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Hong Kong & Macau Market Profiles

Market Overview:

Euromonitor reported Hong Kong’s economy will slow but still see moderate growth in 2018. A buoyant stock market and a strong job market are the main drivers. Both private final consumption and exports are strengthening but China’s slowing economy will be a serious drag on the economy. Concerns about a rise in protectionism create uncertainty. Annual rates of growth in real Gross Domestic Product (real GDP) will be about 2.5% per year in the medium term.

Hong Kong’s economy faces a number of headwinds:

  • Real GDP will increase by 2.7% in 2018 – after gains of 4% in 2017
  • The real value of private final consumption grew by 3.2% in 2017 and growth of 3% is predicted for 2018
  • Consumption is supported by rising wages
  • The labor market remains tight with unemployment of just 3.6% expected in 2018
  • Unemployment among immigrants (mainly South Asians) is very high however
  • Wages and earnings are rising. To stave off social unrest, the government has increased the minimum wage.

Hong Kong has largely phased out its manufacturing sector, relying instead on the service sector. In the medium term, large-scale infrastructure projects and a rise in real wages will drive domestic demand. The city has significant advantages for further development in industries such as medical services, education services, innovation and technology, testing and certification services and environmental industries.

Population ageing is a visible challenge to Hong Kong. The labor force could peak as early as in 2018. To address this constraint, the government is implementing policies to encourage labor force participation and improve the quality of the workforce. Population reached 7.4 million in 2017, up from 6.7 million in 2000. Most population gains are the result of immigration. The median age in 2017 was 43.9 years and is steadily rising. Government officials have predicted that if present trends continue, the number of people aged 64 and over will account for a third of the city’s population by 2033. The government faces increasing spending pressures as a result of population ageing.

USDA’s Agricultural Trade Office (ATO) in Hong Kong, hereinafter referred to as “Post” reports Hong Kong is Asia’s culinary capital and 4th largest export market for U.S. consumer-oriented agricultural products. With a dynamic food culture, sophisticated buyers and a world-class logistical infrastructure, Hong Kong is a natural destination to promote high-quality, innovative U.S. food and beverage products. Due to land constraints, local agricultural production in Hong Kong is minimal so Hong Kong depends on imports to meet its food requirements.

For U.S. consumer-oriented exports, Hong Kong ranked 4th in 2016, with exports reaching US$4 billion, growth of 10% from 2016. That is over 95% of the agricultural total. Hong Kong remains the 4th largest consumer food export market from the U.S. Hong Kong is also the 10th largest export market from the U.S. for processed foods totaling US$940 million in 2017, a slight decrease of 1%. Top U.S. exports of processed food products to Hong Kong in 2017 included:

  • Food preparations
  • Prepared/preserved meats
  • Beer and wine
  • Prepared/preserved seafood
  • Dog and cat food
  • Processed vegetables and pulses
  • Snack foods
  • Chocolate and confectionery
  • Non-alcoholic beverages.

The U.S. enjoys some competitive advantages Hong Kong food market.

  • U.S. food products are valued as high-quality, safe choices in Hong Kong where imports meet 95% of local food requirements due to nominal domestic production
  • Demand is increasing rapidly for “healthy,” high-quality foods which are market segments where the United States has strong prospect
  • With the exception of four types of dutiable commodities, namely liquors, tobacco, hydrocarbon oil and methyl alcohol, food and beverage products are imported to Hong Kong without tax or duty levied on foods
  • Hong Kong is a major trading hub where buyers make purchasing decisions for a vast range of consumer-oriented products that are transshipped to China and other parts of Asia
  • Most trans-shipments to Macau are purchased, consolidated, and shipped via Hong Kong

Within Hong Kong food and beverage imports, consumer interest in healthy lifestyle products continues to grow. Innovative products that offer sustainable production and nutritional value at a reasonable cost with convenient preparation are in demand. Busy schedules and dual income families are driving the search for ready-to-cook and frozen options for home preparation and premium, healthy options in food service outlets. Consumers are increasingly interested in food’s provenance and production background both at retail and restaurant levels and consider these aspects when making purchasing decisions.

