Hong Kong Fast Food Market Analysis, Essay Example

Introduction

According to a report created by the South China Research Limited (2013)[1], fast food chains have recently entered their “Golden Age” in Hong Kong. The increasing demand and spending power of the locals and Chinese tourists drive the growth of the industry. The below research paper will analyze the market and the trends to predict customer behavior related to buying food and eating out. The author would like to examine how population shifts, economic trends, and cultural aspects influence the fast food market in Hong Kong. By comparing consumer survey and research on the national and international level, the authors would like to determine the future marketing strategy of fast food chains in Asia.

The author would like to determine general customer and lifestyle trends in order to reveal how these influence buying habits and food consumption. In particular, the economic and social trends will be examined in detail in order to reveal how companies offering fast food can best serve the needs of customers.

External Analysis of the Fast Food Economy

The Market

The latest report of the Global Agricultural Information Network (Li, 2011)[2] confirms that Hong Kong has the 4^th largest market share in the world for high value food products. The country benefits from a rapid and constant economic growth, measured at 7.8 percent in the year 2010. The economic growth for 2011, according to the report (Li, 2011), was forecasted at 4.5 percent[3]. Analyzing the growth of the fast food economy,  the report summarizes statistical data and finds that restaurant receipts grew by 5.1 percent and the number of purchases increased by 6.5 percent between the years 2009 and 2010.

The Hong Kong fast food market is growing, and customers are made up of busy professionals and families who embrace western values and live in an urban environment. The main driving force of the economy is urbanization and economic growth, concentrated in large commercial centers in Hong Kong. Customers have a constantly increasing spending power. As the Industry Overview (Frost & Sullivan, 2011:78)  confirms: “per capita GDP increased from approximately HK$229,613.2 in 2009 to approximately HK$267,858.6 in 2011”[4] The report finds an important correlation between disposable income and food expenditure. Food spending was predicted to grow in Hong Kong by 6.2 percent between the years of 2012 and 2016 (Frost & Sullivan, 2011:78)[5].  There are some regulations regarding additives and nutrition guides introduced in 2010. but they mainly apply to pre-packaged food items(South China Research Limited, 2013: 7)[6]

Marketing Environment

While health is one of the main concerns of Hong Kong customers, according to the latest AC Nielsen survey (2004) [7],  “it doesn’t seem to affect the way consumers choose to eat”, This means that health concerns do not affect customer behavior to a great extent, and marketing messages based around convenience, speed, taste, and availability are likely to work the best in the market segment. 56 percent of customers surveyed by the company stated that one of the main reasons they chose fast food outlets was the convenient location. There are currently no regulations regarding the marketing of fast food in Hong Kong, similar to those introduced in Europe, and no organizations lobby for industry regulation.

Competitive Analysis

The Nielsen survey[8] also revealed that in 2003 there were a total of 11.000 catering outlets in Hong Kong. Ten percent of them were fast food restaurants. The main international fast food chains established in the country are Pizza Hut, KFC, and McDonald’s. Regional and local chains are also popular, such as Cafe De Coral, Fairwood, and Maxim’s. The main competitor of fast food chains is coffee shops, such as Sttarbucks with more than 100 shops and Pacific Cafe with 89 outlets in 2010 (Nielsen, 2004) [9]. A growing trend of healthy eating is affecting and endangering the current market share of fast food restaurants. The likely beneficiaries of this trend are coffee shops, health food stores, and supermarket chains’ own restaurants: ParkNShop and Wellcome (South China Research Limited 2011)[10]

The advantages of fast food outlets over competitors are convenient location, fast service,   variety of menus, and reliability. However, the advantages of coffee shops and supermarket restaurants over fast food outlets are healthier options, and – in case of organic food outlets – unique atmosphere and restaurant features.

