Exporter Guide 2012

An Expert's View about Agriculture and Animal Husbandry in Hong Kong SAR

Posted on: 31 Mar 2012

Post expects that U.S. products will continue to fair well due to competitive prices and consumer confidence in the quality and safety of U.S. products.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 3/23/2012 GAIN Report Number: HK1209 Hong Kong Exporter Guide 2012 Approved By: Erich Kuss Prepared By: Chris Li Report Highlights: Hong Kong imports of high value food products from the U.S. reached US$3.35 billion in 2011, consolidating our position as the leading food supplier to Hong Kong. Hong Kong?s food market remains strong, with restaurant receipts and food retail sales reaching a combined US$21 billion in 2011. It is expected that Hong Kong will maintain its position as one of the top 5 markets for U.S. consumer ready food products in 2012, as it continues to be a major buying center and transshipment point for other markets in the region. Economic growth in Hong Kong is forecast to be 2% in 2012. Post expects that U.S. products will continue to fair well due to competitive prices and consumer confidence in the quality and safety of U.S. products. Post: Hong Kong SECTION I. MARKET OVERVIEW Page 1 of 24 U.S. Food Exports to Hong Kong Overall direct U.S. agricultural exports to Hong Kong reached a record level at US$3.48 billion in 2011, eclipsing the previous record of US$2.97 billion in 2010 and representing an increase over 17%. Among them, U.S. exports of high value consumer-oriented food products to Hong Kong reached US$2.56 billion, consolidating Hong Kong?s position as the 5th largest export market after Canada, Mexico, Japan and South Korea. The top prospects for U.S. food exports to Hong Kong include: red meat, poultry meat, fresh fruits, tree nuts, processed fruit, vegetables and wine. With a population of just 7.1 million, its nominal agricultural and food production leave Hong Kong almost entirely dependent on food imports. U.S. food products are considered to be among the highest in quality, reliable in terms of food safety. Hong Kong Food Imports Due to limited land resources and having a population of 7.1 million, Hong Kong relies on imports for over 95% of it food supply. According to the latest statistics (for 2010) of the Agricultural Fisheries and Conservation Department, the local agricultural industry produced US$79 million worth of products. It is comprised of US$30 million in crop production (mainly vegetables), US$23 million in livestock production, and US$27 million in poultry production. Local production accounted for 2.5 percent of fresh vegetables, 56.2 percent of live poultry and 6.4 percent of live pigs consumed in the territory. Due to its central location, free port status and position as a regional purchasing and distribution center, a significant amount of Hong Kong imports are re-exported. Table 1 ? Hong Kong Imports (2007-2011) of Consumer Oriented Agricultural Products (COAP) & Seafood Growth Share in % of Re-exports Country (in US$ Million) 2007 2008 2009 2010 2011 11 v 10 2011 of Gross Imports World Gross Imports 9,098 11,544 12,826 15,270 18,306 20% 100% Re-exports 2,435 3,409 3,824 4,427 5,158 17% 100% 28% Retained Imports 6,663 8,135 9,001 10,843 13,148 21% 100% United Gross Imports 1,042 1,615 1,972 2,766 3,354 21% 18% States Re-exports 328 609 752 1,155 1,619 40% 31% 48% Retained Imports 715 1,006 1,220 1,611 1,735 8% 13% China Gross Imports 2,007 2,215 2,446 2,735 3,203 17% 17% Re-exports 309 356 334 392 503 28% 10% 16% Retained Imports 1,698 1,859 2,112 2,344 2,700 15% 21% Brazil Gross Imports 989 1,441 1,575 1,415 1,649 16% 9% Re-exports 491 630 737 658 551 -16% 11% 33% Retained Imports 498 811 838 757 1,098 45% 8% France Gross Imports 251 385 446 688 997 45% 5% Re-exports 88 111 115 162 216 33% 4% 22% Retained Imports 164 274 331 526 782 49% 6% Japan Gross Imports 573 603 709 971 954 -2% 5% Re-exports 36 41 43 51 51 0% 1% 5% Retained Imports 536 562 665 920 903 -2% 7% Australia Gross Imports 529 613 682 659 755 15% 4% Re-exports 58 59 91 83 78 -6% 2% 10% Retained Imports 470 553 591 576 677 18% 5% Netherlands Gross Imports 211 306 323 386 666 72% 4% Page 2 of 24 Re-exports 60 100 95 91 111 22% 2% 17% Retained Imports 151 206 228 295 554 88% 4% Thailand Gross Imports 410 486 590 527 583 11% 3% Re-exports 226 267 350 288 312 8% 6% 54% Retained Imports 184 219 240 239 271 13% 2% Germany Gross Imports 148 302 287 307 435 42% 2% Re-exports 73 180 168 166 146 -12% 3% 34% Retained Imports 76 122 118 141 289 105% 2% Canada Gross Imports 217 342 312 394 403 2% 2% Re-exports 43 133 104 133 97 -27% 2% 24% Retained Imports 173 209 207 261 306 17% 2% Total of Gross Imports 6,378 8,307 9,341 10,849 12,999 20% 71% Top 10 Re-exports 1,712 2,486 2,790 3,179 3,684 16% 71% 28% Suppliers Retained Imports 4,666 5,821 6,551 7,670 9,316 21% 71% Total of Gross Imports 2,721 3,237 3,484 4,421 5,307 20% 29% Rest of Re-exports 723 923 1,034 1,248 1,475 18% 29% 28% World Retained Imports 1,998 2,314 2,450 3,173 3,832 21% 29% (Source: Calculations based on World Trade Atlas data) (Retained Imports = Gross Imports into Hong Kong ? Re-exports out of Hong Kong) Hong Kong is a mature and sophisticated market with a growing demand for gourmet foods. At the same time, most Hong Kong shoppers are price conscious consumers looking for ?value for money? products. The continuous influx of tourists and capital contributed to the economic growth in Hong Kong. As a result, the demand for food imports continued to grow in 2011. Major import items included red meats, fruits, poultry meat, seafood and tree nuts. Thanks to the fast-growing economy and consumer affluence, total retained imports of consumer-oriented agricultural products (COAP) and Seafood products in Hong Kong grew by 21% in 2011. The U.S. consolidated its position as the largest supplier of COAP and Seafood products to Hong Kong in 2011. Retained imports of these products from China and the U.S. in 2011 reached US$2.7 billion and US$1.7 billion, representing market shares of 21% and 13% respectively. Hong Kong?s status as a gateway for trade with other markets in the region is increasingly opening up greater avenues for U.S. high value food products. In 2011, Hong Kong imported over US$18 billion COAP and Seafood from the world and re-exported 28% of these products. (Source: Hong Kong Census and Statistics Department). Economy Hong Kong?s economy continued to grow in 2011, particularly with the continued influx of investment, particularly from Mainland China. GDP and per capita GDP grew by 8.6% and 8%, and reached US$242 billion and US$34,106 respectively in 2011. Table 2 ? Hong Kong: Gross Domestic Product and GDP per capita 2010 2011 