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A MEMBER OF

THE UNIVERSITY OF HONG KONG GROUP


AILIE TANG
W H LO

AGAINST ALL ODDS: THE MARKETING PS OF


759 STORES
759 Stores (759) were born in 2010 when Lam Wai Chuns (Lam) manufacturing
business was in trouble and he wanted to warn his staff about possible redundancy. He also
wanted to enrich their credentials by offering them exposure in retail business. He accepted
his staffs idea of opening a small tuck shop in a local shopping mall in August 2010. A few
more shops quickly followed. He later named these shops 759 (1). In five years, 759
grew from a small shop to a chain of 249 outlets selling over 30,000 products (2). Its revenue
had grown from nothing to over HK$2.1 billion [see Exhibits 1 and 2 on shop and revenue
growth of 759]. Obviously, Lam had found a successful formula to overcome all the odds
challenging 759s survival, such as local-supplier boycotts, high rental and operating costs,
and a Hong Kong taboo on independent pricing. Important aspects of Lams solution were
reflected in 759s marketing mix.
Positioning
Lam called his core consumer targets kai-fong the local mass-neighborhood residents of
Hong Kong. He had the everyday shopping wallets of these kai-fongs in mind when he set up
759s supermarket-style operation. This laid the foundation for its logical merchandise mix:
expansion from snacks to other daily necessities, such as personal care and food and beverage
items, once the chain managed to get a foothold in Hong Kongs retail scene. To compete
against the wide product varieties of the two major supermarket chains (Parkn Shop and
Wellcome) and the convenience offered by the two neighborhood convenience store chains
(7-11 and Circle K), 759 sought to provide kai-fongs with an alternative and unique choice
(3) of a wide variety of products imported from as many as 63 countries (4) sold under the
principle of lower margin with high turnover (5). As the retail chain grew, the size of shops
expanded, with a view to putting 759s wide product range under one roof and offering kaifongs a more leisurely shopping environment.
Products
759s successful product strategy was the result of local-supplier boycotts in 2010. At that
time, 759 had only a few stores, and suppliers tended not to service them well.

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Ref. 15/008CS Published: 12 October 2015

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Against All Odds: The Marketing Ps of 759 Stores

(Ref.: 15/008CS)

The industry also had a tight grip on the retail prices of different resellers, keeping them
within a narrow range. When 759 tried independent pricing, the suppliers boycotted the chain.
Lam managed to defy the odds by successfully got support from a major Japanese supplier,
who assembled a container-load of mixed snacks in Japan at unit costs lower than the
wholesale cost of similar products in Hong Kong. Since then, parallel import mode in
container loads (6) became 759s merchandising approach. To reap the full benefits of this
approach, Lam adopted an unprecedented expansion rate, and, in five years, he grew the
number shops from zero to 249 (7). He also expanded the number of countries from which he
sourced his stock from one, Japan, to 63 [see Exhibit 3 for more details]. Lam preferred
sourcing from countries and regions, such as Japan and Europe, where supplies were
consistent and high-quality. Over the years, 759expanded its variety of imported products
from snacks to cereals, oil, and other foodstuffs, as well as non-food items such as household
and personal care products [see Exhibit 4]. The chain targeted increasing the non-snack
foodstuff share of revenue from 36.5% to 38%, and that of non-food items from 9.2% to 26%.
(8)
It is worth noting that Lam redeployed his manufacturing staff as merchandisers. In order to
compensate for their lack of experience, he took advantage of 759s operating scale by
importing minimal container-loads of new products to test consumer response, which then
became the key consideration in replenishment. The merchandisers manufacturing
background came in handy when 759 rolled out its branded products, a process that allowed
them to use their networks and experience in manufacturing-sourcing. According to 759, its
own branded products were among the chains top 500 best-selling items.
Pricing
759 made a decision to keep its profit margin to around 3% for three major reasons. Firstly,
this was the industry norm, that is, market leaders had similar margin percentages. So
consumers tended to regard this margin as reasonable. Secondly, the delta between cost and
margin represented the capacity that 759 had to strengthen the other aspects of its marketing
mix, including offering higher salaries to attract and retain employees, and more frequent
discount promotions to achieve high turnover rates. Thirdly, low margins were a barrier to
entry, as it would be hard for newcomers to survive on such low margins without 759s
purchasing power. This would also deter competitors from initiating of price wars..
759 deployed an IT system instead of human intelligence in its pricing. Products were divided
into five different categories: marked price (), fixed price (), kai-fong price
(), hot-selling price () and bargain price (). Each category had a
fixed gross margin. New products were assigned to a single product category by Lam and his
merchandisers. Then the IT system set the price according to cost.
Promotions & Packaging
According to 759, around 480,000 customers shopped with store-cards more than once a
week, and about 1,150,000 customers shopped with store-cards once or more in every 4
weeks (9). The figure suggested that at least 20% of Hong Kongs population had a 759 store
card. These cards were distributed almost for free by 759, which saw them as promotion
leaflets that would stay in consumers wallets. The large number of cardholders, coupled with
low parallel-import costs, allowed 759 frequently and successfully to deploy straight-forward
discount promotions. In terms of joint-promotions with third-parties, Lam adopted only
mechanisms that would directly benefit customers. 759sbest-received joint promotions
involved offers of subsidized product discounts by payment-solutions providers. This simple
and direct approach allowed for speed and reduced administrative issues for all parties
involved in such promotions. Similar principles applied to how 759 managed its packaging.