Customer Analysis

According to the results of the latest Nielsen survey (2004)[11], an average person living in Hong Kong visited fast food outlets 6.9 times a month. This means that fast food chains in Hong Kong were more popular than in Europe. 21 percent of customers ate breakfast in fast food outlets frequently. They also spent around $160 a month in fast food restaurants. The size of the tourist market should not be neglected, either. As Frost & Sullivan (2011) [12] confirm, “In 2011, Hong Kong received a record-high of 42 million visitors from around the world”.  Consequently, “the total expenditure on dining by tourists in Hong Kong has grown steadily from 2001 to 2011, increasing from HK$240 million to HK$1,535 million for same day in-town visitors and from HK$5.7 billion to HK$18.7 billion /for overnight visitors, respectively” (Frost & Sullivan 2011)[13]. Therefore, the two main customer segments of fast food chains in Hong Kong are young families and single persons  living in an urban environment, adapting to a busy, western lifestyle, and tourists.

SWOT Analysis of the Fast Food Industry

Market Segmentation

Using Kotler’s (Kotler and Armstrong 2012) original 4P model[14], it is evident that the fast food market industry has a strong advantage. The product is desirable and in demand. Price is competitive, and there is not much competition based on price, as the disposable income of the Hong Kong customer is constantly rising. One of the most significant advantages of the fast food industry is that restaurants offer convenient location. As the Nielsen survey has concluded, customers are motivated to eat out when the restaurant is located centrally. Promotion regulation is moderate in Hong Kong, therefore, customers can be targeted in various channels, such as radio, TV, newspaper, and internet advertisement. Based on the results of the survey concluded among 80 downtown office workers, the main reason why customers would be looking for a  healthy lunch option. 65 percent of respondents said that they eat out for lunch at least 3 times a week. 30 percent of the respondents said they would be happy to take advantage of a catering facility in an organic fast food restaurant for business meetings, and a further 45 percent responded “maybe”. 92 percent of respondents said they were concerned about healthy eating. A substantial 68 percent of respondents said they would consider paying more for quality, fresh, and organic food. This indicates that there is a gap in the market that the new restaurant can fill.

The product (fast food service) is offered to satisfy customers’ need or want. Fast food chains satisfy various needs. As Kotler and Armstrong (2012)[15] confirm, a product is anything that can be offered by a company to satisfy a want or need. Customers regularly visiting Hong Kong fast food outlets have a need for eating fast, satisfying their hunger, and saving time on cooking. However, there are other needs that these restaurants satisfy, too. Based on Maslow’s (1943) Hierarchy of Needs theory[16], fast food chains satisfy different levels of needs:

Physiological Needs: This applies to most customers. They simply want something to eat fast, and at a convenient location.

Needs of Love, Affection, and Belonging. Families are visiting fast food restaurants not only to eat, but to spend quality time together, have a conversation, and enjoy the relaxed atmosphere.

Needs for Esteem. Some customers (mostly urban professionals and young people) will visit the restaurants to appear modern, affluent and “western”.

Based on the above analysis, it is important to analyze each market segment’s desired service (product) output level, as Kotler (2001)[17] confirms. Below, the main identified market segments will be reviewed based on the criteria set by Kotler:

Families: Families are not very concerned about waiting time, but very motivated by spatial convenience. They are also less interested in product variety: parents prefer a constant menu, so they know exactly what to order for their children.

Professionals: This market segment chooses fast food outlets because of their “spatial convenience”. They are concerned about product variety, and a great proportion of them is looking for healthy options. Waiting time is also an important aspect.

Tourists: Tourists are not concerned about product variety, and prefer having the same menu as back at home, when they visit large international franchise restaurants. Central location is important when targeting tourists.

The market segments of the fast food industry are described by Li (2011) [18] can be broken down to the following areas: Chinese restaurants, non-Chinese restaurants, fast food outlets, coffee shops, and healthy eating outlets.

