Bubble tea, hotpot vanish as mainland Chinese retailers bear the brunt of Hong Kong’s rent

A tide of mainland Chinese brands expanding in Hong Kong has ebbed, with several food and beverage chains ending their tenancies amid intense pressure

Hong Kong property

Yulu AoandSalina Li

Published: 7:00am, 24 Jun 2024

Why you can trust SCMP

A tide of mainland Chinese retail brands expanding in Hong Kong appears to have ebbed, with several food and beverage chains ending their tenancies as their businesses have come under intense pressure. Newcomers need to think hard about the locations they select and how best to cater to local tastes to survive sky-high rents and fierce competition, analysts and industry insiders say.

LMM (Ling Meng Meng), a lemon tea brand, closed its first shop in Hong Kong last week, less than a year after opening it. The 300 sq ft shop in Mong Kok’s Dundas Street, had been costing LMM HK$70,000 (US$8,968) per month.

The original lease term was until April 2025, but the landlord has been trying to transfer the contract to new tenants since January with an asking price of around HK$50,000, market insiders said.

Just 100 meters away on the same street, Radish Southward, a mainland restaurant specialising in spicy Hunan food, had closed its doors a few days earlier, just four months after it entered the Hong Kong market. Covering some 1,745 sq ft, the restaurant was originally rented at about HK$250,000 a month under a three-year lease ending in December 2026.

The situation contrasts with the scenes outside the outlets just a few months ago, when people queued up to buy a cup of tea or try a taste of mainland food.

14:57

Hong Kong’s traditional dai pai dong street-food stalls fight to stay open

Jo’s Cha in Causeway Bay is facing a similar decline in demand for its tea.

“Consumers are fewer than when we just opened the shop,” a member of staff said. “Sometimes like rainy days, we only sell some 100 cups.”

Jo’s Cha is a tea brand from the southern Chinese city of Guangzhou that has 500 outlets on the mainland. Specialising in bitter lemon gourd tea, it launched its first Hong Kong shop in Mong Kok last year, and recently opened a new one on Percival street in Causeway Bay, in front of the city’s flagship Times Square shopping mall.

“We can sell 200 cups on our busiest days,” the employee said. “It’s credit to the good location we have, and tourists or mainlanders make up about 60 per cent of our consumers. Local people only account for about 30 per cent.

“But it is getting competitive, especially when people can ‘go northwards’ [shopping in Shenzhen] easily to try different types of drinks.”

The staff member said they are pinning their hopes on the summer heat bringing in more people who want to quench their thirst.

The city’s famously high commercial property rents are a constant threat to the survival of retailers.

In a post issued recently on its official Redbook account, LMM said the rents for its Hong Kong stores ranged between HK$36,000 and HK$130,000, while labour costs range from HK$60,000 to HK$80,000 per month. The average rent for a shop in Hong Kong is up to 20 times higher than on the mainland, the post said.

JLL data shows that rents for high street shops in prime districts rose 15 per cent in the first quarter from a year earlier, with Tsim Sha Tsui seeing the highest increase.

Xita Laotaitai, a Chinese barbecue restaurant in Tsim Sha Tsui, has fallen behind with its rent, prompting the landlord to seek a new tenant, according to market insiders.

“Those renters probably expected good business at the very beginning, but later they found it hard to survive as the sector is quite competitive,” said Michelle Chiu, head of F&B and lifestyle in JLL’s retail department.

Hong Kong welcomed nearly 3.4 million tourists in May, up 20 per cent year on year, according to the Tourism Board. Most of them – 2.63 million – came from the mainland, a 15 per cent increase from the same month a year ago.

Mainland China-based brands have become increasingly favoured by Hongkongers as growing numbers of people have made weekend excursions across the border to shop and dine. As a result, at least 20 mainland food and beverage brands have entered Hong Kong so far this year, according to data compiled by Midland IC&I Property.

Retail operators from the mainland accounted for 28 per cent of all newcomers last year, compared with less than 5 per cent in 2022, according to JLL.

Many of them have struggled.

“Some found it hard to acclimatise themselves to the local market, as they lack the experience of operating in Hong Kong,” said Tony Lo Chin-ho, executive director of Midland IC&I Property.

“The premium shops they rented are not always the ideal choice for business operations despite the high foot traffic there. The foot traffic has often failed to translate into customers and revenues.”

Mainland Chinese brands need to do their homework and adapt to local tastes, said JLL’s Chiu.

“If the products are the same as what they can get on the mainland but several times more expensive, it is hard to convince customers to buy,” she said.