Why are Internet giants and new consumer brands collectively "seizing" Hong Kong?

This article introduces the phenomenon of mainland catering and tea beverage brands entering the Hong Kong market, analyzes Hong Kong's business advantages and challenges faced by brands, and strategies for brands to use the Hong Kong market as a springboard for internationalization.

Hong Kong's position in the financial world is unquestionable.

However, after the resumption of customs clearance between Hong Kong and the mainland, it has become a must-fight place for new consumer brands such as catering and tea. Not only that, before the National Day this year, Alibaba and JD.com increased their investment in Hong Kong business, and last year Meituan Waimai also entered the market strongly...

Among the large numbers of Internet giants and new consumer brands "fighting" to occupy Hong Kong, the competition between restaurants and catering is particularly fierce.

In the past, mainland brands such as Heytea, Haidilao, and Tai Er Pickled Fish have ventured into Hong Kong, and now brands such as Green Tea, Bawang Cha Ji, and Cha Baidao have entered Hong Kong.

In fact, the trend of the mainland catering industry entering Hong Kong was popular as early as 2003 after the opening of free travel. In recent years, after the epidemic has passed and Hong Kong and the mainland have resumed full border crossing, the trend has resurfaced, and many mainland restaurants have taken the opportunity to "invade Hong Kong."

The same is true for e-commerce companies. Not long ago, Xiao Yangge, whose crimes had not yet been exposed, teamed up with Zeng Zhiwei to open a branch in Hong Kong, which proves the importance of Hong Kong.

Even though the cost of setting up business in Hong Kong is high and it is difficult to make big money there, it does not stop companies from rushing to this place with a permanent population of about 7.53 million and a land area of ​​only about 1,110 square meters (similar in size to Yiwu City).

01 Internet giants and new consumer brands "conquer" Hong Kong

As early as around 2000, the global Internet bubble burst and many Internet companies fell into trouble. Alibaba closed its Hong Kong office due to slowing business growth. However, with the reopening of Hong Kong in recent years, Alibaba has re-established branches or offices in Hong Kong.

At the Taobao Hong Kong business launch conference on September 26 this year, Alibaba announced that Taobao will invest 1 billion yuan to make Hong Kong a free shipping zone. This move means that Taobao is trying to strengthen its competitiveness in more regions, and it is playing a big game by trying to make Hong Kong a "free shipping zone".

Four days later, JD.com announced that it would further increase its presence in the Hong Kong market, with an initial investment of RMB 1.5 billion, which would be used mainly for commodity price subsidies, logistics subsidies, and service optimization. After all, the current domestic e-commerce market has fallen into a competition for existing stocks. In order to get a bigger share of the global market, Internet giants have increased their investment in cross-border e-commerce and expanded logistics coverage to compete for more market share.

In addition to the undercurrents among Internet giants, the food and beverage industry is also eager to try. Hong Kong media reported in mid-June that according to information released by the Food and Environmental Hygiene Department and online data, since the middle of last year, at least 42 mainland catering brands have entered Hong Kong, with a total of 106 branches, including 30 hand-made lemon tea shops, 17 Sichuan restaurants, and 15 other hand-shaken beverage shops. Others include hot pot, various Chinese food, Korean barbecue, coffee and dessert shops, etc.

As early as 2018, Haidilao opened its first store in Hong Kong. The following year, Xiabu Xiabu and Yang Guofu Malatang opened their first stores in Hong Kong. By 2023, Taier Pickled Fish opened four branches in Hong Kong at once. Lemon tea brands "Ning Mengmeng", "Lin Xiangning Hand-made Lemon Tea", and "Tea Saves the Planet" opened stores in Tsim Sha Tsui, Mong Kok and other places; in December 2023, Mixue Ice City opened its first store in Mong Kok, Hong Kong. At the opening, some consumers queued for more than 40 minutes to buy a cup.