But Hong Kong, like any other high potential export market is not without its own unique challenges:

  • With inflation is on the rise in Hong Kong, the increase in food prices may cause some consumers to turn to more lower-price lower quality food products where U.S. products do not enjoy strong competitive advantage
  • With China as the #1 competitor to the U.S. our food products are not always price competitive
  • In addition, lengthy transportation time and availability of product due to seasonality (e.g. fresh produce) associated to importing U.S. food and beverage products to Hong Kong can make them less competitive than products available in the region or from China, Australia, and New Zealand (favorable in terms of location).
  • The importance of Hong Kong as a transshipment point and buying center for China and elsewhere is not widely known to U.S. exporters, who may be missing an advantage
  • Compliance wise, numerous Hong Kong food regulations are not in line with Codex, which can complicate import clearances
  • Hong Kong labeling and residue standards differ in some cases, which can impede trade.

Hong Kong produces a minimal amount of its food requirements, depending on global sources to meet 95% of its food needs. In 2016, the U.S. remained Hong Kong’s largest supplier of consumer-oriented agricultural products, by total value, with China and Brazil providing stiff competition in overall agricultural exports to Hong Kong. China is the largest supplier of fresh vegetables, processed fruits and vegetables, eggs and prepared/preserved red meats to Hong Kong and Brazil is the largest supplier of red meats (chilled/frozen). The U.S. is the largest supplier of poultry meat and tree nuts. France dominates wine imports to Hong Kong and the Netherlands dominates the dairy import sector.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Hong Kong reached nearly US$6.5 billion in 2017. That represents a growth rate of 27.9% or US$1.4 billion since 2013. By the year 2022 the retail sales in the packaged food market in Hong Kong is expected to reach US$8.5 billion, a growth rate of 24.2% and nearly US$1.6 billion. High growth products in the forecast include:

  • Baby food
  • Baked goods
  • Dairy products
  • Edible oils
  • Ice cream and frozen desserts
  • Breakfast cereals
  • Ready meals
  • Savory snacks
  • Confectionery

Post reports that total 2016 retail sales of food and beverages in Hong Kong reached US$12 billion, representing growth of 1.2% compared to the prior year. In 2015, supermarkets accounted for 55% of retail sales within grocery retailers. The supermarket industry is introducing larger size stores to provide more convenience for customers. In addition to traditional grocery and household products, supermarkets are moving towards larger, more modern stores with more fresh food.

Two major grocery chains, Wellcome and ParknShop, dominate the supermarket category with their over 550 outlets all together. Both chains recently expanded their premium and upscale outlets as consumers continue to seek high-quality, imported gourmet products.

Supermarkets may import direct from a U.S. supplier or may use consolidators, depending on the product and minimum order quantity, to source new products from the U.S. Most major supermarkets like ParknShop and Wellcome offer online grocery shopping platforms that are increasingly appealing to busy Hong Kong shoppers with discounts and delivery services.

Convenience stores, such as 7-Eleven (operated by Dairy Farm) and Circle K (Convenience Retail Asia) are very popular in Hong Kong with more than 1,300 outlets that offer drinks and snacks and some hot food options. Recent expansion of health food, confectioners and regional specialty stores are increasing competition for traditional convenience stores. For example, “759 Store” started in 2010 with small stores selling pre-packaged products, particularly snacks. The chain has now expanded to over 220 outlets including some larger-sized stores selling more food items including frozen foods, baby foods and other groceries. To place products in convenience stores, U.S. exporters would usually need to work through such a local distributor since this is the most common supply source for convenience stores

Best Product Prospects: Post reports that products with the highest sales potential in this sector include:

  • Fish and seafood
  • Fresh fruit
  • Poultry, pork and beef
  • Processed fruit and vegetables
  • Wine
  • Tree nuts
  • Dairy products  

Food Service Sector:

Post reports that the Hong Kong Hotel, Restaurant and Institutional, or “HRI” sector was expected to continue showing positive growth in 2017. Restaurant operators are taking advantage of softening rents to expand strategic outlets while updating menu options for Hong Kong’s enthusiastic “foodie” consumers that demand novel, premium cuisines.

There are more healthy and nutritious options in the market. The continuous efforts of the Hong Kong Government in promoting the “EatSmart campaign” is an example of factors encouraging restaurants to take into account healthy aspects when developing their menus.

Also, consumers are more aware of food origins and being responsible for the environment. There are more discussions on sustainability in the media and by government officials. For example, the World Wildlife Fund is providing Hong Kongers with a sustainable seafood guide and a list of hotels, clubs, and restaurants that offer supposedly ocean-friendly menus.

