1. Evaluate the attractiveness of the grocery retailing industry that AdMart entered initially.

y. Compare this industry environment to those

faced by Jimmy Lai when he started up Giordano and Apple Daily, particularly in terms of the attractiveness to new entrants.

The grocery retailing industry is attractive since there are only two main competitors, Park’n Shop and Wellcome which focuses on
physical stores retail business. Due to the improvement of the Internet, it was believed that there would be more Internet users to
purchase necessities online, attracting AdMart to enter the online retail market by offering particularly attractive prices, convenience
and home delivery services, which were not specially offered by both Park’n Shop and Wellcome.

Industry environment - Five Forces Model

AdMart​-online groceries retailer Giordano​-casual wear retailer Apple Daily​-news publishing company

Low barrier - potential new entrants
-Low start-up capital for online retail
-Consumers do not have brand loyalty for
groceries retail
-Low switching cost
-Resources are mainly for delivery which is
easy to access
-There will be retaliation by the two duopoly
in Hong Kong, Park’n Shop and Wellcome.
Moderate barrier - potential new entrants
- Casual wear retailers usually have many
branches in Hong Kong. Start-up capital for
new entrants will be high as they cannot open
a hundred shop in a short time.
- Brand loyalty for customer to the casual
wear retail brand is not that strong.
Customers will be loyal to a brand because of
their quality, but they will also switch to
some lower price with similar quality brand.
- Low switching cost
High barrier - potential new entrants
- High start-up capital for buying
equipment like cameras and printers
- Brand loyalty: some readers may like
their style of reporting since its editorial
promoted democracy and make
disparaging comments on Chinese
government and its officials

High rivalry among existing firms
- ​High fixed cost (e.g. wages)and low variable
cost
- Low height of exit barrier since it operates
online
- Low product characteristics since they sell
mainly bulk groceries
- Duopoly: 2 dominant firms: Park’n Shop
and Wellcome
- Low switching cost for buyers
High rivalry among existing firms
- High Fixed cost and low variable cost
- High height of exit barrier since fixed cost
is high and lose a lot when they exit
- Low product characteristics since casual
wear retailers are selling similar clothes
- Low switching cost for buyers
- Diversity of rivals is high since most of the
rivals are target at the similar target segment
High rivalry among existing firms
- High fixed cost and low variable cost
- High height of exit barrier since high
fixed cost like printing machines and
equipments. They will make lost when
they exit the market.
- High product characteristics since some
of them may have unique news to
publish.

High threat of substitute products High threat of substitute products High threat of substitute products
- Consumers may buy products in other - Consumers may buy garment in other - Consumers may expose to the news in
channels, such as supermarket and channels, such as online shops, boutique or other channels, such as TV, radio or
convenience stores. other fashion brand. other newspaper

Moderate bargaining power of buyers
- Volume to be bought can be high or low,
depending on whether it is company or
individual consumers
- moderate level in switching cost: have some
product differentiation since they offer
attractive price, convenience and delivery
- Price elasticity: can switch to competitors if
the price is higher to save money
High bargaining power of buyers
- Low volume to be bought by individual
customers.
- Low switching cost: low product
differentiation, easy for customers to switch
to other substitutes.
- Price elasticity: consumers can switch to
other similar products with lower price
Moderate bargaining power of buyers
- Low volume to be bought by individual
customers
- Low switching cost: low product
differentiation, easy for customers to
switch to other substitutes.

High bargaining power of suppliers
- Suppliers are reluctant to deal with AdMart
or offer competitive prices, although AdMart
aimed to reduce cost of goods sold
- Park’n Shop and Wellcome allegedly
pressured suppliers not to deal with AdMart
Moderate bargaining power of suppliers
- Raw materials (cloth and denim) can be
bought from various similar suppliers
- Need to co-orporate with other designers to
design for a specific theme of garments
- Suppliers have potential to integrate
forward by opening retail stores or sell online
Moderate bargaining power of suppliers
- Paper and ink have many similar
suppliers
- Some information or news source may
be exclusive to a particular news agency,
which directly determine the quality of
news and number of readers

In terms of attractiveness of new entrants, barriers for potential new entrants for AdMart is comparatively lower than Giordano and Apple
Daily. Besides, duopoly already exists, Park’n Shop and Wellcome, in the groceries market. Although their selling method is different, with
competitors and AdMart focuses on selling offline and online respectively, they are selling the similar products which is offered by similar
suppliers. In this case, AdMart is facing a situation of having more competitors and retaliation by the duopoly. These made AdMart hard to
survive in this industry.
2. Describe AdMart’s competitive strategy and illustrate the value propositions of itself and its major rivals. Comment on the extent to
which adMart implemented its strategy fully and consistently. Explain how is the strategy of CitySuper different from Admart.
Evaluate the long-term prospects for CitySuper in Hong Kong.

