Taipei Times: Douglas Hsu (徐旭東), chairman of Far Eastern Group (遠東集團), which owns a large stake in Far Eastern Geant (愛買吉安), said earlier this month that he did not rule out the possibility of forming an alliance or even merging with the No. 2 player, RT-Mart (大潤發), to expand market share. Has there been any follow-up from your French partner, Casino Groupe [which also owns a stake in Far Eastern Geant], and RT-Mart's French partner, Auchan SA?
Charles Kruse: Right now, [Casino and Auchan] are doing two levels [of cooperation with each other]. Internationally, Casino and Auchan are trying to pool their buying in order to get better terms. Although suppliers know Casino and Auchan are competitors, they don't recognize that the two companies can try to buy together.
The second thing is that we are working locally. Aimai [another name for Far Eastern Geant or Aimai Geant] and RT-Mart are cooperating to get the best trading terms. We are sharing information, but as far as a merger is concerned, Casino's shareholders will not merge with Auchan's.
PHOTO: SEAN CHAO, TAIPEI TIMES
TT: So the media hype about the possible merger is just hype?
Kruse: I don't know what Hsu was talking about, and Casino doesn't know either. Casino is working to become No. 2 here but not by merging. Among the 22 RT-Mart stores, six are owned by local people. If these people get a good price, they might like to sell.
We don't mind taking over stores. Actually that's a good way to do things because the investment required is quite low. But now there is no plan at all to work together other than on joint buying.
TT: Last year Dutch-based wholesaler Makro shut down all six of its Taiwan stores and pulled out of the market. How do you view the sector here?
Kruse: I think Taiwan can support almost 400 hypermarkets. There are around 100 now. This is based on my experience in Thailand. When we started there, we thought 220,000 people could support a hypermarket. But in fact only 60,000 people were necessary to support one. If I apply the same model to Taiwan, there could be about 400 hypers.
Ninety percent of Thai people make less than NT$10,000 per month but Bangkok has about 50 hypermarkets. Taipei has six or seven. It's a great opportunity but in Taipei, it's very difficult. The land is available, but it's not zoned properly. Or the land that is zoned properly is too small or expensive.
TT: So you are saying that finding a suitable location for hypermarkets is an important factor for attracting customers?
Kruse: Casino operates in 16 countries now. It has found that a hyper in a capital city does 30 or 40 percent more than business those outside the city.
Here the capital city is Taipei. The biggest hypers in Taiwan are in the Taipei area. Our store in Panchiao and the RT-Mart in Neihu are two of the biggest. We would all like to open more hypers in the Taipei area. The problem is that zoning is more difficult in the north.
TT: If Taiwan can support 400 hypermarkets, how many key players can exist?
Kruse: I think three. They [small retailers] will not be in the game. Tesco is a big company with a lot of money but they'll never be a big player. It's too late. I think their strategy is to stay in Taiwan but not to be No. 1, 2 or 3.
TT: Do you have any timetable for moving Far Eastern Geant from No. 3 to No. 2?
Kruse: By 2006 or 2007, we'll jump to No. 2. We'll take care of our base very carefully this year. By the end of 2006, we expect to expand to 20 hypers. Twenty is a magic number. When we achieve it, our negotiating strength will be very great. It is like a watershed.
TT: The nation's top three hypermarket operators seem to each have their own different images. How do you see those images?
Kruse: Customers think Carrefour is an international company. RT-Mart is a local up-and-coming company and Aimai is a family store. It's hard to change customers' perceptions; so we'll be doing image advertising to support that idea -- a family store.
Surveys show that Asian customers like to shop. If they have a choice, they like to do all their shopping in one place, where they can go with their family. They'll stay four or five hours, but they like to get their hair cut, their film developed, do all of their shopping.
This guides our concept for a shopping mall, which really has to complement the hyper. In Neihu [where an outlet will be opened next year], it will be very important that we have a destination with many activities. People will come over to that area. It'll be much more convenient.
TT: When will you set up a store in China?
Kruse: We are focusing entirely on Taiwan. Our competitors are looking for opportunities in China and even Casino and Far Eastern Group are, too. But we won't share our management team and our effort. I want them to stay focused here.
Even if my boss ties my hands and slashes me, I will not let my team do both Taiwan and China because there is still potential here.
TT: Do you think customers really turn to hypermarkets for their daily needs?
Kruse: Fresh [food] is the lifeblood of the hyper. It can bring in frequent shoppers. But it's very difficult in Asia because people still like to go to wet markets for fresh food.
The No. 1 [concern for customers] is "fresh," not "clean" or "hygiene." When you come to the hyper, it's cleaner and brighter, with air conditioning. But people think they get "fresh" food at the local market, believing it comes in daily from the farm.
TT: If freshness is so important, how do you adjust your product mix in Far Eastern Geant outlets to increase customer traffic?
Kruse: We've made a change in the Hsinchu store, for instance, which has more fresh food than our other outlets.
The hypermarket philosophy is that they come in to buy food and non-foods as well. If they don't buy the non-food, the hypermarket concept doesn't work because the margin is in the non-food. So we hope the customers [for fresh food] will come four times a month. At least two of those times they'll buy something else.
TT: Besides the concern with freshness, what other strategies are you working with?
Kruse: I believe there are four critical issues that need to be addressed for success in Taiwan.
One is we need to have an image, because no one has a strong image. We'll spend money on it even though sales don't come right away [as a result].
The second critical factor in Taiwan is the "loyalty card."
The third is something I call "in stock." If you walk into our store, it looks full, but it is not really fully stocked every day. Our suppliers don't always ship what we ordered. You cannot be 100 percent sure -- it's the same at other hypers -- that everything you want to buy will be there that day. The logistics issue is still very difficult in Asia.
The fourth thing is direct mail. In the US, we'd expect 100 percent of our customers to get direct mail. That is the standard. But in Taiwan, it's 70, 60 or 50 percent. There are many reasons for that. If we can approach the American standard, that would be a big achievement.
TT: You mentioned loyalty cards. Are they different from membership cards?
Kruse: The membership card used in Asia is used at checkout. You pay, scan the card and get your points. Our "loyalty card" is not just a discount card. It will be used when you enter the store, while you're shopping, when you check out and after you check out. It will be very interactive. We'll do direct mail offering special prices to loyalty card customers.
When they come, there'll be five or six kiosks where they can scan their cards. The scanner will know what your birthday is, whether you are man or a lady, whether you have children. And you'll get a shopping list. If you drink Pepsi, not Coke, you will not get Coke on your list. It will give you a shopping list of the things you have already bought.
When customers scan their cards on the video screens, they might get products free. It'll be random. After you check out, you get your points and discounts, like normal.
TT: So the card makes the shopping process more interesting?
Kruse: Yes. So we'll get word-of-mouth advertising. Every day we'll randomly load in a thousand loyalty card numbers. If you shop on that day, you'll get your purchase free.
It's very interactive. It's unlike anyone in the world. We will set up 40 percent of the planned kiosks in June and the other 60 percent in October. I believe the loyalty card will be quite amazing. If I'm right, we'll increase sales by 6 or 7 percent and we'll make a profit.
TT: Doesn't that require a big investment?
Kruse: The investment is only about NT$30 million (US$910,000), for software and the kiosks. We'll have very quick applications, very few restrictions.
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