- Tam Jai is no longer just a restaurant down the street, but a Michelin-approved chain ready to conquer the world with its spiciness.
- The brand was run by Tam family, which split into two restaurant chains and eventually acquired by Japan Toridoll Holdings Corp in 2017.
- Hong Kong netizens are amazed by its earning power but doubt the company’s overseas expansion plan.
Spicy soup with different flavours, mix and match combos with 10 spiciness levels, affordable menu prices, and waitresses known as ‘Tam Jai Aunties’ with special accents… With all these elements, the Tam Jai noodle chain is quickly taking over every district in Hong Kong.
Tam Jai International (02217:HK), which runs the rice noodle chain TamJai and SamGor, has launched its IPO aiming to raise USD 180 million by offering 335 million shares with an indicative price range of HKD 3.33 to HKD 4.17. Guotai Junan International (1788:HK), one of the largest investment banks and securities companies in China, will act as the principal sponsor for the listing.
As of 4:30 pm on the first day of IPO, Tam Jai was six times oversubscribed via margin financing, and attracted at least HK$979 million.
Tam Jai CEO Daren Lau Tat-man said in a press conference on Thursday that he is confident about the company’s prospects: “People eat noodles when they are happy and when they are unhappy… They eat noodles no matter if the stock market is bullish or bearish.”
Tam Jai currently runs 156 restaurants, including 76 TamJai and 74 SamGor in Hong Kong, 3 TamJai in Shenzhen and 3 SamGor in Singapore. The company is planning to use its IPO proceeds to expand in Hong Kong, Mainland China, Singapore, Japan and Australia, with the target of opening 63 new restaurants by 31 March 2024. Other plans include renovating its restaurants, advancement of equipment, and brand-building internationally.
Tam Jai offers southwestern Chinese cuisine, with a variety of toppings and soup bases for food lovers to mix and match. It is well-known for its 10 levels of spiciness, spicy and numbing soup, with other signature dishes to add on, such as ‘Bandit Chicken Wings’ and Pork Belly with Garlic Sauce.
Shocked by the hidden potential of a bowl of rice noodles, news of Tam Jai’s IPO saw wide discussion in Hong Kong online forums. A user on the LIHKG forum said he would buy the stock because ‘Tam Jai is his favourite’. Another user jokingly suggested the company should give out its signature ‘Bandit Chicken Wings’ as dividends.
The brand is also known for hiring middle-aged migrants from Guizhou, Sichuan or Hunan as waitresses – most of whom bring their own unique accents. Although netizens often make fun of these ‘Tam Jai Ah Jeh’ (meaning Tam Jai sisters), they have become part of the collective memory of Hong Kong foodies and the distinctive ‘Tam Jai dialect’ is now firmly rooted in the city’s local culture.
Story Behind The Two Brands
According to a well-known rumour, the Tam Jai and Sam Gor brands originated from a rivalry within the family. ‘Tam’ is a Chinese family name and Jai means ‘guy’ in English, while ‘Sam Gor’ is the third-ranking brother in a family.
Members of the Tam family opened the first TamJai restaurant in Hong Kong in 1996. The restaurant chain gained wide popularity in 1999 after famous columnist Chua Chai reviewed the restaurant.
In 2008, the third-ranking and sixth-ranking brothers decided to start a rice noodle restaurant chain called SamGor, leaving the fourth-ranking sister and fifth-ranking brother to run the original TamJai. Both restaurants offer similar menus but with slightly different flavours and their own seasonal products.
Despite many years of separation, the two chains finally merged after they were acquired by Japan’s largest restaurant operator Toridoll Holdings Corp in 2017. The valuation for TamJai and SamGor were HKD 1 billion (USD 128.45 million) and HKD 1.11 billion respectively.
