Liz Hamson looks at Parknshop’s success as the top supermarket in southern China and Hong Kong
Operating luxury food stores in a market where the average basket spend ranges between £3.62 and £4.50 takes a degree of brio. But that’s exactly what the AS Watson Group is doing in China and Hong Kong - with impressive results.
Through its food retail division Parknshop, the wholly owned subsidiary of telecoms giant Hutchison Whampoa now boasts the number one supermarket chain in southern China and Hong Kong, with 50 stores in the former and 240 in the latter territory.
Last month, it became the first Asian retailer to pick up Food from Britain’s International Retailer of the Year award for a multi-format strategy that encompasses everything from budget supermarkets to luxury food halls such as Great, its flagship food hall in Hong Kong, which has just reopened following a major refurbishment.
So how has it succeeded in such a challenging market, where other international heavyweights - notably Wal-Mart - appear to be struggling to deliver a success story?
It certainly isn’t because the market has become any simpler to navigate, assures Steve Jebson, Parknshop trading director, ambient. “It isn’t easy - particularly China. But there are some big wins there.”
The first priority is to understand the subtle differences between the markets, he says. In Hong Kong, for instance, there are about 6.8 million people representing 2.2 million households with an average income of £1,180 a month.
Jebson observes: “It’s an extremely price-sensitive market. I will have around 8,000 price changes a week. In fact, Procter & Gamble did a survey that showed that within 45 minutes prices were matched by every chain.”
The Chinese are even more price-sensitive, thanks to an average monthly income of £110 to £150.
Yet, while “in Hong Kong, image is everything,” Chinese shoppers are “aspirational but uneducated”, Jebson says. The conundrum he tackles is how to satisfy this demand for brands and imported goods given the modest spending power.
On the face of it, the maths don’t stack up in either case. In Hong Kong, although the biggest basket size is £17, the lowest is a paltry £1.20 and the average unit price just £0.65.
However, because of the historic importance of wet markets and daily demand for fresh produce, people shop on average more than 3.5 times a week in Hong Kong. Both in Hong Kong and mainland China, there is a voracious appetite for anything new or luxury - making imported goods an attractive proposition, if the volume and the price are right.
The retailer currently imports 10,000 20-ft containers a year and 200 tonnes of airfreight a week. By country, that equates to 2,500 SKUs a year from the US at a turnover of £130m, 3,200 from Australia at £60m and 3,900 from the UK at £35m.
Jebson says he is always on the lookout for new products that will satisfy his customers’ demand for foreign brands.
“I can’t stress how important I view consolidators as,” he says.
“They’re my eyes and ears and I have built exclusive relationships with consolidators in key countries so that we can create a differentiated range by store brand and format.”
To give some idea of the degree of differentiation, Parknshop has 87 different planograms for wine in Hong Kong alone.
Jebson believes that it is this differentiated format that has led to success where others have failed and is frank about which retailer he sees as his main competition. He says: “Carrefour is an excellent competitor. Wal-Mart is not as good. It’s not arrogant, but it doesn’t appear to be very flexible and therefore it is not meeting the needs of the customer. If you don’t tailor your offer, you lose, and Wal-Mart doesn’t seem to be as good. Carrefour, on the other hand, appears to be more flexible, more local and more aggressive.”
To stay ahead of the competition, Jebson is constantly testing out new products, mainly in the high-end stores. Part of the rationale is to target core expat customers before trying to recruit locals. He adds: “Even at these stores, 70% of the customer base is local, so if it works we have confidence that it will work quickly elsewhere,” he reasons.
The 39,000 sq ft Great Food Hall is one such test bed. On its reopening last month, it boasted some 2,500 new lines. Along with the products lining the shelves of Gourmet Fine Food, the new smaller format launched in the basement of a prestigious Hong Kong shopping centre last May, that means Jebson’s team has sourced more than 8,000 new lines this year. In November 2004, it also introduced another new concept - a 35,000 sq ft upper-end supermarket called Taste.
Jebson is quick to stress that while the offer is differentiated from its budget stores, prices are not.
