Anti-Corruption Campaign in China Impacts High End Restaurant Sales Growth: Elaine Lai, a Consumer Analyst at Macquarie Group Limited Covering the HK/China Consumer Discretionary Sector Interviews with the Wall Street Transcript

Wall Street Transcript

67 WALL STREET, New York - March 17, 2014 - The Wall Street Transcript has just published its Restaurants Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Emerging Market Expansion - Store Sales Growth Trends - Cautious Consumer Spending - Restaurant Trends in China - Value for Consumers - Quick Casual Restaurant Growth

Companies include: Yum! Brands Inc. (YUM), Starbucks Corp. (SBUX), McDonald's Corp. (MCD) and many others.

In the following excerpt from the Restaurants Report, an expert China restaurant chain analyst from Macquarie Group Limited discusses the outlook for the sector for investors:

TWST: What exactly is your coverage in the restaurant sector?

Ms. Lai: I am very much focused on anything that is close to Greater China, so that includes Hong Kong, Macau, Taiwan and Mainland China. I look at specific companies like Yum! Brands (YUM), Ajisen (0538.HK), Tsui Wah (1314.HK), Cafe de Coral (341.HK), Gourmet Master (2723.TW) and couple of other smaller chains in Greater China.

TWST: What are you seeing right now in terms of those companies with exposure to Greater China? What are some of the important investment trends you are seeing?

Ms. Lai: One of the important trends we are seeing is that there has been a lot of M&A activity. Until very recently on Mainland China, most of the restaurants were small operations. There was very little exposure by large, industrialized, modern corporations. Over the last two decades we have seen that change.

We have seen rapid expansion carried out by foreign corporations like Starbucks (SBUX), Yum! Brands and also McDonald's (MCD), because these are companies with very strong management capabilities and the knowledge to replicate the industrialized food production process. These companies were able to replicate their business model on Mainland China.

We have also seen over the last decade or so some Taiwanese restaurant companies entering into Mainland China. Of course, on relative terms, they are not as large in terms of scale as the international companies, but we are starting to see them gain entry pretty rapidly. In terms of challenges, we are seeing a trend of rising rental costs and rising labor costs. We are watching to see which companies are going to be able to deal with that situation successfully.

TWST: Is the primary model to franchise restaurants on Mainland China or are they self-operated restaurants?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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