Entering the F&B game in Hong Kong can be a bit like getting tossed about in a tin boat during a storm.
Hong Kong is intense. Just navigating its teeming sidewalks and constant noise can put you on edge. It's a city of Alfa men and women moving from one opportunity to the next, deftly dodging setbacks as they advance towards the next ‘big thing’. For a New Zealander, this overt capitalism can take a bit of getting used to.
However, with an economy driven by some 7.15 million locals and more than 54 million visitors per year, mostly from Mainland China, Hong Kong is definitely a market worth taking on.
The supermarket channel is sophisticated and well suited to New Zealand’s products. Indeed, many of our hero brands are already well established in Hong Kong. The challenge for new entrants is the high cost of entry and unbridled competition – with no duties or import barriers Hong Kong is an obvious first step for international F&B exporters looking to Asia for growth.
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 listing new brands on the shelves. It’s not uncommon to pay between HKD 400,000-600,000 (NZD 70,000-100,000) to list a brand in the right stores in Hong Kong.
The import friendly environment also means that Hong Kong is one of the few places in Asia where it is viable for retailers to do away with the traditional distributor model and import goods directly.
The direct-to-retail model can be beneficial for some brand owners as it means a savings in the price build of 25-30% by cutting out the distributor margin. It can also significantly reduce expensive listing fees and compulsory Advertising and Promotion (A&P) costs. And yet, direct-to-retail is not without its pitfalls. Testing new products, keeping the top performers and culling the rest with ruthless zeal is the modus operandi for retail buyers in Hong Kong. There is simply no focus on brand building and this cut throat attitude leads to a very high brand turnover.
Generally, brands that are committed to long term success will invest heavily during the market entry phase with regular sampling, price promotions, print and social media campaigns.
With this in mind, a more sustainable strategy for Hong Kong is to work with a capable distributor who can act as brand custodian. Brand owners can leverage off the distributors market expertise in order to formulate and execute a successful marketing strategy. A distribution model has the added advantage of enabling the brand owner to access multiple retail channels while dealing with only one customer (the distributor).
The distribution model is also more suitable for high value, low volume products such as gourmet yogurt and premium lamb. Retail buyers are extremely reluctant to take on the risk of ordering a full air container of high value, perishable goods, preferring instead to transfer the risk of spoilage and warehousing costs to distributors.
Distributors are not only more adept at handling sensitive goods, their ability to service multiple retail chains allows them to rapidly sell full containers and increase their order frequency.
If the intention is to stay in Hong Kong long term brand owners should be prepared with a solid market entry strategy and deep pockets before taking on this market. Success in Hong Kong will have a positive ripple effect in surrounding markets, including Mainland China, Taiwan and Southeast Asia.