Core Viewpoint - The restaurant industry continues to face challenges, with the fast-food chain Café de Coral (00341) issuing a profit warning, forecasting a 65% to 70% drop in net profit for the half-year ending September 30. This marks the third consecutive profit warning for the company, indicating a deteriorating situation [1][3][4]. Financial Performance - Café de Coral anticipates a year-on-year decline of approximately 30% in EBITDA, with an estimated EBITDA of 344 million HKD in the previous year. The net profit is projected to fall to around 46.8 million HKD, down from 144 million HKD in the same period last year [3][4]. - The average monthly profit per store has decreased significantly, from approximately 34,000 HKD to about 13,800 HKD, raising concerns about the sustainability of operations [4][5]. Industry Context - The Hong Kong restaurant sector is experiencing a downturn, exacerbated by trends such as consumers dining in mainland China and a shift towards more affordable meal options. Many restaurants are struggling, with closures becoming increasingly common [5][9]. - Despite the challenges, Café de Coral is still managing to operate profitably, which is seen as a sign of effective management compared to many competitors [5]. Strategic Response - In response to the ongoing challenges, Café de Coral plans to implement significant reforms, including adopting a more flexible operating model, consolidating underperforming stores, simplifying operations, and upgrading supply chains in Hong Kong and mainland China [7][11]. - The company acknowledges that its traditional business model, which relied on scale and high customer traffic, is under pressure due to changing consumer preferences and industry dynamics [9][11]. Brand Positioning - The brand's historical advantages of being "affordable, fast, and good" are diminishing as consumer expectations evolve. The average dinner price has risen to between 60 and 80 HKD, making it less competitive against cheaper meal options [9][11]. - Café de Coral's lack of a unique positioning compared to other fast-food chains like McDonald's and KFC is highlighted, as it struggles to differentiate itself in a crowded market [9][11]. Future Outlook - The company is expected to focus on a "divide and conquer" strategy, consolidating its main brand while expanding its sub-brands to better align with market trends and consumer demands [11]. - The effectiveness of these reforms will be crucial in determining whether Café de Coral can reverse its declining performance and surprise investors in future earnings [11].