Threat of new entrants
New entrants are threats to the existing firms within an industry because they bring new capacity to the industry, and a new desire to gain market share and resources. If the entry barrier to the industry is high, the threat of new entrants is lower. The relatively high capital requirements and sunk costs create certain degree of entry barriers for Chinese restaurant industry. According to the information provided by Trade and Industry Department (2006), the capital requirements for opening a Chinese style café was HK$1,275,500. The scale of a Chinese restaurant is 10 to 20 times greater than a café, the capital requirements are estimated to more than HK$15,000,000. Most of the investment is spent for decoration, facilities, and marketing activities. They are all sunk costs that cannot be recovered. Economies of scale also help establish barriers to entry. Therefore, the major rivals of “Tao Heung” are big Chinese restaurant groups such as Maxims and Star Seafood. Companies with limited capital have been not easy to start up a new Chinese restaurant in Hong Kong recently.
Rivalry among existing firms
Hong Kong’s Chinese restaurant industry is dominated by several large restaurant groups now. They are Maxim’s restaurants, Federal Restaurants, Hsin Kuang Restaurants, East Ocean – Victoria City Restaurants, Star Seafood Restaurants, and Tao Heung Restaurants. The relatively small number of competitors and roughly equal in size create intensively competitive environment. In addition, the growth rate of this industry is slow. The value of Chinese restaurant receipts and purchases for the first half of 2010 was HK$19,600 million, accounting for 6% increase compared with last year (Census and Statistics Department, 2010). Moreover, the exit barriers of this industry are high because of high sunk costs. Diversity of rivals and differentiation are