(Bloomberg) -- Red Lobster, the American seafood chain that sees China becoming its biggest overseas market, is opening its first restaurant in Hong Kong, even as protracted political unrest in the city damps consumer spending.
Despite a confluence of difficult business conditions, the outlet is expected to do well when it debuts in November, according to FWM Restaurants, which manages Red Lobster in Greater China. The restaurant will be located in Causeway Bay, one of the city’s busiest shopping districts and also a key site of the months-long protests.
“When it gets a bit turbulent or things get a bit tough, brands do well,” David Martin, chief operations officer at FWM, said in an interview Tuesday. “We are going to make sure we emphasize the value proposition.”
Hong Kong’s retailers from glitzy shops to mom-and-pops are feeling the pain of violent protests that have disrupted businesses and discouraged tourism. FWM, which has a joint venture with the U.S.-based chain to run the outlets in Greater China, is betting big on Red Lobster’s success in the city, undaunted by sliding sales at a burger chain it operates separately in the former British colony.
Butchers Club, which clocked double-digit growth year-on-year at the beginning of 2019, is set to reverse into a decline since the demonstrations started in June, Martin said. FWM operates from its bases in Hong Kong and Shanghai.
Retail Pain
The city’s seen 13 consecutive weekends of rallies, originally held to protest a proposed extradition bill and have morphed into pro-democracy calls, have added to the headwinds of a prolonged U.S.-China trade war and slowing economies in both Hong Kong and China.
From Dior to Dried Fish, Hong Kong Retailers Feel Protest Pain
Retail sales in the territory by volume fell 13% in July, the first full month affected by demonstrations, while the city’s economy contracted by 0.4% in the second quarter.
While Red Lobster is a casual dining restaurant in the U.S., it is marketing itself as a premium offering in mainland China, according to Martin.
FWM operates four Butchers Club restaurants in Hong Kong. To deal with sliding sales, it’s worked with employees to clear leave days and also pared part-time staff when needed. It’s also negotiated with suppliers to extend payment terms and some discounts for the chains it runs.
Martin, like many retailers, said he hopes the protests will be done when the convention season kicks into high gear September to November.
“If we lose that convention business, that will be very difficult,” he said. “You try to do whatever you can to drive traffic. It will be great for the consumer.”
To push sales, retailers and restaurants will need to offer significant deals and promotions to attract shoppers and diners, said Martin.
Canadian Lobsters
Currently operating two outlets in China, Red Lobster sees more on the way as China becomes a larger market for the chain than Canada and Japan. FWM is scouting Guangzhou, Shenzhen, Chengdu and Wuhan, cities where it already operates other dining chains, said Martin.
Red Lobster, which is the largest seafood-buying restaurant globally, had to make some adjustments because of the ongoing trade war for the mainland outlets. Instead of importing the crustaceans from the U.S., it’s ordering them from Canada to skirt a 35% tariff.
The chain, known for its popular Endless Shrimp all-you-can-eat dishes, has also had to turn to a local supplier to replicate its cheddar bay biscuits because of tariffs on some ingredients.
Still, FWM is bullish on China. The slowdown isn’t a pressing concern as it looks to expand in the world’s second biggest economy, he said.
“What other economy has 6% GDP growth right now and an incredibly large middle-class market that’s growing?” he said. “Our business is fueled by middle-class markets.”