Growth 11 vs 10 GDP US$223 billion US$242 billion +8.6% GDP per capita US$31,593 US$34,106 +8.0% (Source: Hong Kong Census & Statistics Department) Outlook in 2012 Page 3 of 24 The outlook for spending on food is slightly less optimistic as the Hong Kong economy is not currently expected to grow at the same pace as in both 2010 (7 percent) of 2011 (8 percent). Growth in food imports is expected in 2012 but at a slightly less robust pace. However, U.S. agricultural products are well known in the market for their good taste and quality. In addition, the peg between U.S. dollar and HK dollar will provide much needed foreign exchange stability which will make buying U.S. products more advantageous. Table 3 ? Hong Kong: Summary of the Key Strengths and Challenges for the Market Strengths Weaknesses Hong Kong is one of the top markets in the U.S. food products are not always price world for food and beverages, processed, fresh competitive. China is the largest competitor of and frozen gourmet products. U.S. exports of U.S. food products. high value food and beverage (HVFB) products to Hong Kong reached US$2.56 billion, consolidating Hong Kong?s position as the 5th largest market for the U.S. in 2011. Hong Kong is a major trading hub where buyers Lengthy transportation time and availability of make purchasing decisions for hundreds of product due to seasonality (e.g. fresh produce) millions of dollars of consumer oriented products associated to importing U.S. food and beverage that are transshipped to China and other parts products to Hong Kong can make them less of Asia. competitive than products available in the region or from China, Australia New Zealand (favorable in terms of location). U.S. food products enjoy an excellent reputation The importance of Hong Kong as a among Hong Kong consumers, as they are transshipment point and buying center for renowned for high quality and food safety China and elsewhere is not widely known to standards. U.S. exporters. The U.S. is the 2nd largest supplier of Hong Kong labeling and residue standards differ agricultural, fisheries and forestry products to in some cases, which can impede trade. Hong Kong. For HVFB products, the U.S. remained as the largest supplier to Hong Kong in 2011. Technical barriers to imports of U.S. products Numerous HK food regulations are not in line are generally very low. with Codex, which can complicate import clearances. There is a wide variety of U.S. products While Hong Kong has one of the busiest available to Hong Kong consumers (over 30,000 container terminals in the world, it also has the different items). most expensive port handling charges. The link between the Hong Kong Dollar (HKD) to Hong Kong?s top supermarkets are a duopoly the U.S. Dollar help insulate the HKD from that often request slotting fees. currency fluctuations. In general, implementation and application of Inflation is on the rise in Hong Kong. The regulations is transparent and open. 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. Hong Kong exporters choose to work with Hong Page 4 of 24 Kong importers and distributers to get their products to Mainland China because of Hong Kong?s dependable legal system, financial system and rule of law. Most trans-shipments to Macau are purchased, consolidated and shipped via Hong Kong. Demand is increasing most rapidly for ?healthy? and gourmet foods, market segments where the U.S. is especially strong. Hong Kong concerns over food safety have made U.S. food products as a top choice for quality and safety. Hong Kong?s modern and efficient port terminal and free port status make it an attractive destination and for re-exports. Hong Kong is a ?quality? and trend driven market so price is not always the most important factor for food and beverage purchases. Hong Kong is a dynamic market with a sophisticated international community where new high quality products are readily accepted. Hong Kong is dependent on imports for meeting its food needs. With continued economic growth, U.S. high value food & beverage (HVFB) exports to Hong Kong grew by 21% in 2011 compared to 2010 and consolidated Hong Kong?s position as our 5th largest market for HVFB products in the world. Biotech products are freely imported and products containing biotech ingredients are generally not controversial. Lack of local production means virtually no protectionist pressures for food and agricultural products. Hong Kong is in an economically vibrant region and its economy is expected to grow by 2% in 2012. Hong Kong?s duopolistic supermarkets have a wide distribution network. Cold chain and distribution channels for food products are generally efficient and dependable, as is the customs clearance process. SECTION II. EXPORTER BUSINESS TIPS Importer Lists Page 5 of 24 ATO provides Hong Kong importer lists to U.S. exporters and assists to arrange meeting appointments, provided adequate lead-time is given. Please contact the ATO via Atohongkong@fas.usda.gov for further information and other business tips. Language The official written languages in Hong Kong are Chinese and English. The official spoken languages are Cantonese (the prominent Chinese dialect in Hong Kong and South China) and English. In general, all correspondence can be in English. Travel Visa Even though Hong Kong is now part of China, there is still a border boundary between Hong Kong and China. If you are traveling with a U.S. passport, you do not need a travel visa for Hong Kong. However, if you are planning to go to Mainland China, you need to apply for a travel visa into China. Legal System Hong Kong?s legal system is firmly based on the rule of law and the independence of the judiciary. Hong Kong?s legal system is separate from Mainland China. Also, Hong Kong is a separate customs territory from China. Payment Hong Kong importers are willing to pay by letter of credit in the beginning. When a trading relationship has been established, many of them prefer to pay by open accounts so as to cut transaction costs. General Consumer Tastes and Preferences There is a growing popularity of frozen foodstuffs because more and more consumers believe that frozen foods are more hygienic. However, Hong Kong consumers in general still prefer fresh foodstuffs, particularly fish and poultry meat. Due to the increasing prevalence of dual income families, ready-to-cook food has become more popular. The major supermarket chains in Hong Kong have been putting more emphasis on convenience foods, especially in their pre-prepared sections that are virtually serving ready-to-eat foods. There is most potential for growth in the processed/convenience sectors of Hong Kong?s retail food markets for U.S. high value consumer foods such as general