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Exporter Guide

HEALTH AND NATURAL PRODUCTS MARKET IN HONG KONG

Market Profile December 2010

\ This document is one of a series of free information tools for exporters produced by New Zealand Trade and Enterprise. New Zealand Trade and Enterprise provides a wide range of standard services and sophisticated solutions that assist businesses through every stage of the export process. For information or advice, phone New Zealand Trade and Enterprise on 0800 555 888, visit www.nzte.govt.nz, or contact your New Zealand Trade and Enterprise client manager.

CONTENTS

1 MARKET STRUCTURE 1.1 Market Overview 1.2 1.3 1.4 1.5 1.6 2 Market Drivers and Growth Supplying markets Key Players in the Market Regulatory Sustainability 3 4 4 5 5 6 8 8 8 10 10 11 11 12 13

MARKET ENTRY AND DEVELOPMENT 2.1 Market Entry Strategies 2.2 2.3 2.4 2.5 2.6 Working with an agent or consultant Points of Differentiation Long term strategic issues for exporters to consider Distribution Channels Pricing

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MARKET RESOURCES AND CONTACTS

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Exporter Guide | HONG KONG | Health and Natural Products Market| December 2010

1 MARKET STRUCTURE

1.1 Market Overview

The market for health supplements in Hong Kong is large for a population of over 7 million, with demand driven by relatively affluent and educated consumers who are increasingly adopting healthier lifestyle behaviours. In addition, the widespread culture of traditional medicine has created a high level of awareness of the health effects of natural ingredients, herbs and minerals.1 Capitalising on the strong demand for health products, companies in Hong Kong have been actively promoting a variety of products claiming certain beneficial effects on health, including "detoxifying the body", "strengthening the immunity system", "nourishing the liver and kidneys", "reducing the cholesterol level" and "enhancing metabolism". As a result, health products such as vitamins, mineral supplements, shark cartilage capsules, deepsea fish oil capsules, Chinese medicinal fungi and herbs pills, royal jelly and honey have become popular in the consumer market. At present, health products commonly sold in Hong Kong can be roughly divided into three categories ­ nutraceuticals, herbal-based products and vitamins. The health supplement market in Hong Kong is estimated to be worth US$1.2 billion, with vitamins and dietary supplements representing the majority of the market. According to a survey conducted by Hong Kong University in 2008, 35 percent of the population take health supplements on a regular basis, spending an average of US$38 per month on them. Female and elderly consumers with higher education and income are the leading consumers.1 A recent study conducted for New Zealand Trade and Enterprise by AC Nielsen found that the three most purchased natural health supplements were bee products, vitamins and Chinese herbal extracts. It also found that Hong Kong consumers are aware of New Zealand health supplement brands.2 However, traditional medicines are still very popular and account for approximately 35 percent of the broader over-the-counter (OTC) Healthcare market in Hong Kong.3

1 2

US Commerce Service, "Natural Products in Hong Kong", June 2009 AC Nielsen, The Natural Product Market in Hong Kong, August 2009 3 Datamonitor, "OTC Healthcare in Hong Kong to 2014", June 2010

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Exporter Guide | HONG KONG | Health and Natural Products Market| December 2010

Health products are sold in a wide range of outlets which include pharmacies, personal care chains, health product stores and supermarkets. Health products are not defined by law in Hong Kong, and there is no official classification of such products in Hong Kong. Different terms such as dietary supplements, functional foods, nutraceuticals, and natural products are used in different contexts to refer to similar products. In Hong Kong, the term "natural products" generally refers what New Zealanders call "health products".

