BUSI4006
Individual Case Assignment
Kampery Development Limited
Introduction
It was April 2017, Simon Wong, Chairman of Kampery Development Limited, announced the
operation results, in which turnover had reached HK$100 million. Wong was pleased as he
looked back five years’ ago, the company had been started with an initial capital of HK$10
million. Though the growth has been satisfactory, Wong felt uneasy lately as the market
sentiment was flat. He wondered what his next move was to make the group expand without
incurring excessive risks and over stretching the resources.
The questions in his mind included: How to develop Kampery’s Dai Pai Dong eateries in view
of the slow recovery of the restaurant industry in Hong Kong? Should he further explore the
China market in which the demand for high quality imported coffee and drinks is increasing?
Should he develop other businesses?
Wong is ambivalent about Kampery’s future. For instance, the economic uncertainties in Hong
Kong and barriers in the setting up of distribution channels in China may prevent him from
achieving the company’s target within a short time period.
The Birth of Dai Pai Dong Eateries
Wong is the second child of a family with a successful history in the trading of coffee. He
received degrees in Psychology and Fine Arts in Minnesota, USA. Upon his return to Hong
Kong in 1981, he joined the family coffee business and became the Chief Executive Officer for
a number of years.
Wong's interest in the setting up of a dai pai dong type eatery was almost accidental. In 1993,
he left the family business and started his own. With a strong nostalgia for the old Hong Kong
life style of street side stalls – dai pai dong, he set up the first Kampery’s Dai Pai Dong eatery
in Causeway Bay in 1993. Wong mentioned in a press interview:
Dai pai dong is more than a name. It represents old Hong Kong, good memories, good
food and beverages at affordable prices.
The history of street side dai pai dong stalls, which could be found almost everywhere in Hong
Kong, should be traced back to the 1950s to 1970s. Dai pai dongs were established to serve
simple meals, such as toast, pan cakes, tea, coffee and yuan yang. Yuan yang is a unique kind of
tea and coffee mix with a distinctive aroma and a smooth taste. Due to urban developments,
these street side stalls were almost completely eliminated in the late 1970s.
The disappearance of dai pai dong is replaced by cha chan tan. Cha chan tans, with minimal
decorations and some even do not have air-conditioning, serve customers who are not overly
concerned with service as well as eating environment. Same as dai pai dongs, cha chan tans
offer quick and simple meals including tea, coffee, and yuan yang. Presently there are
thousands of cha chan tans located at district level community throughout Hong Kong.
The development of Kampery’s Dai Pai Dong represents an upscale image of cha chan tans.
The target customers are those aged 20 to mid-40s willing to pay a slightly higher price,
20%-30% more than cha chan tans, for a better eating ambience.
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From 1993 to 2017, Kampery owned twenty-five Dai Pai Dong eateries but many were closed
subsequently. In 1999, there were twelve Dai Pai Dong eateries left including one franchised
outlet at the Chap Lap Kok International Airport. A typical Dai Pai Dong outlet has an area of
2,500 sq. feet and costs two to three million dollar to set up. Each store features traditional
wooden sqaure-shaped tables and tools, and is decorated with photos, posters and paintings of
earlier Hong Kong to feature the “return of the good old days.”
The Growth of Kampery
During the period from 1994 to 2017, Kampery has grown in different directions, from Dai Pai
Dong eatery to consumer product and new market development.
A)
Consumer Product
Inspired by the dominating sales of Lipton and Rickshaw tea bags, Wong rolled out a
dai pai dong-style drink in tea bag form in 1993, taking up a market share of 10%
immediately after the launch. Kampery’s market share of tea bags increased to 20-25%
in 1998. Kampery is the first company to put 2.5g of tea instead of 2g into each tea tag
and to revive the popular dai pai dong drink – yuan yang (a mixture of tea and coffee)
in tea bag form. Other popular Dai Pai Dong brand products are 3 in 1 instant yuan
yang (a mixture of tea and coffee, sugar, and cream) and 3 in 1 instant tea, with
impressive market share after 3-month of launch. Other related products include Dai
Pai Dong green tea and green tea with roasted rice, and coffee beans. Each Dai Pai
Dong product generates a 15-16% return on investment. Exhibit 1 provides a list of Dai
Pai Dong brand products.
Exhibit 1: Dai Pai Dong Brand – Product Mix
Premium Range
Ordinary Range
Flavored Teas
Premium Coffee
3 in 1 Yuan Yang
Green Tea
