26653794 e Wong Innovation and Customer Service

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Copyright 2004 Thunderbird, The Garvin School of International Management. All rights reserved. This case was prepared by Professor Christine Uber Grosse for the purpose of classroom discussion only, and not to indicate eitheffective or ineffective management.

Innovation and Customer Service at Grupo Supermercados Wong:

A Peruvian Success Story

IntroductionEfran Wong, Managing Director of Grupo Supermercados Wong (GSW), took a break from his meet-ing with bankers from Banco de Crdito del Per. They were watching a promotional video tape of thecompany when he stepped outside GSW headquarters in Miraflores, an affluent suburb of Lima. As hebreathed in the warm, humid air, he thought about ways to expand his familys business. Efran Wong

was one of the founding brothers of Grupo Supermercados Wong, the largest supermarket chain inPeru. His brothers and he had grown the business and made it into one of Perus most respected compa-nies.

Success was no stranger to the Wong family, second generation Chinese immigrants who settled inPeru. The family-owned business grew from a small grocery store in the 1940s to the largest supermar-ket chain in Peru with 70% market share in 2003. The company earned $576 million dollars in sales in2003. (Salguero, 1999).

Totally Peruvian owned, Grupo Supermercados Wong is widely respected for its outstandingcustomer service and innovation. How did the Wong family manage to succeed in such a difficult andcompetitive industry? In the face of competition from foreign companies, can GSW continue to in-crease sales?

Company Overview Lisa Wing, a correspondent forLatin Trade, summed up Grupo Supermercado Wongs leadership posi-tion in the market and Peruvian society. Wong is a company that truly strikes me as spectacular inevery sense of the word. They have a monopoly in the market in that they are on another level. They arefamous for the service that they give and innovation. A Microsoft case about the company noted thatE. Wong has long been know for initiating creative innovations to better serve its customers (Microsoft,2003). Studies conducted by Apoyo Opinin y Mercado found that E. Wong was recognized as one of the five best companies in Peru (ewong.com, 2004).

Carlos Wong (2004), manager of the E. Wong store that consistently won the Best in Serviceaward, considers the growth of the company to be el sueo americano en el Per (the American dreamin Peru), since the company grew from practically nothing to around 8500 employees and 27 stores in just over twenty years. The chain has three formats: E. Wong supermarkets for the upper middle class,Metro supermarkets and Metro hypermarkets for the middle and lower middle classes. All of the storesare located in and around Lima. The chain includes eleven E. Wong supermarkets, nine Metro


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hypermarkets, and seven Metro supermarkets. Each store employs about 300 people, including suppliervendors. The stores have over 50,000 items for sale, with approximately 1000 cash registers (ewong.com,2004).

The E. Wong supermarket brand serves the higher end market in Lima, while the Metro super-market and hypermarket brand is geared toward the lower middle and middle classes. The slogans for

the two brands reflect their different orientations. E. Wongs slogan donde comprar es un placer(where shopping is a pleasure) contrasts with Metros slogan precios ms bajos siempre (always lowerprices). However, even the lower priced Metro stores maintain the hallmark Wong quality and courte-ous service (Salguero, 1999).

Company History The family business got its start in 1942 when Erasmo Wong opened a small grocery store in Lima,Peru. His wife Angela and their young children helped out in the store. The Wongs had five sons,Erasmo, Edgardo, Eduardo, Efran, and Eric, and a daughter named Elda. Forty years later, the sonsbegan to grow the small family store into the E. Wong supermarket chain.

In the early 1980s, the Wong family had one small neighborhood grocery store with three check-

outs. The brothers thought about expansion when the parking lot could no longer accommodate all of the customers. Erasmo, the eldest brother, took the other brothers to an empty lot. Why did you bringus here? they asked. Erasmo replied, Were going to open our second store here. What? Without any money? the others asked. Their brother reminded them that their father, who recently retired, hadimpeccable credit with which they could expand. In 1983, the Wong brothers received funding to opena second store.

At that time, E. Wong still wasnt a supermarket, and the brothers didnt have a clear vision of thefuture. The two Wong stores were modified private houses with atmosphere and distinct areas for adelicatessen and liquor sales. The brothers believed that the store ambiance and setup had much to do with their success.

In 1984, the family had an opportunity to purchase two locations of a supermarket chain that went out of business. Both supermarkets were rectangular like other standard supermarkets. The Wongbrothers wondered whether their customers would keep coming to their stores if they were like all theothers, so they made a conscious decision not to be rectangular and exactly like the other supermarkets.The important decision defined the new company. In addition, they made the stores self-service, butresolved to continue giving customers highly personalized service. The brothers also agreed that all the Wong stores would have ambiance and distinct areas with personality, so customers would feel as if they were in a delicatessen or a liquor store as they walked through the store.