AdMart was using differentiation strategy to develop its brand and compete in grocery retail business. It puts constant efforts on
distinguishing its brand, products and services by means as ​offerings innovation​, ​quality in offerings​,​ shape perceptions​ and a very
strong investment​.
I. AdMart’s Competitive Strategy
(i) ​Offerings Innovation:
1. Focus on selling small range of products and bulk purchasing
2. Adopted a distribution model used in Japan which ordered online and collected at pickup points
3.Relied on grey market & less-known brands after strong reaction of its rivals
4.Expand product lines venturing beyond groceries
However, it was not fully and consistently implemented the differentiation since AdMart was unable to provide distinguish offerings
in a profit and sustainable way. It neglected the high margin items, prohibited to serve the broad target since its rivals are owned by
Cheung Kong/ Jardine Matheson, and it invested a lot on delivery system which soon replaced entirely by home delivery service. But
still, it successfully differentiated the brand and raised profit margins by B2B business model.
(ii) Quality of offerings:
1. Bad reputation by found to be selling counterfeit goods
It was making its loyalty customers to become selective purchasing which inducing the relationships with customers were not
maintainable.
(iii) Shape perception by Marketing:
1. Offered 5% discount for online orders
It was not successfully attracting online shoppers since over 75% orders made by telephone.
(iv) Strong Investment:
1. Operated own warehouses and delivery system
2. Large call centre for order-taking
Those have brought in a tremendous long-term lease and it became a substantial fixed cost to company.
II. AdMart Value Proposition
Provide a combination of attractive prices, convenience and home delivery
“Change the way people buy groceries” by first president of AdMart Wilson. It aims at bringing in B2C e-business model in HK
grocery field to create a brand new purchase experience to customers. However, it overlooked Internet hyperbole that the customer
may decide the cost of uniqueness is too great. At that generation, the cost might not in cash, it might be time and efforts to order
online. AdMart was missed how strong its competitors were and in which the innovative offerings was easy to imitate.
III. Rivals’ Value Proposition
A passion for food and living well by providing internationally-sourced,
high quality products and superior service in a refreshing comfortable retail environment.
IV. Strategy of Admart
(i) Cost leadership
Admart try to be the cost leader. Therefor, AdMart initially limited its product scope to 60 core items. By selling bulk groceries but
not fresh food, the company neglected many high margin items but also avoided the need for refrigerated storage and transport.
Which is aimed to reduce the costs of goods sold. However, many suppliers are already corporate with other two supermarket.
bargaining power of Admart is low because of its market share.They do not offer a competitive price to Admart. AdMart can only
relied on grey market channels and many less-known brands. Also, Admart expanded the product line, venturing beyond groceries For
instance, office supplies, furniture,appliances, and even travel services. Try to use low margin high volume to earn more profit.
(ii) Target the onling shopping market
Some of the Hong Kong people are very busy and no time to shop. Admart want to target those customers and successfully get
attention from customers. Nevertheless, the online shopping system do not involve too many technology. Other competitors easy to
follow it. Moreover, the usage of Admart resources is fail and make Admart loss money in each order of online shopping.
V. Strategy of CitySuper
(i) Sell high end product and high service quality.
By selling high margin low volume and different features of product. They are targeting different customer groups of Welcome or
Admart. After getting success, City’Super to quickly establish reliable supply chains and to secure prime locations for its retail
outlets. Therefore, other competitors cannot import those popular items in City’Super which higher the bargaining power of
City’Super to customer. City’Super can develop sustainablely by this secure their prime prodouts. In order to attract high educated
product, City’Super selling environmentally-responsible products, and commitment to sustainable development.
Moreover, achieving extraordinary levels of friendly and helpful customer service by carefully selecting talented staff with a global
mindset and then systematically training them. As the result, it reduce usage of resources by a well system and increase the barrier of
new comer.
(ii) Customer Loyalty Program
Providing the most notably with its loyalty reward programs(introducing chop cards, co-branded credit cards), cooking classes and
other “privilege” events. Increase the customer loyalty and attract them consume continually. Thus, generate more profit.
3. Identify the key environmental factors (hint: STEEP) that encourage/discourage online business in Hong Kong. Comment on the overall
attractiveness of doing business online in Hong Kong. Briefly describe the key success factors for Hong Kong’s online retailers.

Factors Encourage/Discourage to online business in Hong Kong

Socio-Cultural Encourage - online shopping preference: By the increasing trend of using online platform to shop in the young groups, in
next few years, more companies will be expected to expand their brand to e-commerce to improve consumers’ experience
and attract them to shop, despite the e-commerce can only bring 1%-10% increase on their total revenue.
Discourage - firms are conservative towards online business: Since not a majority of consumers shop online, and they
are more willing to shop from the famous websites such as Taobao, they are conservative because of low revenue
generation and small population.
Discourage - unpopular on most age groups: ​Since e-commerce has arisen for a decade, most age groups are not willing
to purchase online especially for age 45 or above, because of the anxiety and unnecessary online shopping.
Discourage - inability to evaluate product quality: ​consumers cannot evaluate products accurately without testing the
actual products. Consumers are only able to select their desired products by reviewing pictures, textual context, videos, or
even the users’ comments on social media and the color and size may differ from the actual products. Therefore,
consumers have low confidence to shop online.

