Prologue Journal

Borderline blues: Switch to Shenzhen by budget-conscious Hongkongers eats away at profits for local eateries

• prologu5
• 07/07/202407/07/2024

Hong Kong Free Press

Months of poor business forced Hongkonger Emma and her husband Wai to close one of their Japanese omakase restaurants in February, despite its prime location in Causeway Bay.

With their lease not yet expired, the pair swiftly transitioned to fast-food-style chicken chops costing less than HK$100 per meal. The up-market omakase – typically priced around HK$1,000 per person – just could no longer generate enough income, they told HKFP.

The bold move may have saved them from joining a wave of shops and restaurants which have closed down in recent months. Shutters and rental posters have become highly visible in the city’s streets.

See also: Across Hong Kong, the streets bear the scars of a stubbornly weak retail sector – shuttered stores

Retail sales for April were the lowest since the full border reopening in early 2023, showing a year-on-year decline of 14.7 per cent. Provisional data for May also recorded a 11.5 per cent drop compared to a year earlier.

Chief Executive John Lee last month downplayed the woes of local businesses, saying that for every 10 premises closing, there were 16 opening.

“Certain modes of business might not work during the period of [economic] transformation, but there will be new attempts and fresh ideas emerging in the market,” Lee said in Cantonese in an interview with broadcaster RTHK.

But, according to four restaurant owners operating in different parts of the city – two on Hong Kong Island, one in Tsim Sha Shui in Kowloon, and one in Sheung Shui near the border with mainland China – there were no signs of recovery in May and June.

Emma had hoped the worst was over when Covid-19 curbs were lifted. To her shock, business got even worse.

“I hoped that people would come out again as the pandemic ended,” she said in Cantonese. “But the opposite happened – those who wanted to emigrate left the city, while those who stayed turned to the north.”

“We are talking about the poorest period in seven years for us,” she added.

‘Flocked to the north’

Hongkongers’ trips to Shenzhen and other mainland destinations just across the border, in search of cheaper dining and other entertainment options, have hit the city’s businesses hard.

In Sheung Shui, one train stop away from the border with Shenzhen, the impact has been palpable.

The district’s historic market town of Shek Wu Hui had once been a “blessed land,” said Gary Cheung, who has lived in Sheung Shui for more than five decades.

Cheung has been running a family restaurant named after his son, Lok Lok, in Shek Wu Hui since 2010. The town was once a hub for residents from nearby areas and for traders who came to stock up on tax-free items in Hong Kong for resale in mainland China, an issue that once caused widespread discontent among locals, he told HKFP.

“[Shek Wu Hui] was very crowded pre-pandemic. We couldn’t even walk on the pedestrian lane,” he said in Cantonese. “Because it was filled by people lugging their suitcases,” he added, referring to parallel traders.

The business brought vibrancy to the town and pushed rents sky-high.

But Cheung said traders had almost “disappeared” since the full border reopening, partly because e-commerce had allowed mainland Chinese to purchase goods in Hong Kong directly, and because mainland authorities had cracked down on illegal cross-border trading.

The flow of people has also changed, he said. Shenzhen attracted families and even grocery shoppers with cheaper meals and warehouse-style supermarkets such as Sam’s Club, unseen in Hong Kong.

“People flocked to the north for the experience. Besides there are many social media influencers detailing travel guides [to Shenzhen]; many followed and found it convenient,” he said.

The trend has been especially obvious during long weekends and holidays. About 918,000 Hongkongers left the city for mainland China via land checkpoints last weekend, ahead of the July 1 Handover anniversary holiday.

The business boom across the border has made an impact in other ways, enticing customers away from Shek Wu Hui. Cheung said income at his Lok Lok restaurant had fallen to about 60 per cent of pre-pandemic levels.

“Before, the proximity to the border made us. Now, it breaks us,” he added.

‘Survival mode’

Theo Yan of the Fresh Seafood Restaurant in Tsim Sha Tsui is in the same predicament.

At lunchtime on a working day, Yan’s restaurant, which has been serving Cantonese cuisine since 2012, appeared just half-full.

While Yan said festivals remained busy, weekend revenue – long his restaurant’s lifeblood – had halved since the full border reopening last year. “Our regulars have always been locals, the group that likes to make northbound trips,” Yan said.

Mansfield Hui, who runs two restaurants in North Point, told HKFP that revenue at his Cantonese-cuisine eatery was relatively stable despite a slight drop this year.

But his pricier Western-cuisine restaurant had seen a more noticeable drop in income, he said.

See also: Hard to swallow – As restaurants across Hong Kong close, one eatery blames exodus for dwindling diners

Hongkongers’ plans for travel beyond China, boosted by a strong dollar, were also impacting the city eateries. Both Yan and Hui said they believed people were less willing to spend in the city as they saved up for trips abroad.

Emma and Wai, whose omakase restaurant used to serve sashimi imported from Japan daily, felt the impact even more acutely, with Hongkongers increasingly willing to travel to the source.

“Even though there is nuclear waste water… people would still opt to fly to Japan for [seafood],” Emma said, referring to the discharge of radioactive water in Fukushima.

“I believe there are people who don’t want to spend in Hong Kong,” Wai added. “They would rather follow a low budget in ordinary days, saving up so that they can go abroad.”

“They spend feverishly on trips, while in Hong Kong they live in survival mode.”

‘Silver lining’

All of the restaurant owners that spoke to HKFP said they expected the decline in local consumption to persist because of changing patterns of spending and travel.

Emma and Wai hope their switch from high-end seafood to budget meals will mean quicker turnover despite smaller profits.

“I believed it’s about finding the right business model in a fast-changing business environment,” Emma said.

Gary Cheung said the mainstay of his Lok Lok restaurant had long been fresh local ingredients, such as eggs from farmers in Yuen Long, as he catered for residents of the area around Shek Wu Hui.

But he has also been researching the cost of engaging mainland Chinese social media influencers on platforms such as the Instagram-style Xiaohongshu, which has become popular with mainland tourists seeking personalised travel guides to Hong Kong.

Although tourists had never been his target customers, he hoped investing in online promotion could attract new faces as regular clients gradually declined.

Yan of the Fresh Seafood Restaurant said he had been devising new menus, such as fusion dishes that combined Western recipes with Cantonese ingredients.

He said it was important to sustain high-quality services as customers would return after the hype over cross-border spending abated. But that could take months.

Yan did not disclose how much he had lost in recent months, but said he must look forward to the prospect of returning to profitability.

“If there really isn’t any silver lining, that would be hard to swallow,” he said.

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