With the four stores, the brothers had more customers than they could take care of at the level of quality that they wanted to deliver. The cash registers had long lines, and the parking lots didnt haveenough spaces. So they added cash registers until each store had twelve to fifteen registers, and pur-chased land to convert to parking lots. But the additional parking spaces created another problem. Thelines at the cash registers grew long again because of the extra parking. Finally, the brothers realized theonly solution was to open more stores.

In 1990, the Wong brothers opened a fifth store. Subsequently, they took advantage of an oppor-tunity to buy a bankrupt supermarket chain of eight stores. As a result, they gradually opened the new stores and established E. Wong as a leading supermarket chain in Lima.

Soon afterward, another opportunity came along. The Peruvian Armed Forces asked E. Wong toprivatize its store for military personnel. The huge location included a supermarket and departmentstore. Although the Wong brothers really wanted just the supermarket, the military convinced them to


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take over the entire installation of around 130,000 square meters. The company had purchased materialto build another store, but used it instead to combine the supermarket and department store into onelarge supermarket.

Initially, the company didnt fully understand the concept of hypermarket. It took several years forthe format to develop its own image and vision. As time went by, the company decided that the essence

of the hypermarket was price, low prices always. The first brand E. Wong represented service andquality, while Metro stood for low prices. The two brands represented two distinct concepts.

Difficult Years in the 1980s and 90s One of the most difficult times for the store was the era of terrorism in Peru in the 1980s and 1990s. Inthe 1990s the threat of terrorism grew stronger. Car bombs were frequent occurrences in Lima, andsome were placed in E. Wong parking areas. Fortunately, no one was hurt at a company store. However,many people went hungry. For ten years the company operated under tremendous stress worrying aboutcar bombs, terrorist attacks, and the possibility of being sacked by hungry mobs.

Efran Wong attributes the companys success to five key factors: 1) the family; 2) its backgroundin the supermarket business; 3) the bankruptcy of competitors; 4) the firms four corporate values; and

5) the companys focus on customer service. The family consisted of Don Erasmo Wong, his wife Angela, and their children, Erasmo, Edgardo, Eduardo, Efran, Eric and Elda. The family memberssoon discovered that they worked together well, which became a huge advantage in the tight marginbusiness. Second, the family had years of experience in the food business, which made them very famil-iar with the Peruvian market. Third, several supermarket chains in Peru went bankrupt while GSW wasin a period of growth, thus cutting down on competition. And fourth, the Wongs defined corporatevalues, such as a focus on the customer, that led the business to success and growth for years to come.The fifth factor was the familys key discovery that service was what their customers wanted most.

Family Values Carlos Wong described how the store grew from los chinitos de la esquina to the largest supermarketchain in Peru. Los chinitos de la esquina, a Peruvian expression, refers to the widespread presence of

neighborhood grocery stores in Lima that were run by Chinese immigrant families. Carlos worked as ateenager in the original Wong family store, and participated in the astonishing growth of the family business from one small store to 27 supermarkets. He now manages one of the most successful E. Wongstores.

The Wong family transmitted traditional Chinese values to the family business, blending themskillfully with Peruvian culture and values. The work ethic of the Chinese was always very important tothe family. Traditionally, the family members saw that their first obligation when young was to study.But when they werent studying, they felt obliged to help out with the family business. The training they received when young gave them an in-depth knowledge of the business. While growing up, the Wongbrothers often heard their mother repeat none of you alone is more capable than all of you together.Early on, they learned the value of working together.

Leadership and CommunicationThe familys cultural background also taught the brothers the value of discipline. Following Chinesetradition, the word of the eldest brother was law. For that reason, eldest brother Erasmo made the key decisions and served as the company leader and executive President. He worked many hours to set anexample for the employees and managers. On occasion he was known to sweep the floor in a store if hesaw that it was dirty.


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Edgardo Wong, one of the five brothers, managed Paramonga, the familys sugar cane plantationcompany. He participated in the supermarket business as a member of the board and helped the family with key decisions and innovation.

The organizational structure of the family business could be compared to the army. When theGeneral gave an order, everyone had to obey even if the Colonel and soldiers were not in agreement.

However, that rarely happened in the business because the family had excellent communication. Almostevery day, the family got together and talked over what needed to be done. Whenever the family hadconflicts, the eldest brother had the last word, which helped things to function smoothly. The family realized that if all the brothers had the same ranking in the hierarchy, there might be fights.

Training for SuccessionThe successor who will run the business in the future doesnt necessarily have to be the oldest brother,according to Efran Wong (2004). The company has opened up some management positions to profes-sionals since it has outgrown what the five Wong brothers could do by themselves. For example, thepresent General Manager of the company isnt a family member.

