Recently, Din Tai Fung, a renowned Chinese restaurant chain, announced the closure of 14 outlets on the Chinese mainland by next month. The move reflects the drastic changes in the mainland consumer market that also have significant implications for the transformation and upgrading of Hong Kong’s catering retail sectors, and even the entire hospitality industry.

Although Din Tai Fung attributed the planned shutdown of outlets to commercial lease expiries, some news reports revealed that the restaurant chain’s 14 shops in northern China suffered an estimated loss of 44.8 million yuan ($6.32 million) from January to July, which presumably is the real reason behind the planned closures. In fact, a number of high-end consumer businesses recently announced downsizing moves.

The plight of the high-end catering business sector brings two phenomena to light. First, the entry of more and more international brands has diluted the attraction of high-end catering services to mainland consumers, who have turned their focus to value-for-money dining after getting a taste of what is on offer in the market. Second, the economic downturn has compelled many consumers to budget wisely and reduce their luxury spending. The case of Din Tai Fung signifies the mid-to-luxury market is experiencing a slump in business.

Such a consumption trend has been conspicuous in Hong Kong since January last year, when two unexpected phenomena started to emerge after COVID-19 restrictions on cross-boundary travel were lifted: While Hong Kong residents are flocking to the mainland for consumption at lower cost, mainland visitors are not spending as much in Hong Kong as they used to. These two trends reflect a shift to value-for-money consumption, which is the result of shrinking incomes of both Hong Kong and mainland residents during the three-year pandemic. While the pandemic has subsided, people still feel the pinch under the combined effects of sluggish stock and property markets and slow economic recovery. What naturally follows a reduced income is a cut in spending.

Since last year, the Hong Kong Special Administrative Region government has launched a number of campaigns to boost local consumption, including the promotion of a “mega events economy” to attract tourists. Though those measures have their part, the tough economic situation means more efforts are required to boost local consumption.

Sales in the retail sector, for example, fell 11.8 percent year-on-year in July, according to the data released by the Census and Statistics Department on Aug 30, marking the steepest drop since 2023. A news release issued by the Information Services Department on Aug 1 indicated that in the first half of 2024, total retail sales in Hong Kong are estimated to have fallen 6.6 percent year-on-year. After factoring in price changes, the volume of retail sales in the first half are estimated to have fallen 8.2 percent year-on-year.

The leasing sector has become a victim of collateral damage of stagnant retail sales. For instance, real estate developer Hang Lung Properties Ltd reported a 55.7 percent year-on-year decline in its net profit for the first half of the year as a result of weak retail sales, subpar office market conditions and other factors, with its major source of revenue, property rental income, falling 7 percent. The shift in the consumer market thus has had a profound impact on the overall economy.

Hong Kong’s sluggish consumption is the result of the increasing preference for products or services giving the most bang for buck. The changes in the business environment remind the city’s tourism, retail, catering and associated sectors of the need to adapt to prosper or even to survive.

To that end, the government and the business sector need to recognize the three major aspects of the problem plaguing local consumption.

First, Hong Kong’s retail industry continues to diminish in terms of its competitive edge. The city’s “buy global, sell global” strategy was once hailed as a legendary business model in which luxury goods enjoyed competitive pricing by virtue of the absence of consumption taxes in the city. However, with the implementation of a “global pricing strategy” by luxury brands, along with the increasing popularity of online shopping, mobile payment, the emergence of online purchasing agents like Haitao.com, and the easing of restrictions on the import of duty-free products on the mainland, Hong Kong’s “shopping paradise” status is facing huge challenges.

Second, the cross-boundary consumption patterns between Hong Kong and the mainland has changed: The decades-long phenomenon of mainland visitors splashing out in Hong Kong has been replaced by one that witnesses Hong Kong residents flocking north to spend and consume. Such a reversal is neither occasional nor short-term. It would be a grave misunderstanding if we merely attribute the reversal to the fluctuations in the Hong Kong dollar-renminbi exchange rate. In fact, the mainland’s consumer market has undergone a sea change over the years and now caters to the needs of Hong Kong residents. Hong Kong will have to find and tackle the root cause of this reversal in cross-boundary consumption patterns if it wishes to revitalize local consumption.

Third, Hong Kong’s image as a “shopping paradise” and tourist destination has been compromised by the unfriendly attitude of some frontline workers in the hospitality industry toward mainland visitors, which has deterred many potential visitors. The central authorities are supportive of Hong Kong’s tourism, and have introduced measures to expand the number of mainland cities that qualify for the Individual Visit Scheme from 49 to 59, and raised the duty-free allowance from 5,000 yuan to 15,000 yuan for mainland visitors making purchases in Hong Kong and Macao. But the central authorities’ supportive policies and facilitation measures will not necessarily translate into a surge in mainland tourists and cross-boundary spending in Hong Kong unless the hospitality industry undergoes a major “facelift” to rectify many mainland residents’ negative impressions of it. The catering- and tourism-related sectors must not just sit back and expect a free ride, but should take the initiative to devise strategies to adapt to the changes in the consumption patterns and trends.

When Xia Baolong, director of the Hong Kong and Macao Work Office of the Communist Party of China Central Committee, addressed the opening ceremony of the 2024 National Security Education Day on April 15, he warned that Hong Kong must not approach its present-day problems from an old perspective; rather it should adopt a new mindset, and explore new ways and new approaches to tackle new issues. His words were well-judged and went straight to the point. Hong Kong’s hospitality industry has arrived at a critical juncture when the relevant authorities, business operators, and business staff must reflect on their strategies and attitudes and make timely adjustments.

The author is vice-chairman of the Committee on Liaison with Hong Kong, Macao, Taiwan and Overseas Chinese of the National Committee of the Chinese People’s Political Consultative Conference and chairman of the Hong Kong New Era Development Thinktank.

來源：中國日報