The Power of Rice Noodles
Despite a difficult business environment brought about by political unrest in 2019 and the COVID-19 pandemic in 2020, Tam Jai International stood out from its peers in the Hong Kong food and beverage industry. The company recorded an increase in revenue from HKD 1,556.2 million for the year ending 31 March 2019, to HKD 1,794.7 million for the year ending 31 March 2021 – a compound annual growth rate of 7.4%.
During the same years, the company’s profit grew from HKD 197.7 million to HKD 287.8 million, representing a compound annual growth rate of 20.7%. However, its operating profit margin fell by 2.3% to 18.8% for the year ending 31 March 2020.
The contributing factors for the slight profit decrease in 2020 were the reduction in customer traffic, operating hours and staff, as a result of pandemic prevention measures. The chain also recorded additional expenses on hygiene measures, packaging for takeaway and deliveries, and leased properties expenses for business expansion.
But if we put aside the unprecedented events, Tam Jai still recorded a promising increase in gross profit compared to other major restaurant chains in Hong Kong. For the financial year ending 31 March in 2020, Tam Jai recorded a gross profit margin of 73.2% – a 1.5% increase from the previous year.
Meanwhile in the financial year of 2020 and 2021, Café de Coral (0341.HK) recorded a gross profit margin of 5.6%, a 3.6% decrease from the previous year. Tai Hing (6811.HK) recorded a gross profit margin of 70.6% in 2020, an annual decrease of 0.7%, and Tsui Wah (1314.HK) recorded a 24.1% decrease.
Apart from the additional revenue as a result of higher menu prices, Tam Jai partnered food delivery platforms Foodpanda and Deliveroo to sustain its income during the pandemic.
Although revenue from dine-in customers fell from HKD 1.23 billion in FY2019 to HKD 0.9 billion in FY2021, revenue from takeaway and deliveries increased from HKD 321 million to HKD 890 million, resulting in a revenue increase of HKD 238 million in two years.
Tam Jai also secured rent concessions of around HKD 19.6 million from landlords and received support funding of around HKD 156.1 million and HKD 0.8 million from the Hong Kong and Singapore government respectively.
According to Euromonitor, Tam Jai is currently ranked first in Hong Kong’s Asian noodle specialty restaurants sector, occupying 58.5% of market share. It is the second-largest fast casual restaurant chain, with 7.4% of market share and the fifth-largest casual restaurant chain with 2.5% market share.
Not Every Market Can Take The Spice
Even though Tam Jai is one of the most anticipated IPOs in Hong Kong, netizens doubt its earning ability in the long term, especially its overseas expansion plan.
So far, figures from Tam Jai’s Singapore operations are not helping investor’ confidence about its overseas performance. The chain recorded an operating profit margin of -84.7% in Singapore for the nine months ended 31 December 2020 due to high initial set up cost, equipment costs and staff costs including training.
Another major concern is rising operation costs in different markets, as leased property expenses and human resources costs constitute major expenses in running restaurants. Famous chains from Hong Kong such as Tai Hing and Tsui Wah tried to conquer the China market in the last two decades, but failed. Café de Coral even closed all its branches in east China in 2017.
Even Tam Jai itself considered the rising costs as a risk factor as it could not ensure high-quality food and services amid the rapid pace of expansion. While Hong Kong restaurants are known for affordable food, the restaurant chains are often forced to increase their prices over time. The risk is that Tam Jai could lose China’s customers’ hearts when it fails to deliver consistent food and service quality.
Additionally, Tam Jai might not be able to sustain its business philosophy and culture in every market, nor is it a given that it would be welcomed by customers in other countries. For example, it may find it more difficult to recruit qualified restaurant managers, waiters, waitresses and kitchen staff who are familiar with Yunnan food culture overseas.
Given that the Japanese diet is generally nutritious, and Australians generally favour western cuisines over Asian foods, Tam Jai may need to adopt more localised and creative marketing strategies in the long run, instead of replicating the ‘Tam Jai Aunties’ culture that has brought it success so far.