CENTENNIAL COLLEGE

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The fact that 759 had only one graphic designer for its 249 shops reflected the chains nofrills approach to packaging costs.
Place
Good retail locations are a suppliers market. Placement decisions involve consideration of
customer traffic, which property developers were key in determining. Since some prominent
Hong Kong developers already had retail grocery chains as tenants, 759 had difficulty
penetrating certain desirable shopping malls.
Over the years, Lam attempted to gain support from large property developers and major
property agents. One of his focuses was finding retail spaces for larger shops, as revenue and
shop size were positively related. Larger shops allowed 759 to place all its products under one
roof, which was key to higher revenue. 759 believed that customers would prefer to shop for
their personal and household needs at larger 759 stores. Presently, only 40% of 759 stores
were larger than 1,500 square feet. Lam wanted to bring the percentage to 65%.
The high rental environment in Hong Kong meant 759 had to exercise stringent controls on
placement costs. Any location that failed to reach a minimum rent-to-turnover ratio would not
have its lease renewed. Lam also personally kept a close eye on the logistics costs of goods
delivery, containing them to within 3% of turnover.
People
Consistent with his other marketing strategies, Lam followed a no-frills approach in managing
human resources. He did not spend much in customer-service training. Instead, he paid his
staff handsomely to incentivize results. For example, front-line staff was paid around
HK$16,000 a month in fiscal year 2014-15, at least 20% higher than market rates. (10) This
approach seemed to be working:

759 surprised the industry in June 2015 when customers voted it an excellent customer
service award in the supermarket/convenience store category (11)
759 did not have a customer service department most customer queries and complaints
were answered and handled by front-line staff and their supervisors
759s turnover rate stayed at a mere 10% of staff who had passed probation

Almost all staff regarded themselves as directly reporting to Lam, and Lam saw things the
same way. With 759 expanding at an extremely rapid pace while facing local-suppliers
boycotts, a team without much retail experience, and operating costs increasing every year,
stakes were high and the margin for error was low. Lams approach enabled him to oversee
all the details of 759s operations, keeping him in the drivers seat, and enabling him to make
accurate decisions.
The Road Ahead
Entering its sixth year of operations, 759 launched an online store on August 8, 2015. Despite
expected high logistics costs, Lam stated that the online store, like its brick-and-mortar
counterparts, had to break even in order to survive. In addition to expanding to online retail,
759 was planning to begin wholesaling its best-selling products to small Hong Kong retailers.

CENTENNIAL COLLEGE

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Notes:
(1) In a radio program, Lam recounted that he named his shops 759 before meeting
with one of the top ten Japanese suppliers, so that the supplier would know instantly what
business and target customers the shops aimed for. RTHK News Archive (2 August 2015)
A Conversation with CEO, RTHK Channel 1, www.759Store.com,
http://www.759store.com/video2.php (accessed 10 August 2015).
(2) CEC International Holdings Limited (30 July 2015) 2014-2015 Annual Results
Announcement,
http://www.0759.com/doc/art/announce/2015073001/201507300001.pdf (accessed 10
August 2015).
(3) Ibid.
(4) Ibid.
(5) The group first used the description lower margin and high turnover as its principal
strategy on page7 of its 2011-12 annual report. CEC International Holdings Limited (27
August 2012) 2011-2012 Annual Report, CEC International Holdings Limited,
http://www.0759.com/CECWEB/FinancialReport.aspx?lang=en (accessed 10 August
2015).
(6) CEC International Holdings Limited (30 July 2015) 2014-2015 Annual Results
Announcement, p. 16,
http://www.0759.com/doc/art/announce/2015073001/201507300001.pdf. (accessed 10
August 2015).
(7) Ibid.
(8) Ibid.
(9) Ibid, the quote was from p.23. CEC International Holdings Limited (30 July 2015)
2014-2015 Annual Results Announcement, p. 23,
http://www.0759.com/doc/art/announce/2015073001/201507300001.pdf. (accessed 10
August 2015).
(10) Next Magazine: (18 June 2015) , Next Magazine, 759store.com,
http://www.759store.com/video2.php (accessed 10 August 2015).
(11) Ibid. 759 STORE was awarded the excellent customer service award
(supermarket/convenience store category) by Next Magazine in June 2015.

CENTENNIAL COLLEGE

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EXHIBIT 1: 759 RETAIL REVENUE 2011-2015*

HK$'000
Revenue
Operating Profit

2015

2014

2013

2012

2011

2,133,805
68,637

1,442,981
51,157

812,150
11,617

241,158
3,101

16,661
-3,748

* Refers to financial year ending 30 April 2011 to financial year ending 30 April 2015

Source: Investor Information (n.d.) Announcement and Financial Report, CEC


International Holdings Limited, http://www.0759.com/CECWEB/investorinfo.aspx?lang=en
(accessed 10 August 2015).

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EXHIBIT 2: GROWTH OF 759 STORE: NUMBER OF SHOPS AND FLOOR AREA

2015
No. of shops
Total Floor Area (sq. ft.)
Average Floor Area Per Shop (sq. ft.)

2014
249

2013
192

2012
134

2011
71

431,000

271,000

146,000

57,000

N.A.

1,733

1,411

1,090

803

N.A.

Source: Investor Information (n.d.) Announcement and Financial Report, CEC


International Holdings Limited, http://www.0759.com/CECWEB/investorinfo.aspx?lang=en
(accessed 10 August 2015).

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EXHIBIT 3: 759 PRODUCT MIX - COUNTRY OF ORIGIN

Source: Announcement (30 July 2015) 2014-2015 Annual Results Announcement, CEC
International Holdings Limited,
http://www.0759.com/doc/art/announce/2015073001/201507300001.pdf (accessed 10 August 2015).

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EXHIBIT 4: 759 PRODUCT MIX - PRODUCT CATEGORY

Source: Announcement (30 July 2015) 2014-2015 Annual Results Announcement, CEC
International Holdings Limited,
http://www.0759.com/doc/art/announce/2015073001/201507300001.pdf (accessed 10 August 2015).

CENTENNIAL COLLEGE

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