His message to would-be exporters to China is: do your homework. “You need to do your research. You have to start small and limit your risk - you will not get it right first time. Hong Kong, in particular, moves so quickly.”
The economics are brutal, he warns. “I sell 91% of my product on promotion. If you are not on a yellow promotional label, people will walk past. We’ve done a lot of work to condition them not to walk past the yellow label.”
He adds:“Product life is critical. We have some examples of where we’ve worked on extended life and it’s been beneficial to both parties - it gives stores confidence.”
Most of those that succeed have worked closely with the consolidators rather than trying to go it alone.“It’s a selling market. My message is: help train the sellers,” he says. More importantly, make sure you monitor the product’s performance like a hawk. “Unless you’ve had six to eight months, you’ve not had a fair crack of the whip - but if it’s not working in six to eight weeks, you need to do something,” he advises.
He highlights some of the UK suppliers that have cracked the Hong Kong market: Princes, with a range of own label goods, H Forman & Son and Neal’s Yard Dairy with a range of speciality goods, and Waitrose, which has supplied Parknshop with a range of products for nine years.
Jebson sees huge potential in own label and also more scope for fresh. “We’re having some strong success with fresh food stores. We are also moving forward in Shanghai with hypermarkets. We’ll start with that and follow with fresh.”
The trend for fresh will benefit exporters in Australia and the US rather than the UK because of the logistics. However, UK suppliers should be able to capitalise on the demand for confectionery, snacks, beverages and basic grocery items.
For all the challenges, both China and Hong Kong offer strong long-term prospects for UK suppliers, says Jebson. Given its pole position, they could do a lot worse than secure a listing with Parknshop.
Hong Kong versus China
>>Key market indicators
Hong Kong
Average basket size: £4.50
Highest: £17
Lowest: £1.20
Average number of customer visits a week: more than 3.5
Number of SKUs: 30,000 plus
China
Average basket: £3.62
Highest: £5.27
Lowest: £1.65
Average number of customer visits a week: more than 1.2
Number of SKUs: 25,000 plus
Operating luxury food stores in a market where the average basket spend ranges between £3.62 and £4.50 takes a degree of brio. But that’s exactly what the AS Watson Group is doing in China and Hong Kong - with impressive results.
Through its food retail division Parknshop, the wholly owned subsidiary of telecoms giant Hutchison Whampoa now boasts the number one supermarket chain in southern China and Hong Kong, with 50 stores in the former and 240 in the latter territory.
Last month, it became the first Asian retailer to pick up Food from Britain’s International Retailer of the Year award for a multi-format strategy that encompasses everything from budget supermarkets to luxury food halls such as Great, its flagship food hall in Hong Kong, which has just reopened following a major refurbishment.
So how has it succeeded in such a challenging market, where other international heavyweights - notably Wal-Mart - appear to be struggling to deliver a success story?
It certainly isn’t because the market has become any simpler to navigate, assures Steve Jebson, Parknshop trading director, ambient. “It isn’t easy - particularly China. But there are some big wins there.”
The first priority is to understand the subtle differences between the markets, he says. In Hong Kong, for instance, there are about 6.8 million people representing 2.2 million households with an average income of £1,180 a month.
Jebson observes: “It’s an extremely price-sensitive market. I will have around 8,000 price changes a week. In fact, Procter & Gamble did a survey that showed that within 45 minutes prices were matched by every chain.”
The Chinese are even more price-sensitive, thanks to an average monthly income of £110 to £150.
Yet, while “in Hong Kong, image is everything,” Chinese shoppers are “aspirational but uneducated”, Jebson says. The conundrum he tackles is how to satisfy this demand for brands and imported goods given the modest spending power.
On the face of it, the maths don’t stack up in either case. In Hong Kong, although the biggest basket size is £17, the lowest is a paltry £1.20 and the average unit price just £0.65.
However, because of the historic importance of wet markets and daily demand for fresh produce, people shop on average more than 3.5 times a week in Hong Kong. Both in Hong Kong and mainland China, there is a voracious appetite for anything new or luxury - making imported goods an attractive proposition, if the volume and the price are right.
