Source: Securities Times Author: Roman Zhuoyong

Passing through customs at Shenzhen Bay Port early in the morning, I arrived at the central area of Nanshan in Shenzhen half an hour to begin a day of eating, drinking, and playing in Shenzhen. Over the past six months, Mr. Wang, who lives in Yuen Long, Hong Kong, and his family have often spent the weekend in this new style. Since 2023, Hong Kong residents have set off a “Shenzhen fever”. However, in stark contrast to this heatwave, Hong Kong, which used to be a “shopping paradise” for mainland people, is slightly inferior in the consumer market.

Take the recent Spring Festival in the Year of the Dragon as an example. Although the number of visitors to Hong Kong reached 1.436 million, consumption in the local and travel markets still declined compared to the same period in 2018. According to the data, the number of visitors to Hong Kong in 2023 was about 34 million, a decrease of 33% from the peak of 51.03 million in 2018, and was rarely overtaken by the annual record of 53 million Hong Kong residents going north.

The decline in the number of mainland visitors to Hong Kong and changes in consumption patterns in Hong Kong have all caused the local food and beverage retail industry to recover slowly after the pandemic.

According to data released by the Hong Kong Retail Management Association, the year-on-year increase in retail sales in Hong Kong in January slowed to 0.9%, far below market expectations of 6.9%. The Association's member organizations reported that there is still a 20 to 30% gap in business volume this year compared to before the pandemic.

According to the latest statistics from the Hong Kong Census and Statistics Department, in the three months to the end of January 2024, the total sales value of the seasonally adjusted retail industry decreased by 3.2% compared with the previous three months, while the total sales volume of the seasonally adjusted retail industry decreased by 3%. People in the Hong Kong food and retail industry said that Hong Kong's retail industry is facing unprecedented challenges. It should actively use technological means to transform and upgrade, vigorously promote local highlights, and closely exchange and cooperate with surrounding cities to revive Hong Kong's reputation as a “shopping paradise.”

Branded restaurants set up takeout business

Mr. Wong, who lives in Yuen Long, Hong Kong, brings his kids to visit new destinations in Shenzhen almost every weekend. He told the reporter that he rarely spends a weekend in Hong Kong now, because it is extremely convenient to pass through customs at Shenzhen Bay Port, and after passing through customs, he takes his kids to various shopping malls to enjoy food. “Every time I visit Shenzhen, I have a very full schedule, and it's a great deal to spend. The average cost of eating Thai food in Hong Kong is around HK$400 per person, and probably less than half of that in Shenzhen.” Mr. Wang said.

In stark contrast to this, Hong Kong's restaurant industry is facing insufficient traffic and occupancy rates. Recently, the reporter visited popular tourist areas such as Tsim Sha Tsui, Mongkok, and Jordan. Many restaurants did not have a high attendance rate. Even at 12 noon, some restaurants in the mall had only a small number of customers entering and leaving.

A lobby manager at the Minato Minato Hot Pot Restaurant located in the K11 shopping mall told the reporter, “The restaurant business in Hong Kong isn't easy to do now. We now rarely have to turn the tables. Basically, when customers come, there are seats and no need to line up. I've heard that many restaurants have begun to follow the mainland model to start a takeout business, and even a HK$40 boxed lunch would enter the IFC (Hong Kong International Financial Center). This was unimaginable before.”

Working in Hong Kong and traveling between Shenzhen and Hong Kong for a long time, Ms. Gao has a deep experience of the changes in the Hong Kong restaurant industry over the years. “Before the pandemic, the restaurant downstairs of our company (located in Jordan) often had to line up, and the waiters were too busy. Now the traffic is much worse, and the quality of the food has declined.” Ms. Gao told the reporter that in the past few years after the epidemic, there were often new restaurants around her place of residence in Hong Kong, but they all went out of business after not long. “One restaurant that has been in business for many years went out of business last year, and now it's another one. The current traffic is OK, but not as many as a few years ago.” Ms. Gao said.