grocery items, ingredients for home meal replacement, and health food. Hong Kong consumers have become more aware of food safety issues and nutrition values of food products. Clear indications of nutritional value on the package have been a good marketing strategy for health foods. The sales of organic products have been increasing steadily. The price discrepancy between conventional and organic foods has also narrowed over the years. Currently, organic products are generally priced between 20-40% higher. The most popular organic products Page 6 of 24 are baby foods, vegetables, fruits, eggs, fresh meats, and fruit juices. Foods categorized as natural and having benefits to health are also appealing to Hong Kong consumers. For example, nut suppliers promote nuts as healthy snacks good for the heart, and many cereals are marketed as an effective means of controlling cholesterol. Hong Kong eliminated its import duty on wine in February 2008 and stimulated a surge in volumes and quantity of wines imports into Hong Kong. Consumption of wine is growing in popularity in Hong Kong. Hong Kong?s wine imports in 2010 reached US$1.2 billion and 45.5 million liters, an increase of 41% in value and 23% in quantity over 2010. For more information on the wine market in Hong Kong, please refer to GAIN Report #HK1204. (This report is available at: http://gain.fas.usda.gov/Lists/Advanced%20Search/AllItems.aspx) Demand for promotion package and discounts. Consumers are very price sensitive. Marketing tactics such as selling bundled economy packs or enclosing complimentary samples are usually used to stimulate sales. The most direct and effective marketing tool is to offer discounts. Because of the limited living space in Hong Kong, it is inconvenient for Hong Kong consumers to store food products. Therefore, bulk-pack food products do not sell well in Hong Kong, and small package food products are preferred. Import Regulations Duties With the exception of spirits, all food and beverage products can be imported to Hong Kong duty free. Certificates & Permits In Hong Kong, the legal framework for food safety control is defined in part V of the Public Health and Municipal Services Ordinance and the Food Safety Ordinance. The basic tenet is that no food intended for sale should be unfit for human consumption. Technical requirements for imports vary significantly according to the product. Products which require import permits/health certificates include meat, milk and frozen confections. The Hong Kong Government (HKG) also plans to implement a health certification requirement for eggs and seafood products. The HKG accepts import applications from Hong Kong importers. In other words, local importers and not U.S. exporters are required to apply for import permits. U.S. exporters need to supply their agents/importers with necessary documentation such as health certificates from the U.S. government. Labeling All prepackaged food products in Hong Kong have to comply with Hong Kong?s labeling regulation. There are also labeling requirements for allergens and nutrients. U.S. labels may not be able to meet with Hong Kong labeling requirements particularly for products with nutritional claims. However, the Hong Kong government allows stick-on food labels, which could be arranged by Hong Kong importers with the permission of the manufacturers. The marking or labeling of prepackaged food can be in either the English or the Chinese language Page 7 of 24 or in both languages. If both languages are used in the marking and labeling of prepackaged food, the name of the food, ingredient lists and nutrition information have to be provided in both languages. Labeling for Biotech Food The HKG does not have any specific biotechnology regulations with regard to the labeling of biotech food products. It makes no distinction between conventional and biotech foods. All are subject to the same food safety regulation. The HKG continues to promote voluntary labeling of GMO products as a viable alternative for the trade. The guidelines on labeling for biotech foods, released in 2006, are advisory in nature and do not have any legal effect. The threshold level applied in the guidelines for labeling purpose is 5 percent, in respect of individual food ingredient. Negative labeling is not recommended. Organic Certification While the Hong Kong Organic Center provides organic certification for local produce, Hong Kong does not have a law regulating organic food products. U.S. organic products can be sold in Hong Kong with the USDA organic logo. Others Under the food ordinances, there are regulations governing the use of sweeteners, preservatives, coloring matters, and metallic contaminants. The Hong Kong government enforces its food safety control according to Hong Kong?s food regulations. In the absence of a particular provision in Hong Kong food regulations, the HKG would draw reference from Codex and/or conduct risk assessments to determine whether a food meets the food safety standard. The Hong Kong government is planning to introduce a regulation governing the residue limit of pesticide in foods in April 2012. Its framework is largely built on Codex?s standard, supplemented by standards adopted in China, Thailand the U.S. For details on Hong Kong?s general import regulations for food products, please refer to GAIN Report #1145. (This report is available at: http://gain.fas.usda.gov/Lists/Advanced%20Search/AllItems.aspx) Section III. Market Sector Structure and Trends Among the three major market sectors of Hong Kong: the retail and HRI (hotel, restaurant and institutional) sectors present the best opportunity for U.S. exporters. The food processing sector in Hong Kong is relatively small and presents less opportunity for market development. Food Retail Total retail sales of food and drinks in Hong Kong for 2011 reached US$9.53 billion, representing growth of 10.7 percent compared to 2010. Relatively sound economic growth prospects from 2012 should help maintain growth in the food retail sector and food retail sales, which are expected to reach a level of over US$10 billion in 2012. Table 4 ? F&B Retail Sales in Hong Kong (US$ billion) Page 8 of 24 Channel 2007 2008 2009 2010 2011 Growth (11 vs 10) Supermarket/Dept. Stores 3.85 4.32 4.44 4.59 5.22 13.7% Other outlets 3.38 3.77 3.69 4.02 4.31 7.2% Total 7.23 8.09 8.13 8.61 9.53 10.7% (Source: Hong Kong Census and Statistics Department) Chart 1 ? F&B Retail Sales in Hong Kong (US$ billion) Despite a highly centralized supermarket retail network, with two supermarket chains accounting for about 80 percent of the supermarket turnover, the total number of retail establishments stands at approximately 14,000. Retail shops in Hong Kong generally