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Debut of Lotus fuels shopping fever in China

 

SHANGHAI Some 250,000 frenzied Shanghai locals just could not wait for the doors to open before they stormed the Lotus Supercenter to grab discounted merchandise on Monday, the first day the wholesale giant made its debut in this bustling metropolis of 14 million people.

It was a chaotic scene as Dhanin Chearavanont, the head of the Charoen Pokphand Group, and other top Lotus executives, watched the huge army of shoppers flocking the discount store, which extends over 15,000 square metres of retail space. Minutes earlier the crowd booed under the scorching heat, calling for the grand opening ceremony to be cut short so they could get into the store.

Such a craze for discounted merchandise is a phenomena only in China, which is on its way to modernise its economy. Along the way, consumerism is also catching on. For the CP Group, it is a decisive business triumph. In Shanghai alone, which the Chinese authorities plan to turn into a major investment, financial and commercial centre, CP hopes to eventually set up six Lotus Supercentre stores, before investing in at least one a month throughout China, according to Dhanin and other CP executives.

Su Mei Fong, a housewife, was one of the hysterical shoppers at the new Lotus Supercenter, which is in the Pudong New Area. She had 1,000 yuan (Bt3,300) in her purse, hoping to buy some fresh food for her mother-in-law, shoes for her children and a T-shirt for herself. ''I have checked the prices in the Lotus brochure and found that the merchandise here is 30 per cent cheaper than what they are offering in other stores," she said. ''That's why I am here."

The CP executives expected gross sales on the first day for the new store to reach two to three million yuan. ''We have 25,000 trolleys and plan to add another 25,000 soon. We'll have 1,000 staff standing by," said Sompong Sitkorng Wong, deputy general manager. Since transactions per head are going to be small due to the low per capita income, Lotus has installed 50 cash registers.

Lotus Supercenter is a joint venture between Shanghai Vegetable Co and Ek Chor Distribution Company of the CP Group. Already CP is one of the largest foreign investors in China, with businesses ranging from agro-industry, marine products, automotive and general industries, real estate, marketing and distribution, petrochemicals, telecommunications and energy, amongst others.

Lotus is a home-grown wholesale business developed by CP, which is also operating a Makro wholesale joint venture. CP opened the first Lotus store in Thailand 1994. Over the past two and a half years it has increased the franchises to eight. An additional four are planned for 1997 alone. At Seacon Square, Lotus is making an average of Bt6 million to Bt7 million in net sales a day. This huge cashflow translates into CP's sound financial strength, allowing the group to re-invest efficiently.

Exporting Lotus to China also marks CP's efforts to revolutionise the distribution system in that market, where distribution of goods and services remains archaic and inefficient. It will be a one-stop-shopping store for Chinese families or entrepreneurs, who may want to start their mom-and-pop stores since they can buy merchandise cheaper and re-sell it at a margin.

In a country which has recently embraced the capitalist mode of production, it is not easy for local retailers to have access to suppliers through an efficient distribution system.

Lotus has a full-line grocery department, featuring fresh produce, meat, seafoods and bakery products. Lotus also carries general merchandise items, including electronics goods, appliances, office supply and automation products, domestic, houseware, hardware and sporting goods. Altogether, the store carries somewhere between 60,000 to 80,000 items, mostly domestically supplied.

The principle of the Lotus trade is simple. As a big buyer, it can negotiate with suppliers or factories at a significant discount. ''We can purchase a product from a factory at Bt10, while others have to settle for Bt12. Of this Bt10, we'll take Bt2 in profit and give the consumers or customers Bt8. That's how we all gain," said Dhanin.

Although the Chinese people's standard of living is lower than that in Thailand, with a university graduate taking home about 1,000 yuan in salary, that does not mean that they have less purchasing power. It is the critical mass that counts. ''They may be two or three times poorer than Thais, but they have a consumer base 20 times larger," said Dhanin. ''Per transaction, we may sell less, but in frequency, we end up selling more volume. So the per capita income does not really make a difference."

Retailing or wholesaling is feasible in every province of China in CP's attempt to conquer the critical mass, according to Dhanin. ''It works because the Chinese people, like Thai people, will always want items for daily use, no matter whether they are rich or poor. They have to use our items, which are cheap and durable," he said.

The CP Group is trying to avoid plunging head-long into the department store business, which caters to a more special bracket of consumers. ''Don't go into the department store business. You'll need a heavy investment; decoration with marble. It is not mass-consumer oriented," Dhanin said.

On Monday CP also signed a joint venture to invest in the Chia Tai Riverfest, a 231,650-square-metre shopping complex. The project will be handled by Shanghai Kinghill Ltd, a wholly owned subsidiary of Kinghill Ltd. CP owns a 51 per cent stake in Kinghill Ltd, incorporated in the Cayman Islands.

The project will be located in Lujiazui, Pudong, well within the inner crescent along the banks of the Huangpu River. Lujiazui is destined to become Pudong's financial and commercial centre, with new high-rises popping up in many fast-paced developments.

 

BY THANONG KHANTHONG

 

 

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