Herbal giant eyes opportunity

Chinese herbal drinks retailer Hung Fook Tong is a household name in the SAR, but Chairman Donald Tse Po-tat hopes it will eventually be known all over the world, Sophie He reports.

Hong Kong's leading retailer of Chinese herbal products, Hung Fook Tong Group Holdings Ltd, is unfazed by the current economic downturn and is targeting bold expansion opportunities amid the doom and gloom.

The company's Chairman and Executive Director Donald Tse Po-tat told China Daily that the company has 112 self-operated shops as of the end of June this year, and has already opened seven new stores this year. He expects to expand to 120 by the end of 2016. Currently in Hong Kong, Hung Fook Tong has 590,000 registered members.

Meanwhile on the Chinese mainland, Hung Fook Tong operates 20 shops in Guangzhou and it is also looking for further opportunities to expand.

Tse says many of its Hong Kong stores are located near public transport terminals such as MTR stations, Hong Kong International Airport and the Central Ferry Piers. Others can be found in shopping malls, on the street and near the Lo Wu and Lok Ma Chau checkpoints.

He points out that the retail business in Hong Kong, as well as the food and beverage industry, is facing the same challenge of slower economic growth on the Chinese mainland and fewer Chinese mainland tourists coming to the city.

The industry is also facing more pressure from higher rents, soaring raw material prices, and increasing wages of workers, Tse says. But Hung Fook Tung's performance has been relatively stable as its products are for the mass market, he explains.

"We are not selling luxury goods, and mostly we are selling to local customers. As you can see we have almost 600,000 members in the city," Tse says.

For the first half of 2016, Hong Kong-listed Hung Fook Tong recorded a profit attributable to owners of the company of HK$1.4 million, representing an increase of 25.6 percent from HK$1.1 million in the same period of 2015.

Tse says while the Hong Kong economy, particularly the retail sector, is under some pressure, the city will recover soon.

"Hong Kong will bounce back, I've been in this industry so long to know that the city will recover from economic downturns and financial crisis in a short period of time."

Aggressive expansion

Tse believes that a challenging economic environment also presents new opportunities, as landlords are less aggressive in negotiating rents, so it is easier for the company to expand.

"We plan to open more shops in Hong Kong in coming months," he says, adding that he always tries to expand during challenging times, like during the 1997 financial crisis and after the outbreak of SARS in 2003.

He says the company is on the lookout for locations in the city with high foot traffic and relatively low rent. Although the prices of its existing leases are unlikely to be reduced, there have been single digit percentage drops in new leases.

"If the retail market is still under pressure in 2017, then we will continue to expand in a more challenging economic environment, it is easier to hire people."

Mainland focus

In terms of its business on the Chinese mainland, Tse says that as herbal drinks originated in Guangzhou, Hung Fook Tung has been focusing on developing the market and the brand in the city. The company also hopes to expand to other cities in the Pearl River Delta region.

"I also hope that in the future, Hung Fook Tung could go beyond China, and not just Chinese, but foreigners all over the world would know our brand and products."

Hung Fook Tong produces more than 100 different types of drinks, with some seasonal specials to satisfy customer demand, according to Tse. It launched a fresh fit drinks series in June that includes apple and bitter melon, and red bean and Job's Tears seeds.

Tse said the company's most popular products include tortoise herbal jelly, canton love-peas vine drink, common selfheal fruit-spike drink and brewing American ginseng drink.

He also says there is a difference in tastes between Hong Kong and Chinese mainland consumers. Hong Kong residents attach great importance to a healthy diet, preferring products that are not too sweet or too salty. This means Hung Fook Tung strictly controls the sugar and salt content in its products to cater to the local market.

However mainland consumers prefer strong flavors that are sweeter or saltier, so Hung Fook Tung's salted mandarin drink is far more popular on the mainland than in Hong Kong, Tse says.

Constant innovation

He recalls in the early years of the company as the head of the research and development (R&D) about 30 years ago, Tse would read Chinese medicine books and learn from Chinese medicine practitioners to further his knowledge. When he found a new formula of making traditional Chinese herbal drinks, Tse would first try the product himself before also asking his friends to taste.

"But now I don't have to do that anymore. We now have a professional team of around 10 people to do the R&D, and we also have a Chinese medicine practitioner working in the company as our consultant."

In the past 30 years, Tse says Hung Fook Tung has continued to innovate and improve, from its products to its design and even its business strategy. He says the company is constantly working on new products, and launches about 20 new products every year.

Contact the writer at sophiehe@chinadailyhk.com