are very small in size, about 97 percent of which hire less than 10 employees. Traditionally, Hong Kong consumers shop for food daily because of a preference for fresh food. Much of the shopping is still done in traditional markets including wet markets and mom-and-pop shops. While both wet market and supermarket sales are increasing, supermarkets are taking a greater share of total sales. The supermarket?s share in terms of retail sales rose from 44 percent of total sales in 1995 to 55 percent in 2011. Table 5 ? Sales by Retail Outlet Outlet 2007 2008 2009 2010 2011 Supermarkets/ Dept. stores 52% 54% 53% 53% 55% Other outlets 48% 46% 47% 47% 45% Total 100% 100% 100% 100% 100% (Source: Hong Kong Census and Statistics Department) Although there will not be significant growth of the number of supermarkets, the retail sales share of supermarkets is expected to continue to expand in the future at the expense of that of traditional markets. Many supermarkets in Hong Kong now have successfully tapped the fresh food market by offering foods at very competitive prices and providing a Page 9 of 24 comfortable shopping environment, which is different from traditional wet markets. Overall, wet markets are strong in fresh foods, while supermarkets are strong in processed, chilled and frozen, high added value, and canned food products. The competition between wet markets and supermarkets has intensified in recent years. Some wet markets have turned air-conditioned and provide free shuttle to nearby residential areas. Supermarkets Table 6 ? Profiles of Leading Supermarket Chains in Hong Kong Name o Annual Food f e of Reta wnership Sales No. of Outlet Typ s ile Or Purchasing agent Importers/Agents Wellcome Hong K US$1 ong Over b Around 250 Exporters illion (est.) Consolidators Importers/Agents ParknShop Hong Kong Over US$1 b Around 250 Exporters illion (est.) Consolidators CRVangu Importers/Agents ard Shop China Not available 86 shops & 11 superstores Exporters s DCH CH Importers/Agents Food Mart Hong Kong No 41 DCH Food Mart & 42 Dt available Food Mart Deluxe Exporters 6 supermarkets within Jusco Stores Japan Over US$250 (HK) Ltd. mi department stores and 5 Importers/Agents llion (est.) separate supermarkets Ci 4 Importers/Agents tySuper Hong Kong Not available Consolidators Oliver?s The mporters/Agents De Not available 1 I licatessen Hong Kong Consolidators Uny Japan Not available 1 Importers/Agents Sogo Japan Not available 2 Importers/Agents There are two dominant supermarket chains in Hong Kong: The Wellcome Co. Ltd. (around 250 outlets) and ParknShop (around 250 outlets). ParknShop and Wellcome account for about 80% of all supermarket turnovers in Hong Kong. Both supermarkets are able to work closely with real estate developers to open stores in strategic locations, thus maintaining their significant market share. The other players include: China Resources Vanguard Shops (CRVanguard), Dah Chong Hong (DCH) Food Marts, Jusco and CitySuper. In the past decade, a ?superstore? concept has emerged in the operation of supermarkets, blending the Western supermarket style with a traditional Hong Kong wet market. Superstores offer traditional Chinese fresh food like live fish, meats, ready-to-eat foods and market-style fruit and vegetables as well as the most extensive range of international products. ParknShop opened its first superstore in 1996 with a floor area of 45,000 sq. ft. Presently, Page 10 of 24 its largest supermarket in Hong Kong has a floor area of 72,000 sq. ft. giving customers a modern one-stop shopping solution. The store sells over 20,000 product categories ranging from snacks to electrical household appliances. The ParknShop supermarket chain carries two of its own-label product lines, namely PARKnSHOP and Best Buy, first introduced in 1995. ParknShop is also associated with other supermarkets by the name of Great, Gourmet, Fusion, International and Taste. These high-end supermarkets cater mostly to the expatriates and more affluent clientele. They are ideal outlets for innovative, quality and priced international food products. These stores also carry a wide selection of organic products. Great adopts a stylish international food hall concept and its flagship store offers over 46,000 gourmet items. The first 35,000 square feet TASTE food galleria was opened in November 2004, and features more than 25,000 quality food items sourced from around the world. Gourmet, opened in 2005, occupied 15,000-square-foot store offering a selection of over 20,000 products carried across 30 merchandise categories of quality and premium foods. Dairy Farm, which owns another major supermarket chain ? Wellcome, has opened an upscale supermarket in Hong Kong?s central commercial area catering to the more affluent clientele. The new store called ?Three Sixty? was opened in November 2006. With a floor area of 23,000 square feet, it is Hong Kong?s largest retail outlet for organic and natural products. About 6,000 items or 70% of the items in the store are organic or natural products. The store includes an organic sector for baby products. ?Health? and ?natural? are the key concepts of this store. The second ?Three Sixty? was opened in October 2007. CRVanguard focuses on local customers. While carrying a variety of products from different countries, a major portion of them comes from China. Dah Chong Hong?s outlets (DCH Food Marts) are generally located near wet markets. While being an importer of a variety of products, its retail outlets focus on frozen meat and seafood products. Dah Chong Hong is also a major food importer. CitySuper and Oliver?s The Delicatessen capture an upscale market. Clientele includes mainly well-off middle class and expatriates. Customers are generally receptive to western foods. Both high-end supermarkets require no listing fees. Gateway Superstore and PrizeMart are two supermarkets in Hong Kong selling primarily U.S. products. PrizeMart has 18 stores and Gateway has 1 store. Both supermarkets import directly from US consolidators and do not charge listing fees. Jusco, Sogo and Uny are Japanese department stores with supermarket sections. These supermarkets attract many middle-class customers, who are receptive to new products and do not mind to pay for higher prices for higher quality products. These three stores are popular spots for in-store promotions as they are packed with consumers seven days a week. Hong Kong supermarkets require listing fees which are fees charged to allow a new product to be put on their shelves. This is a one-off fee for a trial period. The listing fees are extremely negotiable and vary greatly among different supermarket chains. Major supermarket chains, such as Wellcome and ParknShop which have many