In 2016, tourist arrivals reached 57 million, with visitors from Mainland China representing 75% of travelers. Visitor numbers are expected to remain at the same level in 2017 as the continued growth of business and leisure travel in Asia drives increased demand for accommodation at every price level. To meet the continued rise in the number of visitors, Hong Kong’s hotel room supply continues to increase. As of the end of March 2016, there were 257 hotels offering 74,290 rooms, compared with 167 hotels and 59,627 rooms at the end of 2009, reflecting growth rates of 52% and 25% respectively.

Hong Kong is a world class restaurant city with one of the highest number of restaurants per capita, at around one restaurant for every 600 residents. In 2016, Hong Kong restaurant food and beverage purchases, valued at US$4.6 billion, generated estimated sales of US$13.8 billion, an increase of 1.2% and 2.9% respectively, over 2015.

For Hong Kong statistical purposes, restaurants are grouped into five broad categories: Chinese, non-Chinese, fast food, bars and other establishments. Hong Kong’s Chinese cuisine offerings are popular and, according to Hong Kong Census and Statistics Bureau, account for the largest amount of receipts amongst the 5 restaurant categories. Due to its history as a global trade hub, sophisticated and affluent Hong Kong consumers have an enthusiasm for a range of international cuisines made from high-quality ingredients. Footprints of restaurants offering non-Chinese cuisine options, including Western, Japanese, Korean, Thai, Vietnamese, Indian, and more, are found everywhere in Hong Kong.

Fast food outlets suit Hong Kong’s quick-paced lifestyle where dining out twice per day at convenient locations is not uncommon. Competition among fast food chains is intense as brands strive to retain customers and raise brand awareness. McDonald’s, KFC, and Pizza Hut are recognized options across the region as are more local chains, such as Café De Coral, Maxim’s, and Fairwood, that serve both Chinese and Western foods. Western style outlets including Pret A Manger and Oliver’s Super Sandwich are often located at areas easily accessed by office workers who appreciate healthy and light options such as salad and sandwiches.

Hong Kong’s vibrant nightlife is renowned and is served by some 800 bars and pubs across Hong Kong. Lan Kwai Fong in Central business district is home to around 90 bars and restaurants. It is a place where locals, expats, and tourists gather for drinks in the evenings and during special occasions, e.g. New Year’s Eve and the beer festival. According to Euromonitor, on-trade sales of both wine and spirits in 2016, by value, grew 30% as compared to 2011’s sales, reflecting growing opportunities for imported alcoholic beverages.
 

Food-Processing Sector:

Post reports that the food processing industry in Hong Kong is relatively small compared to food retail and HRI sectors. The total output of the local food processing industry is estimated at below US$1 billion. Major local production includes instant noodles, macaroni, spaghetti, biscuits, pastries and cakes for both domestic consumption and export. Other significant sectors include canning, preserving and processing of seafood (such as fish, shrimp, prawns, and crustaceans); manufacture of dairy products (fresh milk, yogurt and ice cream); seasoning and spirits.

Based on the trade agreement between Hong Kong and China (called Closer Economic Partnership Arrangement, or “CEPA” in short), all foods and beverages made in Hong Kong, subject to the CEPA's rules of origin, can enjoy duty-free access to the Chinese mainland. The CEPA zero tariff product list includes aqua – marine products, food and beverages, (certain dairy products such as yogurt and cheese, certain prepared meats, certain sugar confectioneries and cocoa preparations; certain preserved meats and seafood, bread, biscuits and cakes; preserved vegetables and fruits, fruit juices; sauces, water, etc.) and leather and fur products.

Processed food and beverages items have to comply with Hong Kong’s rules of origin in order to be imported to China tariff free. The rule of origin of individual products is basically determined by the manufacturing or processing operation. For example, milk and cream products are considered as “Made in Hong Kong” only when the manufacturing processes of mixing, freezing sterilization and cooling are conducted in Hong Kong. The origin criteria for nuts is that the baking, seasoning, and/coating have to be done in Hong Kong. China’s zero import tariff applications for products made in Hong Kong certainly encourage food production in Hong Kong. The expansion of the local food processing industry will then trigger a demand for raw materials. Such demand may provide additional export opportunities for U.S. food ingredients suppliers.

