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Peggy Sito

Sandy Li

Supermarket giants and restaurant chains are getting ready to grab a slice of the wholesale rice market after the government deregulated the sector this month.

The government removed all restrictions covering import quantities and the number of importers and wholesalers.

As a result, the number of licensed rice importers has jumped to 78 from 42, according to the Trade and Industry Department.

Among them are Hong Kong's largest supermarket operator ParknShop and leading Chinese restaurant operator Maxim's.

Wellcome and China Resources Supermarket said they were investigating the market potential.

'The deregulation undoubtedly attracts more retailers to join the fray as they want to explore business opportunities,' said Laurent Lam Kwing-chee, executive director of Hong Kong's largest rice wholesaler and distributor Golden Resources Development International.

'With HK$300 million cash on hand, we have sufficient money to fight the battle,' he said.

Golden Resources controls about 50 per cent of the retail rice market with its brands Golden Elephant, Kangaroo, Golden Boat and Cherry Blossom Castle.

The company has been importing and wholesaling rice since 1955, when the control system - aimed at ensuring a regular supply to Hong Kong - was introduced.

Analysts believe importers and wholesalers' businesses will be hit by the intrusion of the supermarket and restaurant giants - once key clients of Golden Resources and other importers.

Investors share the same bearish view. Golden Resources closed at 26.5 HK cents on Friday, down 30 per cent from the beginning of last month as investors worried about its business outlook.

Some rice importers said the worst was yet to come, and the big chain-store operators might eventually dominate the market.

They said their moves into the rice field would add pressure on the small players, similar to what happened in the pork trade.

In April, ParknShop cut pork prices by HK$5 to HK$19 per catty after buying directly from an importer. Wellcome followed suit, provoking an uproar among meat traders who complained about unfair competition.

A similar strategy was adopted in the rice market when ParknShop slashed prices by up to 50 per cent on December 31, a day before the quota system ended.

ParknShop, Maxim's and China Resources Supermarket are insisting they have no plans to dominate the rice sector. They said their moves aimed to tighten controls on supply systems, which result in a reduction in expenses previously charged by importers and wholesalers.

ParknShop trading and marketing director Tim Chalk said the chain had joined the rice-importing market to get close to growers, and to enable it to control quality, packaging and logistics.

'[This is] so we can provide our customers [with] better quality at lower prices,' he said.

Mr Chalk said ParknShop was now directly importing rice under its own brands - ParknShop and Best Buy. He said the sale of its brands accounted for only a tiny share of the rice market, and it was not big enough to dominate the sector. There were plenty of other big brands such as Golden Elephant, he said.

China Resources Supermarket (Hong Kong) director and deputy general manager Raymond Chan said rice trading was a complicated business.

Importers should bear the risk of a fluctuating global rice price, and capital investment in rice processing was large, said Mr Chan.

He said the supermarket would directly import packaged rice from overseas if it decided to join the fray.

Analysts said the saturated rice market might not be attractive enough to encourage supermarket operators to fork out sizeable investments.

Rice consumption in Hong Kong has declined over the past 20 years as substitutes such as noodles and western meals have increased and the population has grown more affluent.

In 2001, Hong Kong consumed 49kg of rice per head, a drop of 18kg a head in 20 years.

LiberResearch analyst Joe Lau said rice prices would drop with liberalisation of the sector.

He said the impact on Golden Resources' status was minimal, taking into account its large scale of business and the popularity of its established brands.

Mr Lam said imported raw rice went through more than 10 processes before it appeared as a quality product on supermarket shelves. To maintain quality, the company had invested millions of dollars in upgrading processing plants in the past few years.

Some analysts said the recent decline in rice prices was overdone, and was a tactic by supermarket operators aimed at drawing customers to their stores.

Graphic: rice20gbz



Rice deregulation opens door for competition