As Taiwan's retail industry matured over the years, consumers have seen a massive expansion of retail chain stores, particularly among daily goods outlets, such as convenience stores, supermarkets, and drugstores. How do these businesses manage to stay ahead amid such fierce competition?
Only decades ago, retail chain stores were something of a novelty in Taiwan. Most people bought their newspapers from the corner newsstand, their groceries from the traditional market, and their toothpaste from the local dry goods store. Now, virtually every neighborhood in Taipei features one chain store or another. Gone are many of the thousands of mom-and-pop stores that used to define the retail industry.
Of all the stores in Taiwan, perhaps the most visible are the 24-hour convenience stores. Virtually every urbanized area in the country has at least one outlet, and some neighborhoods even have two stores within the same block. The first convenience store chain to appear in the market was 7-Eleven, which was launched in 1980 by President Chain Store Corp. with cooperation from the US-based Southland Corp. There are now 3,100 7-Eleven stores islandwide and plans are underway to have a total of 4,000 stores by 2005.
Like convenience stores in the United States, Taiwan's 7-Elevens offer a variety of snacks, drinks, and other daily necessities, but what distinguishes the Taiwanese model from its US parent is the variety of services it offers. Customers can pay their utility bills, have film developed, buy postage stamps and bus tickets, and ship items via express delivery, among other services. "We're determined to be the country's best retailer, so we provide services based on convenience and our civic responsibility," says Wang Wen-hsin, public affairs manager of President Chain Store.
Part of the company's success relies on research and combining Chinese and Western management styles. "We've launched a lot of localization programs and constantly readjusted our positioning and product lines to compete in the ever -changing market," Wang notes. An example of such efforts can be seen in the variety of processed food now offered on store shelves, including sushi, rice rolls, sandwiches, local delicacies, bread, pastries, and microwaveable items, such as instant noodles.
Although some snack items have proven popular, Wang notes that a reliance on these products does not necessarily increase customer visits since most people tend to purchase snacks only once a day. "By making and offering items that are regular meals, we hope to increase the number of times consumers visit our stores and the amount of money they spend with each visit," she says, adding that the goal is to raise the number of visits to three a day. The recent launch of classic Taiwanese "lunchboxes," or complete take-away meals, is an example of such efforts. The advertisement campaign accompanying these products emphasizes the nostalgic appeal and convenience of the meals.
Competitors in the market have taken note. Hi-Life International, the island's third largest convenience store chain behind 7-Eleven and Family Mart, introduced gourmet ready-to-eat dishes for the Lunar New Year last year. The dishes, prepared by chefs from five-star hotels, priced between NT$2,000 and $3,000 (US$58 and $87), proved so popular that other chain stores and restaurants offered similar dishes for this year's Lunar New Year holiday. "Competition is rather tough given the number of convenience stores currently in the market and the rapid growth of new outlets," says Paul Liu, director of Hi-Life's merchandise department. "Our challenge lies in how to differentiate our products and services from others while capturing public attention and triggering discussion."
In a country where there are an estimated 6,500 convenience stores, Hi-Life, which was established in 1989 and now has 810 outlets, is the largest convenience store chain wholly owned and operated by a Taiwanese company--Kuang Chuan Dairy Co. To compete with the larger chain operations, Hi-Life is working on offering a wider assortment of products including traditional snacks, toys, as well as trendy items, such as electronic games and related software. Because store space is limited, the company has also been promoting a service whereby customers can preorder items from a catalog. "The concept we aim to promote is 'limited store space, but unlimited product lines,'" Liu explains. "Customers can enjoy great convenience and lower pricing by ordering goods, including electronic appliances and ready-to-eat food, and picking them up the next day."
Another strategy involves establishing specialty stores. "People tend to leave the stores quickly after paying for their purchases," Liu says "We hope to change that by offering a more pleasant space where they can do a variety of things." Some of these specialty outlets include an area where customers can sit and drink coffee or surf the Internet, while others provide parking lots and restrooms. Hi-Life also takes into consideration the location of the stores when deciding what products to sell. Thirty-eight specialty stores found near hospitals, railway stations, schools, and tourist sites sell items needed in their respective environments. For example, souvenirs, sunglasses, and hats are found in the Hi-Life store in Kenting National Park, a southern beach area. Liu notes that the consumer response to specialty stores has been positive.
The constant competition to win over customers requires chain stores to continually come up with innovations. Merely offering a variety of goods and services is no longer the formula for success in the industry, says 7-Eleven's Wang Wen-hsin. It is also important to have reliable information flow and data analysis at the store level, she adds. In 1996, the chain store giant invested NT$1.2 billion (US$35 million) to introduce a computer system that records what people are buying, where, at what time, and how much they are spending. The company can now identify and distinguish consumption patterns in different areas and formulate marketing strategies to take advantage of individual store's characteristics. The system also manages inventory more efficiently. In addition to upgrading its in-store technology, 7-Eleven now offers online shopping. Consumers order goods, such as books, performance tickets, and skin-care products, online and go to their nearest 7-Eleven store for pickup and payment.
With a firm grip on over 46 percent of Taiwan's convenience store market, President is looking to expand beyond the island. In 2000, the retailer established the Shanghai President Coffee Corp. and invested in the Philippines' 7-Eleven stores. The company is also seeking approval from 7-Eleven's US headquarters to open outlets in Beijing. "With our customer -oriented mindset, we're striving to consolidate our business in Taiwan while spreading our service network to other areas," Wang concludes. "By diversifying our operations and management beyond national boundaries, we aspire to secure our market competitiveness for sustainable and prosperous development."