A Hong Kong citizen said, "Now my friends and I prefer to buy Mixue Ice City. We can buy an ice cream for HK$5 and classic lemonade for HK$9, which is more cost-effective than many brands."

Seeing its peers making money, Shuyi Herbal Jelly also opened a store in Kowloon at the beginning of this year. The popular tea shop "Heytea" rented two shops in August. In September, the Internet celebrity restaurant Green Tea Restaurant opened its first store in Causeway Bay, Hong Kong, and plans to open a second branch in Tai Wai. Brands such as Bawang Chaji and Cha Baidao have also officially opened their first stores in Hong Kong, China.

Among them, Bawang Cha Ji’s first store in Hong Kong currently only has 6 products online, including Boya Jue Xian and Wanli Mulan, with prices ranging from HK$28 to HK$34, slightly higher than the prices in mainland China. Bawang Cha Ji said that the remaining products will be launched in the future.

Cha Baidao launched about 20 drinks in Hong Kong, including mango sago and green grape jasmine. The prices are also higher than those in the mainland. For example, a medium cup of mango sago is sold for 18 yuan in the mainland and 32 Hong Kong dollars in Hong Kong. Its location strategy is different from that of Bawang Chaji. Instead of choosing a shopping mall, it opened a street shop in Yuanjing Building near Mong Kok MTR station. According to posts on social platforms by netizens, both milk tea shops require more than half an hour of queuing to buy.

What’s more interesting is that a recruitment notice for Luckin Coffee to recruit store managers and baristas in Yau Tsim Mong, Central and other areas in Hong Kong has been circulating on social media recently, which seems to indicate that Luckin Coffee is about to open a store in Hong Kong. However, as of press time, the relevant person in charge of Luckin Coffee has not responded to this.

In a nutshell, many Internet, tea, coffee, and catering brands have plunged into Hong Kong because of the natural advantages here. Only when the time is right, the place is right, and the people are right, can the business run smoothly.

02 What is the charm of Hong Kong?

The reason why Hong Kong can occupy the commanding heights in the catering and tea beverage markets is because of its unique advantages.

First, Hong Kong has a high population density, with tall and concentrated office buildings and residential buildings, making it a prime location for commercial activities. Many of Hongkong Land's projects are located in prosperous commercial areas such as Central and Causeway Bay, which are not only the commercial heart of Hong Kong, but also important hubs for international finance and trade. The geographical advantages make these real estate projects have extremely high rental returns and asset appreciation potential.

Therefore, whether it is a restaurant or a retail store, the sales per square meter is higher than that in the mainland. The revenue of an ordinary store and a store of 2,000-3,000 square feet is similar. Driven by high profits, brands such as Haidilao, Heytea, and Bawang Chaji came here.

Geographically, Hong Kong is located in the center of Asia and is an important hub connecting the East and the West. This unique geographical location makes Hong Kong an important node for international trade and shipping. Hong Kong has a natural harbor, advanced port facilities, huge cargo throughput, and a very developed shipping industry.

In addition, Hong Kong has an open economic policy and a sound legal system. Therefore, many large companies regard Hong Kong and surrounding cities as a bridge to go overseas and internationalize. Many international companies and capital also like to settle in Hong Kong, which promotes economic prosperity.

At the same time, three years after the pandemic, a large number of shops have been vacated in Hong Kong. The rents of popular shops in some core areas have dropped. For new tea brands, the rent cost of opening a store in the Hong Kong market is lower at this time. This also provides opportunities for Internet giants, catering, and tea brands to enter Hong Kong.

In terms of talent, Hong Kong is also actively attracting talents to study and work in Hong Kong. As of the end of February 2024, about a year after the implementation, Hong Kong has received more than 250,000 applications for all talent programs, approved about 160,000 applications, and more than 100,000 talents have come to Hong Kong, which is much higher than the original goal of absorbing at least 35,000 talents each year.