Even though the children of the Wong family chose the profession they wanted, they were taught

that they must know the business. Efran told his children, even if you dont work in the business, someday you will have to join with the stockholders and know what you are managing. The stockholders of E. Wong are all family members as of 2004.

The Wong brothers wanted their children to prepare themselves for management the same way that they did, including mopping floors and cleaning windows and bathrooms. If one day the children want to manage the company, they have to learn how to manage it in all its aspects, from the very bottom to the top, comments Efran Wong.

The Supermarket Industry in Peru and CompetitionPeru had almost 28 million people, with approximately eight million residing in and around Lima. Approximately two thirds of Limas population lived in three cones, suburbs that stretched out into the

coastal desert beyond the capital city. About 2.3 million lived in the more prosperous northern conecalled Lima North (The Economist , 2004). The Apoyo consultancy estimated the average monthly in-come in the northern cone area of Lima at around US $533 per month (Economist Intelligence Unit,March 2003). About 20% of Limas middle class lived in Lima North.

According to economic figures, half of the population lived in poverty with a per capita incomebelow the 1973 level. However, these figures may be wrong because of three factors: the informal economy,drug money, and money sent home from Peruvians living abroad. Only one third of Peruvians had a jobthat was legally registered. The Inter-American Development Bank found that Peruvians abroad sent$1.3 million home. These factors could explain the growing purchasing power of the Limeos (The Economist , 2004).

In 2002, the economy grew at the unexpectedly high rate 4.8%. A year later, Perus retail foodsector had more than $4 billion in annual sales. Supermarket sales experienced rapid growth up fromUS $645 million in 1997 to almost US $1 billion in 2002, (Economist Intelligence Unit, Aug. 2003).Maximize, a Lima consultancy, estimated that Peruvian supermarket sales would exceed US $1 billionby the end of 2003. The number of supermarkets also was expected to rise by 10 units to 70 by yearsend of 2003. In part, the increase in supermarket sales was caused by the spread of bank and store creditcards (The Economist , 2004.)

However, supermarkets accounted for only 22% of the countrys food commerce (Latin AmericanNews Service, 2003). The rest of the population preferred small grocery stores, traditional open-air


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markets, and curbside vendors. Food sales through modern supermarkets were expected to reach 25%by 2004. The major chains operated only in metropolitan Lima. GSW and its competitors had plans toexpand to other cities such as Arequipa, Trujillo and Chiclayo by late 2004 (Gutierrez, 2003).

The two main major supermarket chains were Grupo Supermercados Wong (about 70% marketshare) and Santa Isabel (about 30% market share). Santa Isabel included the Plaza Vea chain; both were

formerly part of Royal Ahold. (Economist Intelligence Unit, Sept. 2003). In 2003, a $1.1 billion ac-counting scandal at Royal Ahold forced the resignation of the Chief Executive Officer and Chief Finan-cial Officer and caused the Dutch food retailer to sell its Latin American holdings. As a result, Inter-bank, a Peruvian corporation involved in banking and insurance, bought the Santa Isabel supermarketchain. Santa Isabel had 20 stores in Peru with plans to add five stores.

Although some speculated that Wal-Mart would enter Peru through the Santa Isabel chain, thatdidnt occur. Instead, Wal-Mart moved into Brazil in 2004 with the acquisition of Royal Aholds BomprecoSupermercados do Nordeste, a 118- store chain.

Colombias largest commercial chains, Almacenes Exito and Carulla, planned to enter the Peru-vian market in 2004 to compete with the leaders Grupo Supermercados Wong and Santa Isabel (AmricaEconoma, Jun 2004).

Corporate ValuesOver time, the Wong family developed four corporate values that summed up their business philosophy and defined their company. These values played an important role in GSWs growth and success. Thecompany culture promotes awareness of the values and their application in day-to-day business opera-tions. The four corporate values are: 1) the customer is our reason for being; 2) our employees arenumber one; 3) we seek continuous innovation; and 4) we always look for better ways to serve thecustomer.

Value #1: The customer is our reason for being.The first corporate value at GSW was the most fundamental: the customer is our reason for

being. Efran Wong believed that, we should see everything through the eyes of the customers, tothink as if we were customers, and to treat them with care because thanks to them our business lives.Since the early days of thebodega ( neighborhood grocery store), the family worked hard to satisfy themost demanding customers. As a company, GSW continued to look for better ways to provide service.GSWs service was nationally famous. According toLatin Trade correspondent Lisa Wing (2004), Itsa level of service that is incomparable not only in Peru, but in any supermarket anywhere, including theUnited States or outside of Peru.

