10th July 2024 – (Hong Kong) As Hong Kong’s economy struggles to regain its pre-pandemic vigour, a new breed of budget-friendly businesses is flourishing, catering to a population increasingly mindful of their spending. This phenomenon, encompassing ‘two-dish rice’ eateries, HK$70 barber shops, and Taobao-style discount stores, is not merely a passing trend but a significant shift that may redefine Hong Kong’s economic identity.

On a typical weekday evening in Mong Kok, a residential neighbourhood in Hong Kong, a long queue forms outside a food store, one of the many ‘two-dish rice’ outlets that have sprung up across the city. For just HK$39, customers can enjoy a hearty meal consisting of two main dishes and a generous serving of rice. This simple yet satisfying offering has struck a chord with Hong Kongers from all walks of life, from office workers to students and families.

Alongside the budget eateries, another business model gaining traction is the HK$70 quick-cut hair salon. These no-frills barber shops offer a basic haircut in just 10 minutes, a service that has found favour among time-pressed Hong Kongers looking to save both time and money. The price point of HK$70 per cut is fast becoming a norm in a city where people once equated low prices with poor quality.

Dave Wong, a 35-year-old office worker, typifies the clientele of these budget barbers. “I used to pay over HK$200 for a haircut at a fancy salon,” he says. “Now, I can get a decent cut for less than half the price, and it’s much more convenient. In these tough economic times, every dollar saved counts.”

Completing this triumvirate of budget-friendly businesses are the Taobao-style discount stores that have mushroomed across Hong Kong. These shops, often found in areas like Kwun Tong, Sham Shui Po, and Tsim Sha Tsui, offer a wide range of products from electronics to household items at prices that can be even lower than those on Taobao, the popular Chinese e-commerce platform.

Mrs. Lee, a 45-year-old housewife, is a regular at these stores. “I can find almost everything I need for my home here,” she explains. “The prices are unbeatable, and it’s much more convenient than ordering online and waiting for delivery.”

This shift towards budget-friendly options is occurring against a backdrop of troubling economic indicators. Hong Kong’s retail sales dropped 11.5% in May 2024 compared to the previous year, marking the second consecutive month of double-digit decreases. The government attributes this decline to changes in consumption patterns and the strength of the Hong Kong dollar.

Annie Tse Yau On-yee, chairwoman of the Hong Kong Retail Management Association, paints a grim picture of the retail sector’s performance. “While there was the Labour Day golden week in May, meaning more mainland tourists in the city, it was dampened by adverse weather, resulting in a less-than-expected performance for the week,” she notes. A survey of 4,200 shops revealed that 85% recorded a drop in business compared to the same period last year.

The rise of these budget-friendly businesses is having a significant impact on Hong Kong’s traditional retail sector. Established brands and high-end retailers are finding it increasingly difficult to maintain their market share as consumers gravitate towards more affordable options.

This shift is particularly evident in the food and beverage industry, where many traditional restaurants and cafes are struggling to stay afloat. The catering industry is grappling with complaints of poor service standards and losing local patrons to venues across the border in mainland China.

Similarly, traditional hair salons and beauty parlours are feeling the squeeze from the HK$70 barber shops. Many have been forced to lower their prices or offer additional services to remain competitive. In the retail space, as more established brands close their stores, empty shop lots are being filled by Taobao-style shops selling discounted goods. This trend is particularly noticeable in areas that were once dominated by higher-end retailers.

The proliferation of budget-friendly businesses raises important questions about the future direction of Hong Kong’s economy. While these enterprises are providing much-needed affordable options for consumers and filling vacant retail spaces, they may also be indicative of a broader economic malaise. The rise of ‘two-dish rice’ eateries, budget barbers, and discount stores is a double-edged sword. On one hand, it demonstrates the resilience and adaptability of Hong Kong’s entrepreneurial spirit. On the other, it signals a downward shift in consumer spending power that could have long-term implications for the city’s economic growth and international competitiveness.

Indeed, the growing popularity of these businesses may reflect a ‘race to the bottom’ in terms of prices and profit margins. While this may benefit consumers in the short term, it could lead to a hollowing out of the retail sector, with potentially negative consequences for employment, innovation, and the overall quality of goods and services.

Furthermore, the shift towards budget-friendly options may impact Hong Kong’s image as a luxury shopping destination. The city has long been known for its high-end retail offerings, attracting wealthy tourists from mainland China and around the world. If this reputation is eroded, it could have significant implications for Hong Kong’s tourism industry and its position as a global financial centre.

Recognising the challenges facing the retail sector, the Hong Kong government has taken steps to stimulate consumer spending. The recently launched Hong Kong Shopping Festival, which brings together 5,000 merchants offering HK$1.2 billion worth of discounts and perks, is one such initiative.

Additionally, the government is pinning its hopes on measures to attract more mainland Chinese visitors. The expansion of the individual visit scheme to cover 59 mainland cities and the increase in the duty-free allowance for mainland visitors are expected to boost retail sales.

However, these measures may not be sufficient to address the underlying structural changes in Hong Kong’s retail landscape. The government needs to look beyond short-term stimulus measures and focus on policies that can help businesses adapt to changing consumer preferences and economic realities. This may include support for digital transformation, skills training for retail workers, and initiatives to promote innovation in the retail sector.

Looking ahead, the future of Hong Kong’s retail landscape remains uncertain. While the budget-friendly economy is meeting immediate consumer needs, questions remain about its long-term sustainability and impact on the broader economy.