Yuan Yang Tea Bags 3 in 1 Tea
Green Tea with Roasted Rice
Ceylon Tea
Ceylon Tea (25 and 100 bags)
Coffee Bean
Kampery markets their brand products to supermarkets and convenience stores. In
terms of pricing strategy, the company positions the products at a competitive level.
Wong believes that if the price is too low, customers will perceive the products as low
quality.
B)
Catering Supplies
The Mocaroma Coffee Group specializes in the distribution of coffees and teas and acts
as an agent in dealing with imported coffee machine and kitchen equipment. The
supplies are mainly to meet the demand of hotel and restaurant operators in Hong Kong
and China. In addition, the company is a tea bag supplier to McDonald’s. Because the
competition is keen in the catering supplies business, Wong believes that to be
successfully compete in the market, more is needed to stress on the after-sales service.
C)
Coffee Chateau
Coffee Chateau is a coffee specialty shop chain operated in Hong Kong, China and
Canada. Store location is a critical issue to their café and their shops are mainly located
at “niche” areas to attract foreigners and tourists. For Kampery, a company with a short
history, rapid expansion strains the company’s resources. Recognizing this, Kampery
offers both company-owned and franchising for the coffee chain business. The cost of
each establishment is approximately HK$0.7 million, as shown in Exhibit 2. In China,
however, the operation is in the form of joint venture. Each Chateau serves premium
quality coffees and teas, together with related accessories and snacks. In late 1998, a
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series of eight different kinds of 3-in-1 instant coffee was launched in all the outlets.
Exhibit 2 Coffee Chateau Franchise, Profit Estimation
Stages
Details and Amount
Capital Requirement
Join-in Fees
Business Start-up
Rental Payment and Miscellaneous
Renovation and Equipment
Total
Monthly Gross Profit
Month by Operation
Monthly General Expenses
Rentals
Wages
Franchise Fees
Management Fees and Misc
Total
Monthly Profits
$150,000
$150,000
$400,000
$700,000
$104,000
$40,000
$20,000
$7,500
$9,000
$76,500
$27,500
In 1990, the first B-Y-O-C chateau was opened and the chain had grown to five outlets
in 1999. These cafes are much smaller, 200-600 square feet with seating for 50 people,
which offer only counter service. Coffee Chateau or B-Y-O-C Chateau appears to have
great potential; market research reveals that more and more people accept a western
style of living and Wong estimates that 0.6 million of people in Hong Kong are regular
coffee drinkers.
The Management
Wong is the Managing Director and Chairman of the Group. Under him is the General
Manager, Phyllis Cheuk, who has been working with the Group since its inception. Wong is
proud of the competency of his team which comprises 320 staff in Hong Kong, 400 in China
and 10 in Canada. To develop team spirits, Wong encourages staff to take part in company and
social activities. On a personal basis, Wong actively supports the community by participating
and sponsoring various charitable institutions such as the Community Chest, the Girl Guide,
and Home for the Aged. Apart from rewarding loyal and hardworking employees, Wong values
creativity and original ideas. He philosophy in managing people is:
I value personnel who are forward looking, innovative and responsive to changes and
new demand.
As a business partner of McDonald’s, Wong underlined a few points that marketing people
could learn from McDonald’s recent highly successful marketing campaign, using the cartoon
favorite Snoopy as a metaphor.
“It generated interest, caught the imagination of the public;
It took advantage of the passion many people have for collection things;
It was constructed on a repeat-purchase formula;
It attracted media attention.”
Marketing
Kampery’s marketing relies basically on mass media and public relations, at little cost to the
company. Compared with its competitors such as Lipton, Kampery spends only a small
percentage of revenue on mass advertising. In 1996, Kampery spent $0.7 million on promotion,
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representing an increase of 30% over the previous year. In 1997, promotion expenditures
increased to $1 million. Evidence indicates a positive association between increased promotion
expenses and greater public awareness of the brand. Shelf space of Dai Pai Dong products rose
three fold. Despite the increasing spending on advertising, the Group has tight budget controls.
Promotion costs cannot be more than 2% of turnover in Hong Kong and 0.5% in China.
Promotion in China is mainly magazine advertising and personal networking. Exhibit 3
indicates the percentage of promotion expenses in Hong Kong.
Exhibit 3 A breakdown of the expenditures on promotion