branch stores, have expensive listing fees. Industry sources revealed that key supermarket chains may charge HK$1,000 (US$130) per SKU for each of its store. A 30% discount may be offered to certain suppliers. The discount offered varies tremendously depending on the popularity of the products and the bargaining power of the supplying companies. Agents/importers will not bear this cost as it is normally just transferred to their principals. Page 11 of 24 U.S. exporters should be prepared to encounter numerous trading term demands from Hong Kong food retailers, such as promotional discounts (number of discount promotions offered each year); back-end income (flat rebate per year that a U.S. exporter has to pay to the retail chain based on the annual turnover); D.G.A. (Distribution allowance - the fee that the supermarkets charge for distributing the products from its warehouse to its many branch stores); and incentive rebate (a percentage of turnover rebated to the supermarkets in case sales exceed the agreed amount). It can be expected that the bigger the supermarket, the harsher the trading terms. For general reference, about 15% of the annual turnover has to be rebated to the major supermarkets and 8% to small ones. Agents representing very popular items with large turnover usually have a stronger bargaining power and will be able to negotiate for a lower rebate rate. In face of strong competition, major supermarket stores often offer discounts and tend to transfer the cost to suppliers by requesting lower prices for supplies. Given supermarkets? strong bargaining power, many suppliers have to give supermarkets special discounts which ordinary retailers do not enjoy. There is excellent growth potential in Hong Kong?s retail food market for U.S. grocery store items, particularly new and different items, as food retail outlets continue to increase and diversify. Because of established ties and traditional relationships, most of Hong Kong?s supermarket chains traditionally looked to Britain, Australia, New Zealand, and Canada for supplies. In recent years, however, buying habits are shifting and many more American items are now available on local grocery store shelves. Supermarkets tend to use consolidators to help them source new products which are popular in the United States. Market Entry Approach Through setting up a representative office in Hong Kong: While this is the most effective approach, it is very costly. Through U.S. Consolidators: Major supermarkets in Hong Kong work with U.S. consolidators for some of their products. However, the product quantities requested per shipment are usually small, especially when new products are purchased to test the market. Using Hong Kong Agents: This is the most popular approach. The advantage of having an agent is that it can help with marketing and distribution. Some companies may secure a very competitive price package with TV/magazine/radio for advertisements. In addition, well-established companies have extensive distribution networks not limited to one or two supermarkets. Direct to Supermarkets: For branded products to sell direct to supermarkets, supermarkets usually require exclusive rights in selling the products in Hong Kong through their own outlets only. Otherwise, they will not consider any direct imports. In this case, expensive listing fees may be waived. For non-branded and large turnover products such as fruit, meat, and vegetables, supermarkets tend to buy direct from overseas exporters to cut costs. Direct selling to supermarkets is difficult to handle because they demand strict on-time delivery and very often will not be able to take a whole container. Logistics is the largest problem that U.S. exporters have to deal with if they want to sell direct to supermarkets. However, they can better test the market if they deal directly with retailers. Page 12 of 24 Convenience Stores Table 7 ? Profiles of Leading Convenience Stores in Hong Kong Retailer lients? Name Owne . of rship No Outlets Loca Purchasing Year C tions agent established age 7 Importers -Eleven Hong Kong 964 Hong Kong Ag 1981 15-35 ents Circle K Hong Kong Hong Importers 319 Kong Ag 85 15-35 en 19ts There are over 1,300 convenience stores in Hong Kong. Two major chains dominate the market: 7-Eleven (964 outlets) and Circle K (319 outlets). 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 is 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. Good sales items include packaged drinks, beer and snack food. The average size of a convenience store is 1,000 sq. ft. Listing fees are also required for convenience stores. Market Entry Approach 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. Traditional Markets Traditional markets include wet markets and mom-and-pop shops. They are widespread throughout the territory. Traditional markets used to account for the lion?s share of food retail. For example, they occupied around 54% of total retail food sales between 1995 and 1997. Yet supermarkets sales have exceeded traditional markets sales since 1998, and the dominating trend of the former is likely to persist and deepen in the future. Despite the growing significance of supermarkets in terms of food retailing, traditional markets remain key food retail outlets, particularly for seafood, meat and groceries. Wet markets in Hong Kong have changed gradually over the years. The newly built markets are built and managed by the Hong Kong government with air-conditioning and a more hygienic and pleasant environment than the old ones. Some, but not all, stalls in wet markets have freezers and chilling equipment, which is necessary to maintain food quality. Mom-and-pop shops around housing estates and schools are ideal retail outlets for drinks and snack foods. Such traditional markets offer small stalls and personal services that many Hong Kong consumers enjoy. ?Kai Bo? is a growing local supermarket chains which started business in early 1990s. Kai Bo now has 84 stores. A typical store has a floor area ranging around 1,500 sq. feet. Their stores sell mainly processed foods and produce. Most of the food supplies in these shops come from China and South East Asia. They also import snack foods and drinks from Europe. ?Kai Bo? featured more on frozen products. However, only a few U.S. foods are on their shelves as these stores feature cheap prices and are after the mass market. Page 13 of 24 Market Entry Approach U.S. food exporters must go through local importers or agents that have good distribution networks. Trends in Promotional/Marketing Strategies and Tactics Supermarkets expanding store size: The supermarket industry is undergoing a face-lift to introduce larger size stores with an objective to provide one-stop