Food ingredients are sourced both through direct import by food processors and through consolidators. Hong Kong traders and end-users tend to stay with suppliers with whom they have a relationship. While exporters would do well exploring all channels, patience and understanding are required to establish a relationship of trust sometimes before trading can commence

Best Product Prospects:

Post reports that the best prospects for U.S. exporters of processed food ingredients for this sector include:

  • Shelled nuts
  • Fats and oils
  • Protein concentrates
  • Flavoring
  • Oilseed flour meal
  • Baking inputs
  • Potato products
  • Processed eggs
  • Beverage ingredients.    

Macau Market Overview

Macau is located at the entrance of the Pearl River Delta, about 90 miles southeast of Guangzhou China and 37 miles southwest of Hong Kong. It covers 18.3 square miles, around one-sixth the size of Washington, D.C. and has a population of 602,000 (2017 CIA World Factbook Est.). Formerly a Chinese territory under Portuguese administration, Macau became a Special Administrative Region (SAR) of the People’s Republic of China on December 20, 1999. Pursuant to a 50 year transition period, the Macau SAR (MSAR) maintains a high degree of autonomy in all matters except foreign, defense, and security affairs.

Post (Hong Kong) reports that with its unique blend of European and Chinese cultures, Macau’s economy is growing steadily with a per capita Gross Domestic Product (GDP) that reached US$114,400 in 2017 (CIA World Factbook Est). That ranks it 4th highest in the world behind Liechtenstein, Qatar and Monaco. Macau has enjoyed an influx of international investment over the last decade to develop its casino resorts as it is the only legal gambling site in Mainland China. The pace of its economic growth has far surpassed expectations.

  • The gaming industry’s gross revenue in 2017 amounted to US$33 billion, significantly exceeding that of Las Vegas
  • Gaming by itself is the largest source of direct tax in Macau
  • The tax on gaming represented around 78% of Macao’s total revenue
  • The gaming sector accounts for almost 45% of GDP and more than half of inward foreign direct investment (FDI)

Euromonitor reports that the economy contracted by 20% in 2015 as a result of China’s economic slowdown and the government’s anti-graft campaign. Little or no growth was expected for the next several years. Officials hope to develop elaborate non-gaming facilities in hopes of countering the downward trend. Competition for jobs is intense and unemployment is very low. GDP growth of 13.4% was reported for 2017 so the economy is fully rebounding from the recession it had endured.

Macau’s service sector accounts for 90% of GDP and almost all employment. Foreign investors can conduct business on the same terms as nationals. Taxation is low and relatively efficient. Macau has attracted significant amounts of foreign investment as new "mega-casinos", which include major hotel developments, replace traditional casinos. Officials also intend to develop elaborate non-gaming facilities to kick-start growth in the mass market. The government has declared that the number of future casinos in Macau would not exceed 40. Macau’s casinos are facing enhanced competition from other Asian countries. Other growth areas in services include finance, insurance, and real estate.

Macau's principal industry is tourism, which attracts visitors from all over the world to its gambling centers. The real value of tourist receipts rose by 9.2% in 2016 and gains of 2.3% are expected in 2017. The vast majority of visitors come from mainland China or Hong Kong. Officials plan to introduce international sporting events in order to diversify its economy. The government predicts that non-gaming tourism receipts will grow to as much as US$14 billion by 2025.

Macau imports most of its international food and beverage products through distribution channels in Hong Kong. This makes an accurate U.S. export assessment of food and agricultural products quite difficult, although there are some direct shipments recorded from the states as well as from Hong Kong. Macau, like Hong Kong, is a free economy in which there is no restriction on the flow of goods and services, money or capital. One of the Macau Government’s core economic policies is to maintain a free port status with zero import duty for nearly all products.

  • Due to production limitations, virtually all of Macau’s food requirements are imported
  • In 2016, the vast majority of Macau’s imports were transshipped via Hong Kong as Macau lacks a deep water port
  • Macau’s total global imports of agricultural, food, and fisheries reached US$1.2 billion from January – November 2016 of which US$7.5 million were U.S. origin products shipped directly to Macau
  •  From January – November, 2016, Hong Kong exported US$977 million in agricultural, food, and fisheries products to Macau, US$85 million of which were U.S. origin
  • In late 2018, the Hong Kong-Zhuhai-Macau Bridge project, consisting of a series of bridges and tunnels crossing the Lingdingyang channel will connect southern China, Macau and Hong Kong for vehicular and freight movement which will greatly shorten the transport time currently achieved primarily by ship

US$2.3 million or 92% of the agricultural total exported from the U.S. in 2017 were of the consumer oriented variety. That represented a decline of 39% over the previous year. US$2.2 million of the total were of the processed food variety, decline of 45% from 2016. Top U.S. processed food exports shipped directly to Macau in 2017 included:

  • Beer and wine
  • Distilled spirits and other alcoholic beverages
  • Food preparations
  • Chocolate and Confectionery
  • Condiments and sauces
  • Processed/prepared dairy products

The decline in direct exports does not mean the market has receded, but is likely that direct exports shrank as more products moved through Hong Kong.  

