In a narrow alley off Chunghsiao East Road, one of Taipei’s most prosperous thoroughfares, stands Simon’s Beauty Parlor, announced by a neon signboard shining above its attractive facade. Only those who have lived in the area for some time know that until two years ago a grocery stood on this spot. And they remember that Ma Chung-Iai (馬鐘賴), the grocery’s 60-year-old owner, had run the shop for two decades.
During those years, the store’s booming business had brought Ma enough earnings to bring up her four children and to buy two apartments. “My revenues each month reached one million [US$38,500], with a net profit of sixty thousand [US$2,300],” Ma recalls. “Cigarettes and beverages sold best. We closed at midnight. Around ten every night, a lot of old customers would rush in—not just to get something before we closed but also to chat or tell a joke.”
But the situation changed in the last few years of business. First, three convenience stores opened up in the neighborhood. With their round-the-clock service, they gradually lured customers away. Ma’s grocery was struck a second blow when supermarkets such as Wellcome and hypermarkets such as Makro and Carrefour began aggressively opening chain branches around the island. “People prefer to drive to Makro and fill their car up with boxes of everything,” Ma says. “I asked my neighbors why they didn’t just come to me. Often, the answer was that they could get a cheaper price there. For example, a case of Heysong soda sells for three hundred twenty dollars [US$12] at Makro, while I asked three hundred sixty [US$14]. But my purchase price was three hundred twenty. It was impossible for me to sell at no profit.” Her business fell into a serious decline. Eventually, unable to afford continuous losses, she closed the shop and rented it out to the beauty parlor in 1992.
Taiwan’s early hypermarkets were joint ventures, but local versions such as this Chiu Chiu Lung store in Taichung have jumped on the bandwagon. Today, twenty-two hypermarket stores operate around the island.
The story is a familiar one to the owners of Taiwan’s forty thousand individually owned groceries. Most are barely out of the red—if they are fortunate enough to be surviving at all. Government statistics show that these mom-and-pop stores now account for less than 5 percent of Taiwan’s overall retail business, and that they have been disappearing from the island’s bustling commercial scene at a rate of about 20 percent per year since 1992.
These neighborhood shops are being squeezed out of the market by a group of new but tough competitors—big-name chain stores. First came 24-hour convenience stores. In 1980, President Enterprise Corp., Taiwan’s largest manufacturer of food and beverage products, formed a joint venture with then U.S.-owned 7-Eleven stores. [7-Eleven is now owned by a Japanese firm.] The move proved a success. Soon other business groups such as Wei Chuan, Taishan, Goldsun, and Holmsgreen Holdings followed suit by establishing joint ventures with American and Japanese firms to introduce foreign chain stores such as Family Mart and Circle K.
Then came the international supermarket chains. In 1987, Hong Kong-based Well come Co. joined the competition, becoming Taiwan’s first successful foreign-owned supermarket chain. The chain was also the first to introduce aggressive promotional strategies such as year-round sales on a wide variety of items.
It all started in 1980 when the first 7-Eleven opened up, bringing bright lights, modern amenities, and all-night service to Taiwan. There are now 2,500 convenience stores islandwide.
One year later, the consumer revolution reached new heights when the first hypermarkets hit the island. In 1988, Holmsgreen Holdings formed a joint venture with Holland-based SHV to bring Makro stores to Taiwan. Since then, with its strategy of offering bulk items at low prices, Makro has successfully attracted consumers to its hypermarkets around the island. In the past two years, its business has increased by 40 percent annually. According to a survey conducted by CommonWealth magazine, Makro Taiwan Ltd.’s 1993 revenues of NT$22.3 billion (US$858 million) placed it ninth among Taiwan’s top three hundred service companies. It was the first time a wholesaler had ranked among the island’s top ten service companies. [Most hypermarkets are technically considered wholesalers; they keep prices low by bypassing middlemen.]
An era of new consumer channels has dawned in Taiwan. The island now has more than 2,500 convenience stores, 500 supermarkets, 55 major department stores, and 22 hypermarkets. The management strategies and huge capital of these chain operations have ushered in a new mode of shopping.
