Wet markets are in danger of gradual decline which could have serious implications to consumers in the competitive choices of foodstuffs and household necessities in general and fresh produce in particular.
This concern was raised by the Consumer Council in a report of a most comprehensive in-depth study undertaken on the state of competition in the foodstuffs and household necessities retailing sector in Hong Kong.
In the report, the Council drew attention to the fact that while a Council's survey in 2001 showed that nearly 70% of consumers indicated preference to purchase fresh produce from wet markets, there are now indications of a gradual decline in consumer patronage due to concerns on the comfort and hygiene of the shopping environment and also the 'one-stop shopping' by the big supermarket chains into wet market type trading.
Statistics available have indicated that the two major supermarket chains - the ParknShop and Wellcome - have grown 29% by number of retail outlets from 1993 to 2003, with a corresponding substantial decline of small supermarket operators by some 35% in the five years from 1996 to 2000.
The two supermarket chains together command over 70% of the market share in turnover in the relevant market.
Since 1994, when the Council first conducted an indepth study of the supermarket sector, consumers have witnessed significant developments by the two major chains, notably, the emergence of superstores and expansion into the wet market segment as well as entry and subsequent exit of new supermarket contenders.
The Council emphasized that Hong Kong will benefit from a vibrant food retailing market with multiple operators and where competitive choices are available.
Many of Hong Kong's wet markets are publicly owned and maintained by the Housing Department and the Food and Environmental Hygiene Department. While dislocation of unskilled workforce consequential to a shrinking wet market sector is not a consumer issue, the decline of the wet market industry will affect consumer interest in product choice, price and quality.
The Council has put forward the view that there is a strong case for Government to take proactive action in order to minimise the economic impact of the decline of wet markets through re-engineering of the wet market sector and re-training of the workforce.
The Council also called on wet market operators to be on alert to the threat of their continued survival and their responsibility to understand the need to make a paradigm shift in the way they operate to improve their competitiveness - for instance, wet markets need not always be so wet as to deter consumer patronage.
The study focused on four areas of concern in the food retailing sector that the Council believes should be addressed:
- Improving the efficiency of the Hong Kong food retailing sector.
- Ensuring diversity, while maintaining traditional strengths, in fresh produce retailing.
- Maintaining a level playing field, responsive to the needs of all competitors.
- Ensuring that consumers can have trust in the marketplace.
First, to improve efficiency of the food retailing sector, Hong Kong can follow the lead of other jurisdictions in providing targeted assistance to revitalize public wet markets. It is to be emphasised that the Council is not calling for direct subsidy.
In the report is cited a number of examples of success in advanced economies where the report notes there is a trend to target assistance to small and medium enterprises (SMEs) rather than leaving them entirely to their own devices when faced with substantial market power held by other larger competitors.
Second, to ensure diversity, the Government is urged to perform a facilitation role to revitalize the market.
The Council has suggested some options that include: the sale of Government own wet-market properties, the establishment of wet market co-operatives and the creation of wet market development corporation to oversee the transfer of Government wet markets to the private sector. The Government may consider running a pilot project for one or two of these options.
Third, to maintain a level playing field, the Council's first preference is for a competition authority to assess the allegations in accordance with a general competition law that covers the whole economy.
However, given the Government's sector specific approach, and preference for self regulation, one alternative option is for the sector itself to create a mechanism for handling competition complaints, along the lines suggested by the Hong Kong General Chamber of Commerce.
Fourth, to ensure consumer trust in marketplace, the Council supports enforcement actions by government departments to prohibit misleading or untruthful descriptions of food products particularly regarding 'fresh' meat representations as well as industry initiatives to use corporate goodwill such as brand franchising.
On the issue of market dominance by the two largest supermarket chains, the Council stressed that it is not its intention to penalize success in the supermarket sector, but noted that in countries where there are competition authorities, the level of market concentration of the two chains (having regard to a number of variables, such as the number of outlets and share of brandnames) would have reached the threshold that warrants further attention should any mergers or acquisitions occur in the sector.
The Council points out that market share alone is not by itself indicative of market power; the conduct of market participants, particularly pricing behavior, is also pertinent.
The Council's price surveys have indicated that for a basket of products, there had been increases in retail prices in certain time periods despite the general downturn in the economy.
In the most recent Council's price survey, the average list prices of a selected basket of goods went up by 1.5% during the first half of 2003 compared with the same period of 2002. Taking discount prices into account a decrease of 0.8% was recorded. One supermarket suggested that consumers will benefit more from the use of coupons and multi-pack promotional items.
The Council also notes that the major supermarket chains and other well established retailers acted as a stablizing force in the market, offering face masks at prices substantially lower than the exploiting traders during the SARS epidemic.
Over the past years, the Council has had representations made to it from businesses alleging anti-competitive conduct in the foodstuffs and household necessities retailing sector.
The allegations concerned: refusals to supply due to the inducement of resale price maintenance, collusive pricing, and misleading and deceptive conduct to obtain unfair competitive advantage.
Nevertheless, the Council is not a competition authority with powers of investigation, it is therefore unable to establish beyond doubt the veracity of the allegations. This is why the Council proposes for the enactment of a general competition law and industry self-regulation.
The Council's package of recommendations and options in the report are intended to stimulate further public debate on this issue of great importance to the future competitiveness of the foodstuffs and household
necessities retailing sector, and to ensure a win-win situation for business and consumers alike.
Chairing the press conference today is the Vice-Chairman of the Consumer Council and Chairman of the Competition Policy Committee, Mr. Larry KWOK Lam-kwong, together with the Chief Executive, Ms. Pamela CHAN WONG Shui, and the Principal Trade Practices Officer, Mr. Ron CAMERON.