Sat, Jan 22, 2005 - Page 10 News List

Price wars eroding gross margins of local hypermarkets

By Jackie Lin  /  STAFF REPORTER

Stiff competition to offer the lowest prices on the market has greatly eroded gross margins for local hypermarkets, causing the industry to suffer its first ever negative sales growth last year.

"It was tough last year. Prices came down more than normal at the end of the year," David Orchard-Smith, chief executive officer of Tesco Stores (Taiwan) Co, told reporters yesterday.

While price-driven competition is universal and unavoidable, Orchard-Smith said Tesco would have to reach a critical mass of 10 outlets before being able to garner stable profits and introduce different formats to expand its customer base.

The UK retail giant is scheduled to formally open its sixth store in Sindian of Taipei County on Monday. Orchard-Smith said Tesco will open one more outlet this year.

Total revenues are expected to grow by 45 percent from last year.

As lowering prices will continue to be the major marketing strategy in the sector this year, Orchard-Smith said consumers are starting to look beyond price and ask for quality, service and credibility from hypermarkets, which used to be considered second-rate retailers.

According to the latest figures released by the Ministry of Economic Affairs, the nation's hypermarket sector was worth NT$117.7 billion (US$3.69 billion) for the first 10 months of last year, which represents a drop of 1.17 percent from the same period a year earlier.

But at the same time, the revenues created by department stores, supermarkets and convenience stores grew by 15.07 percent, 5.26 percent and 6.87 percent, respectively.

According to Kaufmann Wei (魏正元), president of RT-Mart (大潤發), the fact that the market has not expanded at the same pace in which new stores were opened contributed to the worse-than-expected sales performance across the board last year.

The nation's largest hypermarket operator, Carrefour Taiwan, which is part of a French chain, raked in over NT$50 billion last year from its 34 outlets, growing by 6 percent year-on-year.

But sales in its comparable stores, which have been operating for over a year, dropped by 5 percent.

The Taiwanese-French venture RT-Mart, the nation's second largest chain, saw NT$40 billion in revenues last year from its 23 stores, an increase of 5 percent.

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