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Hong Kong Retail Markets Offer Bright Prospects for U.S. Consumer Products
By LaVerne E. Brabant and Sam Lee
Hong Kong is a commercially vibrant city that imported more than $1.6 billion in U.S. agricultural, fish and forestry products in fiscal 1996. Consumer-oriented products--including poultry and red meats, fresh fruits and vegetables and snacks--made up two-thirds of the total, and present growing opportunities for U.S. exporters.
Hong Kong was the third-largest market for U.S. consumer-oriented products and the ninth-largest market for U.S. agricultural exports in fiscal 1996. The city is also a natural corporate headquarters for companies interested in expanding into China.
Some observers are preparing Hong Kong's obituary, given the territory's imminent return to Chinese rule on July 1, 1997. But the recent entrance of new market players, significant investments and near-revolutionary developments in Hong Kong's retail sector suggest these pessimistic predictions may be premature. Capitalism is alive and well in Hong Kong; and nowhere is that more evident than in food retailing.
Warehouse-Discount Concept Arrives
Three warehouse-discount chains dominated the Hong Kong market through 1995: GrandMart, Value Club and U-Save. The largest, GrandMart, opened its first Hong Kong store in 1993. Value Club, Hong Kong's second-largest warehouse-club chain, began operations in February 1995. Created as a joint venture between U.S.-based Wal-Mart and Charoen Pokphand Agro-Industry Co., an agribusiness firm with interests in dozens of joint ventures in Asia, Value Club is now operated by Charoen Pokphand. Unlike GrandMart, which caters to household consumers, Value Club relies on sales to small businesses.
Value Club's product lines resemble those of U.S. warehouse clubs, although some of its prices are slightly lower. Value Club is concentrating efforts on expanding into the Chinese market, and recently opened a 100,000-square-foot store in Pudong, China.
GrandMart Warehouse Club and Dah Chong Hong have agreed to market each other's products. GrandMart, with seven stores, is one of the most successful warehouse clubs in Hong Kong. Dah Chong Hong, the largest agricultural trading company and a major grocery chain operator, has 40 stores in Hong Kong and China. Recently these two companies inked a deal to allow mini Dah Chong Hongs to be located in GrandMart stores. Dah Chong Hong also will purchase some consumer dry food products from GrandMart.
New Players Muscle Way Onto Field
A-Mart opened its first store in Fanling in the New Territories in late summer 1996. The store features 12,000 square feet of shopping area, comparable to other warehouse stores in Hong Kong. A subsidiary of Albion International Holdings, A-Mart has operations in Singapore, Guangzhou, Shanghai, Beijing, San Francisco and Dallas.
This is Albion's first venture into Hong Kong's highly competitive retail food arena. Henry Koo, Albion's managing director, says he would like to find U.S. suppliers for A-Mart foods.
Initially, A-Mart will limit its purchases of U.S. products to those available through local traders. The Hong Kong Agricultural Trade Office of the Foreign Agricultural Service (FAS) provided A-Mart with lists of U.S. products and suppliers.
Retailing giant Wal-Mart opened two stores in Shenzen, China, in 1996. Wal-Mart reportedly can sell items below local market prices because its stores are much farther from the city's center than most other major retail stores, substantially reducing its space costs.
Wal-Mart is negotiating with the Chinese Ministry of Foreign Trade and Economic Relations for a chain-store license. The company plans to open hundreds of stores in the next few years.
In June 1996, Guangnan Holdings, Ltd., acquired a 70-percent share of Hong Kong supermarket chain Kitty and Ketti, changing the name to Guangnan (KK) Supermarkets. Guangnan Holdings also owns several chains in Guangdong Province, China. The acquisition means easier access to the Chinese market for the company. Guangnan Holdings expects to expand its supermarkets in Hong Kong from 22 to 30, making Guangnan (KK) Supermarkets Hong Kong's fourth-largest chain. Guangnan Holdings plans to begin distributing imported foods and other items in its mainland supermarkets, using its Hong Kong stores as purchasing points.
Billionaire Dickson Poon of Dickson Concepts recently acquired 85 percent of Seibu Department Store, which includes one of Hong Kong's most upscale supermarkets. Dickson Concepts plans to expand Seibu stores into China, Taiwan, Singapore, Malaysia and Thailand.
Following the purchase of Seibu Department Store, a team of mid- to high-level managers left the company to open a premier department store, City'Super, which also has an upscale supermarket. The store likely will intensify competition in this already highly competitive market.
New Breed of Luxury Market Appears
In January 1996, a new breed of supermarket, Market Republic, opened its doors. The brainchild of physician Wellen Sham, this high-quality gourmet food market has 10,000 square feet of space and features a deli, imported cheese case, bakery, fish and meat counters and wine cellar. Market Republic has agreed to purchase most of its consumer food and U.S. milk products from GrandMart.
Sham modeled the store after his favorite supermarket in Dallas. Market Republic emphasizes attractive displays and an aesthetically pleasing atmosphere. These and a vast selection of imported foods set it apart from other supermarkets. Market Republic caters to health-conscious consumers, expatriates and well-traveled young Chinese.
In June 1996, the store sent a team to the United States to augment its inventory of over 5,000 items. Sham plans eventually to increase the inventory to 7,000-8,000 items. Major Hong Kong retailers, such as Park N' Shop, carry anywhere from 1,000 to 9,000 items, depending on store size and location.
Market Republic prices slightly exceed those of its major competitors, but they will likely become more competitive through the use of direct importation from the United States and other countries. Market Republic has incorporated cooking demonstrations, wine tastings, home delivery, fax orders and VIP cards for repeat customers to enhance the shopping experience. In addition, customers can have a say about which products the store offers. During the next 4 years, Sham plans to open another store on Hong Kong Island, two more in Kowloon and expand into Taiwan and China.
Park N' Shop recently opened its newest and largest store (38,000 square feet) in Kowloon. Besides having an expanded selection of food items, the store features fresh seafood, prepared foods, and bulk item sections. Park N' Shop says that the new store is strictly experimental, and does not plan to model other stores on it.
Guangnan (KK) Supermarket has announced that it will buy 12 HYFCO supermarkets, which would give the company over 40 stores in Hong Kong. It plans to expand to 300 stores in Guangdong Province in the next 3 years.
Wellcome, the largest supermarket chain in Hong Kong with 208 stores, has introduced a new payment and cash withdrawal system at checkout stands in 20 stores. Many retail stores in Hong Kong use the Easy Pay System (EPS), which allows customers to deduct purchases from their bank accounts. Wellcome has enhanced the EPS by allowing customers to withdraw up to HK $500.00 (about US $65.00) when they make their purchases. Wellcome believes this new service will cut down on time customers spend waiting in line.
Tracking Trade Opportunities
Interested in learning more about trade opportunities with Hong Kong? FAS' Agricultural Trade Office takes the lead in promoting exports of U.S. food, fiber and forest products to Hong Kong. You can read more at this address on the World Wide Web: http://www.usia.gov/abtusia/posts/HK1/wwwhato1.html
LaVerne Brabant is Agricultural Trade Officer and Sam Lee is a marketing specialist at FAS' Hong Kong Agricultural Trade Office. Phone: 011 852-2841-2350; fax: 011 852-2845-0943.
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