Catering to a food heaven

People dine at Lan Fong Yuen main restaurant located on Gage Street in Central, Hong Kong

Feature Report

With a unique melding of Eastern and Western cultures, Hong Kong has long stood out as a culinary paradise.

But as business leaders and the special administrative region government ponder how the city could revive its fortunes in the post-pandemic tourism market, the city’s catering business is facing a reality check.

Although the recent National Day Golden Week brought some respite with nearly 1.4 million visitors descending on the financial hub, including over 1.2 million from the Chinese mainland – a heartening 27 percent rise over the same period last year – eateries see an uncertain future in the face of perennial problems and a structural shift.

“In the good old days, Hong Kong’s caterers and restaurants used to enjoy a roaring trade as many consumers would spend big on the back of the fast buck they had made in the red-hot stock market,” recalls Winston Yeung Chun-nin, an executive director of Hong Kong-based Chinese restaurant chain, Fulum Group Holdings.

“Today is probably the toughest time we have experienced in two to three decades. But catering isn’t the only business to have seen its heyday go by.”

At the heart of the problem lies a structural and fundamental rollback in spending patterns as Hong Kong residents routinely flock to Shenzhen and neighboring cities for dining, shopping and entertainment.

The winds of change have been sweeping across a competitive landscape north of the Shenzhen River. It seems like only yesterday when deep-pocketed mainland spenders cleaned up the shelves of Hong Kong’s drugstores and boutiques.

Just as Shenzhen’s commercial skyline has become almost unrecognizable over the years, the country’s new breed of “superconsumers” has now gone beyond mimicking the patterns of more sophisticated foreign shoppers to being trendsetters and innovators themselves.

The increasingly fickle and over-fastidious customers going after quality, fine services and experience have significantly contributed to the catering industry’s rat race on the mainland.

Having seen how his mainland peers have been racking their brains and trying out new ideas to beat cut-throat competition, Yeung calls it a “real mind blower” to the extent of making Hong Kong’s caterers and restaurants, beset by deep-seated snags, hard to compete with.

A critical dearth of labor, plus skyrocketing operation costs, have plagued the industry for years, and local business operators may still lack the foresight, courage or ability to change and go forward.

“Among professions generally, catering is seen as tailor-made for low-skilled workers and not rewarding enough, so it has never been the top choice among job seekers. They tend to job hop to alternative work that is less tiring and which offers almost identical pay, such as security officers, especially with the statutory minimum wage regime having come into force more than decade ago,” says Yeung who also chairs the Hong Kong Federation of Restaurants and Related Trades.

The COVID-19 pandemic exacerbated the situation. Between 2018 and 2022, the city’s lower-skilled workforce decreased by about 160,000, or over 4 percent of the working population, according to Legislative Council data.

With an estimated manpower gap of 20 to 30 percent, the heavy workload for catering staff is partly to blame for the oft-criticized brusque service, says Tommy Cheung Yu-yan, a nonofficial member of Hong Kong’s Executive Council and legislator representing the catering sector. As part of efforts to alleviate the labor crunch, the Enhanced Supplementary Labour Scheme was endorsed by the Executive Council in June last year, and has accepted applications since September 2023. By late August, the Labour Department had received 6,852 applications involving 61,343 external workers, with waiters, waitresses and junior cooks as the most preferred jobs. Up to 40 percent of the applications were given the nod, including 21,720 workers most of whom were in the catering, retail and hospitality businesses.

While importing labor may have helped to reshape the job market, Yeung notes the hard fact is that employers have to bear all the expenses incurred by hiring workers from outside Hong Kong, such as accommodation under a maximum two-year contract, as well as expenses arising from public holidays. The manpower headache may also be compounded by some local workers choosing to work part time as a stable income would disqualify them from public rental housing, according to Yeung. “Basically, catering jobs won’t pay enough to compensate for the subsidies they may risk losing,” he says. “So, why not just ‘lie flat’?”

Describing public rental housing as something that is even harder to come by than winning a lottery, Yeung sees no shortage of workers adopting a “rather realistic mindset”, prioritizing housing over employment regardless of the average five-and-a-half-year queue promised by the Housing Authority.