New Product Development and Positioning

In order to develop a new product on the competitive, and already fulfilled market, the company established needs to either

• have unique distinctive features and marketing messages
• have a price advantage
• offer better value for customers
• create a strong brand image
• or all of the above.

Price

The price of the products will be set about 20 percent the price of Starbucks outlets.

Promotion

The new restaurant and menu will be promoted through leaflets and stop signs.

Place

The new restaurant will offer a downtown convenient location close to office buildings, and in close proximity to the financial district.

People

As it has been discussed, the main target market will be businessmen and office workers who spend most of their time in the business district.

Product Placement

According to market predictions (South China Research Limited 2013: 4)[19], the main driving force of the Hong Kong fast food market is the  “quick pace of living in Hong Kong”. Therefore, out of the market segments identified, the new outlet would target busy professionals who are able to afford healthy options, are not concerned about the price, and are looking for a convenient location, good quality service, and organic products. The current market of fast food markets have a habitual buying behavior (Kotler 2001)[20]. This means that the majority of customers are buying the same fast food items out of habit, and are motivated by brand familiarity. In the case of a new product, it is recommended that the restaurant targets new customers who have a complex (high involvement) buying behavior. Customers in this segment would research the nutritional value of the food items provided, the reputation of the company, and make conscious decisions. This strategy is based on the assumption that professionals with higher education level and higher disposable income are more likely to be involved in health seeking behavior than those in the middle class.

Kotler (2001)[21] describes market segmentation based on lifestyle, and this is a good approach to determine the target customers for the new product. Based on the review of the categories, the target customer of the new restaurant belongs to the group of Actualizers: “Successful, sophisticated, active, “take-charge” people whose purchases often reflect cultivated tastes for relatively upscale, niche-oriented products”[22].

Market Entry Strategy

Using Porter’s (1985) generic strategies for market entry[23], it is recommended that the new restaurant uses the “differentiation strategy”. The new business needs to focus on superior service performance, and emphasize the unique selling points of the food items in its marketing communication. It is also recommended that the new restaurant will feature both American and Chinese meals, as well as snack and gourmet cafe options. As the need of the market is already fulfilled, and there are over a thousand food outlets in Hong Kong alone, it is important that the new restaurant builds its marketing messages around unique features and benefits.

Product

The main product of the new restaurant, called Organic Corner will be wholegrain pastries, sandwiches, and fresh salad. The product will be different, as all ingredients will be GM free, organic, and checked for nutritional value. Further, the restaurant will offer organic gourmet tea, coffee, real milk, and freshly squeezed orange, mango, and pomegranate juices. There will be no fizzy drinks, and the fast food market will offer pre-packed fruit salads for snack. All of the pre-packed meals will contain the calorie value, source, and country of origin of the food, as well as the harvest and packing time.

Price

As the restaurant will have a strong unique selling feature of being organic, prices will be set higher than the competition’s. However, as the new fast food market will serve a specific niche of customers, this will not increase competition. Coffee will be priced at HKD 350, a fruit salad will cost HKD 350, and a wholewheat tortilla wrap will be priced at HKD 5.50. Salads will cost $HKD 180. Discounts will be offered for regular customers in the form of a point and stamp program.

Place

The restaurant will be located in the main business district (Central District) of Hong Kong, and a corner property is the most suitable, as it will be visible from more than one street. The look of the venue will be both modern and sophisticated, with menus displayed on the table, but food being made available at the counter. The design of the shop will be suitable for business professionals, with secluded side tables for business meeting, and those located in open space for meeting friends. The venue will offer a meeting room where local businesses can hold meetings and benefit from the catering facilities of the restaurant.

Promotion

As the main niche market for the restaurant has been identified as upmarket, trend-setting professionals who are “actualizers”. They will make conscious decisions based on the facts and reports. They are concerned about the quality of food, and the nutritional value of their meal, therefore, the main marketing messages should be built around healthy eating. Targeted marketing will be used by placing promotions on large screens of Hong Kong downtown and distributing leaflets in offices in the Business District. Further, initial lunch time offers will be communicated to staff at the offices located in the area.

