This case was prepared by Assistant Professor Susan H. C. Tai of The Hong Kong Polytechnic University as a basis for classroom discussion rather than to illustrate either effective or ineffective handling of an administrative or business situation. Please address all correspondence to Dr Susan Tai, Department of Business Studies, The Hong Kong Polytechnic University, Kowloon, Hong Kong, E-mail: email@example.com.
Supermarket Cyber Storm: Where adMart Went Wrong
INTRODUCTION A revolution was taking place in the grocery store industry, and was creating the potential for drastically lower food bills for Hong Kong consumers. This was the result of Mr. Jimmy Lai Chee-yings latest business venture, adMart, a directmarketing company that sold groceries and electronic products through the Internet and phone-in orders, and offered free delivery service. At stake was a slice of the market worth more than HK$55 billion (US$7 billion) a year (HK Standard, 22 August 1999). Mr. Jimmy Lai had broken into other markets in the last ten years with Giordano (a casual wear chain-store), Next Magazine (a weekly magazine), and Apple Daily (a daily newspaper). But this time, he was taking on Hong Kongs retail powerhouses, a duopoly of billionaire Mr. Li Ka-shings Hutchison Whampoa (ParkN Shop) and the colonial British conglomerate Jardine Matheson Holdings (Wellcome Supermarket). Other retailers had not been able to challenge the entrenched giants, largely because setting up brick and mortar stores was simply too expensive given Hong Kongs skyrocketing real-estate costs. Mr. Jimmy Lai figured that a virtual store would solve the problem and boasted that adMart would smash the status quo and bring price relief to local customers (Business Week, 23 October 2000). Both ParkN Shop and Wellcome took adMart seriously because of Lais proven success, and moved quickly to stifle his chances of a new business success.
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AdMart was established in early 1999, and service began six months later. The idea was to use the huge advertising muscle of Mr. Jimmy Lais Next Media Group to sell products and revolutionize the grocery market. An excellent marketing strategy such as promoting adMart goods vigorously in his Apple Daily, one of Hong Kongs two most-read newspapers, and orders could be placed by telephone, fax, or e-mail. As a result, a new brand name was developed in a short time, which forced Wellcome and ParkN Shop into a cut-throat price war. Mr. Jimmy Lai claimed that Hutchison and Jardine had warned the distributors not to sell groceries and electronics to adMart and pulled advertisements out of his Apple Daily. Although the two supermarket giants did not admit to directly competing with adMart, both acknowledged that they met adMarts challenge by boosting advertising, slashing prices, and launching their own me-too cyber stores (Business Week, 23 October 2000). The venture into cyber-shopping was never going to be smooth for adMart. The first problem was that online transactions did not live up to expectations. At their height, only 25 percent of the orders delivered were placed on the Internet, with 65 percent coming by telephone, and 10 percent by fax (SCMP.com, 13 December 2000). Not long after it opened, adMart was plagued by product and service problems. Adding to adMarts woes, suppliers stopped providing goods, because the company was selling products below prices agreed between the suppliers and other retailers. Hampered by a lack of quality products, adMart was forced to parallel import goods that offered little quality assurance, and reportedly made losses of between HK$50 and $60 million a month (Hong Kong iMail, 12 December 2000). After an 18-month period of intense competition, adMart ceased trading on 11 December 2000. A spokesman for the company explained that the minimal profit made on goods was...