Over the Counter Healthcare market value and expenditure per capita, 2005 - 2009

OTC Healthcare Market Hong Kong population, 7.09 million OTC healthcare market value ($US ) OTC healthcare expenditure per capita ($US) Vitamins and minerals market value ($US) Vitamins and minerals expenditure per capita ($US) Traditional medicine market value ($US) Traditional medicine expenditure per capita ($US) Source: Datamonitor 2005 276.8m 40.13 46.8m 6.78 92.8m 13.45 2006 294.2m 42.38 50.5m 7.27 99.0m 14.27 2007 310.6m 44.49 54.0m 7.74 104.9m 15.03 2008 326.5m 46.52 57.5m 8.20 110.5m 15.75 2009 341.6m 48.42 61.0m 8.64 115.7m 16.40

1.2 Market Drivers and Growth

The OTC healthcare sector grew by a compound annual growth rate (CAGR) of 5.6 percent between 2004 and 2009, and Datamonitor forecasts a CAGR of 4 percent from 2009 through to 2014.4 The steady growth in the market for natural products in Hong Kong is being driven by an ageing population who are concerned with maintaining health, well-being and youth. Competition is intense in the traditional vitamin and minerals market, but there is still demand for multi-vitamins and new supplements. Supplements related to eye health are one of the faster growing segments in the health supplements market, as people seek to protect their eyes against the continued use of computers, PDA's and TV screens. Health supplements targeted at joint support, heart function, bone

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Datamonitor, "OTC Healthcare in Hong Kong to 2014", June 2010

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Exporter Guide | HONG KONG | Health and Natural Products Market| December 2010

enforcement and anti-aging products are also popular and continue to grow as the population ages.5 Product efficacy is the most important criterion for consumers in choosing a natural health product, followed by product safety. Consumers in Hong Kong are willing to pay a 6 premium for quality and safety assurance. The Hong Kong market is not limited to Hong Kong residents. Around 16 million people per annum from mainland China visit Hong Kong and buy goods, including pharmaceuticals, vitamins and health supplements. With recent incidents involving food contamination and counterfeit products in mainland China, Hong Kong is an increasingly attractive shopping destination for health and food products.7 Hong Kong has recovered well from the recession, with GDP growth forecast to be 6.5 percent in 2010. However, long-term, the Hong Kong economy is facing the challenge of a declining working age population.8

1.3 Supplying markets

The leading sources of supply include China, Taiwan, Japan, Europe, New Zealand and Australia. New Zealand and Australia are known for supplying various kinds of dietary supplements for different needs. The United States and Australia are the primary sources of vitamins and health supplements to Hong Kong. China and Taiwan are the main suppliers of herbal and Chinese herbal supplements.7

1.4 Key Players in the Market

There are a multitude of different health products available in the market, with vitamins, shark cartilage and liver oil being the "old favourites". Newer categories such as blueberry extract, Chinese fungal extract, honey, royal jelly and propolis have become "new favourites". The key players in the vitamins market are Centrum with 11.4 percent market share, USANA (10.4 percent), Nutrilite (9.6 percent) and Redoxon (9.4 percent). In the dietary

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US Commerce Service, "Natural Products in Hong Kong", June2009 AC Nielsen, The Natural Product Market in Hong Kong, August 2009 US Commerce Service, "Natural Products in Hong Kong", June 2009 Economic Intelligence Unit, "Hong Kong Economic Outlook", 1 December 2010

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Exporter Guide | HONG KONG | Health and Natural Products Market| December 2010

supplements market, Doctor's Choice is the leading brand with 13.6 percent market share, 9 followed by USANA (13 percent) and Nutrilite (12 percent). For each product category, there are numerous brands available so it is difficult to list them all. Some of the major market players in different product categories are: Product type Chinese fungal extract Chinese herbal cough syrup Vitamin Fish liver oil pallets Brand 2036 Nin Jiom Centrum Kawaii Country of origin Hong Kong Hong Kong Canada Japan

1.5 Regulatory

Duties and tariffs As Hong Kong is a free port, there are no customs tariffs on goods imported into or exported from Hong Kong. Excise duties are levied on only four types of goods ­ liquors, tobacco, hydrocarbon oil and methyl alcohol. Product classification and registration In Hong Kong, health food products are regulated by different ordinances, according to their ingredients. Health food products containing medicines are regulated under the Pharmacy and Poisons Ordinance (Cap 138) and government registration is required. These medicines must meet safety, quality and efficacy requirements before they can be registered. They should also be labelled with such particulars as ingredients, dosage and method of usage. Refer to the Department of Health website (www.psdh.gov.hk/eps/webpage.jsp) for further information. All products which fall within the definition of proprietary Chinese medicines (pCms) under the Chinese Medicine Ordinance (Cap 549), i.e. products which are composed solely of Chinese medicines as active ingredients and for treatment and health promotion purposes, are regulated under the Chinese Medicine Ordinance. The Ordinance requires