All of the above have contributed to Hong Kong's status as a shopping paradise and its moderate economic growth.

After the new tea drink brands were in the hot market in the mainland, they saw the booming development in Hong Kong and came here to "make money". According to the data of China Chain Store & Franchise Association, the scale of the new tea drink market is expected to reach 149.8 billion yuan in 2023, recovering the three-year compound growth rate of nearly 20%. By 2025, the scale of the mainland consumer market is expected to further expand to 201.5 billion yuan.

However, not all mainland restaurants can gain a foothold in Hong Kong. For example, the snack bar "Guru Meatball House" with a history of nearly 30 years in Guangzhou moved into a basement store next to the Nathan Road MTR station in Yau Ma Tei, Hong Kong, with a monthly rent of HK$60,000 in September last year, but announced its closure in less than a year.

Among tea brands, Heytea entered Hong Kong in 2018, and experienced a long period of contraction and dormancy. It resumed opening stores in 2023, but currently has a total of 6 stores in Hong Kong. Lemon Mengmeng, which entered Mong Kok in 2023, only operated for a short year due to cost issues and unsatisfactory performance.

Nayuki entered Hong Kong in 2019 and currently has only one store. In July 2024, Nayuki's Tea Hong Kong Peak store suddenly closed this month. The reason for the closure is still unknown. Some netizens said that the store was still in business in June and had a large customer flow. The closure was very sudden. Many industry insiders speculated that it might be due to acclimatization or high rent.

In other words, the major new tea brands have entered Hong Kong with great fanfare, but not only has their expansion been delayed, but new stores have also been difficult to operate.

03 Spending a lot of money to pave the way for going overseas

As a high-consumption shopping paradise, Hong Kong's operating costs such as rent and labor are significantly higher than those in the mainland, which will cause the costs of new tea brands in the mainland to increase dramatically. In addition, there are many new tea brands. If a brand cannot achieve profitability or achieve the expected market response in a short period of time, closing stores to reduce losses has become a helpless choice.

Take Mixue Ice City as an example. According to Hong Kong media reports, the rent of a shop with an area of ​​about 412 square feet (about 38.3 square meters) in the Bank Center Plaza was 200,000 Hong Kong dollars in October. If the rent situation of Mixue Ice City is similar, it means that just to pay the rent, at HK$10 per cup, it needs to shake 20,000 cups of milk tea every month to pay the rent.

In addition, there are labor costs. According to the recruitment posters released by Mixue Ice City in Hong Kong, the monthly salary of its store manager/bartender is between 15,000 and 22,000 Hong Kong dollars, and part-time employees are paid 50 to 60 Hong Kong dollars per hour. This means that Mixue Ice City's monthly costs are extremely high, and the profit of a single store is very limited.

Looking at the recruitment notice of Bawang Tea Princess, it offers a monthly salary of 55,000 to 90,000 Hong Kong dollars for the position of "Office Head"; the monthly salary for the position of "Site Selection and Development Manager" also reaches 30,000 to 70,000 Hong Kong dollars.

On the other hand, new tea brands still rely on cost-effectiveness to attract consumers in the Hong Kong market. The pricing of mainland brand products is generally about HK$35 lower than that of local brands.

Therefore, although new tea beverage brands have gained new development opportunities in Hong Kong, these brands not only have to face high costs, but also have to compete with relatively mature local tea beverage brands.

Most of these brands regard Hong Kong as an important part of their overseas strategy, using it as a springboard to better "go global", even if the operating costs are high, in order to integrate into the international market, accepting global consumer testing on the product and business side has become a way to build brands. This phenomenon is exactly the same as the previous major brands scrambling to occupy Shanghai, the "international consumer capital".

Author: Sanlun This article is written by the author of Operation Party [Jingshang], WeChat public account: [Jingshang], original/authorized to be published in Operation Party, and any reproduction without permission is prohibited.

The title image is from Unsplash, based on the CC0 protocol.