You only have to be in Hong Kong for about a week to realize two things. Firstly, products are pretty expensive compared to the rest of the world and secondly, there seems to be only two main supermarkets: ParknShop and Wellcome. The duopoly has more than 80% of the Hong Kong retail market share and getting your products into any of them is not an easy task; but it’s doable.
The retail market space
The table below gives you an overview of the market space as it stood in August 2013. Little has changed since then, other than a few more stores being added by each supermarket chain. It appears 759 is expanding at a phenomenal rate, opening a store almost every other month. The relatively unknown supermarket chain is currently the biggest threat to the duopoly and food entrepreneurs, because of their mega slim margins. Food Retail Stores in Hong Kong Summary – August 2013
|A.S. Watson Group||Dairy Farm Group||Others|
|ParknShop Superstore||49||Three Sixty||1||SOGO Supermarket Food Halls||2|
|Taste||10||Olivers the Delicatessen||1||Jusco||9|
|Great Food Hall||1||Market Place by Jasons||22||Yata||5|
|Fusion||14||7-Eleven||920+||Vanguard and VanGo||100+ & 70+|
|SU-PA-DE-PA||1||Dah Chong Hong (DCH) Food Mart & DCH Food Mart Deluxe||80+|
|Gourmet Food Hall||1||759||160|
How to get in…
The key to getting in is talking to one of 4 types of people:
- Dedicated buyers in the head office of any of the retail stores
There are dedicated buyers sitting in supermarket headquarters who are tasked with sourcing products for stores. They are incredibly hard to reach and have a reputation for being obtuse. In their defense, they get a lot of solicitations from prospective merchants and I’ve heard of one buyer going away for a 4 day annual leave and coming back to nearly 700 emails and just under 300 voice messages. You need to have a thick skin to deal with them. It took me nearly 2 years to finally meet a buyer in Wellcome and he only had 10 mins to see me! But once you win them over, the path is incredibly smooth. This is the most direct way (and the most difficult) to get in but don’t expect a list of buyers hanging around for you to pick up. The only way I’ve found buyers is through networking with other merchants and food entrepreneurs.
- Store managers for individual stores
I was lucky enough to have a British store manager take an interest in my coffee products, who as a result, wanted them in his particular store. Store managers have the power to recommend/insist that particular products list in their store. So when he gave me the contact details of his “dedicated buyer” at head office, the whole process took no longer than 3 weeks. In my opinion, this is the easiest (not direct) path to listing products, as the store manager will do all the work for you. All you have to do is have a winning product that he or she wants very badly.
- ‘Supermarket brokers’
They come in many shapes and sizes; wholesalers who are set up to simply do their part in the supply chain, relatives and friends of dedicated buyers who have guanxi (connections) with decision makers in head office and ex-dedicated buyers who have decided to use their guanxi with their former colleagues to start a lucrative career. I met one several months ago and her comments about the way the supermarkets worked was very insightful. Of course, these brokers will have their fees and they can be considerable. Some will offer to buy your products and then resell them to the supermarkets using their existing accounts.
- Food entrepreneurs/merchants who have accounts with supermarkets
I inadvertently fell into this category when a friend approached me with a product her husband was importing. I took it to my buyer and he fell in love with it immediately. Within weeks, it went through a quality assessment (QA) exercise and got approval to be placed in stores under my account. This method is almost risk free, depending on who you deal with. I offered my friend a ‘No win – No fee’ structure; if I couldn’t get it listed then no fees were due to me.
Process, Structure, Costs and Payments
The entire process varies between supermarkets but it generally follows one of two patterns: purchase vs consignment. Purchase – stores may decide to purchase products from you directly if they feel that it is unique and that you have exclusivity. Once a product is presented to the stores (regardless of which of the above channels are chosen), it may go through a QA exercise to determine if the labelling and descriptions comply with the relevant laws and ordinances. If it is approved, then an account is opened, terms are agreed and delivery arrangements are made for the product to be sent to the stores. Payment is usually negotiated, but can range from 30-60 days after the date of the purchase order. Beware of hidden costs such as listing fees etc. which can amount to HK$1000 – HK$2000+ per product per store. This is not often paid up-front but instead taken out of the revenue from the sales of your products. Consignment – this is the preferred route for newcomers and unknown products. After the products have been approved by the QA department, the terms normally dictate that the store takes a percentage of the recommended retail price (about 20% – 40+%). Listing fees may or may not be involved in the consignment route but it may be disguised as ‘support’, or costs may be involved in promoting the product in the stores. The downside to this route is that all liability for theft, damaged, lost products (whether by customers or the stores) remain with the merchant.
So many stories abound about Hong Kong supermarkets (some true) but managing expectations is key if you are thinking of getting products into stores.
- Don’t expect to make millions overnight. The set up costs will eat into your revenue and it may be a while before you start to reap pure profits. Expect that and you’ll be pleasantly surprised if the contrary happens.
- Look out for competitors. They will do ANYTHING to sabotage your efforts if you are successful in getting your product listed. Expect to compete aggressively on quality and price.
- If your products don’t sell well, they will throw you out in a heart beat. I saw it happen to a friend of mine and they simply dumped his product stand in the car park and asked him to come and pick it up. He was out of the country at the time. Expect to constantly worry about your sales figures.
- Supermarkets will change offering terms and conditions without a moment’s notice as stipulated in their contracts. Expect to see the conditions becoming more onerous and prepare for it.
- Listing in a supermarket will open doors to wholesale merchants and HORECA (Hotels, Restaurants and Cafes). Expect more business outside the retail markets which is where your business growth will most likely come from.
The son of a Jamaican farmer, Jim studied Social and Political Sciences at Cambridge University, obtaining both a Bachelor and Masters degree. After Cambridge, he began a career in banking, becoming a risk manager and eventually a Chartered Member of the Chartered Institute for Securities and Investments. Nearly 4 years ago, Jim relocated to Asia and having lived in Singapore for a brief period, settled in Hong Kong and set up Hilmann Reinier Commodities in his second year. Within 18 months of starting his coffee business, he developed his own brand (Lily Kerridge) and was able to have it listed in Hong Kong’s largest supermarket chain; ParknShop. What makes his experience and insight remarkable was that he achieved it without the help of consultants, advisors, bank loans, local Chinese partners or foreign investors. His Lily Kerridge brand is now listed in two supermarkets and the product lines have grown from coffee to tea, chocolates, beer, stouts, malt drinks, chocolates and spirits, all within 6 months. Hilmann Reinier is now the sole distributor for the world-famous Red Stripe beer in Hong Kong and Macau SARs, as well as the People’s Republic of China. The Hong Kong Entrepreneur: From Start-up to Supermarket in 18 months is Jim’s account of his journey and it will be available in Dymock’s bookstores in the autumn.