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As Hong Kong’s F&B firms struggle to stay afloat, Chinese eateries flock in to fill the gap

It is part of a “chu hai” movement, where Chinese companies move to break into a more lucrative market abroad.

As Hong Kong’s F&B firms struggle to stay afloat, Chinese eateries flock in to fill the gap

Diners at a Chinese restaurant in Hong Kong. More Chinese F&B firms are setting up shop in Hong Kong – the first stop in their long-term strategy for global expansion.

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HONG KONG: Drawn by the sheer variety of cheap food and entertainment across the border, Hong Kong residents troop into Shenzhen when weekends and holidays roll around.

Since cross-border travel restrictions were lifted last year, the city has emptied out even more as soon as the work week ends.

The lack of footfall has greatly affected Hong Kong’s food and beverage (F&B) sector.

Businesses say they are struggling to stay afloat, with industry players estimating that about 200 restaurants are closing down each month.

“The growing trend of northbound consumption has greatly impacted our dine-in business, resulting in a decline in nighttime business of approximately 30 per cent,” said Mr Simon Wong, president of the Hong Kong Federation of Restaurants & Related Trades Limited.

“On an annual basis, about 2,000 restaurants have shut down. This is a substantial figure that cannot be overlooked.”

However, Chinese F&B firms are bucking the trend, with more setting up shop in the city – the first stop in their long-term strategy for global expansion.

THE "CHU HAI" MOVEMENT

Buoyed by its popularity with Hong Kongers in China, restaurant chain Nong Geng Ji opened four branches in the city in less than a year.

It is part of a “chu hai” movement, where Chinese companies move to break into a more lucrative market abroad.

“Many brands in the Chinese F&B industry are now looking to expand overseas,” said the restaurant’s branding director Coyee Zhu.

“The reasons behind this are the intense competition in the mainland market, and the desire to create new growth areas and bring the products overseas.”

The restaurant chain, which has over 100 stores across China, specialises in Hunan cuisine.

However, it has seen revenue fall by around 20 per cent in the past year.

Ms Zhu said the drop is in line with industry trends in China, which has experienced a decrease in overall consumer spending power.

As growth stalls, more Chinese F&B firms are venturing abroad. Many such businesses say that Hong Kong – as a more cosmopolitan city – is the perfect launchpad.

Passersby walk past a shuttered shop in Hong Kong, with flyers plastered on its gate offering rental or sale. The lack of footfall has greatly affected the city's food and beverage sector.

A TESTING GROUND FOR EXPANSION

Ms Mandy So, founder of Guangzhou tea chain JO’s Cha, said Hong Kong has the attention of foreign institutions and investors who are drawn to its open market and the potential it offers.

“Apart from mainland China, tourists in Hong Kong are from Southeast Asia, even Europe and America,” she told CNA.

“Our presence in Hong Kong captures the interest of investors who see the potential of our brand and may even consider expanding it to their own countries.”

The tea company set up their debut shop in the city’s shopping district of Mong Kok last May.

Despite the intense competition from local Hong Kong and other Chinese firms vying for a slice of the pie, Ms So said the city is a great testing ground to tweak its products’ selling point to cater to different consumers.

“We can make adjustments to our products and payment systems to cater to the unique preferences of each market. Our testing phase will begin in locations like Macau and Hong Kong, before expanding to Southeast Asia,” she explained. 

JO’s Cha, which currently has 800 stores across China, plans to set up 3,000 more shops across Chinese and Southeast Asian markets in the next two years.

Passersby walk under China and Hong Kong flags along a street in Hong Kong. Drawn by the sheer variety of cheap food and entertainment across the border, Hong Kong residents often troop into Shenzhen when weekends and holidays roll around.

"IN HK’S DNA TO EMBRACE COMPETITION"

InvestHK, a government organisation that helps Chinese and overseas companies set up in Hong Kong, has assisted 28 Chinese hospitality and dining enterprises in the first half of this year, according to figures released on Tuesday (Jul 2).

Hao Zhou, chief economist of securities firm Guotai Junan International, said high cross-border traffic – in both directions – and a desire to expand out of China are two factors driving the surge of Chinese F&Bs in Hong Kong.

“In China, there is a (push to expand overseas). It is very important for Chinese firms to conduct these long-term strategies,” he told CNA’s East Asia Tonight on Monday.

“When Chinese firms develop a footprint overseas, they have to be global, to understand different cultures and perspectives.”

He gave an example of Chinese restaurants adjusting their dishes to cater to local taste buds when they venture into Hong Kong. 

Passersby walk along Hong Kong's Victoria Habour.

Mr Zhou added that while an influx of Chinese F&B firms has heightened the already competitive environment in Hong Kong, the city has “always been a place to embrace free trade”.

“It is in Hong Kong's DNA to embrace new competitors in the market. Mainland Chinese firms’ pricing is actually not very cheap due to relatively high rent in Hong Kong. I think the common ground is fair for everyone,” he said.

The sky-high commercial property rents in the city often pose a threat to companies' survival. But some firms say it helps them with the learning curve in managing their growth, especially abroad.

"Considering that labour and rental costs in Hong Kong are on par with those in overseas markets, mitigating these high expenses here could provide valuable references for our worldwide expansion." Nong Geng Ji's Ms Zhu said.

Just weeks after launching in Hong Kong, the Hunan cuisine chain made its overseas debut in Singapore in October last year.

“With its substantial Chinese population, Singapore becomes an undeniable preference for our overseas expansion, as well as Kuala Lumpur in Malaysia,” said Ms Zhu. 

The restaurant is now preparing to venture into the United States, Europe and other countries in east Asia.

Source: CNA/dn(lt)
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