Even though prices at E. Wong stores were slightly higher than its competitors, people valued theservice and were willing to pay for it. The up-market E. Wong customer was interested in both thequality of service and goods. Carlos Wong (2004) commented that the two must go hand-in-hand sinceboth are necessary for success.

A Broad Definition of ServiceThe Wong family defined service very broadly and viewed it as fundamental to every aspect of theirbusiness. According to Carlos Wong (2004), thinking of the preferences of the public is part of service also. Everything is part of service. The company considered whom its customers were inmanaging the mix of products offered in its stores. Different zones in Lima had distinct neighbor-hoods where Japanese, Chinese, Arabs, Americans, Germans and Swiss lived. Their preferences hadan impact on what goods the GSW stores in their neighborhoods carried.


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Customer preferences also differed at E. Wong and Metro stores. Metro customers preferred hap-pier and louder volume music than those who shopped at E. Wong. In addition, they liked to smellthe aroma of bread or roast chicken. The Metro customers also wanted a different type of meat.Many E. Wong customers preferred juicy meat with a lot of fat. In contrast, some people from thelower economic classes who shopped at Metro stores preferred meat that was less expensive andleaner.

Other buying preferences were taken into consideration as well. For example, some customerspreferred to buy eggs in a carton, while others liked the eggs loose in a plastic bag. The storemanager acknowledged that even though eggs in cartons were more convenient, easier to carry, andbroke less often, some customers were used to buying their eggs in a plastic bag. For that reason, E. Wong sold eggs both ways.

If someone asked where a product was located in the store, a GSW employee would take thecustomer there rather than just give directions. Customers who went into the wine room couldsample different wines and get recommendations from a sommelier, or consult a book with moreinformation about each type of wine and its history. When a customer purchased a light bulb, anemployee tested the bulb to make sure that it was working.

Surprising the CustomerDelivering outstanding customer service was the goal not only at the upscale E. Wong stores, butalso at Metro supermarkets and hypermarkets. Efran Wong said, we look to exceed the expecta-tions of our customers. We try to surprise them. This has given us a strong position in the market. As a result, Wong customers were passionate about the supermarket chain. One woman in an E. Wong store told the author that she much preferred Wong, even though she lived only a half block away from a competitors store.

The tagline of E. Wong highlighted the companys commitment to service and its desire to providea pleasant shopping experience: E. Wong, donde comprar es un placer (E. Wong, where shoppingis a pleasure.) Marco Surez, Commercial Projects Manager, explained, If shopping is a pleasure,the customer comes to the store and buys because she enjoys the experience. Maybe its because incountries like ours, the very act of buying is an act of entertainment. So, therefore, it is fun for ourcustomers to shop.

The Five SensesThe managers at Grupos Supermercados Wong realized that the shopping experience engages allfive senses of the customers. For that reason, GSW asked its employees to work with all five sensesto enhance the shopping experience for the customer. The company wanted each store to be anisland of tranquility, a place where the customers should feel peaceful from the moment they en-tered the store. The atmosphere should appeal to all five senses. Concerning the sense of smell,supermarkets were required to have neutral or fresh odors, since management considered nice odorsto be part of the service. The smell of bread or coffee was acceptable in the stores.

With regard to sight, the company insisted that the store is very clean. Since the sense of touch isalso important, GSW had employees make sure that the handles of grocery carts were not sticky orunpleasant to touch. Since people dont like to walk on a floor with grains of rice under foot,employees kept the floors clean throughout the day.

Concerning the sense of sound, GSW created a peaceful atmosphere where employees could hear if a customer spoke to them and needed something. So the stores played music that was not too loud.The Wong brothers understood what the customer wanted, and offered it in three formats: E. Wong supermarket, Metro supermarket, and Metro hypermarket.


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In keeping with the companys broad definition of service, managers believed that service includeseven the approach to the store. Therefore, they ensured that the trip into a GSW store was pleasant. When customers approached the store, they saw directional signs, freshly painted sidewalks, andguards to regulate traffic. The stores also kept the street clean and free of trash.

Personal Relationships with el Cliente Amigo

Latin American business culture places a high value on developing close personal relationships.This cultural value played an important role in the companys relationship with customers. Manag-ers and employees considered the customer a cliente amigo (customer who is also a friend).

The company believed that customers came to E. Wong or Metro because they were treated likefriends. For example, almost everyone who came to the store managed by Carlos Wong knew him.If they had a problem, they knew that he would solve the problem and that they were protected.Customers at his store, or any GSW store, knew that the merchandise was guaranteed. Carlosdescribed the close relationship between his customers and his store, We know them and they know us. We are a well-known family and they trust us. They come to the store of their friend, andthis is a very strong tie. Its even to the point that if they go to the store of the competition, they feelbad, like they betrayed us.