Huang Jiahe, president of the Hong Kong Catering Association, said in an interview with reporters that even during the Spring Festival this year, the Hong Kong restaurant market was quite lukewarm. Most visitors to Hong Kong were experiential travelers. The overall growth of Hong Kong's restaurant industry is slowing down, and mid-tier restaurants in particular are the most affected.

However, it is worth mentioning that there is one type of restaurant business in Hong Kong that is relatively popular among mainland tourists, and that is the “ice room.” The reporter recently visited the Mongkok area and found that even the ice room, which looked very small and had a relatively simple decoration, was full of people. Some ice rooms were highly rated by public reviews, and there were queues. Many visitors were from the mainland.

Su Zengwei, chairman of the Hong Kong Retail Technology Association, believes that although the overall restaurant industry in Hong Kong is currently not booming, some restaurants and cuisines with Hong Kong characteristics are still popular with local citizens and mainland tourists, and Hong Kong should continue to enhance local characteristics to attract more consumers.

Stores in popular tourist areas are facing transformation

Just like the restaurant industry, there is also the retail industry that is slightly deserted. According to the data, the year-on-year increase in retail sales in Hong Kong slowed to 0.9% in January 2024, far lower than the 6.9% expected by the market. According to a survey by the Hong Kong Retail Association, compared with the same period in the normal year 2018, there is still a 20 to 30% gap in the business of the members surveyed this year.

Specifically, the latest data released by the Statistics Department of the Hong Kong Government shows that in January 2024, sales of supermarket goods fell 9.3% year on year, followed by food, alcohol and tobacco fell 8% year on year; durable consumer goods such as electrical appliances fell 26.2% year on year, department store goods fell 9.2% year on year, fuel fell 14.5% year on year, footwear, related products and other clothing accessories fell 8.2% year on year, and traditional Chinese medicine fell 20.1% year on year.

During a recent field visit, the reporter discovered that in Hong Kong's traditional tourist districts of Tsim Sha Tsui, Mongkok, and Jordan, there are stores that are subleased or rented out every few steps. Generally, the most common types of subleasing are beauty, pharmacy, or jewelry stores.

The reporter called the owner's phone number on the rental information. A man who answered said to the reporter, “The last drugstore didn't plan to renew its lease because the lease expired, because the business wasn't good. In fact, the rent has dropped a lot compared to before, and the rent I'm renting now is about 10% lower than the market price, but I haven't been able to rent it out even after 3 months.”

Ms. Gao, who is responsible for managing the commercial properties in Jordan and Sheung Wan mentioned above, told the reporter that the tenant of the store she manages next to Nathan Road in Jordan works as a drugstore and lost more than HK$1 million in less than half a year. Now the lease is about to expire and plans to close the business. She also said that a department store in Sheung Wan had the same situation.

“Rents are now generally about 30% to 40% lower than before the pandemic, and 80% lower than during peak periods. Although rents have dropped, they still can't cover the costs.” A real estate agent at Midland Properties in Jordan told reporters.

Su Zengwei told reporters that store leases in Hong Kong are generally 3 to 4 years. Today, many stores were signed before the epidemic and experienced three years of the cold winter of the epidemic. Even though Hong Kong resumed customs clearance last year, the number of visitors and spending power recovered slowly, and there was no significant increase in business volume in the retail restaurant industry. As a result, leases have expired, and many stores have chosen to close their stores.

“Although rents have declined, rents for stores in core regions are still quite expensive. In the economic downturn, even in the downturn of the economy, business owners will consider what kind of business format to support costs.” Su Zengwei said that at present, enterprises are indeed more cautious. Furthermore, Hong Kong is now also facing difficulties in recruiting workers in the service industry, and there are more factors that enterprises need to consider.

