Stories behind top Asian brands

The story of A.S. Watson: from a Hong Kong pharmacy to world’s largest health and beauty group

  • The first A.S. Watson dispensary opened more than 175 years ago in Hong Kong, making it the city’s oldest business
  • Today it has 14,400 stores in 24 markets and annual revenue of over US$19 billion
PUBLISHED : Saturday, 27 October, 2018, 3:04pm
UPDATED : Monday, 29 October, 2018, 10:17am

In 1858, a British pharmacist was given a job as manager of the Hong Kong Dispensary, a pharmacy that had already been in business for 30 years.

Thirteen years later, the company took his name. It was the launch pad for what would become a retail behemoth ubiquitous in Hong Kong and, as time went on, overseas. The pharmacist’s name was Alexander Skirving Watson.

Why Hong Kong’s bars were the Europeans’ domain

That single Hong Kong dispensary has taken over the world. A.S. Watson is not only the oldest retailer still operating in Hong Kong, it’s also the world’s largest health and beauty retail group, with the biggest portfolio of retail formats and retail brands, and the greatest geographical presence.

It has more than 14,400 stores in 24 markets, serving more than 28 million customers a week, generating global annual revenue in excess of US$19 billion, and employing more than 140,000 people, including 12,900 in Hong Kong.

As well as the Watsons health and beauty business, in Hong Kong it owns brands including Watsons Water, Watson’s Wine Cellar, supermarkets ParknShop, Taste and Great, and electronics and appliances retailer Fortress; overseas, it owns retail health and beauty brands in numerous countries.

However, its beginnings were not particularly grand. A single A.S. Watson & Co store opened in 1841, a year before China formally ceded Hong Kong to the British.

The company had been founded in 1828 as the Canton Dispensary and Soda Water Establishment in what is now Guangzhou in southern China, but A.S. Watson has very little documentation of its early years – not much more than a photo of a plaque on a building – and so excludes it from the official history. A.S. Watson celebrated its 175th anniversary in 2016, marking the 175 years since it moved its business to Hong Kong.

The company started to manufacture its own branded products by 1862, and possibly earlier – it still has medicine packaging from that year with the A.S. Watson name on it. A pivotal early point was the arrival of Watson himself, and the rebranding in his name in 1871.

Another key discovery in the early history of the company, says its chief operating officer, Malina Ngai, “was when we found out the company became, in 1869, the official chemist of the governor” and of the Duke of Edinburgh, the latter presumably on a purely nominal basis.

The company’s first stab at territorial expansion came not much later: it started business in China and the Philippines in 1883, and had established a factory in Manila in 1884. It withdrew from those markets in 1910.

Seven years earlier it had also started to expand its business beyond pharmacies, with the launch of Watsons Water. “Water and health are really quite related,” Ngai says. “Water quality then was not reliable. The best way of treating patients was to provide clean water for them. It also created a market – at that time no one was paying for water.”

The second world war was a predictably difficult time for the company, as it was for every business in Hong Kong, but afterwards A.S. Watson began expanding gradually. ParknShop was launched in 1972 and Fortress in 1990. Moving into a business not entirely complementary to its health and beauty arm, Watson’s Wine Cellar followed in 1998.

“We’re always looking for opportunities,” Ngai says. “People in Hong Kong were starting to enjoy their lives a bit more. Again we introduced that product category into Hong Kong.”

The biggest change for the company came when it was bought by Hutchison Whampoa, which acquired a controlling interest in 1963 and outright ownership in 1981. These days it is majority owned by successor company CK Hutchison, and since 2014 Singapore government investment company Temasek Holdings has held a 24.95 per cent shareholding.

Bad pharma: when Hong Kong was hub of antibiotic smuggling

“The key milestone was when Hutchison Whampoa took over,” Ngai says. Before that time, she says, “The company had tried a lot of retail businesses, and ice cream [with the brand Mountain Cream], lingerie, restaurants. It was like an entrepreneur, trying out all sorts of opportunities. Hutchison took it outside Hong Kong. It could supply it with a lot more cash, and leverage its international network.”

