BMI View : Despite largely favourable business and regulatory environment, food and drink market in Hong Kong is highly mature and saturated thus presenting limited growth opportunities for foreign investors. Economic headwinds facing the territory over the coming quarters will put a further restraint on consumer spending. That said, we believe that innovative, convenience-oriented and private label products will continue to enjoy relatively high popularity over the coming year.
Headline Industry Data
Total food consumption (local currency) growth year-on-year (y-o-y) in 2014: +3.2%; forecast compound annual growth rate (CAGR) 2013-2018: +3.4%.
Per capita food consumption (local currency) growth (y-o-y) in 2014: +2.5%; forecast CAGR 2013-2018: +2.7%.
Alcoholic drinks volume (litres) sales growth (y-o-y) in 2014: +1.9%; forecast CAGR 2013-2018: +2.1%.
Carbonated soft drinks volume (litres) sales growth (y-o-y) in 2014: +2.1%; forecast CAGR 2013-2018: +1.7%.
Mass grocery retail sales (local currency) growth (y-o-y) in 2014: +4.0%; forecast CAGR 2013-2018: +3.8%.
Key Trends And Developments
Bread Street Kitchen To Open In Hong Kong: UK-based celebrity chef Gordon Ramsay's Bread Street Kitchen is set to open its restaurant in central Hong Kong in September 2014. The company will collaborate with Dining Concepts, a specialist in the development of high-quality experiences throughout the region. The firm is further planning to open a series of restaurants in 2014 and 2015 in Hong Kong and across the region. The Asian outlet will be similar to the company's London outlet and will comprise a restaurant and bar complex in a warehouse-style design with a combination of vintage and modern furniture. The firm is in the final stages of discussion with Las Vegas Sands to explore possible opportunities in Singapore and Macau.
Hong Kong Leads Demand For Australian Wine : Hong Kong has developed into one of Australia's key wine export markets after posting a 9% increase in sales to 7.5mn litres worth AUD94mn (USD82.59mn) in the year to September 30. Hong Kong was one of the best performing Australian export markets, according to Australian Grape and Wine Authority (AGWA). 'The average value increased due to a combination of declines in the lower priced segments and an increase in the upper segments,' the report said. Australia recorded a 0.7% increase in total wine exports to 688mn litres during the reported period, worth AUD1.7bn (USD1.49bn). Increasing total Australian wine exports in volume terms have been attributed to a stronger performance of the white wine category, which offset declines in red wine. Exports to Singapore rose AUD55.4mn (USD48.68mn), to Malaysia rose by AUD34.7mn (USD30.49mn) and to Taiwan rose by AUD10.6mn (USD9.31mn).
Acker Reports HKD45mn Sales : In September 2014, US-based Acker Merrall & Condit reported that sales of Burgundy and Bordeaux wines reached HKD45mn (USD5.80mn) in the first Hong Kong sale of the autumn season. A 65 bottle vertical of Latour was sold for HKD543,400 (USD70,100), while a single case of 1978 DRC La Tache went for the same price. Domaine de la Romanée-Conti accounted for 15 of the top 25 lots and eight out of the top 10 lots. Burgundy and Bordeaux remained the top selling lots, including Henri Jayer's Cros Parantoux, DRC Montrachet and cases of Pétrus and Lafite.
AB InBev Abruptly Terminates San Miguel's Distribution Rights: Philippine-based San Miguel Brewery will no longer distribute certain beers in Hong Kong after an agreement with Anheuser-Busch InBev (AB InBev) was terminated in October 2014. A number of brands owned by the Belgium-based beverage company were sold by San Miguel's subsidiary in Hong Kong. However, AB InBev recently ended the distribution arrangement, for unspecified reasons. San Miguel will cease selling the brands in November, but is in talks with other international premium and craft brands to distribute their products in Hong Kong. The brands affected include Budweiser, Hoegaarden, Leffe and Stella Artois.
Hong Kong Introduces Wine Registration To Ensure Quality : According to reports in October 2014, the Hong Kong Quality Assurance Agency (HKQAA) is set to launch a wine registration scheme to boost consumer confidence and combat counterfeiting. A company must be registered with HKQAA and should be accredited by them before it is allowed to use the marked labels. According to HKQAA deputy chairman, Ir Ho, the scheme 'helps both consumers and the trade', enabling the trade to prove their claims of quality and origin, reports the Drinks Business. The scheme has the backing of major wine companies in Hong Kong and full support from the government, which views the schemes as an 'integral part of the wine trade in Hong Kong', stated Ho.
Risks To Outlook
Political Risks: The rapid escalation in the scale of Hong Kong's pro-democracy protests has surpassed our expectations, and both political and economic risks in the country have risen as a result. While we continue to expect a largely peaceful outcome, the threat of a further escalation and the potential for the use of force by Hong Kong law enforcement presents downside risks to our real GDP growth forecast of 2.5% for 2014. Meanwhile, we have downgraded Hong Kong's short-term political risk rating to 82.7 (from 84.0 previously) as a result of growing social unrest.
Economic Risks: While a high degree of financial stability helps to counterbalance Hong Kong's long-term economic weaknesses, namely its high dependence on trade and over-reliance on the export of manufactured goods, Hong Kong has suffered from a larger-than-expected decline in GDP growth that has resulted in a fall in domestic consumer confidence and spending. A sharper-than-anticipated cooling of the Chinese economy as tighter credit conditions start to take effect could also weigh on domestic consumer sentiment given the key trading relationship between the two countries.