When possible, employees called customers by name, because management saw this as one of thebest ways to personalize service. However, this became more difficult as E. Wong and Metro servehundreds of thousands of households. The only way to maintain this personalization company- wide was through technology and direct marketing. The company sent cards addressed by name tocustomers that were electronically signed by the President of Grupo Supermercados Wong. Thecompany wanted customers to feel like they knew the owners personally.

Managers compared the companys relationship with customers to a marriage, but one in which thespouse is very fickle. If one thing goes wrong, the customer might forgive the company. But if several things go wrong, the customer will quickly abandon the store for a competitor. Efran Wongnotes, In order to serve the customer, we have to love him. One cannot serve a person well that onedoesnt like. In sum, Grupo Supermercados Wong considered it very important to maintain apersonal connection with customers. The personal relationship was vital to maintaining the iden-tity of the company.

ChildrenGrupo Supermercados Wong loved children and considered them future customers. People toldEfran Wong that the first words out of their childrens mouths were Daddy, lets go to Wong! Thecashiers at a GSW store treated children with special care and got to know them. Children couldalso use mini shopping carts to learn how to shop.

Exchanges and RefundsTo build customer loyalty and attract new customers, E. Wong and Metro stores made exchangesand refunds quickly and easily, often without a receipt. Some customers even came to a GSW storeto exchange a product that theyd bought at a competitors store. The store accepted the return inthe hope of gaining a new customer. Carlos Wong explains the policy, If they buy something badfrom the competition, we receive it with pleasure. For us, it is a great opportunity to help a cus-tomer our competition does not want to serve. By helping the customer, we gain her/his absoluteloyalty. Management understood that it is much cheaper to exchange milk that has gone bad thanto lose a customer. Over a lifetime, a typical customer might spend over $100,000 at a supermarket.

Value #2: Our employees are number one.The company called its employees colaboradores (collaborators) and considered them essentialfor the companys success. Carlos Wong commented (2004), you cannot require someone to treat


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your customer well when that person does not receive good treatment. So we treat our own person-nel very well. Its also one of our corporate values, the first one for the managers of GSW. Thecustomer is our reason for being, but for the manager, his people come first. Efran Wong agrees(2004). For our employees, the customer is the most important. For our managers, the mostimportant is our people.

GSW cultivated employee loyalty in a variety of ways. The manager of the store next to corporateheadquarters explained why he had stayed with the company for twenty years. I entered E. Wong with the intention of working for a few years and leaving. For twenty years, I have been saying thesame thing. Talking about E.Wong is to talk about a family environment. I grew with them. They began with the Bodega in San Isidro, and I worked there.

Because the company placed great value in its employees, the selection and hiring processes werecritical. Prospective employees went through a demanding series of interviews. The company lookedfor people who were highly oriented toward service. The profile evolved after Efran Wong had adiscussion with the company psychologists concerning the selection of employees. At one of theGSW stores, he observed that the cashiers were very serious. Efran told the psychologists thatsmiles come from the soul and cannot be trained in a class. So he asked them to select friendly people with a disposition to smile and empathize with the customer.

Training for Employees All employees received basic training at the Wong School (Salguero, 1999). Grupo Supermercados Wong occasionally brought in experts from around the world to train employees. The company hired John Tschohl to train 8000 employees in customer service and empowerment. CEO Erasmo Wong commented, We are not a supermarket with great customer service. We are a great customerservice organization that happens to be in the supermarket business. Empowerment at E Wongs isbending and breaking rules. Its taking care of a customer to the customers satisfactionnot to E. Wongs satisfaction (Tschohl, 2003).

Salary and BenefitsOn the whole, salaries were average at GSW. However, its employees received additional benefitsand felt like part of a family. The company helped the employees in different ways, such as makingloans to families or paying for funerals when someone in the family died.

Annual Show The company encouraged competition among the stores in a unique way. Store employees put onan annual show called El Gran Show Artstico Primero de Mayo every Labor Day, May 1st. Theemployees were coached by professional choreographers, and their efforts supported by makeupartists, costume designers, and set designers. Each of the 26 stores and Paramonga, the companyssugar cane plantation, had an entry. The teams made up their own lyrics, taking themes frompopular shows and movies. The spectacle involved two stages, one group performing while theother set up. Employees prepared for the competition all year long. It was a morale booster andoutlet for employee creativity.

Each year, employees also held El Gran Corso de Fiestas Patrias, a parade that was a tourist eventfor the national holiday Fiestas Patrias. Over 100,000 people watched the parade.

Value #3: We Seek Continuous InnovationOngoing innovation was the third corporate value at Grupo Supermercados Wong. Efran Wong said(2004), In order for a company to survive and keep itself at the crest of the wave, it must constantly innovate. In Peru, probably we dont need cutting edge technology. What we surely need is adequatetechnology. In spite of that, we have cutting edge technology in some things. For example, the com-pany pioneered in many areas such as bar codes, information systems, Web site, and direct marketing.


