Wednesday, August 6, 2008

Why Wet Markets Lose Out to Hypermarkets?

Reasons why wet markets are losing out to hypermarkets:

(1) Economies of scale. Hypermarkets often purchase goods in huge bulk. As such they are in a better position to negotiate for discounts from their suppliers. This in turn translates to cheaper costs of production which can be passed on to the consumers in the form of lower price. Traders in wet market do not order in bulks, or else it will mean sizable stocks left at stall at end of day

(2) Rise in transportation cost. Increase in oil price hurt small traders more than hypermarkets. For e.g. additional RM 30 a day is insignificant to hypermarts’ total operating costs but to small traders, that amount is a lot for a day. Both (1) & (2) explain why they must increase the price of food e.g. vegetables, poultry, fish etc to remain profitable. But by doing so, they lose large number of the customers. This explains that demand for their goods is elastic & hypermarket is a strong substitute to wet market

(3) Promotion. Hypermarkets have creative ways to attract customers & maintain customers’ loyalty. For instance:
(i) Tesco Clubcard which allows customers collect points on their daily purchases for vouchers in return
(ii) Giant has collaborated with Citibank to give card members who shop at its stores a 2% rebate on purchase
(iii)Jusco has its JCard which offers discounts to card members on certain products weekly

(4) Availability of price tag. Most people feel uneasy by having to bargain & haggle over prices. Some are worried of being shortchanged or cheated by unscrupulous traders. In hypermarkets, all the prices & the weights of the products are clearly stated & there is no need for bargaining or arguing over the price

(5) Ability to mark down prices at end of day. Some stores e.g. Giant & Jusco would mark down the prices for fish, vegetables, fruits or even bakery items normally 1-2 hours before closing down. Wet traders are unlikely to give such offer as it means giving out of their wallets. Most of them will choose to operate longer hours to in an attempt to sell off everything

(6) Choice. Hypermarkets offer wide range of choice ranging from local fresh food produce to imported frozen foodstuff. Besides, customers have option to shop for other goods at other sections if they want to. Everything is available under one roof

(7) Freshness. Hypermarkets have more proper techniques to preserve the freshness of the food. Stocks are brought daily at 6am to the stores where it is transported straight to the cold room to preserve its freshness. Also the cold chain is not broken as fresh produce are always placed at the right temperature

(8) Comfortable. Consumers, especially modern housewives prefer to shop in an air conditioned & clean environment instead of getting their feet dirtied by the stinking wet walkways. Besides, strong stench from poultry & fish sections is a huge turn-off

(9) Parking facilities. Hypermarts like Giant, Carrefour & Tesco provide their customers with free parking space. For those who frequent the wet markets (in some areas), more often than not have to pay parking charges to local councils

If prices of goods are so cheap, how hypermarkets make profit?

Through large quantities. Let me illustrate:

Total Revenue = PQ = RM10 x 50 = RM 500, but if each item is sold at RM5 then (fall in price leads to increase in demand)

Total Revenue = PQ = RM 5 x 100 = RM 500

Are hypermarkets really that good?

(1) YES, but only to customers. Their existence somehow helps to mitigate the impact of rising inflation by offering cheap goods

(2) NO to wet market traders, grocery stores & suppliers. Small businesses such as corner shops or even wet traders may be forced out of business very soon. On the other hand, suppliers e.g. farmers may be consistently pressed to supply at a low price to these super stores given that they are large-time purchasers (monopsony power). These two scenarios are very common in UK. There the market is dominated by Tesco, ASDA, Sainburys & Morrisons

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