Food and Beverage Chains From China Struggle in Hong Kong Market

Some stores have been forced to close within a year, with analysts blaming tight profit margins in the sector, coupled with market oversaturation.

"Radish Southward," a Hunan cuisine food chain from China on the ground floor of Dundas Plaza in Mongkok, closed shop a few months after its opening at the end of 2023. The sign of Radish Southward is seen in the photo with its door closed, in Hong Kong on June 20, 2024. Kiri Choy/The Epoch Times

With the lifting of COVID restrictions, numerous mainland brand-name food and beverage chains entered the Hong Kong market, opening shops in busy districts. However, many of these brands have struggled to sustain their businesses, with several closing within a year of opening, including “LMM Hand Crashed Lemon Tea,” “Radish Southward,” and “GuluGulu.”

Analysts attribute these closures to tight profit margins in the food and beverage industry and market oversaturation, making it difficult for these brands to be absorbed quickly.

Overall data shows that since the middle of 2023, at least 42 mainland catering brands have started operations in Hong Kong. They include “Tanyu,” “Muwu BBQ,” “Season Coconut Grove,” “Tai Er Suancai & Fish,” and others, totaling more than 100 shops in prime locations.

Man on the Street: Try Once as Novelty, No Confidence in Mainland Brands

“Mixue Ice Cream & Tea,” which opened in downtown Mong Kok at the end of 2023, initially attracted a long line of people outside but has recently lost its appeal. The Epoch Times interviewed Ah Jun, one customer of “Mixue Ice Cream & Tea” in Mong Kok. He said that the drinks there are “cheaper than the “hand-crank” (beverage) shops elsewhere. The lemonade I am drinking costs just HK$9 (US$1.2), about half the price at the other shops.” He thinks that it tastes “more or less the same as other shops, and just fine.” He attributes the increase in the number of lemon stores to Hong Kong people’s curiosity. “Hong Kong people like to try new things,” he said

He said that he has also tried mainland-brand food, such as fish with pickles and BBQ in Hong Kong, but he admitted that he “just wants to try something new, and once is enough.” He believed that many mainland brands fail because locals are not accustomed to the flavors.

Mr. Kan, who works in the banking industry, pointed out that while Hong Kong offers a free business environment, the market ultimately decides which brands survive. He expressed a reluctance to patronize mainland brands, citing concerns over the quality of ingredients despite the low prices. He doubted that such low prices were sustainable given Hong Kong’s high rents and labor costs, suggesting possible compromises in ingredient quality. There might have been “manipulation of raw materials one way or another,” he said.

Mainland Enterprises Rush to HK in the Hundreds, Many of Them ‘Hit the Rocks’

“LMM Hand Crashed Lemon Tea,” a company with more than 50 outlets in mainland China, came to Hong Kong in June 2023, opening several shops in different locations. One of them, at Hang Lung Building along Nathan Road in Mong Kok, was rented at HK$70,000 (around US$9,000) per month for a floor area of about 300 square feet. The lease of this ground floor shop was originally scheduled to run until April 2025, but since January this year (2024), the shop has been vacant with a new asking price of HK$50,000 (US$6,400) to seek new tenants. Until now, it has not reopened, with just several real estate agents’ posters on its door advertising for new renters.

In addition, the Hunan cuisine brand “Radish Southward” started renting the ground floor of Dundas Plaza, which is more than 1,700 square feet, for HK$250,000 (US$32,000) per month. The lease was supposed to last until December 2026, but in just a few months, it was again placed on the market, seeking a new renter.

Guangzhou snack shop “GuluGulu” (Meatball House) has more than 500 outlets in mainland China. In September 2023, it opened a shop on Nathan Road near the Yau Ma Tei MTR station with a monthly rent of HK$60,000 (US$7,700). However, the store was available for re-let at the end of April, and any prospective new tenants will have the added benefit of taking possession of all apparel left behind by its previous owner.

In addition, “XitaLaoTaiTai,” a barbecue restaurant chain with more than 400 outlets in China, has a store in the New Mandarin Centre in Tsim Sha Tsui East, leased on a monthly rent of HK$300,000 (US$38,400). It opened in April 2023, but it has been reported recently that the shop owner has been in arrears with their rent for quite a few months. The shop has since been put up for rent again, but the barbecue restaurant will remain open until a new tenant is found.

Commentator: Hard to Explain Why Mainlanders Do Things ‘Like a Swarm of Bees’

Law Ka-chung, a commentator on global macroeconomics and markets, said in one of the Epoch Times YouTube programs that these mainland brands may not have a thorough understanding of the Hong Kong market, especially when the tastes are different from what Hong Kong people are used to. He also observed that mainlanders tend to do things “like a swarm of bees,” which he finds difficult to understand.

He pointed out that mainland companies usually start big, “opening 20 or 30 shops in one go,” which will bring big problems in expense management. He said that even though the rents in Hong Kong have gone down by one-third from their highs, they are still more expensive than those in mainland China. In addition, the market may not be able to accommodate them all, he added.

Retail Sector Worse Than During Pandemic, Culinary Sector Still Not at Pre-Pandemic Level

Hong Kong’s recovery after the pandemic has been slow, and the retail sales situation has even worsened. According to the Census and Statistics Department, the provisional total retail sales value in April was HK$29.576 billion (US$3.8 billion), down 14.7 percent year-on-year. It was the largest year-on-year decline since July 2020 during the pandemic. Compared with April’s figures, they are even worse than April 2022 during the pandemic.

As for restaurant revenue, it was HK$9.342 billion (US$1.196 billion) in March 2024, marginally lower than the HK$9.361 billion (US$1.198 billion) recorded in the same period last year, but still lower than the HK$9.194 billion to 10.589 billion (US$1.177 to 1.356 billion) in the same period from 2017 to 2019 before the pandemic.

While Hong Kong’s pace of recovery remains weak, the local government still encourages mainland companies to open businesses in the City.

In November 2023, Invest Hong Kong went to Nantong City in Jiangsu Province to co-organize a seminar with the Jiangsu Provincial Government to encourage enterprises in Jiangsu Province to “go global” and expand overseas markets. Also present was Li Xuelin, Chairperson of Jiangsu Hefu Catering Management Co. Ltd., who shared his experience in going to Hong Kong to expand overseas business. According to records, his “Hefu Noodles” has over 400 stores in more than 60 cities in mainland China. Hong Kong’s “Hefu Noodles” was also opened in Causeway Bay in February this year (2024).

In April this year, Invest Hong Kong went to Chengdu in Sichuan and, with the Sichuan Provincial Department of Commerce, held an exchange meeting titled “Hong Kong - Your Platform to Going Global” to assist Sichuan Food and Beverages (F & B) enterprises “Go Global.” It was to promote the investment and development opportunities in Hong Kong’s catering industry and encourage Sichuan catering enterprises to seize the opportunity and enhance their brands through Hong Kong’s international reputation as a platform to enter overseas markets.