Tao Heung Holdings, a leading local restaurant chain, said it is seeking a better control on cost and food sources after its Dongguan logistics center has begun operation in full swing. The company said it will not raise food prices.

"We won't raise our prices since we have done well in keeping our margin," Chung Wai-ping, chairman of Tao Heung, said. Low prices allow the restaurant chain to reach mass market, he added.

In a newsletter published in April this year, the US Institute of Food Technologists stated that "Global food prices, based on United Nations records, rose 35 percent in the last year, escalating a trend that began in 2002. Since then, prices have risen 65 percent."

After its staff mooted the proposal of setting up a logistics centre in Dongguan, the company was able to tackle the problem. "It was six to seven years ago our staff suggested building a logistics center in Dongguan to support sourcing of ingredients as well as controlling food costs," Eric Leung, the CEO, said.

With 63 restaurants in Hong Kong and on the mainland, its gross margin slightly grew 1.3 percent to 67.9 percent in the first half from 66.6 percent last year. Profit attributable to shareholders from core business was HK$94.6 million in the first half, up 16.4 percent from HK$81.3 million in the same period last year.

"We see its preliminary contribution as the gross margin of the Group improved to 67.9 percent despite a substantial uptrend in food costs in the period under review," Leung added.

Dongguan logistics center's current utilization rate is around 15 percent and the restaurant chain hopes to break even when this reaches 30 percent by mid-2009, a company statement said.

Increasing proportion of food raw materials sourced directly from local farms increased to 16.2 percent this year from 10.9 percent last year and this further reduced cost, said the company statement.

Organization for Economic Cooperation and Development (OECD)'s forecast in May that the average of most agricultural commodity prices over the next 10 years will still exceed the average of the previous decade, by 10 to 50 percent in real terms, depending on the commodities.

Leung said: "Food prices have come down recently but I expect they will still remain high." Faced with rising food prices, the restaurant chain will focus on ingredient mix and further cost control, said Veanna Tsang, director of finance and accounting.

"The company is looking forward to increasing its network and developing a market targeting younger generations," Leung added. "We are studying opportunities in future acquisition and our targets will be businesses along the food chain."

(HK Edition 09/12/2008 page2)