The Secrets of a Supermarket’s Success Revealed
Sheng Siong is a brand synonymous with supermarkets in Singapore. What started out as a single shop house unit has evolved into a chain of 33 stores and is the third largest chain of supermarkets in the city state. 30 years after it was first founded, Sheng Siong is now a listed company with a market cap of over $960 million. The secret recipe for the supermarket giant’s success was recently revealed to the School’s undergraduate students in a sharing session for the Strategic Management class with co-founder and CEO, Mr Lim Hock Chee.
SINGAPORE (Feb 27): The supermarket business is gonna get tougher for Sheng Siong, says Maybank Kim Eng Research and is telling investors to look elsewhere for cheaper growth plays.
In a Monday report, analyst Gregory Yap says supermarket business growth is expected to slow sharply. Euromonitor has flagged a sharp slowdown in supermarket revenue CAGR to just 1.6% in 2016-2021 from 4.5% in 2011-2017 as online grocery retailing gains traction.
Even Sheng Siong’s management has agreed that the online shopping model is better than brick and mortar and possible rivals Amazon and Tesco may enter the local market, warns Yap.
Secondly, competition for new store locations is getting stiffer, with even convenience stores potentially entering the fray.
More importantly, Sheng Siong’s growth so far has been achieved on large margin improvement which Yap says is nearing the limit and expects further margin uplift to slow.
“Asset-use efficiency has suffered since 2014 since it started buying assets and now even new store sales growth could be affected by increasing site competition,” says Yap.
“With margins close to peaking and store expansion challenges, growth will remain slow unless it is willing to gear up to acquire growth either locally or overseas. But that will certainly change its risk profile,” adds the analyst.
In a recap, Sheng Siong’s 4Q and FY16 came in line but were “uninspiring”. Net profit over the last five quarters has slowed from more than 20% growth a year to single-digit growth by 3Q16 and just 5.7% in 4Q16. 4Q16 and FY16 Same Store Sales Growth were also flat at 0.2% on year. New Store Sales Growth was up 8% y-o-y in 4Q16 and up 5% compared to 3Q16 as Yishun Junction 9 opened.