Gourmet Master Co (美食達人) is upbeat on its China-based operations following Beijing’s implementation of a new value-added tax (VAT) regime across the country’s service sector.
The company, which operates the 85°C (85度C) coffee and bakery chain in Taiwan, China, Hong Kong, Australia and the US, expects the tax regime change to have a positive effect on China’s food and beverage industry.
“Our take on the tax changes is that authorities in China wish to ease pressure on the food and beverage industry,” Gourmet investor relations director Chris Lee (李翰霖) told an investors’ conference.
Lee said that output value-added tax in China has been reduced to 6 percent from 17 percent, while input value-added taxes on many products has been increased.
“Demand has remained stable in China, and we have not experienced pressure from rental hikes,” Lee said.
As the company continues its project to consolidate 12 central kitchens in China into a larger complex at Kunshan, Jiangshu Province, Lee said he expects operating margins to improve by 0.5 percent in the second half, excluding other factors such as seasonality.
“We have cut the number of workers at the Kunshan plant from 3,000 to 2,500, and we will continue to reduce the number to 1,500,” Lee said.
The Kunshan plant employs a high degree of automation, allowing for greater gains in operational efficiency as the number of coffee shops it supports increases beyond the current 505 stores the firm has in China, Lee said.
The company said that sales contribution from China fell slightly from an average of 71 percent last year to 68 percent as of the end of the first quarter, due to seasonality and the company’s store remodeling project.
In addition, the company has begun upgrading its product mix in an effort to elevate 85°C’s brand image.
“We have introduced a wide variety of specialty coffees from around the world and our baked products are now made with the imported French flour that is commonly used in baking competitions,” Lee said.
He said that the company is not planning to implement an across-the-board price on its current menu, and that the higher cost of the ingredients would be covered by the introduction of new products at higher prices.
In the US, the company is to open two new stores on the west coast, which are to be supported by its central kitchen in Brea, California, Lee said.
In light of the rise of smaller Taiwanese coffeeshop chains, such as Louisa Coffee (路易莎咖啡) and Cama Cafe, Lee said Gourmet has not ruled out potential acquisitions or collaborations.
“We will continue to assess prospective partners in the segment based on sustainable profitability and growth, as many franchises in the past have gone bust following a period of rapid expansion,” Lee said.
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