TV Commercials
30%

Radio Commercials
10%

Sampling & Tasting
10%

Exhibitions
30%

Gifts
20%
Kampery advocates sample trials in heavy consumer traffic areas such as the MTR and railway
stations. In recent years, public relations alliance with other companies has been quite effective.
A successful promotion campaign was the collaboration with the Oriental Daily in 1998.
Readers of the newspaper were offered discount coupons for 3-in-1 instant tea bags; 50,000
packs were redeemed within one and a half days. The promotion has increased the awareness
of the Dai Pai Dong brand significantly, generating sales of $1 million.
Although sample tasting and joint efforts are the most cost-effective ways to arouse public
awareness, product sampling booths also play a significant role. Pursuing the 8th Asian
International Exhibition of Hotel, Restaurant, Retail and Catering Equipment Exhibition held at
the Hong Kong Exhibition and Convention Center, Kampery had two large displays. One booth
displayed coffee machines and the other promoted consumer products. Both attracted
considerable public interest.
Competition in Teas and Coffees
Chinese tea is the most popular traditional drink in Hong Kong, representing 25% share of the
beverage market, the second largest after water. In the 1980s, 75% of Chinese tea consumption
was based on loose tea leaves because of its high quality. Due to the fast pace of modern living,
manufacturers began to sell Chinese tea bags in modern retail channels such as supermarkets.
However, research revealed that consumers had the preconception that tea bags were
convenient but low quality because tea fanning was used instead of tea leaves. Unliever was
the first company to use innovative piece-tea-leaves in tea bags which gave consumers both
quality and convenience. Unilever successfully launched the Lipton Ming Han Ching
single-serving Chinese tea bags in 1997 and captured a substantial share of the Chinese tea
market, particularly among the younger age group. The Ming Han Ching Jasmine and Iron
Buddha variants are now the top and the second best selling items in the market.
As for western style teas, the main companies in the market are Lipton and Rickshaw, with
50-60% and 20% market share respectively. These two companies’ products have been in
Hong Kong for decades. Lipton, with its commanding market share, sets the benchmark
pricing level for much of the import category and consumers seem to feel that imports are better
teas. Tea drinkers are identified as generally between the ages of 30 and 50 and are brand loyal.
Thus, the success of Dai Pai Dong, so far has been based on positive product image. By 1999,
Dai Pai Dong’s 25’s and 100’s tea bags have become popular in supermarket sales. In regard to
3-in-1 instant tea, Lipton is still the market leader with a dominant market share. Wong
foresees that the product life cycle for their products will be longer when consumers become
accustomed to the taste of its beverages and develop brand loyalty.
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The major players in the coffee industry are Maxwell and Nescafe. They have maintained the
lead with a combined 80% plus market share. Nescafe offers a wide range of products such as
Nescafe Gold; Espresso; and Red Cup. However, when Dai Pai Dong launched a premium
brand of 3-in-1 yuan yang, it quickly captured a respectable market share. Market share keeps
growing and may pose a threat to Maxwell in the 3-in-1 coffee segment.
Tea and coffee sales are flat in summer when consumption is dwarfed by cold drinks and soft
drinks. Summer in Hong Kong is long and humid. In addition, tea and coffee drinks have faced
continued competition from canned or bottled, aseptic packaged, ready-to-drink, teas spiked
with fruit juices, iced and flavored teas and coffees. For instance, Lipton iced tea and iced tea
mix is available in a variety of fruit flavors. Furthermore, serious health concerns about
caffeine has turned coffee drinkers to decaffeinated coffees, and tea drinkers to herbal or
flavored teas.
The China Market
The Group has established sales offices and production plants in two major cities in China,
namely Guangzhou and Shanghai.
The Guangzhou office is a joint venture, acting as a processing plant for imported coffees and
teas. The finished products are distributed to customers mainly in Guangdong. Their target
customers comprise hotels and restaurants, supermarkets, Hong Kong style cha chan tans and
fast food chains. Headed by Ms. Kitty Lau, the company is divided into three big teams: sales,
credit control and distribution. Since 2015, the company has experienced difficulties on credit
control and prolonged the normal debt collection period beyond 60 days. Nevertheless, the
company is able to maintain its competitiveness by developing close relationships with
suppliers, as indicated by Lau.
There are about 50 Hong Kong style cha chan tans in Guangzhou out of a total of 120
local cha chan tans; and the number of Hong Kong style cha chan tan is increasing.
They compete mainly with price against Hong Kong fast food shops like Café de Coral.
For example, the price for one cup of coffee is Yuan3.00 which is 50% that of Café de
Coral. We need to work closely with our suppliers to ensure a supply of high quality but
also price competitive products.
The Shanghai office, with a team of 10 people, is headed by Mr. Wang. To promote the Dai
Pan Dong brand series, Kampery actively participates in trade fairs and testing trail. In the
Trade Fair, organized by the Hong Kong Trade Development Council in Shanghai, the Dai Pai
Dong stall was one of the most popular kiosks, visited by thousands of customers. Future
marketing strategies include the enhancement of the Dai Pai Tong brand image as high quality
products imported from Hong Kong as well as maintaining good relationships with up-market
retailers.
The potential of 3-in-1 instant tea and coffee mix in China, however, are confined to customers
with fast lifestyle and higher level of income; they look for something functional irrespective of
taste and price. 3-in-1 instant coffee bag is Yuan2.5 each. This niche market covers mostly
white-collar workers with an above average income, and they enjoy hybrid drinks. The
Guangzhou and Shanghai sales teams hence pay regular visits to up-scale places such as hotels,
restaurants, supermarkets like Park’N shop, Wellcome, and Friendship Stores to promote their
products.
Organic Farm in Sheung Shui
As part of the diversification programme, Wong acquired an organic farm in 1999 which is a 10
acre piece of land in Sheung Shui. The farm produces fresh and high quality vegetables such as
lettuce, red carrot, cucumber, sweet potato, beans and other cereals such as red rice, brown rice
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for distribution to ten high-class supermarkets in Hong Kong. Mark-up prices are at 3 to 4
times higher than the normal prices of imported vegetables from China (for example, 1kg of
lettuce is retailing for HK$33), and therefore their produces have limited appeal to the mass
consumer markets. The Group’s commitment’s to organic food is shown in Exhibit 4.
Exhibit 4: Organic Food
We promotes organically grown foods based on the following reasons:

