Given that the new coronavirus epidemic has been virtually stamped out in Taiwan, the local retail industry was just getting up its hopes when another bombshell dropped, the biggest since Pxmart acquired Japanese supermarket chain Matsusei (Songqing) almost five years ago.

On June 2, the France-based headquarters of hypermarket chain Carrefour announced that it has acquired Wellcome Taiwan Co. Ltd. from its parent company Dairy Farm International Holdings Ltd. (Dairy Farm) for 97 million Euro (about NT$3.23 billion).

The deal includes the 199 Wellcome grocery stores and 25 Jasons Market Place outlets owned by Wellcome Taiwan, as well as their warehouse, including building and land.

This means that within the coming year all Wellcome supermarkets will be converted to proximity stores under the Carrefour Market brand and the Jasons stores will become Carrefour premium; the Wellcome and Jasons brands will disappear in Taiwan.

Together with its existing 137 stores in Taiwan, Carrefour is likely to post higher revenue next year than American hypermarket chain Costco (revenue of NT$84 billion in 2019), which would make it the No. 2 hypermarket in Taiwan.

Without doubt, this acquisition will move Carrefour a large step ahead on its road to becoming an omni-channel retailer. “This deal is a very good one because it does not only include stores in quality locations but also a distribution center, which are currently a hot commodity,” notes a retail industry executive.

Within the retail industry, the Wellcome acquisition did not really come as a surprise. “Rumor has it for quite some time that Wellcome Taiwan has been waiting for a good offer. Several conglomerates including convenience store chains have negotiated with Dairy Farm,” comments an industry insider.

Connecting the dots when hearing the news, a supermarket operator was also reminded us the telltale signs. “In the second half of last year, Carrefour noticeably slowed down its expansion of Carrefour Market proximity stores, I guess they have decided to expand through acquisition. Snatching up good locations with one deal is much better than painstakingly expanding one location at a time.”

Three Reasons for Wellcome’s Decline: High Staff Turnover, High Listing Fees, High Operating Costs

Dairy Farm sold off Wellcome Taiwan mainly to stop bleeding money.

Dairy Farm, for its part, belongs to the Jardine Matheson Group, one of the Hong Kong original trading houses. Wellcome supermarkets entered Taiwan in 1987, the year Martial Law was lifted. As an early market entrant, Wellcome Taiwan was able to grab many prime locations for its stores.

But as a foreign-invested company, the chain’s executives were foreign expats who were assigned to Taiwan for a few years before rotating elsewhere. They lacked understanding of the Taiwanese market and failed to develop a long-term vision and strategy which again made it difficult for employees to develop a strong identification with the company.

A food industry executive points out that Wellcome Taiwan has a very high staff turnover rate in comparison to other retailers. For part-time employees, the number is 100%.

He also reveals that for many suppliers it is not worthwhile having their products in Wellcome Taiwan. Because the listing fee, the amount of money manufacturers must pay to retailers so that their products are put on the shelves, is higher than for other chain supermarkets while inventory turnover is very low.

“The Wellcome procurement managers are very arrogant, everything is done by the book, there is no flexibility at all. Let’s say I don’t give them hot-selling products, it doesn’t bother them at all, which shows that sales performance has nothing to do with them,” says this food manufacturer. 

In contrast, Carrefour, which is also a foreign retail chain, is able to adjust to local conditions and offers good conditions to encourage listings. 

A key reason why Wellcome has much higher operating costs than its rivals is the fact that more than half of its 199 stores are open round-the-clock which leads to enormous expenses. “But this is also the only unique selling point that sets Wellcome apart from other supermarkets,” says a sales channel executive.

Source: YouTube

With sales on a downhill trajectory, the only way to cut costs is reducing store staff, and demand that suppliers use their own inspectors to make sure that goods on the shelves are not beyond the expiration date. Given that they have paid listing fees, suppliers are not eager to do so. Consequently, Wellcome Taiwan has seen many more consumer disputes over sales of expired goods than other retail channels.

