Know Your IT, Know Your Customer
By Bruce Einhorn
You might not think of the convenience-store business as very technology-intensive. But if you talked with Richard Yeung, as I did recently, you'd probably change your mind. The CEO of Hong Kong-based Convenience Retail Asia, Yeung is a leading local advocate of integrating information technology into all types of business. Such thinking has helped make CR Asia a rare example of an Asian company that is going beyond the hype of the Internet and using it as a tool to help the company make money (see BW e-biz, 10/29/01, "CR Asia").
"In tough times, everyone is looking to cut expenses," says Yeung. "But in tough times, there are certain investments that are still needed. Technology, if you spend right, is a good investment."
The Hong Kong-born Yeung, 44, has been running CR Asia, which operates 141 Circle K convenience shops in Hong Kong, since 1998. He got his start at the company thanks to his IT background. Victor Fung, the chairman of local trading giant Li & Fung, which owns 71% of CR Asia, brought Yeung in to upgrade the company's technology and improve the way it used IT to manage its hundreds of suppliers. Before he was recruited by Fung, Yeung was in charge of managing the supply chain for all of the McDonald's operations in Hong Kong, Taiwan, and China.
IT helps CR executives stay abreast of the buying habits of the 350,000 people who purchase items at Circle K's Hong Kong stores every day. "In our trade, information technology is important to the extent that it helps you better understand the customers' needs," he says. He points out that before, detailed sales statistics were only available at the end of the month. Now, thanks to IT, it's "closer to real time," he says. And because CR Asia now does most of its ordering over private networks or via the Internet, "we can summarize that information more quickly, as well."
Since joining the company, Yeung has spent about $8 million on IT, including setting up an information hub with 20 servers at corporate headquarters in suburban Shatin, in Hong Kong's New Territories. Also, at all Circle K shops, he replaced the cash registers with scanners, allowing for data mining. These IT investments have already paid off handsomely for Li & Fung and other CR Asia investors. The company has shown vastly improved results since Yeung's arrival: In 1998, it lost $3 million. But last year, it reported earnings of $6 million on sales of $150 million. And for the first half of 2001, profits jumped 29%, to $3.7 million, on a 17% increase in sales of $81 million.
The market is rewarding Yeung and his team. The company went public on Hong Kong's Nasdaq-style second board, the Growth Enterprise Market, in January. Since then, it has been one of the best-performing stocks in Hong Kong. The stock price is up about 110% since the IPO. Meanwhile, the benchmark Hang Seng index is down a dismal 35. One reason for CR Asia's rise: Convenience stores represent fairly safe investments during recessions, since people still need to buy diapers and Coca-Cola. But Yeung and his IT innovations also deserve some of the credit, says an analyst who covers the company.
CR Asia "is on top of the situation and better than its competitors," says Mohan Singh, director of research at BNP Paribas in Hong Kong, who compares the company to such rivals as Dairy Farm Intl., which holds the 7-Eleven franchise in Hong Kong and southern China's Guangdong province. Because CR Asia owns all of its Hong Kong stores, it is able "to implement things quicker [than if it were dealing with franchisees]," he adds.
What's next for Yeung? He's interested in expanding into China, especially now that the country is joining the World Trade Organization. That should allow CR Asia to operate far more freely in Guangdong, where it has the franchise for Circle K shops. But it will take a while to make any money in China, he admits, since the company will require time to achieve the critical mass needed to make CR Asia's supply-chain IT network operate smoothly.
In the meantime, he sees opportunity for more data-mining operations. For instance, he wants to start using information technology to help his sales staff identify what customers want at different shops. For instance, he can start profiling his stores based on the demographics and nationalities of the people who shop there.
This means that a Circle K store in Stanley, a sedate village on the south side of Hong Kong that attracts a lot of expatriates and tourists, sells a lot of Heineken beer and Häagen-Dazs ice cream. But those products don't fly off the shelves in Circle K shops in working-class housing estates. There, he says, customers would rather buy San Miguel beer, a Philippine brand that costs about half the price of Heineken, and the modestly priced, nonpremium Dreyer's ice cream.
IT'S IN THE DETAILS.
"Now that we have the data, we can sort through it and identify which are the fast movers," says Yeung. And if tastes suddenly change, CR Asia will be able to make the adjustments in its inventory quickly.
With Hong Kong's unemployment rate rising and the economy sinking, such use of IT will matter even more, he predicts. "It has become much tougher. We can't use a mass approach to run our business," he says. "The details will make the difference whether you make money or not."
Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BW Online
Edited by Patricia O'Connell