Organic foods are safer to consumers and farmers.

Organic farming protects our environment.

Organic foods taste better, and are nutritious.

If more people consume organic products, the prices would be nearer to conventional
produce.
In addition, the organic garden organizes half-day and full-day farm visits with charges at
HK$50 and HK$100 respectively. Lodging is provided for overnight visitors. Wong plans to
collaborate with some not-for-profit organizations like the Hong Kong Girl Guides to enhance
the awareness of organic food and help outsiders learn some basic farming skills. One of
Wong’s plans is to acquire a piece of farmland nearby for expansion.
Kampery Looks to the Future
Wong expects that teas and coffees sales will level off during the economic downturn.
Nevertheless, Wong comments that teas and coffees have been popular for decades, thus they
will not go ‘hot’, cool down and then disappear. In its coffee chain business, Wong is planning
for additional outlets. However, the decline in eating out, amid economic doldrums, has
seriously affected the food industry. The Dai Pai Dong’s consumption per patron has dropped
from $29.8 to $26 in Tai Po and from $48 to $45 in Causeway Bay during the late 1998. One
attempt to increase sales in the food industry has been renewed efforts to attract the evening
dinner customers and to profit from the rise of the “casual dining out experience.” Wong
believed that Kampery will establish a sustainable competitive advantage and continue to
survive as a purveyor of good service and quality teas and coffees.
Furthermore, Wong has a corporate vision to institute company expansion through systematic
diversification. Growing numbers o health-conscious consumers have prompted Kampery to
enter the organic food industry. The acquisition of an organic farm in Sheung Shiu is a good
example. Wong believes that if more people consume organic products, the price gap with the
conventional produce will become closer. Some analysts believe that organic food will enjoy
steady growth because its health, all-natural image will translate into greater buyer interest.
However, some are skeptical, considering that trendy products have comparatively short
life-cycles.
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Please read the case and answer the following questions in not more than 4 pages
(Please refer to the Course Outline). Your answers should be brief and to the point and
should be based on the information provided in the case as far as possible although
there may be current updates in the real world.
1. Discuss the major opportunities and threats for Kampery. Ensure that you
include a good discussion of the dimensions of general environment relevant to
the operation of this organization.
2. Using the Resource-based Model, propose and explain some strategic resources
for Kampery.
3. What is Kampery’s existing business-level strategy? Should they keep the same
strategy or should they change? Why or why not?
4. How would you characterize Kampery’s corporate-level strategy? (Hint: You
need to find out whether Kampery is a single business firm, a vertically
integrated firm, a related diversifier, or an unrelated diversifier.) You also need
to support your answer with evidence from the case. You only need to
characterize but don’t need to make any recommendations.
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