Jimmy Lai Chee-ying is an entrepreneur who has made a fortune out of challenging Hong Kong's establishment. In 1975, he set up a garment factory that would eventually become Giordano and take the Asian retail clothing scene by storm. Fifteen years later he started Next magazine and began to change (some say damage) the face of popular Hong Kong publishing. His Apple Daily was introduced in 1995 and has grown remarkably since then to challenge an entrenched and politically well-connected group of daily newspaper publishers. Along the way, he amassed wealth of one-quarter of a billion dollars while challenging and embarrassing everyone from the departing British to the incoming Chinese, and from movie stars to business tycoons to nobodies

He is at it again. Lai's latest target: Hong Kong's oligopolistic grocery-store market. Aside from convenience stores and some niche sellers, the territory's supermarket business is controlled by two huge chains: Park'n Shop, the stores owned by Li Ka-shing's Hutchison Whampoa Group, and Wellcome, which belongs to Asia's biggest grocer, Jardine Matheson-controlled Dairy Farm. According to an analyst at SG Securities in Hong Kong, Park'n Shop owns roughly 35% of the $2.4-billion market; Wellcome has about 30%. In late June, Lai fired his opening salvo in a direct assault on the giants with a splashy opening for adMart, a home-delivery shopping service that might just be Hong Kong's most ambitious e-commerce effort to date (the "a-d" stands for Apple Daily).

"It is inevitable that we are challenging the establishment," says Wilson Chu Bun, president of the new company. Chu says the firm is out to do nothing less than "change the way people buy." That means taking orders by fax and telephone as well as over the Internet. For now, the company is offering only 60 items. Those include cola, juice, beer, rice, canned goods, soap and laundry detergent, baby products like disposable diapers - and computers. "All the items we choose are core items," says Chu. "PCs are core because everybody needs at least one. Groceries are products people will come back to every week." Price is another adMart weapon. By keeping the variety of products down and selling in bulk, the company plans to source large quantities of cheap goods. For example, adMart charges 24 cents a can for a 24-can case of Coke; Park'n shop charges 40 cents for each can in an eight-pack.

This eclectic and limited product mix raises an obvious question: Is Lai firing at grocery battleships with grains of rice? His start-up was not the first to offer Internet ordering and home delivery. Park'n Shop - among others - already provided the service. Wellcome relaunched its website after adMart started up. And both of the established chains give much more choice than the newcomer. Park'n Shop homedelivers from a selection of 4,000 products, for example. And it scrapped its delivery fee last month while increasing its advertising for shop-from-home services.

Chu says that what may seem to be an off-the-wall strategy is actually tried and true: "It's the same concept that worked at Giordano." He says Giordano carries only about 80 items and relies on volume. The same will go for adMart" Chu, 43, was Lai's right-hand man at Giordano. Lai, now 50, sold his remaining 27% stake in Giordano in 1994 for fear that a derogatory comment he made in print about then-premier Li Peng would hurt the company in China and its proposed listing in Hong Kong (it did). Says Chu now: "We are new in this business and we don't yet know what our core is. We are testing. But we don't want to maintain a very long list."

If you doubt Lai's commitment to cracking the market, consider his expenditure. Chu will not say what the entire start-up effort costs, or how much Lai is prepared to lose, but he does say adMart has 1,500 employees and a monthly payroll of nearly $6.5 million. The expenses so far include 220 delivery vehicles, eight warehouses and 40 shops - opened in off-the-beaten-track spaces to give a retail face to the company. By year's end, Chu expects adMart to have 120 shops, 25 warehouses, 448 vehicles and more than 3,000 employees. Start-up losses don*t bother Lai. In the early days of Apple Daily, Lai said he was losing $60,000 a day and was prepared to spend $40 million before the paper turned a profit. It is now Hong Kong's secondbiggest newspaper in circulation behind Oriental Daily News.

What about customers? Chu says that from the beginning, adMart has been swamped by unexpectedly heavy demand. The company now is making 4,000 deliveries a day and handling upwards of 50,000 calls. Its communications system was originally designed to handle only one-third that number. New lines and new operators have been added to process the overflow. That was not the only glitch. A computer system originally designed to coordinate distribution was used to take orders via the Internet. It was a bad fit and was unable to process orders. Chu says a new computer server has been ordered. Also, the first weeks of operations have been marred by complaints of shoddy products and late deliveries.

Chu acknowledges teething problems: "We are learning every day how to run this business. We have made many mistakes in the last six months, but we are doing what we can. It may take time." In Chu's mind, these are merely speed bumps on the way to his goal of making 30,000 deliveries a day from a customer base of up to a half-million people - about 7.4% of Hong Kong's population.

Does any of this worry Hutchison Whampoa? Li, who stands atop the conglomerate, could not be reached for comment (see accompanying box). One highranking Hutchison executive, who asked not to be identified, says adMart today barely registers on the parent company's radar: "It doesn't take more than five minutes of executives' thoughts." He nevertheless discerns a problem for adMart: Hong Kong's size - "Any online e-commerce focusing only on a population like Hong Kong is going to be in for a real disappointment."

Maybe sooner than he thinks. In the U.S., a wide range of traditional and entrepreneurial grocers are working to develop a timely, cheap delivery system that will serve what could be an enormous market. Even at this early stage, adMart is demonstrating its worth to consumers. A limited price war has developed. Chu says he believes grocery prices have fallen 20% in the established stores for items that adMart carries. "All this competition is good for the consumer," says Jean Hydleman, retail analyst at the Worldsec International brokerage in Hong Kong.

Another reason for Hutchison to worry: Chu will soon be expanding its offering of consumer electronics beyond computers - a direct challenge to another Hutchison unit, Fortress, which sells consumer electronics. "Strictly speaking, adMart is not an electronic appliance retailer," says Frederick Sin, operations director at Fortress. Even so, Fortress plans to be online soon: "We'll launch on-line retailing to give consumers an option." Sin says it is unlikely that consumers will want to buy electronics from the Internet: "When was the last time you bought a refrigerator? You won't buy it casually."

But isn't adMart ultimately competing against some of the biggest advertisers or potential advertisers of Lai's media properties? Chu says a few major retailers have cut advertising from Apple and Next because they are sister companies of adMart. But Suzanne Miao, editorial director at Media, a regional advertising trade magazine, doubts such a protest will last: "Lai's publications are still leaders in Hong Kong. It will hurt advertisers to stay away. They'll return in a couple of months."

In one sense, it seems pure Jimmy Lai: challenging competitors to either advertise against adMart by using one of his publications, or risk missing out on potential customers by boycotting them. It's the kind of win-win proposition Lai likes to create for himself. But the combination of thin grocery-store margins and high e-commerce costs looks more like lose-lose - at least for now.

Source: "Groceries To Go" by Alexandra A Seno, ASIAWEEK August 6, 1999

Discussion:

1. Do you think the general and specific environment of Hong Kong is suitable for a company like adMart?

2. Do you think it is advisable for Jimmy Lai to start the adMart? Why and why not?

3. If adMart is successful in the groceries segment, do you thnik they should expand to other market segment like airline ticket, VCD or insurance? Why?

Follow up:

1. HUI YUK-MIN and SAMUEL YEUNG, "Price cuts and model's e-tail charms fail to lure conservative shoppers", SCMP Tuesday, December 12, 2000. AdMart's failure to change the shopping habits of local consumers forced Next Media Group to shut down its online retailer. Competitors and analysts say Hong Kong shoppers are simply not ready to shift to the Internet.
 
 
 
 

Last modified: 2001/Aug/17