That international expansion has come at an increasingly frantic pace over the past three decades.

Watson’s pharmacies moved into Taiwan in 1987, Macau and Singapore in 1988, back into China in 1989, to Malaysia in 1994, Thailand in 1996 and the UK in 2000. The company acquired Swiss international wine wholesaler and distributor Badaracco 2001, the Netherlands-based Kruidvat Group (owner of the brands Superdrug, Trekpleister, Rossmann and ICI Paris XL) in 2002, and further companies in the Baltics, Malaysia, Germany, Turkey, South Korea, Russia, Indonesia and Ukraine between 2004 and 2006.

These days, the company’s biggest markets outside Hong Kong are China, the UK, Germany and the Netherlands. The company opens a new store approximately every seven hours, and aims to launch 1,300 this year alone.

Expanding so fast, of course, comes with challenges. Globally the company carries more than 100,000 products, with about 8,000 in a typical Watsons store. Ngai says the health and beauty market in every country is different, so while the company’s business model might not change, its product mix is different everywhere.

“We believe the health and beauty business has to be localised; each market has different needs. Watsons is an international brand and we do bring international products, but the assortment is very localised.”

Rare images of 19th-century Hong Kong from Chinese photographer

That product mix also changes with time (as a 1911 poster in Watson House makes clear, for example, a century ago worm tablets were one of its bestsellers).

“In the past it was a little bit like a mini department store,” Ngai says. “We had a lot of general merchandise. At one point we were even selling badminton racquets and toasters. When consumer behaviour and the retail landscape changed, we became more specialised.”

These days, the company is based in Watson House, on an industrial estate in Fo Tan, in the New Territories. Five floors of the building are a ParknShop warehouse, but both the main lobby and the executive floor are festooned with antique medicine jars (including a couple labelled “Opium”), antique posters and decorative scrolls sent to thank Watson from luminaries such as statesman and military leader Zuo Zongtang – all of which serve to transport the visitor back to the company’s 19th century origins.

The company is also responding to customers’ desire for what Ngai calls “more niche, independent” brands in its product mix, and has people scouring social media for recommendations.

A.S. Watson has been focused on charitable endeavours since long before corporate social responsibility became a thing. In the 1870s it set up a scholarship for Hong Kong medical students, and one of the aspiring medics who benefited was founder of the Chinese republic founder Sun Yat-sen.

“At the time, Watson was such a visionary, sponsoring the scholarships,” Ngai says. “He was committed to health. Sun Yat-sen is really a special part of our history.”

Tug of war over China’s founding father Sun Yat-sen

In line with its commitment to health, A.S. Watson today sponsors a range of sporting activities, particularly athletics. Ngai herself is a former athlete who represented Hong Kong in the heptathlon for five years in the 1980s, broke the Hong Kong discus record five times, then became a member of the Hong Kong rowing team for three years in the 1990s, winning a medal at the Asian Games. She joined Hutchison Whampoa in 2000 and A.S. Watson a year later, becoming chief operating officer in 2014.

The retail business, like many, is increasingly technologically driven, and A.S. Watson has recently expanded into artificial intelligence and big data. A lot of this is about managing its own processes, but it is also working on consumer-facing applications such as a virtual make-up mirror that allows users to test cosmetics without ever wearing them.

One vision of its future is a recently launched 26,000 sq ft concept store in the Cheung Kong Centre in Hong Kong’s Central district. Divided into four branded sections featuring food, health and beauty products, technology, and wine, it is tricked out with everything from augmented reality technology to an e-sports gaming area.

“We’ve started to put a lot more digital initiatives into our business model since 2012,” Ngai says. “It will become even more because customers are less patient now. Sometimes they want to talk to you at midnight, and that’s not possible if we don’t have the technology.”

She says A.S. Watson himself, if he were alive, would probably be confused by all the technology. But, she adds: “I think he would be really proud, and also fascinated to know that the company under his name has 140,000 colleagues working with the same vision in mind. We are one of the very few companies that has accompanied Hong Kong throughout its history. And vice versa – Hong Kong has accompanied us.”