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Euromonitor International, vitamins and dietary supplements, Hong Kong, 2008

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the labelling of registered pCms to include main ingredients, method of usage, dosage, packing specifications and place of production, etc. Health food products which cannot be classified as Chinese medicine or western medicine are regulated under the Public Health and Municipal Services Ordinance (Cap 132) as general food products. The Ordinance requires the manufacturers and sellers of food to ensure their products are fit for human consumption and comply with the requirements for food safety, food standards and labelling. According to the Food and Drugs (Composition and Labelling) Regulations (Cap 132W) under the Ordinance, all pre-packaged food should have labels that list the ingredients. Overseas suppliers can appoint a local agent or distributor to submit product samples, product formulation and ingredient lists to the Department of Health in Hong Kong. Once the product is classified the suppliers can make suitable alterations to the product labelling, and apply for stipulated licences (if required). Labelling requirements The Hong Kong Medical Council (www.mchk.org.hk/) requires that all pharmaceuticals and doctor-dispensed medicines should carry labels that include Chinese and English explanations of dosage and frequency. Under the guideline set out in the Pharmacy and Poisons Ordinance and Regulations (Cap 138), general labelling requirements include: (a) Name of the product (b) Name and quantity of each active ingredient (c) Name and address of the manufacturer (d) Hong Kong registration number of the product (HK-XXXXX) (e) Batch number (f) Expiry date (g) Specific storage conditions, if any. For more information, refer to the registration of pharmaceuticals website: www.psdh.gov.hk/eps/eng/html/pr_guide_main.jsp On 1 July 2010, a new nutritional labelling law came into effect. The law requires all types of orally consumed products to have labels with details of calories and seven core

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nutrients (i.e., energy, protein, carbohydrate, total fat, saturated fat, trans fat, sodium, sugars) displayed. The nutrition label must also list the amounts of any claimed nutrients. Other labelling requirements for pre-packaged food include: (a) Name or designation (b) Durability period (c) Special condition for storage or instruction for use (d) Name and address of manufacturer or packer (e) Count, weight or volume. Further information on labelling and nutrition claim requirements can be found on the Centre for Food Safety website: www.cfs.gov.hk/eindex.html Regulatory requirements The Undesirable Medical Advertisements Ordinance prohibits advertisements claiming that a pharmaceutical product has a curative or preventive effect on any of the diseases listed in the schedules of the Ordinance www.info.gov.hk/pharmser.

1.6 Sustainability

Sustainable packaging is not commonplace in Hong Kong, where attractive packaging remains popular and is seen as a key factor for success in the Hong Kong market. There have been some recent efforts to educate the public on the need for sustainable packaging, although campaigns have focused mostly on recycling expensive packaging rather than encouraging local people to opt for sustainable packaging.10

2 MARKET ENTRY AND DEVELOPMENT

2.1 Market entry strategies

Distributor Finding a good, compatible distributor is critical. A good distributor does not necessarily mean a large one, as this can mean the diffusion of resources across many brands with the danger that the sales performance of your product may sub-optimise. It is most important to find a well capitalised distributor with strong market connections, and a

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Ministry of Foreign Affairs and Trade, Sustainability Market Intelligence, Hong Kong, July 2010

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Exporter Guide | HONG KONG | Health and Natural Products Market| December 2010

