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Suzanne Harrison

The Carrefour Group's decision to pull out of Hong Kong is likely to strengthen the Consumer Council's campaign for a statutory investigative body to look into anti-competitive practices in the SAR economy.

The decision has revived allegations of cartel-like behaviour in the supermarket industry, although these are hotly disputed by the dominant operators.

French-based Carrefour, which will close its four Hong Kong hypermarkets on September 18, blamed its withdrawal on restrictive urban development laws and intense competition for too few retail sites.

However, a source close to the company claimed some of its competitors had used their influence with landlords to prevent Carrefour from renting the larger sites it needed to expand.

While some analysts dismissed the claim as fanciful, it reflects the siege mentality of an outsider that tried - and ultimately failed - to break into a tight-knit industry where the odds are stacked heavily in favour of established players.

Carrefour already had to contend with a price-fixing system between suppliers and leading supermarket operators that undermined its discounting strategy and could have hampered its ability to compete, industry sources said.

'We're in the process of monitoring the industry and obtaining what information we can get,' Consumer Council trade practices division head Ron Cameron said of the price-fixing claims.

'Obviously, [Carrefour's closures] are an important part of the information we are collecting.'

Whatever the reasons for its departure, Carrefour's demise serves to underline once again the supremacy of Hong Kong's supermarket duopoly: ParknShop, owned by conglomerate Hutchison Whampoa, and Wellcome, owned by the Jardines group.

The French chain's withdrawal is ironic, coming at a time when the duopoly had been shaken out of its complacency by Jimmy Lai Chee-ying's online grocery service Admart. The launch of Admart in June last year sparked a price war that is still raging.

Four years ago, it was Carrefour that tried to shake up the supermarket sector. However, the group soon ran into difficulties, falling foul of the so-called 'resale price maintenance' (RPM) system between suppliers and their large-purchase clients.

Under the RPM system, large supermarket operators and suppliers agree on minimum prices at which they will sell to consumers. The arrangement, which is designed to protect profit margins, is legal in Hong Kong, which has no competition law. Those that undercut the minimum prices can find themselves cut off by suppliers - as Carrefour did.

RPM has long been a subject of scrutiny for Hong Kong's consumer watchdogs. The Consumer Council looked at the issue in 1994 and again in 1997 after Carrefour complained. In its 1997 report, the council found evidence of the practice.

ParknShop marketing director Andrew Brent this week dismissed claims of RPM in the industry, saying the recent price war among supermarkets showed competition was rife.

He said the group had spent a lot of money on promotional information in a bid to maintain its competitive edge - something it would not have to do if there was no threat from other operators.

'Hong Kong is possibly one of the most intensely competitive [markets] anywhere in the world,' he said. 'The biggest sellers of food in Hong Kong are the wet markets and there's a number of local competitors including CRC and KK . . . they're both very active and there are a lot of smaller chains, which characterise Hong Kong.'

In response to the claims that leading operators had sought to stop Carrefour from renting new sites for their own interests, Mr Brent said: 'I don't even want to comment on it. It's just a non-story.'

He confirmed earlier this week that ParknShop was looking to lease the sites that Carrefour would leave on September 18 - as was Wellcome.

The Consumer Council is not convinced the competitive landscape is as cut and dried as ParknShop and Wellcome say. The council attempted to lobby the Government on the RPM issue in 1998 but a request to establish a competition authority which could investigate such matters was denied.

'We've been monitoring developments since then, particularly since 1998, when the Government declined the suggestion there be a competition authority,' Mr Cameron said.

What the council did was to answer critics who were arguing there was nothing wrong with RPM.

'We did write to ParknShop and Wellcome about the allegations . . . their response was that they don't put pressure on their suppliers,' he said.

He said the main players could argue they faced competition from wet markets (on the fresh food level) and countless road-front stores selling the same products as large supermarkets.

But others see Carrefour's imminent departure as evidence that the supermarket duopoly is alive and well.

'They [Carrefour] came in here with the great idea that people would like the price. But they didn't realise there was a cartel here,' a Hong Kong-based consumer analyst said.

'They can dictate terms. They can dictate whether they get the same prices [as] smaller customers. They could tell some large supplier not to sell to Carrefour at lower prices than they are getting.

'They [the incumbents] have a lot of influence on the suppliers. That's the way this economy was built . . . how do you change it?' the analyst said. 'If you anger Li Ka-shing [who owns ParknShop through Hutchison], he's not going to deal with you.'

While no one is really sure just how much market share ParknShop and Wellcome have, the analyst said he believed it was about 70 per cent, with ParknShop the market leader at 38 per cent and Wellcome at about 32 per cent.

Conspiracy theories aside, it is clear the Hong Kong retail market remains a tough nut to crack.

Some analysts said even if it had managed to expand, Carrefour's business model - with its warehouse-size retail outlets - was unsuited to the SAR market, where supermarket shoppers are unwilling to go far afield.

The group may have 5,246 integrated stores on three continents but like another successful international operator, the giant US retailer Wal-Mart, it found Hong Kong a market too far.

With Admart struggling, the departure of Carrefour can serve only to reduce competition and reinforce the dominance of the two market leaders. Consumers are likely to be the ultimate losers.



Stacking up the odds