The trend shows no sign of subsiding. Coveting this big pie of profits, half- a-dozen major conglomerates, including the Formosa Plastics Group; the Tuntex Group, and Far Eastern Group, as well as the state-run Taiwan Sugar Co. and Chinese Petroleum Corp., are planning to develop large-scale shopping malls. Each has already acquired more than five hectares of land for its project. These companies are simply waiting for the Ministry of Economic Affairs (MOEA) to pass an act allowing these commercial operations to be set up in industrial districts. It seems certain that people in Taiwan will soon enjoy the benefits of shopping in large-scale malls similar to those in the United States and Europe.
Endangered species—Corner mom-and-pop shops such as this one in Taipei are disappearing at a rate of 20 percent per year, marking the end of traditional neighborhood relationships.
“This is an unavoidable trend,” says Chang Kuo-an (張國安), chairman of Holmsgreen Holdings. He compares the relationship between mom-and-pop groceries and hypermarkets to that between carriages and cars—the invention of cars resulted not only in the disappearance of carriages around the world but also unemployment among horse raisers, carriage manufacturers, and carriage repairmen. It was a difficult transition for people in those businesses, says Chang, but this was not reason enough to give up using cars. “This is just part of progress,” he says.
“The way in which things are bought and sold reflects a society’s lifestyle and culture,” says Lai Shan-kuei (賴杉貴), deputy director of the MOEA’s Commerce Department. He adds that as individual incomes rise, people in Taiwan will undoubtedly demand a better quality of life. New distribution and retailing channels will spring up to supply new demands.
At least for now, hypermarkets are meeting those demands well. From morning to night, they are filled with crowds of shoppers. Says one taxi driver shopping at a hypermarket, “You can get everything here except coffins.”
Another frequent patron of hypermarkets, Wu Chih-hou (武志厚), manager of the public affairs department at Ford Lio Ho Motor Co., says he prefers the stores for their low prices, variety of goods, and convenient parking. “No matter how high your salary is, you feel the financial pressures of life,” Wu says. “If you shop without planning, your money will soon run out and you can’t save anything, let alone buy a house.”
Because prices for consumer goods have risen rapidly in recent years, shoppers have become especially sensitive to fluctuations in commodity prices. Efficiency has become another increasingly important consideration. In the past, housewives did the family shopping, and many made a habit of going from store to store to compare quality and prices. But today, with increasing numbers of women working, families are more hurried and want to shop quickly. Hypermarkets offer one-stop shopping. Also, while Taiwan’s deteriorating traffic conditions and lack of parking spaces have made shopping at streetside shops a torture, many shoppers are attracted by the spacious parking lots at hypermarkets.
Some items such as Chinese medicine, are still available only in individually owned shops. Here, rows of traditional pharmacies line Tihua Street, one of Taipei’s oldest districts.
“Whoever can reduce the inconveniences for customers can make money,” says Chang Kuo-an of Holmsgreen Holdings. Chang attributes the rapid growth of hypermarkets to effective cost control, systematic operations, and efficient management. For example, in order to offer the lowest possible consumer prices, Makro’s more than two hundred branches around the world usually purchase in huge quantities. They might import a shipment of U.S. apples for their stores in Taiwan, Thailand, and Indonesia, then use the same shipping channels to export products from Taiwan, such as porcelain, umbrellas, sports shoes, and household appliances, to Makro’s hypermarkets worldwide. The system may soon become even more efficient: Makro plans to set up an Asia-Pacific regional transshipment center in Taiwan. If this is established, all Asia-bound products will be shipped first to Taiwan for grading and packaging, then transported elsewhere in the region.
Makro Taiwan also has developed a specialized distribution system. To reduce transportation time and bypass middlemen, it has established an agricultural production center in Yunlin county, central Taiwan. Working directly with local farmers, Makro teaches them to grade and package products according to company specifications. These farmers then deliver their produce directly to the company’s hypermarkets islandwide. The method has reduced purchasing and processing costs for produce by 30 percent.
Makro’s online computer system for managing stock inventory also adds to efficiency. “Let me put it this way—whenever we buy ten thousand of any product, we know the moment our inventory drops to 9,999,” Chang says. “Such an efficient grasp of inventory changes keeps us fully informed of selling conditions.”
Family-run variety shops, with their personalized service, still supply everyday necessities in smaller towns such as Tainan.
