Skip to main content
At first encounter, entering the F&B game in Hong Kong can be overwhelming. In fact, just navigating its teeming sidewalks and constant noise can dismantle your equilibrium. 
But, with an economy fuelled by 7.15 million consumption driven locals and more than 54 million visitors per year, mostly from Mainland China, Hong Kong is a market worth sinking your teeth into. 
 
Yes, there are other Asian markets that present better volume opportunities – if we’re looking at it purely on a consumer population basis – however, similar to Singapore, Hong Kong is more about brand building for the benefit of a greater Asian strategy, rather than setting sales records.
Because of the fierce competition for retailer shelf space and zero import barriers in Hong Kong, establishing a long-term presence in the market is certainly a challenge. Consumers are exposed to a plethora of international products and so too are the retail buyers who drive a hard bargain when it comes to getting your brand on the shelves.  
 
Smart planning prior to market entry will give your brand the best chance of getting in and lasting the distance in Hong Kong, rather than being another Johnny-come-lately brand whose presence is short-lived.
As with Singapore, the Hong Kong supermarket trade is dominated by two retail giants; in Hong Kong’s case, The A.S. Watson Group and Dairyfarm International. 
A.S. Watson has approximately 210 supermarkets under the Park N Shop banner and 52 stores targeted at consumers of premium international food brands. 
Dairyfarm International has approximately 277 supermarkets under the Wellcome brand and 26 stores under the Market Place by Jason brand, which cater to consumers of Western imported foods.
 
Because of this duopoly and the trade-friendly import regulations there is little stopping these masters of food retail from doing away with traditional business models common in the region. The role of the importer and distributor in many cases is marginalised as the retailers opt to bring in global food brands directly. This is often in complete defiance of any exclusivity arrangements a brand may have with a local distributor. 
 
This was plain to see this week as I strolled the aisles of Great Taste and Three Sixty supermarkets and marvelled at how much of the stock was parallel imported. 
While this situation makes life difficult for distributors, there are advantages of the direct-to-retail model for New Zealand exporters. 
Having the ability to supply retailers direct means that a significant distributor margin can be cut out, resulting in improved price competitiveness. Economic theory would suggest that more competitive pricing should mean greater sales and thus more volume – a major drawcard for any exporter.
Further, supplying retailers direct generally means that expensive market entry costs, such as merchandising fees and compulsory promotion programs, can be significantly reduced, or avoided altogether. 
 
With listing fees for major retailers costing around HKD1500.00 (NZD250.00) per SKU, per store, any reduction in these costs represents a significant financial saving.
From the retailer’s perspective, in addition to being able to grab a good deal, being able to consolidate a large collection of brands and products in regular shipments from each country, allows them to test the market with an ever changing range of products. Culling the non-performers with practiced equanimity and favouring popular items with good shelf space is commonplace. 
 
For the consumer, it simply means a better selection of products to choose from during their outings to the supermarket.
Because of the stiff competition in Hong Kong, advertising and promotion initiatives need to be carefully managed to ensure that the brand is out front and being exposed to as many consumers as possible. Generally, during the initial market entry phase, brands will invest heavily in sampling and tasting programs to try and convince consumers to move away from incumbent brands. Sampling programs may or may not be supported by various above-the-line marketing programs, including print and social media campaigns to drive brand awareness and get consumer buy in. 
 
It is with this aspect of growing a brand in the market that the direct-to-retail selling model does not always stack up. The retailer benefits outlined above for the direct-to-retail model (test many products, keep the performers, cull the rest) generally leads to high brand turnover, as there is simply no focus on building the brand over the long term. Brands effectively have to sell themselves on the shelves without any supporting activity, and if they don’t, then their listing is often deleted and it is infinitely harder to get back in a second time around.
 
A better long term strategy
Having a strong distributor in the market, that in addition to supplying all relevant retailers can act as a custodian for the brand and work with the principal to create and implement structured advertising and promotion programs, is arguably a better long term strategy. 
The right distributor can bring structure and focus to the market development effort.
 
However, if a distributor is put in place in Hong Kong, a serious effort needs to be made by the principal to avoid having their product being paralleled into the market via other channels. There is nothing more unmotivating for a distributor when they are pouring their heart into developing a market for a principal than seeing this brand selling into a major channel via another source. Price wars eventuate, which lead to cannibalisation of both the brand and relationships.
 
F&B exporters looking to enter the Hong Kong market need to decide early on whether to treat the market as a trading market or a brand-building market.
There is no doubt that the direct-to-retail model can provide faster and more cost effective solutions to getting product on the shelf in Hong Kong. Given that success in building a brand in Hong Kong can also create positive ripple effects and business in surrounding markets, including Mainland China, Taiwan and Southeast Asia, brand owners should think long and hard about how they are going to maintain their position on the supermarket shelf over the long term. 
Dishing

Dishing up export possibilities

Exporter Today Editorial TeamExporter Today Editorial TeamApril 16, 2012
minefield

What’s mine is not yours

Exporter Today Editorial TeamExporter Today Editorial TeamApril 16, 2012
25-countries

25 countries… and counting

Exporter Today Editorial TeamExporter Today Editorial TeamApril 16, 2012