Hong Kong & Macau Market Profiles

Market Overview:

Euromonitor reported that Hong Kong’s economy slowed in 2016. With the economy facing a number of headwinds, growth of real Gross Domestic Product (GDP) slipped to 1.5% in 2016 after gains of 2.4% in 2015.  1.5% growth is also forecasted for 2017. The sluggish Chinese economy, a continuing contraction of exports and a deceleration in private consumption represent challenges. Fixed investment is also falling but this is offset by an increase in government consumption. An expansionary budget and a rebound in the tourist sector provide support for the economy. Annual rates of growth in real GDP should range between 2.5% and 3% per year in the remainder of the decade.

The real value of private final consumption grew by 2.7% in 2015 and growth of 3% was predicted for 2016. Interest rate hikes will slow consumer spending. Pushed up by housing shortages, Hong Kong is still one of the world’s most expensive housing markets. In response, the government aims to add 480,000 new housing units in 2015-2025 and will sell land for about 19,000 private homes in 2016-2017. Other measures to slow the rise in rental and property prices are also having an effect. Housing prices have fallen since late 2015 but the probability of a steep plunge is remote.

According to the United Nations Conference on Trade & development (UNCTAD), Hong Kong is the world’s second largest recipient of Foreign Direct Investment (FDI) after the Chinese mainland. The total stock of inward direct investment is more than five times greater than Hong Kong’s GDP. Mainland China alone accounts for nearly a third of this direct investment. Hong Kong is also the largest source of foreign investment for the Chinese mainland.

Population reached 7.1 million in 2016, up from 6.7 million in 2000. Most population gains are the result of immigration. The number entering the country soared in the 1990s but fell over the course of the next decade. More than 80% of all immigrants come from mainland China. According to many demographers, Hong Kong has one of the world’s lowest fertility rates and is not expected to rise significantly in the foreseeable future.  The median age in 2015 was 42.7 years and is steadily rising. This represents a dramatic rise over the past three decades and is significantly higher than the regional average. 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. 

U.S. food-related 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 U.S. is especially strong. Top prospects for U.S. food exports to Hong Kong include: beef, pork and poultry meats, fresh fruits, tree nuts, aquatic products, processed foods and wine. 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 excise duties.

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 of the transshipments to Macau are purchased, consolidated, and shipped via Hong Kong. Hong Kong also offers many dynamic trade show platforms to showcase U.S. food and beverage products to Hong Kong and Asian Pacific buyers.

U.S. exports of agricultural products totaled US$3.8 billion in 2016, an increase of 7% compared to 2015. U.S. exports of consumer oriented food products to Hong Kong grew 10% to nearly US$3.7 billion or nearly 96% of the agricultural total. Hong Kong remains the 4th largest consumer food export market from the U.S. Hong Kong is also the 9th largest export market from the U.S. for processed foods totaling US$952 million in 2016, an increase of 4%. Top U.S. exports of processed food products to Hong Kong in 2016 included food preparations, prepared/preserved meats, beer and wine, prepared/preserved seafood, processed vegetables and pulses, non-alcoholic beverages, snack foods and chocolate and confectionery.  

As a free port, Hong Kong excels as an efficient logistics hub in not only importing food goods but also in moving imports to other Asian markets, including Macau and Mainland China. Hong Kong imports of consumer-oriented agricultural products from the world increased by 6.5% during the first 9 months of 2016 over the same period in 2015 to US$14.1 billion, amongst which more than 41% (US$5.78 billion) were re-exported to other regional markets.

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 on the rise in Hong Kong, the increase in food prices may cause some consumers to turn to 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). 

Due to land constraints, 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.

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. That being said, while Hong Kong has one of the busiest container terminals in the world, it also has the most expensive port handling charges. 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.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Hong Kong reached nearly US$6.8 billion in 2016. That represents a growth rate of 50.5% or US$2.3 billion since 2012. By the year 2021 the retail sales in the packaged food market in Hong Kong is expected to reach US$9.5 billion, a growth of 31.9% or nearly US$2.3 billion. High growth products in the forecast include baby food, dairy products, savory snacks, breakfast cereals, soup, baked good, processed meat and seafood and ice cream and frozen desserts.  