“This is a vicious cycle, the fewer people buy perishables, the lower their freshness,” remarks a consumer who feels that Wellcome was unable to recover from its tainted image after scandals over expired goods in 2008 and 2013.

As Rivals Expand Stores, Wellcome Takes a Beating

After the 2013 scandal, Dairy Farm urgently reassigned Jackson Hsiao, who had been working in the Chinese retail industry for 14 years, to his native Taiwan to turn the company around. But Hsiao found himself fighting an uphill battle breaking old habits. At the same time, rivals Pxmart and Simple Mart, which had opened some 100 stores per year in recent years, were closing in on a defenseless Wellcome.

“In New Taipei City several Pxmart stores opened right across from Wellcome supermarkets, openly stealing their customers away. Pxmart prices are less expensive than Wellcome’s, Wellcome is not able to hold its own at all,” observes a channel operator.

In the past, Wellcome was tight-lipped about its revenue and never disclosed its financial situation. Outside the company it was no secret that the supermarkets were incurring losses but no one knew how big the hole was.

The truth finally came to light with the announcement of the acquisition. The Wellcome and Jasons stores generated NT$12.99 billion in revenue last year, which amounts to a store average of only NT$58 million. This is not even half of the NT$130 million average revenue per Pxmart store. Against this backdrop, Dairy Farm’s withdrawal from Taiwan was sure to happen sooner or later.

However, with Jasons Market Place, a supermarket chain Dairy Farm had introduced from Singapore in 2003, Wellcome Taiwan successfully built a brand and cultivated a loyal following, particularly among high-end female customers. Taiwan’s department stores regarded Jasons as a competitor of their own supermarkets. 

“Jasons should be making money, with its per customer transaction three times higher than at Wellcome,” judges a department store executive.

Source: JSONS Facebook Fan Page

While Dairy Farm has lost its grocery retail business in Taiwan, it still owns the IKEA furniture franchise on the island. And in Hong Kong, Australia and Southeast Asia, the Group runs the 7-ELEVEn convenience store chains, Starbucks coffee shops and other international franchises, making them a fixture in Asian people’s lives.  

For Carrefour, which performed well in Taiwan over the past year, the acquisition of Wellcome and Jasons is a shot in the arm. 

“Carrefour stands for more than 200 A-class supermarkets,” says a supermarket operator. The original Wellcome locations will become pickup points for goods ordered from Carrefour’s e-commerce platform, effectively integrating offline and online business. And then Carrefour has sufficient negotiating clout to win prime brands for its product lineup. Carrefour’s proximity stores will be very competitive so that Pxmart, Taiwan’s leading supermarket chain must not let down its guard.  

A logistics industry insider points out that Carrefour’s logistics arm ID Logistics Taiwan, which already maintains warehouses in Luzhu and Lunping in Taoyuan and Gangshan in Kaohsiung, will gain more flexibility in dispatching goods after taking over the Wellcome warehouse in Dayuan, also located in Taoyuan.

This acquisition in the wake of the coronavirus epidemic might be foreshadowing a greater realignment in Taiwan’s hypermart and supermarket sector. Yet, key to survival is not who has the strongest backer or the most resources, but who is able to win the hearts and minds of consumers. 

Have you read?
♦ How a Flour Mill from Tainan Became the World's 12th Largest Food Conglomerate
♦ PX Mart Mobile Payment App Owes to 50-Plus Age Group for 5 Million Users
♦ Partnering with McDonald’s and PX Mart: Morinaga Milk Caramel McFlurries Set Sales Records in Taiwan, Sales Top NT$1M per Day
♦ Taiwan's Next Convenience Store Battlefield?
♦ PX Mart Opens 1000th Store: What’s the Scoop on “Brick and Mortar E-commerce?”

Translated by Susanne Ganz
Uploaded by Judy Lu