Example 2: 759 Store

Topic: 759 Store

Relevant economics Internal growth; price difference; elasticity of demand;

topics: company ownership; economies of scale; minimal wage;
methods of wage payment

Type of material: News, website information, graphics

Question design Elementary-level questions (12 marks);

(Total marks: 26) Advanced-level questions (14 marks)

Rationale of design:
The sales strategies of 759 Store is a popular topic in recent years, and many

students have the personal experience of purchasing from the store. Using the

topic, Secondary 4 students may apply concepts of microeconomics to analyse and

evaluate the commercial decisions of 759 Store as a consumer and as business

owner.

In materials selection, this sample offers a variety of data including company

ownership, business model, financial status, method of cost control, market

strategy/positioning of competitors, so that students will have sufficient information

to base on in commenting on the future expansion of 759 Store and will not answer

based solely on their day-to-day experience as a consumer.

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 Source A – Introduction to the 759 Store and its direction of development

Company introduction

The “759” in 759 Store comes from the HKEx stock code of its mother company

“CEC International Holdings Limited”, a listed company on the Main Board of HK

Stock Exchange since 1999. 759 was founded in 2010 with the business principle of

“small profits and quick turnover”, and providing quality and cheap merchandise

options for customers by sourcing from around the world under a parallel import

procurement model called “direct import”. From initially focusing on sales of snacks

and drinks, its “direct import” line of products have been expanded to include

groceries, wines, frozen food, baby goods, pet food, household goods, personal

care goods and cosmetics. As its import business grew in size, 759 Store has also

been continuously expanding its snacks chain with up to 185 outlets as of 30

January 2014.

759 Store to slow down expansion as market saturates

In 2014, 759 Store announced its results of 2013 with profits attributable to

shareholders up 18% year-on-year, and final dividend for the year ended at 0.7 cent

per share. Despite satisfactory business performance and group chairman Mr. Lam

Wai Chun setting a target at 300 outlets, such a target will no longer be the

objective for the group’s development given the saturating market for snacks stores.

Mr Lam explains that in the future the group will locate more 10,000 sq. feet store

spaces to establish 759 Stores under the “mini-department store” model, to satisfy

customers’ need for an expansive shopping environment.

In addition, after its expansion into skincare and cosmetics business and upcoming

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opening of the 759 wine store and local teahouse, the 759 Store is making

preparations to open an online sales platform for selling rice and food items,

domestic goods and small electric appliances.

Sources: Various newspapers and company website http://www.759store.com/aboutus.php

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 Source B

759 Store- Direct import from Japan Certain major supermarket chain

UXX Instant Coffee (90g)

HK$43.90 UXX Instant Coffee (90g)
HK$25.00

Add to shopping cart

Source C - Thoughts from a customer

The 759 Store big sale has finally

come, to be held for two days only!
Last time the most hot-selling item
was the 8kg Thai Jasmine Rice,
which many are unable to purchase.
This time we have to endure long
queues again for buying the rice.

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Source D - Operation strategy and cost control

759 Store raises wages to attract local talents

Rejects import of foreign labour

Mr Lam Wai Chun, Chairman of

CEC International Holdings and the

mother company of 759 Store, said

that both frontline and support staff

of 759 Store would receive a wage

raise, contributed mainly by the

increasing sales driving down

average operation costs, while the weak Japanese Yen has helped lower import

costs creating more room for wage increases. Besides raising basic wages, the

bonus threshold has also been lowered for example the sales volume for receiving

the “store commission” has been lowered from $10,000 to $7,000. Logistics staff

working as support also receive an average wage increase of $1,000.

Also, to create promotion opportunities for its staff, the company has created new

managerial and supervisory positions hoping to retain senior store managers, and

is even working to attract talent from other major supermarkets. Mr. Lam said,

“With the minimum wage at $30, and you’re only willing to pay $35, how can you

attract talent? You can’t even hire someone to wash the dishes”. He continued,

“Most of the work at the stores are not difficult to master, and I don’t see a need to

hire overseas labour.”

Source: consolidated from various newspaper reports

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Questions:
1. Referring to Source A, what kind of business ownership does CEC International
Holdings belong to? List two features of such an ownership. (3 marks)

Answer: Listed company (1 mark)

Features include public announcement of the company’s financial data, freedom to
transfer of share rights without consent of other shareholders, limited liability,
independent legal entity. (2 marks)

2. Referring to Source B, why does price difference exist for the same product?
3. (3 marks)

Answer:
Product differentiation: difference in sales location, channel and service
Cost difference: direct import from Japan
Difference in pricing/target profit

4. Referring to Source C, use a diagram to explain under what circumstances a price

reduction strategy can boost the sales volume of 759 Store. (6 marks)

Answer: Price reduction leads to an increase in quantity demanded

If the demand is price elastic, and the percentage change of price is less than the
percentage change of quantity demanded, the sales revenue will increase.

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5. Referring to Sources C and D, comment on whether the operation model of price
reduction and attracting talent through wage raises can increase the revenue of 759
Store. (7 marks)

Answer: Whether the price reduction can increase revenue depends on the price
elasticity of demand
There are many market alternatives in the different businesses of 759 Store for
example snacks, cosmetics and eateries, and the consumer has a high price
elasticity of demand for the goods offered by 759 Store. Therefore, as stated in the
previous question, when the drop in cost creates a room for price reduction in
goods, the revenue will increase.
As for the strategy of attracting talent through wage raises, 759 Store uses a wage
model of paying a commission on top of the basic salary which is conducive to
motivating workers, and can help save costs for staff supervision. Also, with the low
unemployment rate and stiff competition in the labour market, the wage level offered
should be higher than the minimum wage and even more competitive than market
peers in order to attract experienced talent. When the extra revenue gained after the
increase in the wage is larger than the extra expense of wage increase, the revenue
will increase then.

6. Comprehensively speaking, do you agree that the future direction of development of

759 Store should follow the existing model of expansion (slowing the growth of the
snack business and focus on other businesses)? (7 marks)

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The answer may include the following:
Currently, the expansion is based on a group business model.
Such a model can bring about the following benefits:
 Enjoys economies of scale
 Diversification of risks of investment through expanding to different businesses
 Effective utilisation of resources
 Brand reputation makes it easier to develop other business

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 However, if future developments are to continue along this path, the company
should consider:
 Continuous expansion can lead to diseconomies of scale and increase in average
costs
 Diversification of risks/over-expansion can lead to loss of benefits from
specialisation
 Market saturation
 Intensity of market competition (Oligopoly leading to price war)
 If oligopoly or monopoly already exists in the new market, a new competitor may
need to draw upon the resources of existing business when expanding to this
market.

Marking scheme:

Marks Description of level achieved

5-7 Accurate grasp of economic concepts and theories

In-depth analysis and applications based on the sources/materials

Generalisations/evaluations supported with suitable theories and

evidences

Logical flow of ideas and clear expression of arguments

Good organisation and coherence

3-4 Acceptable grasp of economic concepts and theories/

Moderate analysis and applications based on the sources/materials

Generalisations/evaluations supported by some theories and evidences

Clear delivery of messages through the use of language

Structural formation of arguments

1-2 Weak grasp of economic concepts and theories

Minimal analysis and application

Limited language capabilities

Loosely organised and disjointed arguments

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