shopping and convenience for customers. In addition to traditional grocery and household products, supermarkets are moving towards larger, more modern stores with more fresh food. Increasing demand for promotion packages and discounts: Hong Kong consumers are very price sensitive. Marketing tactics such as selling larger economy packs or enclosing complimentary samples are usually used to stimulate sales. The most direct and effective marketing tool is to offer discounts. In face of strong competition, major supermarket stores often offer discounts and tend to transfer the cost to suppliers by requesting lower prices for supplies. Given supermarkets? strong bargaining power as they have many retail outlets, many suppliers have to give supermarkets special discounts which ordinary retailers do not enjoy. Consumers becoming increasingly health-conscious and organic products picking up in popularity: There has been a gradual shift in what food consumers want in Hong Kong. The importance of meat, especially red meat, has declined among some consumers, while other food groups, such as fruits and vegetables, are gaining in popularity. Consumers increasingly look for freshness, healthiness, new varieties and shorter meal-preparation time for food. Consumers want foods of higher nutritional value, but also increasingly pay attention to food safety and hygiene. In short, the marketing trend is to position food products as healthy, natural, nutritional, etc. Internet direct sales of food: Major supermarkets like ParknShop and Wellcome offer grocery shopping over their websites. The service is however not attracting a lot of interest, due to the convenience of shopping in Hong Kong, security concerns over payment via the internet and the cost of delivery. Growing awareness of U.S. products fit supermarkets? needs to diversify product range: With awareness of the high quality and variety of U.S. food products increasing among supermarkets, there are many opportunities to introduce new U.S. products to the local market. ATO Hong Kong selectively invites key supermarket buyers to the United States on buying missions, which are followed by in-store promotions highlighting U.S. products. Buyers from Hong Kong supermarkets realize the quick-changing consumption temperament of local consumers, and many have expressed the need to source new products to capture changing tastes. With strong support from exporters and state regional trading groups, the ATO continues its efforts to promote U.S. products and help supermarkets expand their range of U.S. products. To promote U.S. food products, ATO participates in major trade shows in Hong Kong. U.S. exporters may wish to consider participating in these trade shows so as to introduce their products to Hong Kong buyers as well as buyers from other countries in the region. Table 8 ? Hong Kong: Page 14 of 24 Trade Shows Featuring Food & Agricultural Products Date Name of Show Website May 29-31, Vinexpo Asia Pacific http://www.vinexpo.com/en/ 2012 Aug 16-20, HKTDC Food Expo http://www.hktdc.com/fair/hkfoodexpo-en/HKTDC-Food- 2012 Expo.html Aug 23-25, Natural Products Expo Asia http://www.naturalproductsasia.com 2012 Sep 5-7, 2012 Asia Fruit Logistica* http://www.asiafruitlogistica.com/en Sep 11-13, Restaurant and Bar http://www.restaurantandbarhk.com 2012 Sep 11-13, Asian Seafood Exposition http://www.asianseafoodexpo.com 2012 Sep 11-13, Frozen Food Asia http://www.frozenfoodasia.com 2012 Nov 8-10, 2012 5th Hong Kong Int?l Wine & Spirits http://hkwinefair.hktdc.com Fair Dec 5-7, 2012 Agri-Pro Expo Asia http://www.AgriProAsia.com (*USDA-endorsed trade show, more information on USDA-endorsed trade shows can be found at: http://www.fas.usda.gov/agx/trade_events/usda_shows.asp) Hotel, Restaurant and Institutional (HRI) Hong Kong restaurant industry?s purchases of over US$4.2 billion in foods and beverages generated sales of over US$11.5 billion in 2011. This represented an increase of 10.9% and 6.4%respectively over 2010. It is expected that restaurant purchases and receipts will continue to grow in 2012. Table 9 ? Hong Kong Restaurants Receipts and Purchases (US$ Billion) 2010 2011 Growth (11 vs 10) Restaurant Receipts 10.8 11.5 6.4% Restaurant Purchases 3.7 4.2 10.9% (Source: Hong Kong Census & Statistics Department) As Asia?s most cosmopolitan city, Hong Kong boasts around 13,910 restaurants serving a wide range of world cuisines. These restaurants are comprised of 37% Chinese, 55% non- Chinese restaurants, and 8% fast food outlets. In addition, there are over 1,000 bars, pubs and other eating and drinking establishments. Chinese restaurants: Chinese restaurants are popular among local citizens and tourists. There are a variety of Chinese restaurants in Hong Kong serving different regional cuisines: Canton, Shanghai, Beijing, Sichuan?etc. A typical lunch at a nice Chinese restaurant costs around HK$150-300 (US$19.23-38.46) per person and a typical dinner costs around HK$200-450 (US$25.64-57.69) per person. Non-Chinese restaurants: Many Hong Kong consumers enjoy western food, as do the over 41 million tourists (in 2011). 5-Star and other high-end western restaurants are as likely to be patronized by locals as tourists/visitors. Japanese food, fast food chains, coffee houses and casual dining establishments are also increasing their presence. A typical lunch Page 15 of 24 at a western restaurant costs around HK$150-350 (US$19.23-44.87) per person and a typical dinner costs around HK$250-500 (US$32.05-64.10) per person. Fast food outlets: Fast food outlets are popular among Hong Kong consumers. The most popular fast food chains in Hong Kong are McDonald?s, KFC and Pizza Hut. There are also some large local fast food 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 they each try to keep meal prices competitive. The average cost is around HK$30 (US$3.85) for breakfast, HK$50 (US$6.41) for lunch, HK$25 (US$3.21) for afternoon tea and HK$70 (US$8.97) for dinner. To further meet competition, many fast food operators have renovated their outlets to make them look more modern, spacious and attractive. To meet the demand of a growing number of health-conscious customers, fast food chains have also introduced more new ingredients and developed healthy-food options such as salads, fruits, and fresh juices. Coffee Shops: The coffee shop market continues to grow in Hong Kong?s commercial areas. The two largest coffee house outlets are Starbucks ? operating 115 outlets and Pacific Coffee 110 outlets. Most shops also offer basic menus consisting of muffins, pastries, cakes, sandwiches, and bottled beverages (juices and water). McDonald?s has also vigorously expanded its McCafe in order to gain share in this growing market. Of