Total 2015 retail sales of food and beverages in Hong Kong reached US$11.9 billion, representing growth of 3.9% compared to 2014. 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.

According to Euromonitor two grocery chains have the most outlets and selling space in Hong Kong and account for about 75% of the revenue. Dairy Farm International Holdings remained the leading grocery retailer with its Wellcome supermarket chain, holding a retail value share of 24%, and growth of 3% in 2015 with AS Watsons’ ParknShop chain holding the second spot. Both chains expanded their premium and upscale outlets recently as consumers continue to seek high-quality, imported gourmet food products.

Many Hong Kong supermarkets charge slotting fees during a trail period for new products, as well as other terms, such as promotion discounts (number of discount promotions offered each year), back-end income (flat rebate per year that a supplier pays to the retail chain based on the annual turnover), D.A. (Distribution allowance - the fee that the supermarkets charge for distributing the products from its warehouse to its many branch stores), and incentive rebates (a percentage of turnover rebated to the supermarkets when sales exceed an agreed amount.  For general reference, about 15% of the annual turnover is rebated to the major supermarkets and 8% to smaller ones).

Supermarkets may import direct from the 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 1300 outlets that offer drinks and snacks and some hot food options. They are targeting the customer age group of 15-35. Convenience stores are characterized by round-the-clock operation.  Since only a limited choice of brand names are available and prices are generally less competitive, most purchases are “convenience” in nature, i.e. goods are normally bought in small quantities for immediate consumption. High sales items include packaged drinks, beer and snack food. The average size of a convenience store is 1,000 Sq. ft. Convenience stores largely buy goods from local importers and agents. Therefore, U.S. food exporters have to go through Hong Kong importers to have their products sold in convenience stores.

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 260 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:

Products with the highest sales potential in this sector include fish and seafood, fresh fruit, poultry, pork, processed fruit and vegetables, frozen beef, wine, tree nuts, fruit and vegetable juices and organic food and beverages.  

Food Service Sector:

Post reports that as hotel and restaurant expansions continue into 2017, demand for high-quality U.S. food and beverage products by the Hotel, Restaurant, Institutional (HRI) food service sector in Hong Kong is expected to remain robust. Healthy, nutritious options are increasingly found on restaurant menus as changing lifestyles and consumer awareness of transparent and sustainable food sourcing are in demand.

Due to a slight weakening in the overall economy 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. In 2015, Hong Kong restaurant food and beverage purchases, valued at US$4.5 billion, generated estimated sales of nearly US$13.4 billion, an increase of 2.2% and 3.9% respectively, over 2014.  

Fast casual dining outlets with moderate prices and attractive décor have been popular with consumers and are expected to continue to see strong growth. Discovering new dishes and sharing them on social media via photos on Facebook are popular social activities for young adults whose food fervor drives a persistent trend for new and innovative menu options. “Hong Kongers” frequently dine out with family and friends, a tradition that will continue to provide robust business for the food service industry which offers reasonable prices, comfortable ambience and healthy, innovative menu options produced in an environmentally responsible manner.

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. Alternatively, Hong Kong consumers and tourists also enjoy non-Chinese cuisine options, including Western, Japanese, Korean, Thai, Vietnamese and noodle and congee restaurants.

Fast food outlets suit Hong Kong’s quick-paced lifestyle where dining out twice per day at convenient locations is not uncommon. 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. Competition among fast food chains is intense as brands strive to retain customers and raise brand awareness. To further meet competition, fast food operators are updating outlets and adding new healthier food options. In 2015, McDonald’s transformed an existing location into a McDonald’s Next - an elevated concept featuring a glass and metallic interior, mobile-charging stations, Wi-Fi, self-ordering options and a salad bar, including quinoa - with table service after 6 p.m. and premium coffee blends.