Technological Encourage - building omnichannel business platform: ​It is the most important digital innovation technology for online
business in Hong Kong in two years(from KPMG 2017) which the platform enables the existence of both physical and
online stores for companies. It can provide more opportunities for consumers to access their stores.
Encourage - adoption on big data analytics: C ​ ompanies can generate analytical information of consumers’ purchase
behaviour, in a short time or even immediately so that they are easier to summarize marketing insights and evaluate their
products, services and strategies. While consumers are more likely to purchase their favourite products since big data
analytics can provide advertisements on a product or service which they may feel interested to know about it.
Encourage - swifty transactions: ​The government has been developing or advocating different programs or software to
enhance the transacting experience, namely FPS and PPS. The customers can easily purchase online in Hong Kong.
Discourage - lack of data protection: ​Personal information of consumers is essential for data protection on all companies
which provide online platforms, there is still a minority of consumers worrying risk of leakage of confidential data, thus
decreases the trust in online business.

Economic Encourage - boosted consumption for special days: C ​ onsumers in Hong Kong are more willing to buy products online on
special days such as Singles’ Day and Black Friday, which increase revenue of those e-commerce platforms significantly.
Encourage - enabling on the stock market: O ​ nline businesses can increase their equity by entering the stock market in
Hong Kong, such as HKTV (1137), and the e-commerce industry is growing each year by the increase of sales.

Environmental Encourage - fewer materials and power are required for pipeline platform companies: ​They are more easily to establish
a firm as they act as an intermediate company which enables C2C business such as Taobao, no direct material and power
such as electricity of having physical stores are needed for them.
Discourage - needed for logistic: ​Firms require delivery by vehicles, thus increase air pollution and wastes on packages.

Political Encourage - stable jurisdiction and good reputation: ​Due to its free market economy, it allows an effective online
business world for all companies in Hong Kong, and Trade Descriptions Ordinance (Cap 362) can improve the trust on
products selling online by showing all information that describes those products accurately.
Discourage - insufficient regulation on Online Dispute Resolution in Overseas Jurisdictions: ​Selling illegal products
on/to other countries are difficult to control because of the separate law, thus increase barriers of e-commerce firms.

Comment on the overall attractiveness of doing business online in Hong Kong, briefly describe the key success factors for Hong
Kong’s online retailers:
Hong Kong is experiencing a sharp rise in e-commerce as the low restrictions on e-business of government, more companies are engaged
in the O2O business model, combining online and offline services to customers for a better experience. The​ low taxation rate​ is the most
competitive attractiveness of Hong Kong, the outbound transaction charges 0% in Hong Kong. In other words, starting up a business online
in Hong Kong can easily expand overseas markets at a lower cost. Also, the ​entrance is low ​which nurtures many local start-up companies
chooses the online platform, for instance, Instagram as their first step. Without paying the high rent fee, start-up companies have a lower
entrance comparing to physical retailers. Moreover, the Hong Kong government has always been ​limiting their interference at the lowest.
Another attracting factor is the ​stable jurisdiction.​ Hong Kong has been ranked as one of the least corrupt countries and is well protected by
its separation of power. Consumers in Hong Kong engaging and buying via different social media, in which FaceBook has purchased with
customers’ favourite brands for around 48% (KPMG, 2017), which means that social media in Hong Kong has significant power for online
business and giving customers a new channel to make a purchase decision.
Meanwhile, the key success factors of Hong Kong’s online retailers mainly due to the ​rich customer base​, Hong Kong people have been
obsessed with electronic gadgets, which means Hong Kong has a wider exposure on online retailers comparing to other countries. They
spend their days and nights on social media. By putting an advertisement on social media, online retailers can get more exposure. And the
O2O business strategy ​initiatives in the mindset of omni-retail trends. By developing an integrated O2O, online retailers can understand
more purchase behavior and preference of consumers, to create and even take one step forward to satisfy customers. The data of consumers
is extremely important for online retailers to set up a strategy for example promotion sales, customize services, etc..
Reference

1. Consumer Council. (2016, October 28). Online Retail: A Study on Hong Kong Consumer Attitudes, Business
Practices and Legal Protection. Retrieved from
https://www.consumer.org.hk/sites/consumer/files/competition_issues/online-retail/full%20report_e.pdf

2. KPMG. (2017, November). Outlook for e-commerce in Hong Kong. Retrieved from
https://assets.kpmg/content/dam/kpmg/cn/pdf/en/2017/11/outlook-for-e-commerce-in-hong-kong.pdf