In its bid to capture more of the market, Hi-Life has been promoting its operations as a franchise business since 1996. About 70 percent of its chain stores have been established by franchise operators. "Our relationship is based on sharing gains and risks," Paul Liu explains. "We provide training, market information, and technical and management know-how to sup port franchise operators, allowing them to concentrate on customer service. By promoting such a system, we're able to nurture a high level of service and profit." Liu also points out that offering Hi-Life stores to franchise operators helps Taiwanese start up their own businesses.
Another type of retail chain store that also made its Taiwan debut during the 1980s was the supermarket, providing consumers with an option to traditional markets. One of the first was Sung Ching Co., a joint venture between Taiwanese and Japanese investors that was established in 1986 and now has 70 supermarkets in northern and central Taiwan. General Manager Lee Hsien-yi attributes his company's establishment to the central government's extension of low-interest loans that were then offered to encourage retailers to modernize their operations.
The company, which was already operating a number of convenience stores at the time, bases its operations on the Japanese Fressay supermarket chain, which emphasizes convenience and freshness. About 85 percent of the stores' inventory is fresh food with the remaining 15 percent being daily necessities. The chain also promotes organic fruits and vegetables, and has stringent requirements on livestock rearing, slaughtering, and the packaging of meat for consumer safety, Lee says. To further ensure freshness and better pricing, the company works directly with farmers and fishermen, bypassing the middlemen. This strategy has also helped the stores expand their product lines by diversifying their supply sources both at home and abroad.
The consumer market in Taiwan continues to change rapidly, Lee indicates. To detect and take advantage of trends, Sung Ching conducts a consumer survey every three months. The company also commissions ACNielsen Taiwan to obtain more in-depth market intelligence. Situated between convenience stores and hypermarkets, which offer a more diverse range of goods and arrived in the market during the early 1990s, supermarkets have had to cope with rising challenges. "To better compete with convenience stores, we launched 24-hour operations as well," Lee says. "We have the advantage of offering a wider selection of goods." The chain store has also expanded its product line to include bakery and ready-to-eat items to better compete with hypermarkets. "It takes an average of 15 minutes for consumers to finish their grocery shopping at a supermarket, but 45 minutes in a hypermarket," the general manager notes. "By providing a wider range of products at a convenient and accessible location, we're able to compete with hypermarkets."
Plans are underway to enlarge stores and diversify operations with the introduction of laundry service and ready-to-eat meals like hot pots, teppanyaki, and local delicacies that consumers can enjoy at the store after they finish shopping. Lee concludes that amid the prolonged economic slowdown, lower pricing will stand out as an essential factor to lure customers. "How to provide customers with lower prices and product quality will continue to be our major challenge."
One company that turned the economic slump into an opportunity has been Watsons, a Hong Kong-based regional drugstore chain. "The difficult economy has put further pressure on consumer spending. But we take that concern away by offering the best price," says Andrew Miles, managing director of Watsons Taiwan/China.
The company's high-profile "I Dare to Swear" campaign, launched at the beginning of 2002, guaranteed the lowest prices for products. If a customer found a cheaper price for the same item anywhere else, they could get a refund of double the difference. A team of 15 price checkers was hired to monitor market prices and a telephone hotline was set up to handle price and product queries. "We believe being price competitive in the market will open the route to success by driving our sales and consolidating our base for continued expansion," Miles says. "In fact, it's been proven by favorable customer response over the recent past. That reinforces our marketing direction."
When Watsons first arrived in Taiwan in 1987, the local retail environment consisted of only a few department stores and a lot of independent stores. There were very few retail chains, Miles notes. Watsons began as a "personal care store" that offered consumers a unique merchandise mix, including pharmaceutical products, cosmetics, and gifts in a vibrant shopping environment, he adds.
That platform has not changed significantly in the past 15 years, but the retail market has evolved over time, Miles notes. Competition has intensified from both foreign and local companies. Consumers have matured as well. Not only are they price sensitive, but they are also more educated and exposed to overseas brands due to increased travel experience. People now carefully examine products, compare differences, and ask more questions, he says.
To stay on top in a fiercely competitive market, Watsons launched the "New Watsons" project in 1999, which included major store refurbishment, operations reengineering, and an intensive marketing drive. By the end of 2002, more than 90 percent of Watsons outlets in Taiwan were refurbished, featuring new teal signboards and colorful merchandise displays.
Future marketing plans include learning more about who shops at the stores and what they want in terms of products and services. According to the company's research, 70 percent of Watsons' customers are under 35. As young consumers get older, Miles says, the challenge lies in how to retain them while attracting a newer and younger generation of loyal clientele. Competitive prices alone are not enough; stores must also provide practical information. As such, the company began to publish a free monthly magazine in 2002, offering details on skin and health care as well as shopping tips.
Watsons also aims to build its competitive edge by expanding its network to every major city, county, and town in Taiwan. The regional chain currently has 225 stores operating islandwide, making Taiwan the largest market for Watsons in Asia. "As a market leader, Watsons Taiwan is faced with the daily challenge of living up to the high expectations and close scrutiny of the nation's savvy and modern customers," Miles concludes. "We'll continue to strive for innovation on products, services, and marketing, making our stores an integral part of daily life in Taiwan."
The convenience of retail chain stores and the relative uniformity of the services and products they offer have already made them an integral part of daily life in Taiwan. If the network of chain stores continues to expand as planned, then the island's consumers can expect even more of the same.