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Will PX-Mart and President Chain Store monopolize Taiwan’s retail?

Will PX-Mart and President Chain Store monopolize Taiwan’s retail?

Source:Yu-Xun Zheng

With the acquisition of the Taiwan business of French supermarket chain Carrefour, President Chain Store Corp. will be catching up to grocery retail bellwether PX-Mart. How will the formation of two channel giants affect the industry, and what lies in store for consumers?

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Will PX-Mart and President Chain Store monopolize Taiwan’s retail?

By Yi-chih Wang
CommonWealth Magazine

Late at night on July 19, the Uni-President Group finally emerged as the winner of the bid for the French parent company’s 60- percent stake in Carrefour Taiwan, following an eight-month bidding war. After the NT$29.1 billion acquisition, Uni-President Enterprises Corp. (Uni-President) will hold a 70 percent stake, and President Chain Store Corp. (President Chain Store) the remaining 30 percent in Carrefour Taiwan.

President Chain Store Corp., which owns the 7-Eleven convenience store franchise and runs the group’s retail business, has a nearly 50 percent market share in the convenience store sector, while Uni-President owns three shopping centers. By adding Carrefour to its portfolio, President Chain Store has become the first retailer in Taiwan to cover all forms of retail, from convenience stores and supermarkets to hypermarkets.

With more than NT$ 80 billion in revenue from Carrefour Taiwan on top of the revenue of President Chain Store, the food conglomerate’s Logistics Group is looking to generate NT$350 billion in revenue this year. This would put the company at the top of Taiwan’s retail industry.

(Source: Chien-Tong Wang)

PCSC forced to acquire Carrefour to fend off rival PX Mart

The acquisition of Carrefour Taiwan is expected to mark the end of consolidation in grocery retail. “In the coming decade, another tectonic shift of this dimension is unlikely,” says Harry Huang, executive vice president of Financial Advisory Services at Deloitte Taiwan.

In the 35 years since Uni-President Group founder Kao Ching-yuan forged a joint venture with Carrefour in Taiwan, the food production company has never interfered with the day-to-day management of the French supermarket chain, raking in profits in the order of NT$700 million per year.

So why go for full ownership of Carrefour? PCSC Chairman Alex Lo simply could not let rival PX Mart outdo him.

Four days before the Carrefour buyout was announced, the Fair Trade Commission gave conditional approval to PX Mart’s acquisition of hypermarket operator RT-Mart. The deal would have brought PX Mart, which expects to generate NT$190 billion in consolidated revenue this year, within reach of the top spot in the retail sector.

PX Mart, which got into the grocery retail business 20 years after President Chain Store, expanded its network of stores rapidly through mergers with other chains, surpassing Wellcome and RT-Mart within a decade, and outdoing Carrefour within 15 years. Meanwhile, PX Mart has made it into this year’s Top 250 of the world’s largest retailers. The only other Taiwanese retail company on the list is President Chain Store.

PX Mart currently owns only one sixth of the number of President Chain Store outlets. But in terms of revenue, which stood at NT$159 billion last year, the supermarket chain was less than NT$10 billion behind its competitor, and will likely surpass it this year.

For Lo, this acquisition, without doubt, serves to defend the company’s market position.

Duel between an entrepreneur and professional managers

After the two mergers, President Chain Store and PX Mart will each hold 40 percent of Taiwan’s retail market, wielding enormous influence over what and at what prices Taiwanese consumers can buy when shopping for their daily necessities.

The competition between PX Mart and President Chain Store pitches two different management philosophies against each other. PX Mart Chairman Lin Ming-hsiung, founder of a construction company, is known for doing everything big-time and risking temporary losses to get what he wants. In contrast, Lo, who doubles as chairman of President Chain Store and Uni-President, both listed companies, needs to keep shareholders happy with good profits to secure his dual position.

The 72-year-old Lin, who started out in the real estate business, prides himself on being a “retail outsider”.

The retail industry is generally considered a tough business with meager profits, so penny-pinching is the rule when new investments are made. When Lo, who emphasizes numbers, and how foreign investors assess performance, took the helm of President Chain Store, he immediately sold off unprofitable subsidiaries for the sake of profitability.

Lin takes exactly the opposite approach. He boldly invests, buying distribution centers or flagship stores and even the land on which they sit. When Lin took over PX Mart, then a government-run supermarket for the military, civil servants, and educators, in 1998, in a NT$60 billion deal, he realized within a year how important scale was in the retail sector. “The retail industry is really brutal,; if you are in second place you won’t survive,” he said.

As a result, he embarked on a buying spree, not missing a single opportunity to snatch up other retailers. From 2004, on average, he landed a merger every three years.

Suppliers are at the mercy of PX Mart

While PX Mart may be Taiwan’s largest supermarket chain, its net profit margin is still less than two percent. So how can one make money? The answer is financial management. Lin cites as example goods transports, sales promotion mailings, advertisements, and floor displays on behalf of producers.

Over the past dozen years, PX Mart has steadily bolstered its market clout. For many manufacturers, the chain has become a major channel, accounting for more than half of total sales.

(Source:  Pei-Yin Hsieh)

As one supplier reveals, products listed at PX Mart sell several times faster than through other channels. “During the pandemic, PX Mart and Costco were the only brick-and-mortar stores where goods would still move,” says the supplier, likening PX Mart to a highway for its quick turnover of inventory.