The industry suggests that food and beverage retail embrace high technology

As a shopping and food paradise, Hong Kong was once very popular with mainland tourists. However, judging from the feelings of various business owners now, this reputation has faded a bit. The epidemic may only be a “trigger”, and the subdued changes in consumption patterns and consumption habits have made Hong Kong gradually passive in the consumer market.

“After three years of the pandemic, I feel like everyone is more accustomed to online shopping. If you want to buy something from overseas, you can also do it through overseas shopping; you don't have to come to Hong Kong.” Ms. Gao said. Many people in the Hong Kong retail industry also believe that the consumption habits of mainland tourists in Hong Kong have changed. From shopping in the past, to now mainly touring, complemented by shopping, this has greatly affected the recovery of local consumption.

Furthermore, as the Hong Kong dollar exchange rate continues to strengthen, the Mainland and Hong Kong are shifting from a “one way forward” to a “two way forward” model. Some industry insiders have analyzed that Hong Kong people's enthusiasm for spending in the north has “diverted” the Hong Kong customer base to a certain extent. Under the strong Hong Kong dollar exchange rate, Hong Kong people spending outside the home means they have more purchasing power and spend less money to enjoy better consumer services in the mainland.

Hong Kong's retail industry is facing unprecedented challenges. In order to revitalize the food and beverage retail industry, the Hong Kong Government launched “Hello, Hong Kong!” for visitors and local residents last year With the “Hong Kong Night Fun” campaign, initiatives to promote night market shopping, entertainment and dining experiences have had little effect. Hong Kong's former Financial Secretary, Mr Tsang Chun-wah, once posted an opinion on social media that “the prospects for Hong Kong's retail industry are quite difficult,” stressing that the government should consider making adjustments in fiscal spending, even if this may put some pressure on the short-term economy. He believes this is a difficult but necessary choice, especially in the face of the current retail industry's difficulties.

The reporter inquired about the recently released 2024 Hong Kong Government Budget and learned that from 2024 to 2025, Hong Kong's budget to develop the local tourism industry increased by 11.6% compared to last year, attracting tourists from all over the world with a richer tourism industry, thereby promoting the development of the local restaurant and retail industry.

Furthermore, empowering the food and beverage retail industry with technology is also a strong direction for Hong Kong. The Financial Secretary of the Hong Kong Special Administrative Region Government, Mr Chan Mao-po, said that at the beginning of this year, small and medium-sized enterprises in the catering and retail industries will be invited one after another to join the “Digital Transformation Support Pilot Program” and select suitable solutions and apply for matching funding from existing basic digital solutions. It is reported that these solutions will focus on the three aspects of electronic payment and store sales, online promotion, and customer management systems. Chen Maobo said that at least 8,000 eligible SMEs are expected to benefit.

“Operating technology and big data methods in payment, operation, promotion, etc. can, on the one hand, give young entrepreneurs the opportunity to participate in the traditional food and retail industry, and on the other hand, they can also allow operators to understand customer consumption habits and needs more quickly and conveniently, and the customer's consumer experience will also be greatly improved.” Su Zengwei said.

As one of the important cities in the Guangdong-Hong Kong-Macao Greater Bay Area, Hong Kong has accelerated its integration into the Greater Bay Area in recent years. According to Su Zengwei, the food and retail industry also needs to maintain closer information exchange and interaction with Greater Bay Area cities, enrich Hong Kong's consumer format, promote the implementation of retail technology, and cooperate in related fields to re-shine Hong Kong's “shopping paradise” gold sign.

Furthermore, Tsang Chun-wah believes that Hong Kong's food and beverage retail industry needs to find a new direction of development. It should not only compete with other regions in terms of price and quantity, but also develop and promote high-quality products with local characteristics, thereby highlighting Hong Kong's unique taste and lifestyle. He pointed out that major international cities such as Tokyo, London, New York, Paris, and Milan all have their own unique charms, and Hong Kong should also recover and show its most beautiful side.

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