Despite the greater efficiency and lower costs offered by convenience stores and hypermarkets, the growth of these chain stores has brought some problems. They mark the end of an era of traditional family stores. Many people over the age of thirty remember when the sides of every major street were lined with small family shops selling specialities such as cakes, hardware, or watches and eyewear. These shops were bustling with shoppers day and night.
“These thousands of small independents [still operating] are not a small group,” says Shen Hsiao-chih (沈曉志), business section chief of the Taiwan Chamber of Commerce (TCC). “If they aren’t able to make a living, it will become a big social problem.” Shen believes that some storeowners have turned to opening unlicensed pachinko or video game parlors or illegal gambling houses and sex shops. He adds that small businesses generally do not oppose upgrading or modernizing. “They know what their own problems are and are willing to make improvements,” he says. “What they ask for is a fair chance to compete.”
Big discounts, big crowds—Hypermarkets have been criticized for increasing traffic, noise, and garbage in residential areas.
Lee Shao-ping (李紹平), secretary-general of TCC, points out that many individual shop owners face an uneven playing field. For example, many of the big-name hypermarkets are actually breaking regulations that forbid wholesalers from making retail sales. [Because hypermarkets offer wholesale prices, they are required to sell only to representatives of companies, but sell to individual shoppers, who simply acquire a membership card.] Also, many operate illegally because they have been built in areas zoned for industrial use. In addition, the MOEA is considering allowing large-scale shopping centers to enjoy the five-year tax-free period created under the Statute of Industrial Upgrading in order to help individual companies improve and modernize. The TCC strongly opposes this move. “These big enterprises already enjoy many advantages,” Lee says. “If they are exempted from the 5 percent business tax, how do you expect small businesses to survive?”
Lee advocates following recent moves by the Japanese government to set stricter regulations for the opening of shops occupying areas larger than 36,000 square feet. In Japan, sales channels continue to involve many middlemen, keeping commodity prices relatively high. But the Japanese government went forward with the move in order to safeguard family businesses and to protect domestic industries by preventing foreign companies from controlling sales channels.
Democratic Progressive Party Legislator Hsieh Chang-ting (謝長廷) has also spoken out against setting up too many supermarkets and convenience stores in urban centers. Having grown up in an older neighborhood in Taipei, Hsieh remembers well the friendly, personal service rendered by the shopkeepers. “Taipei is a city with vitality but without a human touch,” he says. “Traditional shops can help preserve neighborly relationships.”
Part shop, part social center—Traditional shops serve as far more than a place to pick up some noodles. But people don’t spend the afternoon cleaning vegetables together outside the neighborhood Circle K.
The government is also taking steps to address the difficulties of independent shop owners. Although the Commerce Department is continuing to create channels for big enterprises to acquire land, it is also trying to assist small and medium-sized businesses by offering funding for upgrading and expansion. The department has begun a ten-year, NT$2.5 billion (US$96 million) project promoting commercial automation in small businesses. But the Taiwan Chamber of Commerce has criticized the project for distributing resources unevenly. “In pushing for commercial automation, the government thinks only of big companies,” Shen says. “Have they ever considered the hardships of a small operation such as Tergets?”
Tergets Food Co. is a 40-year-old family bakery selling Western-style breads and cakes. The company, now in the hands of the second generation, has five chain stores in southern Taipei. Monthly sales average around NT$4 million (US$154,000), more than many other well-known chain bakeries in Taiwan. Even so, Tergets is looking ahead. While many other traditional businesses are not willing to invest in major renovations, the company recently spent NT$30 million (US$1.2 million) on automation equipment and on establishing a central factory to supply its five stores.
Despite these improvements, company vice president Chen Kuo-hsiung (陳國雄) is worried about heightened competition from new frozen and microwavable ready-made foods and from the growing variety of baked goods carried in convenience stores. Chen also worries that his lack of formal training in business management will hinder the company’s development. To polish up his skills, he recently attended several seminars co-sponsored by the MOEA, the TCC, and a private job-training center. He plans to continue taking such courses.
Many in the grocery business believe that the new competition has brought positive changes. Paul Kao (高大峯), general manager of Kao Hong Wholesale World hypermarket, believes the international convenience stores and hypermarkets have introduced modern management practices and have motivated traditional businesses to upgrade and improve. But not all family-owned shops will be able, or willing, to follow in Tergets’ footsteps. Many more are likely to opt for the route chosen by Ma Chung-lai—giving up and closing down.