The retailer currently imports 10,000 20-ft containers a year and 200 tonnes of airfreight a week. By country, that equates to 2,500 SKUs a year from the US at a turnover of £130m, 3,200 from Australia at £60m and 3,900 from the UK at £35m.
Jebson says he is always on the lookout for new products that will satisfy his customers’ demand for foreign brands.
“I can’t stress how important I view consolidators as,” he says.
“They’re my eyes and ears and I have built exclusive relationships with consolidators in key countries so that we can create a differentiated range by store brand and format.”
To give some idea of the degree of differentiation, Parknshop has 87 different planograms for wine in Hong Kong alone.
Jebson believes that it is this differentiated format that has led to success where others have failed and is frank about which retailer he sees as his main competition. He says: “Carrefour is an excellent competitor. Wal-Mart is not as good. It’s not arrogant, but it doesn’t appear to be very flexible and therefore it is not meeting the needs of the customer. If you don’t tailor your offer, you lose, and Wal-Mart doesn’t seem to be as good. Carrefour, on the other hand, appears to be more flexible, more local and more aggressive.”
To stay ahead of the competition, Jebson is constantly testing out new products, mainly in the high-end stores. Part of the rationale is to target core expat customers before trying to recruit locals. He adds: “Even at these stores, 70% of the customer base is local, so if it works we have confidence that it will work quickly elsewhere,” he reasons.
The 39,000 sq ft Great Food Hall is one such test bed. On its reopening last month, it boasted some 2,500 new lines. Along with the products lining the shelves of Gourmet Fine Food, the new smaller format launched in the basement of a prestigious Hong Kong shopping centre last May, that means Jebson’s team has sourced more than 8,000 new lines this year. In November 2004, it also introduced another new concept - a 35,000 sq ft upper-end supermarket called Taste.
Jebson is quick to stress that while the offer is differentiated from its budget stores, prices are not.
His message to would-be exporters to China is: do your homework. “You need to do your research. You have to start small and limit your risk - you will not get it right first time. Hong Kong, in particular, moves so quickly.”
The economics are brutal, he warns. “I sell 91% of my product on promotion. If you are not on a yellow promotional label, people will walk past. We’ve done a lot of work to condition them not to walk past the yellow label.”
He adds:“Product life is critical. We have some examples of where we’ve worked on extended life and it’s been beneficial to both parties - it gives stores confidence.”
Most of those that succeed have worked closely with the consolidators rather than trying to go it alone.“It’s a selling market. My message is: help train the sellers,” he says. More importantly, make sure you monitor the product’s performance like a hawk. “Unless you’ve had six to eight months, you’ve not had a fair crack of the whip - but if it’s not working in six to eight weeks, you need to do something,” he advises.
He highlights some of the UK suppliers that have cracked the Hong Kong market: Princes, with a range of own label goods, H Forman & Son and Neal’s Yard Dairy with a range of speciality goods, and Waitrose, which has supplied Parknshop with a range of products for nine years.
Jebson sees huge potential in own label and also more scope for fresh. “We’re having some strong success with fresh food stores. We are also moving forward in Shanghai with hypermarkets. We’ll start with that and follow with fresh.”
The trend for fresh will benefit exporters in Australia and the US rather than the UK because of the logistics. However, UK suppliers should be able to capitalise on the demand for confectionery, snacks, beverages and basic grocery items.
For all the challenges, both China and Hong Kong offer strong long-term prospects for UK suppliers, says Jebson. Given its pole position, they could do a lot worse than secure a listing with Parknshop.
Hong Kong versus China
>>Key market indicators
Hong Kong
Average basket size: £4.50
Highest: £17
Lowest: £1.20
Average number of customer visits a week: more than 3.5
Number of SKUs: 30,000 plus
China
Average basket: £3.62
Highest: £5.27
Lowest: £1.65
Average number of customer visits a week: more than 1.2
Number of SKUs: 25,000 plus
No comments yet