The graying population is another aggravating factor, albeit not unique to the catering business, that has expanded rapidly. The Census and Statistics Department revealed that in the second quarter of this year, the number of employees aged 40 and above in the retail, accommodation and catering sectors had far exceeded that in other age groups, reaching 320,300.

The average age of workers in the city’s 18,000 catering establishments now stands at 45, according to Simon Wong Ka-wo, president of the Hong Kong Federation of Restaurants and Related Trades. Although the industry’s middle-aged workforce should not be viewed as a “fallback solution”, he believes it does offer a glimpse of the difficulties in hiring and retaining people.

Rising costs are another headache for the catering trade. Yeung estimates that rents take up as much as 15 to 20 percent of their revenues, with another 30 percent going to wages, without the costs of ingredients and utilities being taken into account.

However, there is comfort in Hong Kong’s notoriously hefty commercial rents heading south since the middle of 2023. Data from the Rating and Valuation Department show average private rentals in August dropped by almost 4 percent from the previous year.

Over a longer time span, rents for shops have fallen by 60 percent since 2014, and 40 percent since 2019, according to Lawrence Wan Wan-keung, Hong Kong-based senior director of retail advisory and transaction services for US-based global real-estate advisory group CBRE.

But unlike retailers who stand to benefit from rent cuts under short-term leases, Chinese restaurateurs whose businesses are generally heavy-asset investments with upfront costs of up to HK$10 million ($1.28 million) are often required to sign six-year leases for the huge area required, and get little or no relief from rent cuts, says Yeung.

Riding the wave of change

For a highly competitive and saturated sector like catering, Yeung believes the industry’s plight should not be looked at in isolation, with the philosophy of “survival of the fittest” and the attitude of “letting it go”. In the past few years, he has seen a good many catering workers starting their own businesses to cash in on the rent cuts. Due to the relatively low bar for starting from scratch, catering outlets take up a sizeable portion of tenancies at shopping malls, especially in tough times, when retail is in retreat, he says.

“In the push to rejuvenate the catering business, could we introduce new elements for visitors, particularly those from the mainland who have been an integral part of the country’s rapid development and meteoric rise over the past decades?” asks Wan.

Citing the now-demolished Kowloon Walled City which was featured recently in a blockbuster film, he says what makes Hong Kong’s tourism-related sectors stand out are the flagship events and iconic landmarks embedded in the city’s heritage.

Pascal Siu Yat-kui, a senior researcher with think tank, Our Hong Kong Foundation, believes it’s essentially a matter of choice, not only in winning back tourists, but locking in local consumers, as patrons could hardly be expected to pay through the nose for mediocre food and substandard services like before, with a wealth of spending choices available and accessible north of the border.

Amid talk of “consumption downgrading” aggravating the catering sector’s woes, Siu thinks it is more appropriate to call it “consumers going after value-for-money products and services” as a normal response to global economic uncertainties.

As the mainland and the SAR deepen economic and social links, he notes that the “new normal” of Hong Kong people heading north, which may fall into the narrative of “consumption downgrading”, has become a secular trend rather than a fleeting phenomenon or passing fad purely out of novelty.

The concept of a “one-hour living circle” in the Guangdong-Hong Kong-Macao Greater Bay Area has timed its takeoff with the Guangzhou-Shenzhen-Hong Kong Express Rail Link and six road-based land checkpoints between Shenzhen and Hong Kong. Other mega projects, including the Shenzhen-Zhongshan Link that opened in June and the new Huanggang Port Area, due for completion in 2026 with a “co-location” arrangement for commuters, will accelerate connectivity, says Siu.

“Such a new normal is the hard reality every business in Hong Kong has to live with and adapt to,” Yeung says.

At the height of cross-border travel, up to 800,000 Hong Kong residents made daily trips to nearby mainland cities on weekends. However, with commuter flow having stabilized to an expected level of 600,000, he is calling for concerted efforts by industry and government agencies to help local businesses ride the winds of change. By Luo Weiteng, China Daily, MDT/China Daily