its 232 outlets, 77 include a McCafe inside their shops. Growing Trend ? Healthy Eating: Hong Kong?s food culture is ?fresh?. Consumer preference for fresh and live products is due to tradition, as well as concern about food safety. Hong Kong consumers are increasingly health conscious. Hong Kong has over 50 small to medium size health food stores. The two leading supermarket chains (Wellcome and ParknShop) and drug store chains (Manning?s and Watson?s) also sell natural/organic products at their outlets. The growth of ?Mix? ? a juice bar that also serves food is a good example of a successful ?healthy? restaurant chain. Organic foods are also gaining popularity as evidenced by the growth of specialized retail outlets for organic foods. There is increasing opportunity for U.S. products and ingredients in this sector. Market Entry Approach Because of small individual consumption, local hotels, restaurants and most fast food operators usually cannot afford to import directly. The distribution of food and beverages to these operators is generally through import agents. U.S. exporters should contact Hong Kong importers to explore potential business opportunities. Trends in Promotional/Marketing Strategies and Tactics Identify key players for the products - ATO Hong Kong can provide lists of importers, distributors, commodity cooperators and regional business groups. Test marketing maybe required prior to establishing a presence in the market. Communicate product benefits to end-users - although distributors maintain the relationships with their customers, end users assert influence over the buying decisions. It is important to directly educate all stakeholders as to the features and benefits of your products. Participate in or visit trade shows ? Hong Kong has an excellent reputation of hosting international trade shows. In cooperation with cooperators and regional groups, the shows Page 16 of 24 will demonstrate the versatility and safety of U.S. food products. Please refer to Table 8 for a list of major shows in 2012. Stage menu promotions with major restaurant chains - Menu promotion dollars will be maximized if spent on promotion events held with the major restaurant chains. With the restaurant chains? announced intention to have an image overhaul, this provides for an opportunity to introduce new U.S. foods. Invite restaurant owners/chefs to seminars and/or to the U.S. - ATO Hong Kong/ cooperators organize seminars and trade missions to the U.S. with an intention to introduce U.S. products, meet U.S. exporters, and share with them food service operations in the U.S. Food Processing 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. Non-Hong Kong made processed food and beverages products remain subject to rates according to China?s tariff schedule. 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. In the case of ginseng, the principal manufacturing processes of cutting and grinding have to be conducted 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. More information on CEPA can be found at: http://www.tid.gov.hk/english/cepa/index.html Market Entry Approach Page 17 of 24 Food ingredients are sourced both through direct import by food processors and through middleman traders. Hong Kong traders and end-users tend to stay with suppliers with whom they know well and have done business with for some time. While exporters would do well exploring all channels, patience and understanding are required to establish a relationship of trust before trading can commence. SECTION IV. BEST CONSUMER ORIENTED PRODUCT PROSPECTS Notes : 1 95% of Hong Kong food supplies are imported. Since Hong Kong?s domestic production is nominal the market size in the following table is equal to retained imports without taking into account local production. U.S. exports to Hong Kong are also based on imports minus exports. 2 Import tariff rates for all food and beverage products in the tables are zero except for spirits with alcohol content greater than 30%, which is 100%. 3 Products listed below are either enjoying a large market import value or a significant growth rate for the last 5 years (2007-2011). Table 10 ? Hong Kong: Top 10 Prospects Product 2011 2011 2007 ? Key Constraints Over Market Category Retained Retained 2011 Market Development Attractiveness Imports Imports Average For USA (MT) (US$ Annual million) Retained Import Growth Fish & Volume US$3 +12.9% Major suppliers of fish U.S. fish and seafood Seafood statistics billion (value) and seafood products are products are Products not China (20%), Japan perceived as high available (16%), quality and safe. Australia (8%) and the US (6%). Many 5-star hotels in Hong Kong are carrying Alaska seafood products such as king salmon, king crab, snow crab, black cod and halibut. It is anticipated that these seafood Page 18 of 24 products will continue to be popular among HRI sector in Hong Kong. Fresh Fruit 586,274 US$761 +2.8% Hong Kong consumers U.S. fresh fruit are MT million (volume) prefer fresh fruit to frozen well known for their fruit. Competition from large variety, good +9.3% Thailand and China is quality and tastes. (value) keen as these countries supply tropical fresh fruit U.S. was the largest at competitive prices. supplier (28%) of The shorter travel time fresh fruit to Hong for shipments from these Kong, followed by countries to Hong Kong Chile (18%) and also render their products Thailand (18%). ?fresh? to Hong Kong consumers. The top U.S. fruit exports to Hong Kong were citrus products (US$138 million), grapes (US$93 million), apples (US$78 million), cherries (US$59 million), plums & sloes (US$22 million) and strawberries (US$19 million). Poultry 490,221 MT US$1.09 +16% Brazil moved in as the no. U.S. exported Products billion (volume) 1 poultry exporter to US$755 million worth Hong Kong when U.S. of chicken products poultry imports were to Hong Kong, +23.6% temporarily banned accounting for 38% (value) during February 11 to of the market share. April 30, 2004 due to Avian Influenza cases in U.S. products are the United States. highly regarded in Though the ban was later food quality and food lifted, Brazil continued to safety. be the largest supplier More popular U.S. due to its price advantage chicken products and its exporters? include chicken wing relationships with Hong mid joints and Kong importers. chicken legs because of their sizes and The depreciation of U.S. quality. These two dollar attracted more products are imports of U.S. products particularly popularly to Hong Kong and the among Hong Kong U.S. regained its leading style cafes. Page 19 of 24 position with a market share of 38% in 2011. Pork 179,637 MT US$613 +3.9% China and Brazil are the U.S. exported US$49 million (volume) top suppliers of pork to million worth of pork Hong Kong because their to Hong Kong, products are very price accounting for 7% of +19.1% competitive. the market share. (value) There is a big demand for U.S. products are price competitive highly regarded for prepared/preserved quality and food meatballs and other safety. products typical in Chinese dishes in Chinese restaurants, which are made from pork. China enjoys the advantage of low processing cost. Processed 156,138 MT US$260 -2.1% China is the largest U.S. processed fruit Fruit & million (volume) supplier (31%), closely and vegetables are Vegetables followed by the U.S. well known of their +3.8% (26%). superior quality and (value) tastes. U.S. Some international processed fruit and brands have operations in vegetables such as China and their exports to potatoes, nuts, sweet Hong Kong are corn, mushrooms, considered as imports peaches and from China. pineapples will continue to be in large demand in Hong Kong. Beef, 70,541 US$449 +8.6% Because of BSE cases in U.S. exported Frozen MT million (volume) the U.S., Hong Kong US$162 million worth currently allows boneless of frozen beef to +31% beef derived from cattle Hong Kong in 2011, (value) under 30 months of age accounting for 30% from U.S. E.V (Export market share. Verification) approved Although U.S. beef plants. was banned in Hong Kong in 2004 and Bone-in beef and variety 2005, Hong Kong beef from the U.S. are consumers still have not yet allowed in. high regards for U.S. beef in terms of Short U.S. beef supplies quality and safety. make U.S. beef very expensive. Brazil beef took the Page 20 of 24 opportunity to gain market share. Brazil beef imports grew from US$49 million in 2004 to US$177 million in 2011. Wine 28.5 US$971 +14% Competition is keen in U.S. exported US$70 million liters million (volume) Hong Kong. Major million of wine to competitors come from Hong Kong in 2011, +70% France and Australia. accounting for 6% of (value) French wine is the market share. traditionally more popular in Hong Kong. The HKG abolished the import tax on wine and beer in February 2008. The HRI sector in Macau is growing, making it an excellent opportunity for U.S. wine traders to expand their exports. Hong Kong consumers are more and more receptive to wine. The total elimination of the excise tax on wine would probably help nurture wine drinking culture in Hong Kong. Tree Nuts 18,605 US$445 -22% The U.S. is very strong in No local production MT million (volume) supplying almonds, hazelnuts and pistachios. +21.5% (value) Some of the imports are re-exported to Vietnam and China for processing. Fruit & 17,206 US$29 -2.4% The U.S. is still the Given the high Vegetable MT million (volume) market leader, exported quality of U.S. fruit & Juices US$13 million worth of vegetable juices, +2% fresh fruit juices to Hong U.S. fruit and (value) Kong, accounting for a vegetable juices such market share of 43%. as orange juices, apple juices, grape juices, grapefruit juices, tomato juices and pineapple juices Page 21 of 24 are expected to continue to be very popular in 2012. Organic Statistics Statistics Statistics Organic F&B products are As Hong Kong Food and not not not generally 20-40% higher consumers are Beverage available available available in prices compared to becoming more non-organic products. health-conscious, the (The size of demand for organic the Hong There are many organic products will Kong standards in the market continue to grow in organic food and the poor quality of a 2012. and country?s organic beverage products may negatively USDA Organic enjoys market is affect the image of an excellent estimated at organic products from all reputation among US$500 supplying countries. consumers in Hong million, with Kong. Consumers an annual generally have more growth of confidence on USDA 10-15%) Organic standards than other countries?. Grain products, soybeans, cereals, oats, noodles?etc are in good demand. Other products such as organic meat (beef and pork), condiments, poultry, eggs etc are starting to have more interest in the market. There is also a strong demand for organic vegetables and fruits, organic coffee and tea products. SECTION V. KEY CONTACTS AND FURTHER INFORMATION Post Contact Foreign Agricultural Service (FAS) Home Page: http://www.fas.usda.gov Agricultural Trade Office American Consulate General Page 22 of 24 18th Floor, St. John?s Building 33 Garden Road, Hong Kong Tel: (852) 2841-2350 Fax: (852) 2845-0943 E-Mail: ATOHongKong@fas.usda.gov Web site: http://www.usconsulate.org.hk http://www.usfoods-hongkong.net Department to Implement Food Safety Control Policy Food & Environmental Hygiene Department 43/F., Queensway Govt Offices 66 Queensway, Hong Kong Tel: (852) 2868-0000 Fax: (852) 2834-8467 Web site: http://www.fehd.gov.hk Department to Control the Importation of Plants & Live Animals Agriculture, Fisheries & Conservation Department 5-8/F., Cheung Sha Wan Govt Offices 303, Cheung Sha Wan Rd Kowloon, Hong Kong Tel: (852) 2708-8885 Fax: (852) 2311-3731 Web site: http://www.afcd.gov.hk Department to Issue License for Imported Reserved Commodities Trade & Industry Department 18/F., Trade Department Tower 700 Nathan Road Kowloon, Hong Kong Tel: (852) 2392-2922 Fax: (852) 2789-2491 Web site: http://www.tid.gov.hk Department to Register Health Foods Containing Medicine Ingredients Department of Health Pharmaceuticals Registration Import & Export Control Section 18th Floor, Wu Chung House 213 Queen?s Road East, Wanchai, Hong Kong Tel: (852) 2961-8754 Fax: (852) 2834-5117 Web site: http://www.dh.gov.hk Department to Issue License for Imported Dutiable Commodities Hong Kong Customs & Excise Department Page 23 of 24 Office of Dutiable Commodities Administration 6-9th floors, Harbor Building 38 Pier Road, Central, Hong Kong Tel: (852) 2815-7711 Fax: (852) 2581-0218 Web site: http://www.customs.gov.hk Department for Trade Mark Registration Intellectual Property Department Trade Marks Registry 24th and 25th Floors, Wu Chung House 213 Queen?s Road East Wan Chai, Hong Kong Tel: (852) 2803-5860 Fax: (852) 2838-6082 Web site: http://www.ipd.gov.hk Semi-Government Organization Providing Travel Information Hong Kong Tourist Board 9th - 11th floors, Citicorp Center, 18 Whitfield Road, North Point, Hong Kong Tel: (852) 2807-6543 Fax: (852) 2806-0303 Home Page: http://www.hktourismboard.com Semi-Government Organization Providing Hong Kong Trade Information Hong Kong Trade Development Council 38th Floor, Office Tower, Convention Plaza 1 Harbor Road, Wan Chai, Hong Kong Tel: (852) 2584-4188 Fax: (852) 2824-0249 Home Page: http://www.tdctrade.com Page 24 of 24
Posted: 31 March 2012

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