Hong Kong's food and drink market severely hit by the economic downturn in 2009

Hong Kong's food and drink market continues to pay the price for its maturity and its proximity to China, the bulk of industry investment continuing to flow to the mainland. As well as its maturity, which greatly impedes potential for growth, the local food and drink market was also severely hit by the economic downturn in 2009, most of the near-term growth forecasts for industry subsectors entering negative territory.

The trade and financial services-dependent Hong Kong economy took a battering as a result of the global financial crisis; this knocked consumer confidence which in turn undermined consumer spending. Further woes came in the form of reduced tourist arrivals, the tourism industry being an important contributor to industry sales, particularly sales of alcoholic drinks.

The latest Hong Kong Food & Drink Report for 2010, which shows a general investment malaise, details the struggles the industry has endured in 2009. However, the report also details the fact that the local market is not simply a stopover for investors headed for the mainland; of course, China's growth potential overshadows Hong Kong and yet high-spending population does still hold appeal for investors, particularly in dynamic categories such as soft drinks.

To 2014, the report expects soft drink sales in Hong Kong to increase by 21.4%. Given the sector's maturity, we see growth being driven by ongoing investment in new product development at the premium end of the market, particularly in perceived healthier beverages categories. The opportunity that remains for proactive, health-oriented investors was evident in Vitasoy International's results for the six months ending September 2009 revenue and earnings before interest, tax, depreciation and amortisation increasing by 9% and 16% respectively in spite of the downturn.

We are slightly less positive in our outlook for Hong Kong's alcoholic drinks market. We still expect premiumisation to play a role here, improved wine and spirits sales being particular contributors to our 14.8% value sales growth forecast to 2014. However, 2008's alcohol excise removal has not had a major impact on domestic consumption, the industry being mature and consumption already being high in spite of high prices.

Nonetheless, a noteworthy success of the alcoholic drinks industry over the last 12 months has been Hong Kong's fine wine auctions. Initially considered unsuitable for global fine wine trading owing to its climate, the scrapping of excise duties has revitalised Hong Kong's wine trading business; its proximity to the high-spending mainland proving a major advantage in this regard.