Convenience Stores Continue Break-neck Expansion in Taiwan

In the first quarter this year Taiwan' s five major convenience store chains added 275 new outlets. President 7-Eleven alone set up 153 new outlets--28.6% more than the 122 new stores it opened during the same period of last year—making it a growing threat to its rivals in the market.

Major retail stores were hurt by the cash- and credit-card debt problem in the first quarter of the year, but convenience stores, which focus on cash transactions, managed to chalk up exceptional performance. President 7-Eleven, the champion in the field, saw its sales grow 14.57% in the three-month period, thanks largely to its new outlets.

Hsieh Lien-tang, head of President 7-Eleven' s franchise department, reports that his chain implemented a number of new franchise measures in the fourth quarter of last year, whose effects began to show up in the first quarter. This year the chain will follow up with the provision of new strategic subsidies for franchise stores in the greater Taipei area along with new welfare measures for all franchise-store owners, including subsidies for travel and the purchase of autos.

President 7-Eleven also launched a ''Hello Kitty'' marketing campaign last year, helping it to achieve a record performance in both revenues and profits—and boosting the confidence of franchise operators in the effectiveness of the company' s marketing strategy. This year, President will continue to carry the ''Hello Kitty'' campaign in various guises, along with other promotional activities.

As of April 26 President 7-Eleven had a total of 4,179 outlets, 82% of which were franchise stores. The company aims to heighten the ratio of franchise stores to 85% to 90%.

The Hi Life and OK convenience store chains added 46 and 31 new outlets in the first quarter, respectively. Hi Life once concentrated the opening of new outlets in the second half of every year, but now is opening outlets in the first half as well. The OK chain too is busily opening new outlets in the first half. This year it lowered its franchise fee to NT$50,000 (US$1,570 at US$1=NT$32), and the number of participants in its franchise presentations has increased to an average of 40, up from 15 previously.

FamilyMart, the second-largest convenience chain in Taiwan, appears to be suffering from President 7-Eleven' s aggressive expansion. FamilyMart opened only 33 new outlets in the first quarter, less than Hi Life and about the same as OK.

FamilyMart officials explain that their strategy this year is to strengthen the operation of existing outlets and select good locations for new stores. The chain expects to open 150 new outlets this year.

Net Increase in Outlets of Five Major Convenience Stores in Q1, 2006
Chain	Q1 Increase	Total
President 7-Eleven	153	4,179
FamilyMart	33	1,897
Hi Life	46	1,206
OK	31	900
Nikomart	8	365
Source: the convenience chains

In related news, on April 26 the Taiwan Chain Stores and Franchise Association announced the results of a census of Taiwan franchise chains in 2005. According to the census, Taiwan had a total of 1,124 retail chains last year; this was an increase of 30.85% over 2004' s 859, due mainly to a rapid increase in common retailing and daily-life service chains.

Common retail businesses include foodstuffs, fashions and apparel, drugs/cosmetics, home repair, and sci-tech products. The average number of outlets in each common retail chain rose to 42 in 2005, up from 38.3 the year before. Hung Ya-lin, secretary general of the Association, notes that organic food and drugs/cosmetics chain stores did especially well last year.

The daily-life service category includes entertainment and leisure, home services, beauty and hair care, cram schools, and auto services. The number of cram-school outlets shot up 62.6% in 2005, the fastest growth in the category. Hung Ya-lin explains that this booming expansion resulted from the demands of the times, with digital learning and language education enjoying the most vigorous development.

Chen Ping-san, chairman of the Joy Enterprises Organization, reports that the number of foreign-language cram schools in Taiwan has increased from 991 to nearly 30,000 over the past decade. Aided by economies of scale, branded chain-store operations enjoy lower management and marketing costs, creating a situation in which ''the big get bigger.''

The pet business has been included in the daily-life services category for the first time this year. There are currently 11 pet chains on the island, with a total of 225 outlets. Chen Pai-chung, vice chairman of the Tsuai Animal Hospital, which has 11 outlets, says that a combination pet medicine and pet products store requires an area of at least 200 ping (one ping equals 36 square feet) and costs an investment of more than NT$10 million (US$310,000). Therefore, most outlets of this category are directly owned by the operators, with franchise stores accounting for a relatively small percentage of the total.

Number of Chain Stores in Taiwan, 2005
Items	General Retailing	Common Retailing	Dining Services	Daily-Life Services
Number of Chains	92	397	279	356
Number of Outlets	9,821	16,656	22,827	25,020
Directly Managed Outlets	2,962	11,095	3,036	6,126
Franchise Outlets	6,859	5,561	19,791	18,894
Growth of Outlets	6.1%	40.6%	7.8%	22.8%
Source: Taiwan Chain Stores and Franchise Association