Hong Kong's food and drink industry continues to be dominated by manufacturers that are increasingly turning their attention to mainland China in search of long-term growth. While the market continues to play an important role as a profit centre and valuable testing ground for higher-value, innovative new product launches, recent economic turmoil has undermined its value to investors as BMI examines in its latest Hong Kong Food & Drink Report for 2009. Hong Kong falls in 10th place out of 14 Asian Pacific markets in BMI's Business Environment Ratings for the region. Although not an appalling position, especially given Hong Kong's tiny size and its maturity, its rating is more indicative of the low risks associated with investing in the market, rather than the opportunities that the market affords investors. This low risk, but limited opportunity picture has seen the leading players in Hong Kong's food and drink industry continue to turn their attention to China in search of more favourable prospects. Hong Kong's recent economic woes have done nothing to reverse or stymie this trend. Yes, the economic crisis has been global, with China by no means escaping unscathed, and yet Hong Kong is forecast to enter recession in 2009 as its economy suffers with its dependence on trade, on the back of reduced global demand for goods, and its dependence on the financial services industry, on the back of global financial markets turmoil. Both will adversely affect employment, consumer confidence and consumer spending levels. Amid this gloom, this report does identify one potential beneficiary of the economic slowdown, Hong Kong's nascent discount grocery retailing industry. Already benefiting from a growing acceptance of lower-priced and private label food and beverage items, and a growing recognition of these products as value, rather than cheap, discount stores will only benefit further from a reduction in consumer confidence over the next couple of years. To 2013, BMI expects discount retail sales in Hong Kong to increase by 47.9%, against a wider mass grocery retail (MGR) sales growth forecast of 24.4%. If this report identifies an opportunity at the economy end of the food and drink market for discount retailers, it interestingly also examines a possible opportunity at the luxury end of the market, within the fine wine sector. The full removal of excise on wines and beers in March 2008 left Hong Kong alcoholic drinks completely tax free, leading the country to pursue its ambition of becoming an important global fine wine trading hub, proximity to mainland China its major selling point. Hong Kong's effectiveness in achieving this objective will be reviewed in our next market report.
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