK$0.57 per share (100% payout ratio)
- FY2024/25: HK$0.40 per share (98% payout ratio)
In FY2021/22 and FY2022/23, the company paid out more in dividends than it earned in profit.
Why?
Management wanted to support shareholders through the crisis.
At the current stock price of around HK$5.77, the dividend yield is approximately 6.9%. That’s attractive, especially in Hong Kong’s low-rate environment.
But can Café De Coral sustain this? Let’s check the balance sheet.
As of March 2025:
- Cash: HK$1.05 billion
- Total Debt: HK$2.13 billion
- Net Debt: HK$1.08 billion
The good news? Café De Coral is reducing debt. Net debt fell from HK$1.19 billion in FY2023/24 to HK$1.08 billion in FY2024/25.
The company has more cash than short-term obligations and generates strong operating cash flow of about HK$1.66 billion annually.
Most importantly, the cash flow payout ratio is only 19%. This means Café De Coral’s dividends are well-covered by actual cash generation, not just accounting profits.
Even if earnings stay pressured, the company has room to maintain dividends from operating cash flow.
However, the 98% earnings payout ratio in FY2024/25 is worrying. If profits fall further as the profit warning suggests, Café De Coral may need to either cut dividends or dip into cash reserves.
My final thoughts
A Hong Kong icon under siege. Café De Coral built an empire by feeding Hong Kong affordably.
But today, “affordable” has been redefined. When office workers can get two dishes and rice for HK$30 versus HK$50 at Café De Coral, the math is brutal.
The bigger lesson?
Market positioning is everything. For instance, Tai Hing proved operating in the mid-range casual dining segment offers better protection against ultra-competitive price wars.
Its customers aren’t shopping on price alone – they value experience, menu variety, and quality. That gives Tai Hing pricing power Café De Coral has lost.
Café De Coral trades at ~7% dividend yield. However, with a high payout ratio and weak profit outlook, these are red flags.
Café De Coral remains a Hong Kong icon. But in the age of “two-dish rice”, even icons must adapt or fade.
The next year will determine whether this 56-year-old giant can reinvent itself – or become another casualty of Hong Kong’s changing dining landscape, while mid-range players like Tai Hing continue to thrive.