passionate and well motivated sales force that you can work alongside through the development and implementation of business plans. Packaging It is important to have attractive product packaging in Hong Kong, as consumers often lack understanding of the products themselves, so will judge by appearances. Small-sized products are preferred as households in Hong Kong are generally very small and there is not much storage space. Also, in Hong Kong's subtropical climate, products can deteriorate easily. Reflecting the Chinese belief that it is always best to consume fresh products, those packages that contain about one or two months' supply are commonly accepted. Those products designed to be consumed one at a time, like capsules or tablets, are best to have individual wrappings. Most consumers in Hong Kong prefer plastic bottles that are white or transparent. Glass bottles or brown coloured bottles make consumers think of medicine. In addition to the fragility of glass bottles, the weight also increases transportation cost. Marketing Having Chinese product brochures and leaflets is important, as many local consumers prefer reading Chinese even though they can read English. Well trained in-store sales staff are vital to making sales. Staff with strong product knowledge can better serve both consumers and your sales performance. Staff should also provide timely feedback on consumers' preferences, product popularity, optimum stock levels, and sometimes on how competitors perform. It is also important to have well-trained staff to provide after sales services where appropriate. A membership scheme is a good way to build and maintain brand loyalty. There is a wide variety of media choices in Hong Kong, including television, newspapers, magazines, billboards, TV on buses, product and company leaflets, radio, and internet. Under promotional strategies the four most common tactics are based around informative media advertising, celebrity users and product testimonials. Informative advertising is the most efficient in arousing consumers' intent to purchase products, whereas celebrities can draw consumers' attention more immediately. As the market is very competitive in Hong Kong, consumers are constantly bombarded with advertisements. Thus it is vital for distributors to promote unique selling points and

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Exporter Guide | HONG KONG | Health and Natural Products Market| December 2010

tag lines, and ways of standing out from the crowd ­ otherwise the advertising will lack impact. It is important to understand the local culture and tastes, so that appropriate marketing is done to capture consumers' attention and arouse their interest to purchase.

2.2 Working with an agent or consultant

The Department of Health does not accept applications for drug registration from overseas suppliers directly. Companies planning to sell to Hong Kong must first find a local agent (or set up its own representative office in the territory) to apply for drug registration. A list of registered importers and exporters of pharmaceutical products in Hong Kong is available at www.psdh.gov.hk/eps/webpage.jsp. Drug registration normally takes six to nine months, provided the board has sufficient information at the time of application. Alternatively, companies can seek the help of consultants who specialise in registration application to help speed up the process. Consultants can register on the company's behalf, provided that the company is already licensed to sell pharmaceuticals in Hong Kong. If companies are not registered, they need to apply to the Inspection & Licensing Section, Department of Health (Tel: 852-2319 8467). Applications usually take one to two months to process. An application form can be downloaded from the website www.info.gov.hk/dh/forms/pharm/index.htm.

2.3 Points of differentiation

New Zealand has a good reputation as a clean, green and pure country. Local consumers have confidence in the quality and integrity of New Zealand products, along with those of most other western countries. New Zealand has been the strongest player in Hong Kong in the bee product category, with manuka honey being the leader. This unique product has made New Zealand widely known in the market. Other products well-received by local consumers include colostrum tablets, omega-3 fish oil capsules, green-lipped mussel extract capsules, and blueberry extracts. New Zealand manufacturers are increasingly using extracts from the country's native flora and fauna as functional ingredients in new products. This is a very good point of differentiation for New Zealand companies. The market trend in Hong Kong is towards

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natural and organic. New Zealand exporters can also make a virtue of the fact that their products are produced under the strict guidelines of New Zealand government authorities. This should give consumers extra confidence as in recent years there have been numerous food and health scares caused by problematic products, mostly from mainland China.

2.4 Long Term Strategic Issues for Exporters to Consider

Experience suggests those exporters that work with their distributors as partners rather than just buyers achieve a better sales performance with better communication and better responses to market trends and developments. Without a committed and active partnership, sales performance can seriously sub-optimise. Suppliers should be prepared to provide product knowledge and training and marketing support, including the sharing of some marketing costs. In return, distributors are responsible for product importation, negotiating terms with retailers, managing inventory and logistics, providing after sales customer care, developing marketing plans, and making timely sales and market reports. In Hong Kong additional costs such as listing fees charged to distributors by retailers can also be significant and should be well understood by exporters.

2.5 Distribution Channels

Health products are widely available in Hong Kong. They are usually distributed to retail shops via the following channels: · · Producers to import agents to retailers to consumers Producers to distributors to retailers and/or distributors' own retail stores to consumers

Retail outlets include personal care chain stores, pharmacies, supermarkets and health product stores. In Hong Kong Watsons and Mannings are the two major personal care chain stores. They sell a wide range of personal care products, health supplements and health food. Both chains sell branded health products on exclusive terms as well as products under their own house brands. Watsons has 150 outlets in Hong Kong and a further 1,500 in thirteen countries elsewhere in Asia. Mannings has 270 outlets in Hong Kong and a total of 4,300 outlets throughout Asia. Both chain stores are convenient and popular points of purchase.