Macau Retail Sector

According to Euromonitor, retail sales in the packaged food market in Macau reached US$281.2 million in 2017. That represents a growth rate of 31% or US$66.5 million since 2013. By the year 2022, the retail sales in the packaged food market in Macau is expected to reach US$384.9 million, a growth rate of 29.1% and US$86.9 million. High growth products in the forecast include:

  • Baby food
  • Dairy products
  • Savory snacks
  • Confectionery
  • Soup
  • Sauces, dressings and condiments
  • Ready meals
  • Baked goods

The Australian Trade Commission (AUSTRADE) reports that as of 2016 the main food retail stores in Macau are: ParknShop (16 locations), Royal Supermarket (31 locations), San Mui (15 locations) and the supermarket at the New Yoahan department store.

  • ParkNShop in Macau caters more to expatriates and carries many Western products that are hard to find elsewhere, such as dairy products (especially cheeses), baking ingredients and certain spices and pastes. It also has a good selection of fresh fruits and vegetables. There is an underground parking available and the store will deliver your groceries if you spend $200 MOP (around A$30) or more. Price-wise, it is a bit more expensive than the other supermarkets in Macau.
  • Royal Supermarket was first opened in 1997. It now has with 32 stores in Macau and carries most grocery items. Some are large stores with a good selection and some are smaller in size. Prices are mid-market. Established in 1990, San Miu Supermarket has 20 outlets and 400 staff in Macau with an annual turnover of 100 million MOPS (around A$15 million). It carries a wide range of products and is starting to carry more Western food. It has a wide range of fresh fruits and vegetables and the prices tend to be cheaper than other supermarkets.
  • The New Yaohan Supermarket was formerly known as Yaohan and was established in 1992 by a Japanese firm. New Yaohan department store has a large supermarket located on the 7th floor of its eight-story building. It carries many western products and has a good fruit and vegetable section. Cheang Chong Kei Frozen Food operates four retail stores in Macau and handles meat, seafood and some packaged products. Its assortment ranges from discount to higher-end products. Vang Kei Hong Vang Kei Hong is one of the key food importers in Macau and imports products such as beef, lamb, oyster, lobster, milk and butter, etc.

Its parent company Goodbase Trading Limited is the agent for Flensburger Brauerei beer and Rosbacher mineral water from Germany; Salmon Creek pork from the U.S., Cass beer from Korea etc. 

Macau Food Service Sector:

Post reports that supported by inbound tourism and gaming resorts, Macau’s HRI sector has developed rapidly over the past two decades. With an average of 2.5 million visitors each month, Macau’s world-class gaming resorts have pushed the demand for high-quality food ingredients to serve their guests and provide staff meals. A total of 2,284 restaurant and food service facilities were in operation in 2015, an increase of 166 facilities over 2014. The presence of 19 Michelin starred restaurants in Macau for 2017 bodes well for the HRI sector. Macanese food, which is a fusion of Portuguese, African, Southeast Asian and Chinese cooking, is gaining international recognition as is Macau as a culinary destination following an influx of internationally renowned restaurant brands and celebrity chefs.

Restaurant receipts amounted to US$1.3 billion in 2015, up by 4.6% year-on-year, attributable to an increase in the number of food service outlets and recovering economy. Restaurant expenditures amounted to US$1.25 billion and US$474 million of which 38% was spent on purchases of goods. A Macau government survey indicated that visitors spent approximately US$1.3 billion on food and beverage in 2015, accounting for the bulk of Macau’s HRI receipts.

Post recommends food product suppliers from the U.S. seeking to enter the Macau food service market will need to work primarily with importers in Hong Kong who are engaged in the Macau market and have good connections with Macau’s HRI sector and distribution network. U.S. exporters may also work directly with Macau’s food importers. Hong Kong’s is the primary trading partner for consumer-oriented products and many U.S. suppliers develop long-term relationships with Hong Kong buyers who provide effective linkages to Macau.

 

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