Hong Kong’s vibrant nightlife is renowned and is served by more than 1,000 bars, pubs and other eating and drinking establishments across the island. Although tea holds a traditional preference in Asia, the Asian coffee market has grown an average 4% per annum since 2000, according to statistics provided by the organizer of the largest food trade show in Hong Kong (“HOFEX”) and Hong Kong consumers continue to drive an increase in food service coffee demand.

Hong Kong is located less than five flying hours from half of the world’s population so its airport is very busy. Connected to over 190 destinations, the Hong Kong airport handled 68.5 million passengers in 2015 and its catering facilities provided over 15,000 meals each day for plane passengers. Given the competition among airlines, airlines have an increasingly high standard for the meals provided to their clients. Some partner with five-star hotels or famous restauranteurs to design menus for business class and first class passengers.

In addition, Hong Kong has raised its profile as a cruise hub with the development of the Kai Tak Cruise Terminal – the former site of the city’s urban airport in Kowloon - that can accommodate the largest ships in the cruise industry. The increasing number of calls of luxury cruises to Hong Kong bodes well for the demand for fine dining needs both on cruises and in the city. To provide products to the institutional market in Hong Kong, U.S. exporters would commonly work with local importers to explore potential business opportunities and distribution networks.

Best Product Prospects:

Post reports that top prospects for U.S. food exports to Hong Kong include beef, pork and poultry meats, fresh fruits, tree nuts, aquatic products, processed foods and wine.

Food-Processing Sector:

Post reports that the food processing industry in Hong Kong is relatively small compared to food, retail, and Hotel Restaurant and Institutional (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 include shelled nuts, fats and oils, protein concentrates, flavoring, oilseed flour meal, baking inputs, potato products, processed eggs and 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 647,000.  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 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$96,100 in 2016 (CIA World Factbook Est). That ranks it 3rd highest in the world behind Qatar and Luxembourg. 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 2015 amounted to US$29 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 is expected over 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.

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 2017, 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.

Direct U.S. exports of food and agricultural products totaled US$4.5 million in 2016, down 14% from 2015. US$3.4 million or 76% of the agricultural total were of the consumer oriented variety. That represented growth of 95% over the previous year. Nearly US$3.6 million of the total were of the processed food variety, growth of 43% from 2015. Top U.S. processed food exports shipped directly to Macau in 2016 included beer and wine, distilled spirits and other alcoholic beverages, food preparations, chocolate and confectionery, condiments and sauces and fats and oils. 

Macau Retail Sector

According to Euromonitor, retail sales in the packaged food market in Macau reached US$96.2 million in 2016. That represents a growth rate of 23.5% or US$18.3 million since 2012. By the year 2021, the retail sales in the packaged food market in Macau is expected to reach US$122.8 million, a growth rate of 21.6% and US$21.8 million. High growth products in the forecast include baby food, dairy products, savory snacks, breakfast cereals, soup, ice cream and frozen desserts and baked goods.   

The Australian Trade Commission (AUSTRADE) reports that as of 2014 the main food retail stores in Macau are: ParknShop (14 locations), Royal Supermarket (27 locations), San Mui (14 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 US$25 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 27 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. San Miu Supermarket established in 1990, has 14 outlets and 400 staff in Macau with an annual turnover of US$12.5 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:

According to Macau government’s five-year development plan (2016-2021) released in April 2016, the government intends to expand Macau’s attractions as a tourist and leisure hub including the growth of hotels, family-friendly mega resorts and accompanying Hotel Restaurant and Institutional (HRI) outlets. The opening of the US$4.1 billion Wynn Palace and Sands’ US$2.7 billion Parisian casino resorts in the fall of 2016 provides opportunities for Macau’s gaming and non-gaming recreational sectors to expand as Macau looks to diversify into a multi-platform entertainment destination. Meetings, Incentives, Conferences, and Exhibitions (MICE) are another area that the Macau government is targeting for development.  In 2015, a total of 239 MICE events were held in Macau.      

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$1.27 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$1.26 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 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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