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GSW also innovated service with its home delivery, acceptance of returns without question or receipt,and no tipping policy. Some stores offered valet parking, fast cash registers, banking inside the super-market, a childcare center, and free shoeshines, among other services.

E-Commerce at Grupo Supermercados WongE-commerce, although not a big moneymaker at GSW, enhances the firms reputation as an inno-

vator. The company Web site offered customers the option to shop for groceries online. In 2002,online shopping generated sales that totaled about $250,000, a small portion of the companys$587 million in annual sales. Marco Surez, Commercial Projects Manager, identified two waysthat the Web site could be used to do business with the consumer: 1) by developing online sales;and 2) developing communication schemes to keep in frequent contact with customers.

The company launched its Web site at ewong.com in 1998. Until that time, GSW had two saleschannels: its stores and the telephone/fax ordering service. The company spent $80,000 initially onthe hardware and software for its Web site. It cost around $5000 per month to maintain the site,including $3000 for a phone link. At ewong.com, the visitor could take a virtual tour of a store andorder any of 20,000 items, half the number carried by the traditional stores. Within certain areas, E. Wong delivered virtual orders within three hours, as it did for orders placed by fax or phone.

In mid 2000, the Web site received approximately 800 to1000 visits per day. Of those, an estimated2% or less placed an order. Regular online buyers tended to be men (Salguero, 2000).

Peru did not have a large penetration of computers, so most Internet access came from public sites,ciber cafes (cabinas pblicas) rather than the home. As a result, GSWs Web site was used morefor sales than for communication. By 2004, more than 96% of the online orders came from Peru-vians living outside Peru in places with a high penetration of computers. Peruvians living in theUnited States used the Web site to send groceries to their families in Peru. To attract these custom-ers, the company ran an advertising campaign in California, Florida, New Jersey, New York and Washington, DC, areas with high concentrations of Peruvians. Many customers found out aboutthe service by word of mouth (Raymond, Pinheiro, and Bianchi, 2002).

For expatriates, the online grocery shopping service offered an attractive alternative to wiring money home and paying a commission of 10%-30%. When customers used GSWs virtual store to sendgroceries to people in Peru, the entire amount of dollars was available to the recipient to buy goodsin Lima.

Marketing Strategy GSW applied direct marketing concepts in order to serve its best customers who probably generatethe most revenue. The company had segmented the market by consumption and frequency. Massmarketing took care of the great mass of customers who didnt generate much money, but with whom the company wanted to maintain a certain image. For the different markets, GSW devel-oped personalized promotions and special events with differentiated prices for certain customers.Each week the company launched a series of events directed at the best customers. For example, arelational marketing effort might involve sending personalized cards to customers and developingdaily events at a store for a period of time.

Bar CodesGrupo Supermercados Wong initiated the use of bar codes in Peru, and was one of the founders of the Peruvian Association of Bar Codes. When the company introduced the bar code, it gained threeyears advantage over the competition. The bar code system allowed the company to change prices with great speed, and gave them significant economic advantages. To maintain an up-to-date inven-tory, GSW relied on bar codes.


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Center for Merchandise in Transit For distribution of products to its stores, GSW had a central reception site called the Center forMerchandise in Transit. To control inventory and improve logistics, trucks full of pallets drovethrough the reception center, and then distributed that same merchandise to the stores. Thus, themerchandise did not linger in central reception and went immediately to the supermarkets.

At the drive through, employees made a quality check and control inventory. Several engineersevaluated the lots of fruits and vegetables so the company had only one standard for quality assur-ance. In the past, GSW empowered the manager of each stores fruit and vegetable section to acceptor reject a shipment, but that meant that the company had 27 standards. The new center increasedefficiency by providing one standard for quality control.

Center for Meat DistributionGSW established a Center for Meat Distribution with world-class technology that no other super-market chain in Peru had. This innovation came as a result of a visit from Ecuadorean colleagues who noticed that the GSW stores controlled many things, but not meat. They commented thatthey put a lot more controls on meat than GSW. Because meat was so expensive, the store could losea significant amount of money if beef spoiled.

After their visit, Efran Wong created a complete control system for meat and established a Centerfor Meat Distribution to serve all the stores. Before the new center was established, GSW had 27meat departments with 27 different levels of efficiency. After all the first meat cuts were made in theCenter, and the stores received meat ready for final cutting. In addition, GSW reduced the numberof butchers in each store from six or seven butchers to two or three.

World-Class Information SystemGSW installed a world-class SAP information system with administrative, financial and account-ing functions (Microsoft, 2004). As a result, the company could receive information every hour foreach item that they sold and faced a new challenge of mining the information. Efran Wong jokedthat the company now had so much information that one gets indigestion!

