Mary Ho prepared this case under the supervision of Professor Yuk-fai Fong solely as a basis for class discussion. The authors introduced a fictitious company ICL for case illustration purpose only. Cases are written in the past tense; this is not meant to imply that all practices, organizations, people, places or facts mentioned in the case no longer occur, exist, or apply. Cases are not intended to serve as endorsements, sources of primary data, or illustration of effective or ineffective handling of a business situation. To order copies or request permission to reproduce materials write [email protected] or visit www.bm.ust.hk/cbcs © 2014 by the Hong Kong University of Science and Technology. This publication may not be digitized, photocopied or otherwise reproduced, posted, or transmitted without the permission of the Hong Kong University of Science and Technology. Last edited: 26 July 2015

YUK-FAI FONG MARY HO

To Enter or Not to Enter: Competitive Environment of Supermarkets in Hong Kong

In November 2014, international conglomerate ICL 1 was assessing the potential of entering the retail grocery market in Hong Kong. ICL owned one of Europe’s major supermarket chains that specialized in operating very large supermarkets known as hypermarkets. Since the 1970s, ICL had grown rapidly and expanded into drugstores and convenience stores. In early 2014, it owned over 300 hypermarkets in 15 countries. ICL also operated sizable online grocery-delivery services in several European countries. And it had strong private-label brands, with gross margins as high as 40%. ICL’s interest in the Hong Kong supermarket industry was initially kindled by the plan of Hutchison Whampoa, Ltd. (HWL) to sell its leading supermarket chain, PARKnSHOP, in August 2013. Companies like U.S.-based Walmart, Japan-based AEON, China Resources Enterprises, and Australian Woolworths Ltd. were among the eight invited bidders. However, in October 2013, HWL reversed course and decided not to sell PARKnSHOP, saying that the sale would not deliver maximum value to its shareholders. In 2012, PARKnSHOP’s annual revenue was HK$21.7bn, and its earnings before interest, tax, and deprecation/amortization were HK$1.4bn.2 It was estimated that HWL could have realized US$3bn—$4bn in the deal. 3,4

1 ICL is a hypothetical supermarket player created purely for teaching purposes and for hypothetical discussion in a classroom environment. 2 Prudence Ho and Yvonne Li, “Buyer Show Appetite for Hong Kong’s PARKnSHOP,” Wall Street Journal, 21 August 2013, accessed December 2014. 3 “PARKnSHOP no longer for sale,” Hong Kong Business, 24 October 2013, http://hongkongbusiness.hk/retail/news/parknshop-no-longer-sale , accessed November 2014. 4 US$1 = HK$7.8.

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This document is authorized for use only by jarmin patel in BADM 838 – Strategic Thinking, Decision-Making & Innovation-Fall 2021 taught by Daniel Kanyam, University of the Cumberlands from Aug 2021 to Feb 2022.

http://hongkongbusiness.hk/retail/news/parknshop-no-longer-sale
HKUST Business School Thompson Center for Business Case Studies

ST39 2 UST039 To Enter or Not to Enter: Competitive Environment of Supermarkets in Hong Kong

Before embarking into new territory, ICL wanted an in-depth understanding of the Hong Kong grocery market environment, competitors, and potential barriers to entry. ICL was aware that a new Competition Law, which was expected to take effect in 2015, might have profound implications for the grocery market landscape in Hong Kong. Some analysts said HWL’s decision to put PARKnSHOP up for sale might have been motivated by the introduction of Competition Law, which could potentially break the dominance of the leading supermarket chains. 5 With more rigorous enforcement against cartels and abuse of substantial market power, would the law be effective in encouraging more competition, thereby offering more opportunities for new entrants to enter the grocery market? Despite all the uncertainties surrounding the effectiveness of the new legislation, ICL management hoped to make a decision before the end of the financial year to allow sufficient time to move forward with the plan or divert resources to other potential growth areas.

Grocery Market in Hong Kong

Grocery Market Landscape/Characteristics

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