KR1M not a well thought-out solution

For truly fair prices, we need more hypermarkets other than Tesco or KR1M to compete on a level playing field with no restrictions or subsidies.

COMMENT

By TK Chua

I write in response to Mydin’s claim that products sold at KR1M are cheaper than those in Tesco.

I agree that selective comparison of prices may be misleading and unfair. I also agree that we should all work together – the producers, distributors, retailers and politicians – for the benefit of consumers.

What most consumers want are quality products with fair pricing based on a level playing field. Fair pricing can only come from an efficient market, nothing else.

In a competitive environment, any hypermarket chain able to sell at lower prices must come from one or all of these factors:

• ability to operate at a higher efficiency level
• willingness to accept lower profit margins or
• being the beneficiary of a government subsidy

I do not believe the claim of any hypermarket chain able to sell at lower prices unless one of these factors is present.

Hence, before KR1M makes any further statements, we must first ask whether the hypermarket chain is able to operate at different efficiency levels.

What competitive advantages does KR1M have which other hypermarket chains do not have?

Does KR1M have bulk discounts, quantity orders, storage and distribution networks that are superior to others? If not, I don’t see how KR1M is able to sell their products of similar quality at lower prices across the board.

On profit margins, I think we must ask whether KR1M (Mydin really) is more socially conscious and altruistic than other hypermarket chains.

I think it is generally difficult for us to accept that businessmen are willing to make less money for altruistic and ethical reasons.

Businessmen generally cannot be persuaded through moral and ethical sermons to bring the prices down. They should be compelled to bring the prices down through competition. This is a well-trodden economic principle we ignore only at our own peril.

In the USA, they do not have price controls, “favoured” hypermarket chains, conferring monopolies or the imposition of restrictions on this and that. They only have anti-price fixing and antitrust legislations.

As far as government subsidies are concerned, I think we should ask KR1M (Mydin really) to disclose how much KR1M has received from the government, at least at the initial stage when the store was first set up.

Rightly, government subsidies should translate into lower prices, more so if the amount involved was substantial.

In regard to transparency and the level playing field, KR1M should disclose the subsidies (if any) it received from the government.

As for the rest of Mydin’s statement, I agree whole-heartedly. Please, no one-upmanship, no misinformation, no deceitfulness, and no shooting from the hip.

What we need are correct diagnosis of problems and correct formulation of policy responses. It is my sincere belief that we have too many distortions prevailing in our market place. KR1M is not a well thought-out solution. In fact, it is another distortion.

What we need is many more hypermarket chains other than Tesco or KR1M. Let them come in with their eyes wide open without restrictions or subsidies and let them leave the market place if they cannot compete.

TK Chua is an FMT reader.