Branding

The branding of the new restaurant will be based on organic features, and the brand image will be modern, sophisticated, caring, and responsible. Branding will be completed through press releases and media features.

Marketing Plan

The niche market analysis needs to be completed before creating the image and promotion. It is recommended that the company surveys business professionals working in the area and fully understands their food buying and eating habits.

Based on the results of the survey, marketing messages will be placed in business and lifestyle magazines. Press releases will be created to announce the launch.

Leaflets will be printed and distributed to offices. Stop signs and posters will be placed outside of the building to get the new shop noticed.

Future Marketing

The main goal of getting several regular customers in lunchtime and in the morning will be achieved through delivering meaningful marketing messages, based on the unique features and benefits of the product, and effectively communicating brand image.

Reference List

AC Nielsen (2004) Food Market Analysis.  Available from: www.nielsen.hk [Accessed 26^th October 2014]

Frost & Sullivan. (2011) Industry Overview. Hong Kong. Available from: http://www.hkexnews.hk/listedco/listconews/sehk/2012/1114/01314_1480907/E114.pdf [Accessed 26^th October 2014]

Kotler, P. (2001) Marketing Management. Millenium Edition.

Kotler, P. & ARMSTRONG, G. (2004)  Principles of Marketing.  14^th Edition.

Li, Chi. (2011) “Hong Kong Food Service” USDA Foreign Agricultural Service. Available from: http://gain.fas.usda.gov/Recent%20GAIN%20Publications/Food%20Service%20- %20Hotel%20Restaurant%20Institutional_Hong%20Kong_Hong%20Kong_5-1- 2013.pdf [Accessed 26^th October 2014]

Maslow, A. H.  (1943) A preface to Motivation Theory.  Psychosomatic Medicine, 1943, 5, 85-92

Porter, M.  (1985) Competitive Advantage.  Free Press.

South China Research Limited. (2013) Golden Age of Hong Kong Fast Food Chains. Available from: http://www.sctrade.com/data/sctoday/20130731104308Eng-Golden %20Age%20of%20Hong%20Kong%20Fast%20Food%20Chains%20-%20130731.pdf [Accessed 26^th October 2014]

Below HKD 20.000 ¤ Between HKD 20.000 and 40.000 ¤ Over HKD 40.000 ¤

[1] South China Research Limited. Golden Age of Hong Kong Fast Food Chains, 2013. Focuses on demand and growth of disposable income of the urban population  of Hong Kong.

[2] Li, Chi. 2011. USDA Foreign Agricultural Service

[3] Ibid, p. 2

[4] Frost & Sullivan, 2011. p. 78

[5] Ibid, p. 74.

[6] South China Research Limited. Golden Age of Hong Kong Fast Food Chains, 2013.  p. 7-8.

[7] Nielsen, 2004

[8] AC Nielsen, 2004

[9] South China Research Limited. Golden Age of Hong Kong Fast Food Chains, 2011.  p. 2.

[10] Ibid, p. 3.

[11] AC Nielsen, 2004

[12] Frost & Sullivan,  2011, p. 75.

[13] Ibid, p. 75.

[14] Kotler, P. & Armstrong, G. (2012), Principles of Marketing, 14^th Edition.

[15] Ibid

[16] Maslow, A. H. (1943) A preface to motivation theory. Psychosomatic Medicine, 1943, 5, 85-92

[17] Kotler, P. Marketing Management, Millenium Edition. 2001. p. 276

[18] Li, Chi. 2011. USDA Foreign Agricultural Service. p. 2

[19] South China Research Limited, 2013, p. 4

[20] Kotler, Marketing Management, Millenium Edition. 2001. p. 152.

[21] Ibid, p. 147.

[22] Ibid, p. 147.

[23] Porter, “Competitive Advantage” 1985.