It is amazing what you learn from restaurant owners when you are the only customer. Just got a lot of insights into Hong Kong restaurant business models that I wanted to share.

Higher rents lead to smaller places

Some restaurants have seen their rent triple in the last decade. Higher rents lead to smaller places. As landlords demand more rent restaurants have no choice but to move into smaller places while landlords cut up spaces into smaller ones and rent them out. Witness the closing of Grappas Cellar.

Delivery leads to smaller places and higher prices

Even though there is fierce delivery competition in HK among Deliverroo, Foodpanda, and UberEats, the restaurant still has to pay them about 30% and this can be passed onto the customer. Next time you open your food delivery app check the prices and then walk to the restaurant and compare the prices off line. (This is not including the delivery fee.) Hong Kong customers are so price insensitive about delivery that they will pay the extra 30% plus delivery fee even if they live right above the restaurant. No joke!

On top of this, delivery has reduced the number of customers coming to the restaurant which also encourages restaurants to take smaller footprints with the higher rents.

Delivery kitchens instead of sit-down restaurants

Rather than pay the up to 20,000HKD per year costs of keeping your restaurant license and facilities compliant, you set up a delivery-only kitchen in a warehouse and license it as a Food Factory for a few hundred HKD. This also gives you the flexibility of setting up multiple restaurant “store fronts” on the delivery apps. Be an Italian restaurant, Spanish restaurant and Chinese restaurant all out of one kitchen.

Need discounts to get butts in seats

Hongkongers choose restaurants by how busy they look. A full restaurant with a line outside is good. An empty restaurant bad.

Without lots of customers, you can’t get lots of customers.

How do restaurants solve this chicken and the egg problem?

Enter popular discount app Eatitgo. Diners get steep discounts – often 50% off – and restauranteurs get butts in the seat. The cost? The restaurant pays HK$12 per booking via the app plus the cost of the discounts.

The forces at work

The economic and digital forces above have really changed the Hong Kong restaurant scene driving out the larger venues that can support live music while forcing restaurant groups to be more creative to bring in customers such as installing instagrammable motorcycles.

About the author

Brent Deverman, now living in Hong Kong, has almost 20 years in the food and beverage industry as owner of ShenzhenParty.com working to promote local restaurants in Shenzhen, China.

Editing by Larry Salibra.

Featured image: Hong Kong Chinese Food photo by Josh Graciano on Flickr/Creative Commons This restaurant sign is actually in Boston 😉