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Chain stores usually purchase through Hong Kong-based distributors and usually do not buy direct from overseas suppliers. There are also many small and medium pharmacies (or dispensaries) in Hong Kong. Over 200 names are registered in the local telephone directory. These stores mainly sell daily consumables, i.e. toiletries, pharmaceutical products and health food including vitamins and dietary supplements. They serve as neighbourhood stores and have established trust amongst their regular customers. These stores are also highly price-competitive as they need to win customers from the large personal care chains and supermarkets. Supermarkets also retail health products. High-end supermarkets such as City Super, Great, Vole', Gourmet, Oliver's and Three Sixty carry many imported health supplements and health foods from a large number of countries. The medium-end supermarkets such as Jusco, Taste, Market Place, Wellcome Superstore and PARKnSHOP Superstore, and normal supermarkets such as PARKnSHOP, Wellcome and Vanguard, carry fewer health products. Lastly, there are the specialist health product stores. Examples are CR Care, Health Plus, and Green Dot Dot. They have accumulated a group of loyal customers over time through membership and discount schemes. Hong Kong consumers choose their place of purchase according to the following, in descending order of importance: confidence, convenience, peer referral and price. Online stores are a relatively new sales channel and are increasingly popular in Hong Kong, as consumers can enjoy discounts and sometimes even free delivery service.

2.6 Pricing

Retailers typically take a 50 percent margin off the retail price, so the FOB cost of a product should not be more than 30 percent of the remaining half in order to leave sufficient margin for the distributor. New Zealand companies should be wary about divulging their wholesale prices upfront, as many people are simply making comparisons across companies. It is a good idea to test the inquirer's sincerity first by asking them detailed questions, i.e. company background, sales track record, vision etc, in order to determine who is a genuine buyer.

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It is difficult for a brand to make significant sales if they only use channels outside of the major chain stores. However, a brand will initially only receive a three month trial period in the chain stores in order to prove their viability. Building customers' recognition and confidence in your brand is important. Producing products in small sizes can be a means of reducing the retail price and making a brand appear more affordable and attractive to consumers. It is also an idea to produce some cheaper items in a product range, which will initially attract consumers to try the brand.

3 MARKET RESOURCES AND CONTACTS

ASSOCIATIONS AND USEFUL WEBSITES Hong Kong Trade Development Council Hong Kong Heath Food Association Consumer Council Customs and Exercise Department Department of Health Centre for Food Safety Pharmaceutical Department TRADE EVENTS Natural Products Expo 25 ­ 27 August 2011 www.naturalproductsasia.com

www.tdctrade.com/ www.hkhfa.org/index.html www.consumer.org.hk/website/ws_en/ www.customs.gov.hk/eng/content_e.html www.dh.gov.hk/eindex.html www.cfs.gov.hk/eindex.html www.psdh.gov.hk/eps/webpage.jsp

OTHER NZTE PUBLICATIONS ECONOMY Hong Kong Economy Profile

SECTOR Food and Beverage Market in Hong Kong Skincare and Cosmetic Products Market in Hong Kong

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Disclaimer: This publication is provided to you as a free service and is intended to flag to you market opportunities and possibilities. Use of and reliance on the information/products/technology/concepts discussed in this publication, and the suitability of these for your business is entirely at your own risk. You are advised to carry out your own independent assessment of this opportunity. The information in this publication is general; it was prepared by New Zealand Trade and Enterprise (NZTE) from publicly available and/or subscription database sources. NZTE; its officers, employees and agents accept no liability for any errors or omissions or any opinion/s expressed, and no responsibility is accepted with respect to the standing of any firm/s, company/ies or individual/s mentioned. New Zealand Trade and Enterprise is not responsible for any adverse consequences arising out of such use. You release New Zealand Trade and Enterprise from all claims arising from this publication. New Zealand Trade and Enterprise reserves the right to reuse any general market information contained in its reports.

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Exporter Guide | HONG KONG | Health and Natural Products Market| December 2010

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