F&B sector battered by exits in 2017

A flurry of restaurants caved under mounting competition from international brands.

If there is anything that Hong Kongers are getting used to, it is the pain of seeing their newest favorite dining spot close up shop. From the vegetarian-and-vegan havens HOME – Eat to Live and Maya, to the rooftop pizzeria 3/3rds, to the NEO Cocktail Club, there has been a bevy of closures in the F&B sector, which accounted for 16.37% of total private sector vacancies in December 2017, the highest of any sector, government data showed.

This meant the F&B sector racked up 12,120 vacancies out of 74,040 registered at year’s end. By comparison, the retail trade posted the second-highest rate of vacancy at 7,800, or 10.53% of the total, professional business services at 7,020 (9.48%), import and export trade at 5,980, and financing and insurance registered 5,670 vacancies respectively.

Whilst the high F&B vacancies could be seen as a function of soaring city rents, Michelle Chiu, director of retail department at JLL, noted that intense competition is the real culprit and the weeding out of concepts is nothing new to Hong Kong where food trends are quicker to change.

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“As one of the foodie capitals in Asia, the Hong Kong F&B market is a sophisticated and dynamic one where dining trends are adopted very quickly,” she said, citing how back in 2013 to 2014, most clients were looking for retail spaces were searching for at least 3,500 to 5,000 sq. ft. to open large-scale restaurants. Now, many operators are seeking smaller opportunities to house unique concepts with 1,200 to 1,800 sq. ft. being a sufficiently-sized space.

Chiu reckoned that there were only a few popular brands that exited the market in the last 12 months, with many new ones entering such as Tsukado Nojo from Japan, Xinrongji from and Shake Shack from the U.S. In addition, she expects many more international concepts to land in Hong Kong in the next six months.

Tougher competition
“As more and more international as well as local players enter into the market, the F&B industry is becoming more sophisticated which means competition is getting higher and higher,” said Chiu. “This forces operators to continue to improve the standard of their food, service, and presentation, and continue to be innovative in their cuisine. This benefits all consumers and raises the already high standard of the industry in Hong Kong.”

But Chiu warned that the success of founding companies have attracted many brands into the market, and the often fatal mistake comes in poorly estimating consumer demand and crafting a product that can truly stand out in Hong Kong. “This often results in failed businesses, not because of the concepts, but because of too much competition and not very unique products.”

“We suggest that operators who are looking into establishing new concepts or bringing franchise brands into Hong Kong to do a more detailed study of the market before making their first move,” Chiu said. “In 2016 it was Japanese cheese tarts, last year we were hit by a wave of new ice cream and fluffy shuffle pancake concepts ranging from European to Korean, and this year we are seeing the Taiwanese bubble tea crave making a comeback.”

Chiu reckoned brands should engage with a third party and professional group to help them zero in on a market opportunity, especially if they are unfamiliar with the local scene. For those that do their homework, she said the rewards can be worth the risk. “There are many more retail opportunities that are actually available for F&B operators to choose from, which is a very positive sign for those who are still looking to expand.”