© Maris G. Martinsons 2001, last updated in 2005
This case is based primarily on interviews with key players conducted by the author in 2000 and 2001. Data from the interviews are supplemented by information extracted from media reports.
Hong Kong-based businessman Jimmy Lai Chee-ying launched adMart in June 1999 to sell groceries over the Internet. This start-up was the cornerstone of an effort by Mr. Lai to once again demonstrate his entrepreneurial acumen by successfully diversifying into e-commerce. Back in 1981, Jimmy Lai set up a garment factory and started to sell casual clothing in Hong Kong under the brand name of Giordano. He subsequently developed the Giordano brand into a multinational company that became one of Asia’s most successful casual wear retailers. During the 1990s, Mr. Lai built a media empire by first starting Next Magazine and then challenging the crowded and conservative Chinese language newspaper market in Hong Kong with the launch of the Apply Daily tabloid. As the anchor tenant in an envisioned cybermall, adMart would be the latest venture to leverage Mr. Lai’s expertise in business development. Jimmy Lai versus the Establishment Mr. Lai was well known for being flamboyant, outspoken, and irreverent. Before and after the Tiananmen Square massacre, he had criticised Communism and taunted the Beijing government. Slogans on the t-shirts sold by his Giordano stores and editorials in his media outlets promoted democracy and ridiculed Chinese Communist Party officials. One particularly acute comment by Mr. Lai about then Premier Li Peng had stymied Giordano’s expansion plans in mainland China and eventually led Mr. Lai to sell his equity stake in the clothing retailer. More recently, his Apple Daily newspaper was blacklisted by Chinese President Jiang Zemin. This was after it had taken on the Chinese language newspaper cartel in Hong Kong and emerged as the second best-selling daily publication in the territory. With adMart, Mr. Lai initiated another battle against the Hong Kong business establishment, including two of its biggest conglomerates. Park’n Shop is part of the Hutchison Whampoa empire controlled by Hong Kong’s leading business tycoon, Li Ka-shing. Meanwhile, Wellcome (as part of Dairy Farm International Holdings) was the grocery retailing arm of Jardine Matheson, the first and foremost British trading house in Hong Kong. Together these two chain stores accounted for nearly 70 per cent of retail grocery sales in Hong Kong. The remaining market share was held by convenience stores, primarily Seven-Eleven and Circle K, and a few niche vendors. Neither Park’n Shop or Wellcome were renowned for their wide production selection or attractive prices. In contrast to the freewheeling and competitive image of the Hong Kong economy, they were commonly perceived to be operating a cosy duopoly. According to its first president, Wilson Chu Bun, adMart was to “change the way people buy groceries”. It was also widely seen as another effort by Jimmy Lai to shake up the established order, initially in Hong Kong and perhaps subsequently in other parts of Greater China. The Rise of adMart Mr. Lai invested about US$ 50 million of his personal fortune to start up adMart. By the end of 1999, the company had hired more than 1000 people, acquired more than 300 vehicles, and 1
operated 15 warehouses spread across Hong Kong. Brisk sales and positive customer feedback suggested that adMart had a bright future. However, a year later it was out of business. Over the second half of 1999, adMart rapidly ramped up its business operations. It sacrificed operating margins in order to rapidly increase revenues and gain market share. Following a distribution model that was an emerging success in Japan, customers ordered their goods online and collected them at pickup points (often convenience stores operating 24 hours per day) near their homes. This distribution model was abandoned after growing customer demand...