Marketing PromotionsGSW was also innovative with its marketing promotions. The company was the first in Peru to giveaway autos. Later, many companies awarded autos, but GSW was the first to offer three MercedesBenzes as prizes. One promotion took place in Metro, where the store gave away an auto a day forthirty days in a row. Often in Peru, a familys first dream was to have its own car

GSW ran another promotion called verde no paga (green doesnt pay). This game was a take-off on the experience of passing through customs at Limas international airport. After travelers pickedup luggage from an international flight, they pushed a button that lights up either green or red. Thecolor determined whether or not they must open their bags for a customs agent. A green light letthem pass through without opening their bags, while a red light meant that they had to open theirbags for the customs agent. In GSWs promotion, customers pushed a button at the checkoutcounter. If a green light came on, groceries were free! If a red light came on, the customer had to pay as normal.

Value #4: We Always Look for Better Ways to Serve the Customer.The fourth value encouraged managers to constantly look for better ways to serve the customer. The Wong brothers believed that managers and employees should never be satisfied with the status quo, thatthey should always seek to improve and try new things. As a result, some stores launched a food court.To do it well, they contracted a chef and hired an American consultant. Five stores in the GSW chainadded food courts that became very successful.


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Government Business RelationsGovernment business relations were important to GSW, especially with the local governments andmunicipalities. The company tried to maintain a very good relationship with the local govern-ments.

Because of the environmental impact that supermarkets had, Wong and Metro stores were careful

to reduce the effect of noise on the neighborhoods where they operated. They worked to limit thequantity of waste, and added air ducts and chimneys to eliminate odors. The company tried tosurpass the standards of the local governments. Efran Wong explained (2004), We are a littleahead of what the law demands of us. We comply with all the laws, but we go a little further,imposing on ourselves things that help us to get along well with the community and the govern-ment.

The company saw social responsibility as a duty. It contributed to various orphanages, homes forsenior citizens, and food banks. GSW was the first company in Peru to offer employment to people with Downs Syndrome and other handicaps.

Challenges Facing Grupo Supermercados WongGrupo Supermercados Wong faced a number of challenges in the years beyond 2004. How can they sustain growth by adding stores and increasing the number of families that shop at supermarkets inPeru? What innovations should they add? How can they prepare to face foreign competition such as Wal-Mart and Carrefours when these enter Peru? What can GSW do to keep its customers satisfied,surprised and loyal to their stores? How will the stores handle the risk of political instability andhigher taxes?

Maintaining innovationThe company constantly sought innovation and creative new ideas. As Marco Surez (2004) ex-plained, we are permanently in search of new ideas. The President of GSW always points out thathe prefers the company to do one thousand things better 1%, than one thing 1000% better. Thatsbecause a thousand things will differentiate the company in many ways from the competition. Sothe company is always looking for new programs.

Where did the new ideas come from? According to Surez, We look at what the world is doing andtry to implement the new trends in ways that will meet the needs of our Peruvian customers.

Maintaining Market Position and Facing CompetitionStaying at the top of the supermarket industry in Peru presented a complex set of challenges. ForCarlos Wong, every day was a challenge, Grupo Supermercados Wong competes every day, notfighting in an aggressive way but in a wholesome, healthy, sound way with respect for the rules andlaws.

Marketing was an important tool used to maintain market position. The company used innovativeoffers to attract and hold customers. GSW studied customer behavior. First, the company seg-mented its markets in order to concentrate on the approximately 20% who make 80% of thepurchases. The company periodically checked to see if the biggest customers were maintaining theiraverages. If they began to go down, the company developed promotion schemes that were person-alized by Direct Marketing. Second, people with a good record of purchases were rewarded withpersonalized discounts. In this way, the company could give a differentiated price to certain cus-tomers. A third strategy used by GSW was to develop programs to protect territory after the com-petition suddenly opened a new store.

When some new store of the competition opened in the area of one of the Wong or Metro stores,the company acted to protect the customers geographically during the opening of the competition with marketing campaigns or more drastic moves such as converting an E. Wong store to a Metro


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supermarket. For example, in San Isidro, a Plaza Vea store (the less expensive brand of the SantaIsabel supermarket chain) opened a few blocks away from an E. Wong supermarket. In response,GSW swiftly converted the E. Wong store into a Metro supermarket with lower prices to compete with the new Plaza Vea.

To fight competitors, the supermarket chain also developed campaigns of personalized marketing

by geographic zones. For example, the company rolled out promotions for 20-22 weeks, muchlonger than the six weeks that was standard in the industry. Marco Surez (2004) contended thatthe real secret of value added lies in our store having good products, good employees, good pricesand the services that the customer wants. Relational marketing is the motivation, but the reasonthat the customer stays and keeps coming back is our store.