Yet when manufacturers cozy up with PX Mart, they also face tough conditions. PX Mart is the only retailer using a consignment system, the supplier points out. Suppliers don’t pay a slotting fee to have their products placed on the shelves; they only receive payments after their goods have been sold. Unsold products can be returned to suppliers. “PX Mart demands the lowest market price. When the price bottoms on another channel, they demand that you follow that pricing. The lost profits are shouldered by the manufacturer,” the supplier explains.

PX Mart CEO James Hsieh regards his company as a channel platform where cheap prices are the winning formula. “With good prices, product turnover is fast,” he points out. Hsieh is even convinced that consignment inventory is the future trend. “Isn’t e-commerce consignment sales? It allows manufacturers to return to their roots and focus on product development and innovation.”

PCSC launches counterattack with expansion blitz

PX Mart opens supermarkets as if they were convenience stores, forcing originally cautious President Chain Store to launch a wild store opening offensive in the past three years. PCSC President Huang Rui-tien says he is not planning to slow down the expansion plan. The goal is to reach 700 supermarkets by 2024.

In explaining his expansion philosophy, Lo notes that, given Taiwan’s rapidly aging society, stores need to be as close to the consumer as possible. Convenience stores must be repositioned. In the future they cannot just rely on selling goods but also need to serve as social service locations. Presently the number of outlets is still far from enough.

The compound store of PCSC (Source: Chien-Tong Wang)

Still, last year average daily revenue per convenience store dropped below NT$60,000, an all-time low. In order to improve profits, the outlets depend on commissions for goods that are picked up at the stores. Franchisees have also been complaining that new stores from the same brand in their vicinity are causing customer numbers and revenue to drop.

Responding to these concerns, Lo argues that management is trying to figure out day by day how to adjust to the changing environment. The company cannot afford to put off opening new stores until everything has been carefully considered and planned out.

“You don’t necessarily know why you are doing this. Others are doing it, so you are forced to do it, too,” says Lo, adding that the biggest risk in running a company is that your competitor succeeds with something that you have not done at all.

As the two retail giants compete for the same consumers, the “arms race” between them to improve capabilities in logistics, fresh produce, and e-commerce is going to intensify. 

PX Mart has invested more than NT$30 billion in land for logistics centers. PX Mart Vice President Hu Chang-hsi states that PX Mart will complete its cold chain logistics and fully automated warehousing within three years. In five years, PX Mart will have a unified distribution system that covers all of Taiwan.

Last year, President Chain Store, which had already established a logistics company 30 years ago, consolidated the five logistic companies under its roof into a single company called Uni-President Express Corp. Going forward it will be responsible for the overall planning of all retail business. Presently, more than NT$10 billion has already been invested in land purchases alone.

Fresh produce: PX Mart has 13 years of experience, PCSC needs to persuade franchisees

More than 20 years ago, President Chain Store put together a supermarket assessment taskforce and even mulled acquiring the Summit supermarket chain. But the project never got off the ground due to in-house opposition.

That Lo is now opening stores with a grocery store concept shows that he has sensed the alarming changes in the retail market.

Carrefour’s capabilities in procuring and handling fresh produce is the last piece President Chain Store needs to complete its retail business puzzle. The only problem is that the franchisees must be convinced to stock fresh produce. Fresh food would not only give customers another reason to frequent the convenience stores but also create a channel for meal delivery service foodomo, which President Chain Store bought last year.

Thirteen years ago, PX Mart’s Lin pushed for the introduction of fresh produce into the chain’s offerings, going against the opinion of his management team. To achieve this goal, he acquired the supermarkets of the Taipei Agricultural Products Marketing Corporation and Summit Inc. After securing a team of professional produce managers, he went on to design and build a produce processing center in Wugu District on the outskirts of Taipei.

E-commerce is another battleground. According to a nationwide survey by market research firm Nielsen, PX Pay, the payment app of PX Mart, has already surpassed popular homegrown mobile wallet JKO Pay to become the second most used payment method behind Line Pay.

Is the age of retail monopolies dawning?

It is worth noting that the Fair Trade Commission took eight months to review PX Mart’s acquisition of RT-Mart, eventually passing it with a narrow 4 to 3 majority. President Chain Store’s takeover of Carrefour Taiwan is sure to fuel concern that two retailers of such size will dominate the market with monopoly-like influence.

Industry insiders worry that Lo will increase the share of private brands to improve the profit margin of President Chain Store and Carrefour. “The profit margin of producers is, of course, higher than that of the channels. If competitors are unable to list their products anymore, Carrefour, like President Chain Store, will be relegated to serving as a channel for the Uni-President Group,” warns a former President Chain Store executive.

Travel writer Han Liang-yi also voices concern that, after the merger, Carrefour will no longer carry its signature products, which were renowned for good quality at affordable prices.

Suppliers, for their part, are bracing for a price war between the two giants that would force suppliers to lower prices too. “I am afraid we will face the problem of having to follow their pricing,” says one supplier who did not want to be named.

Their market clout does not stop there. Both retailers are building their own logistics infrastructure, which means that suppliers will have to use their distribution systems. Suppliers are already unhappy about the commission that PX Mart is planning to charge for their cold chain logistics. “Convenience stores take 13 percent of their purchase price, whereas PX Mart demands 12 percent of the end consumer price. This means additional costs in the order of several million per year,” laments a supplier, with others voicing similar misgivings.

Whether President Chain Store’s planned takeover of Carrefour Taiwan will be approved by regulators will not be decided before next summer. Yet the retail battle between the two is already in full swing. Market concentration is a global trend. But whether the emergence of retail monopolies is good or bad for consumers remains to be seen.


Have you read

Translated by  Susanne Ganz
Edited by TC Lin
Uploaded by Ian Huang

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