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.
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.