How can GSW survive and grow in the highly competitive supermarket industry? The level of service and quality of product were key parts to its success. The company continued to provide thecustomer with incomparable service, empower employees, innovate continuously, and seek ongo-ing improvement.

Sustaining Growth Assistant Manager Edgar Callo announced that GSW forecast a growth in sales of between 5% and10% for 2004, up from the record-high $576 million sales posted for 2003. The positive forecastfor 2004 was based on consumer behavior in the Wong and Metro supermarkets in the first twomonths of 2004, the implementation of new projects, and the opening of three new stores. GSW also expected to reduce operating costs through streamlined logistical processes (ewong.com, 2004).

In 2003, the E. Wong store managed by Carlos Wong experienced an increase in sales of 14%,slightly better than the overall companys growth rate of around 12%. In 2004, the company facedthe challenge of growing the participation of supermarkets in Peru. The penetration of supermar-kets was only 24% in Lima, where a small percentage of the population shopped in supermarkets.Many people still preferred to shop at local markets and street vendors. The supermarket industrysgoal for 2005 was to reach 40% penetration of the market.

ConclusionGSW management considered service an integral part of the business. Their broad concept of serviceranged from the customers experience in and out of the store, the customer-company relationship,employees, to innovation, technology, ongoing process improvement, marketing and relationship man-agement. At GSW stores, service also involved surprising and delighting the customer. Fine leadershipand good communication also helped the company to achieve its top market position.

For the Wong brothers, customers were an extension of the family. Providing excellent serviceimplied building and maintaining a close relationship with customers. The owners compared theirbusiness relationship with customers to a marriage, and worked to earn the customers loyalty every day.The family stretched the definition of service to include the belief that they must love their customers inorder to serve them well. As a result of this customer-focused strategy, customers and employees felt likepart of a family.

How can Grupo Supermercados Wong continue to compete successfully in the supermarket in-dustry? What new strategy should the company develop to maintain its competitive edge? What changesare needed in order for GSW to keep its leadership position in the market?

AcknowledgementsThe author thanks Efran Wong, Managing Director of Grupo Supermercados Wong, Carlos Wong,E. Wong store manager, and Marco Surez, Commercial Projects Manager at Grupo Supermercados


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Wong for generously granting video interviews for this case. She also appreciates the kind help of Rosario Herrera, assistant to Efran Wong, who made special arrangements for the interviews. Appreciation goes to Robert E. Grosse and Bert Valencia, co-directors of the Thunderbird Center of International Business Education Research, and Andrew Inkpen, Director of the Thunderbird CaseClearinghouse for financial support of this project.

The author gratefully acknowledges the invaluable assistance of Henry Harman, Director of theComisin Fulbright in Lima; George Barton of Lima and Miami; Lisa Wing, correspondent forLatinTrade ; Wanda Lauterborn, professor of Spanish at Thunderbird, The Garvin School of InternationalManagement; Susan Coffroth; and Celeste Scott. Special thanks to Georgia Lessard, Santiago Martello, Amy Pate, and Brett Beyers of Thunderbird, The Garvin School of International Management, for theirkind help with this project.

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Economist Intelligence UnitExecutive Briefing. Aug. 31, 2003. FactivaEconomist Intelligence UnitExecutive Briefing. Mar. 24, 2003. Factiva Consumer Goods and Retail-ing: Peru.

Ewong.com. Corporate Web site, 2004.Hoovers Company Profiles, Royal Ahold. Dec. 7, 2003.Latin American News Services, Sept. 26, 2003. Factiva.Latin America News Digest , 2004. Peruvian E. Wong Forecasts up to 20 Pct Y/Y Growth for 2004.

LATIND0020040312e03c00006 12 March 2004. Gutierrez, Violeta. 2003, AgExporter.Oct. 1,2003, Vol. 15, issue 10. Factiva.

Microsoft BizTalk Server. Largest Peruvian Supermarket Chain streamlines collection of POS datausing BizTalk server 2002, Mar. 2003.

Reuters News, Oct. 25, 2002. Interview: Top Peru supermarket chain sees sales leap. FactivaRaymond, Nicole, Di Pinheiro and Alejandro Bianchi. Emigres send food online to old country

retailers seek to tap into billions repatriated by Latino Immigrants to the US,Wall Street Journal (Eastern edition), New York, NY Nov. 6, 2002, pg. B3.

Salguero, Carol. A Peruvian retailer is building its virtual operation well ahead of consumer demand,Business Latin America, 8/7/2000, Vol. 35, Issue 31.

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26653794 e Wong Innovation and Customer Service

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