Food retailing in Singapore revisited

This is the fifth posting in a series on business-unit strategy.

The objective of this posting is to show how the strategy possibility frontier can be applied to the Singapore food retailing industry. I am not an expert on the industry so this is work in progress. The posting is mostly relevant to students of strategy that would like to perform similar analyses for other product categories. I have previously written about the model (start reading here) and the industry (here). It is helpful to revisit those postings before continuing.



In figure 1, I have included all the large companies as well as a sample of smaller companies. I have not included the wet market stores, which are a very important component in the Singapore market. Figure 1 described the positions in 2011.

Figure 1. Grocery retailing in 2011. Broad strategies are indicated with white circles and niche strategies (examples only) with smaller, black circles. Carrefour has closed down. Shop n Save has merged with Giant, and rebranded as Giant. Missing from the figure are all numerous wet market stalls

Construction of the strategy frontier chart

The analyst does normally not have detailed data on each competitor in the industry available at the beginning of the study. It is very helpful to start with identifying the important drivers of cost and uniqueness in the industry. This can be accomplished by looking at cost breakdown in the annual report, interviewing, observing outlets, and possibly reading equity analysts' reports or searching the Internet more broadly. Figure 2 contains the important drivers for both cost and uniqueness.

Figure 2.

Sheng Siong. The appearance of the stores is somewhat unique as it combines the traditional low-cost supermarket format with a large section of fresh products displayed similarly to the wet market. The traditional low-cost supermarket format involves more crowded stores, no exclusive locations, not all produce stocked on shelves, large portion of staff not speaking English. To reduce wastage, stores can run out of some cuts of fresh pork and some vegetables vegetables in the afternoon. Customers will have to accept frozen or other substitutes. The company sources much produce directly from Vietnam or China. To reduce cost further the store does not focus on exclusive items, but it carries products in demand by all large ethnic communities in Singapore (i.e. Chinese, Malay, Indian). Keeping a large assortment of fresh produce makes the company different from typical low-cost supermarkets. Hence, the company achieves a certain degree of uniqueness. In addition, the company carries seasonal products which have been sourced at a low price. The company has the lowest prices and earns a healthy profit so I am putting the company on the strategy frontier.

Shop n Save (no longer active). The appearance of the stores is very similar to a western discount supermarket. A smaller range of products and an even smaller section of fresh products. The stores are located in suburbs where rental cost is lower. This is a classical retail format, but the company do not have the lowest prices, so I am guessing that the company is not having as low costs as Sheng Siong, warranting a position away from the frontier. The company scores very low on uniqueness.

Swanston. This is a niche company selling personal hygiene products (e.g. shampoo, soap, toothpaste) in one outlet in Outram. The store is located on a shopping floor level of an HDB building, which results in a low rental cost. The store is always crowded indicating high sales per square meter. The products are often sourced through parallel imports (e.g. Thailand). The prices are lower than Sheng Siong's and the focused operation probably translates to slightly lower costs as well. The company scores very low on uniqueness.

Fairprice. This is the biggest supermarket chain in Singapore and it traditionally has good store locations in the heartland where rental costs are lower. The company's outlets looks upmarket compared to Shop n Save, but not compared to Cold Storage. Costs are further increased by most products being available throughout the day, a fairly large range of products, including fresh products. Fairprice is also having slightly higher prices than Sheng Siong. The utilisation of store space is not as efficient as Sheng Siong (sales per square meter is lower). I place the company close to the stuck-in-the-middle territory. It is tempting for the company to add more upmarket features (e.g. Fairprice Finest) to distinguish itself from Sheng Siong.

Cold Storage. In the price comparison the company had very high prices, but it is also a growing, profitable company. This is evidence of a uniqueness position. The stores are located in expensive neighbourhoods which increases rental cost. The stores are more spacious (i.e. less sales per square meter than Sheng Siong and Fairprice), which adds to the brand's upmarket image. The company carries a large number of products, sometimes sold manually over the counter. The stores are generally very clean and bright and all items are stored on shelves. The stores carry a wide range of products that cater for a more western-oriented customer base (e.g. beef, breakfast cereal, organic foods, chicken without head) as well as products for the Chinese ethnic group (Chinese dry goods, chicken with head and feet). There is no other large company in Singapore with a similar image.

Foodie Marketplace. This niche company has one outlet in Outram/Tiong Bahru. It has a very small range of products, which typically are also carried by Cold Storage (e.g. beef, lamb, cheese, biscuits). The prices are considerably lower than Cold Storage's prices. I have located the company away from the frontier as it is not well known.

Bengawan Solo. This is a niche company focused on Malay/Indonesian kueh and cakes. This is one example of a typical high-end focused niche company. Their costs are high, but correspondingly their prices are high too.

Huber's Butchery. This is a niche company focused on western butchery products (i.e. beef, lamb and to some extent pork and chicken). Their costs are high, but correspondingly their prices are high too.

Meidi-Ya. This niche company has one outlet in Liang Court, Clark Quay. It carries a very large number of products. The store caters to the large Japanese expat market in Singapore so a lot of products are imported from Japan. They have a large fresh food section, but they also carry a lot of dry goods. Surprisingly the store also carries a large range of western dry goods (e.g. jams, pasta). Managing such a large assortment is expensive. The store has a large number of staff (e.g. cashiers). The prices are generally higher than Cold Storage's prices.

Carrefour (no longer active). I have placed this company in the stuck-in-the-middle area. I find it very difficult to understand the focus of management effort. Some effort is devoted towards uniqueness, e.g.: The store operates two hypermarkets in expensive, central shopping centres. The price level is quite high. They have a large fresh product section (e.g. bakery, fish, vegetables). They also carry their own branded French products since the company is the second biggest retailer in the world. The stores are extremely spacious. At the same time there is effort towards low cost, e.g.: Most of the non-food items belong to the mid/low end of the market, which creates an inconsistency. They do not carry a large range of their own branded French products, which often are out of stock. The checkout queues are always quite long. In addition to straddling between low cost and uniqueness, the company also has made some strange choices, e.g. selling fresh fish in expensive shopping malls, always having fresh durian which cannot be transported by public transport and is not liked by westerners.

Mustafa. This niche company has one outlet in Little India. It is targeted towards people with origin in the Indian subcontinent and the Middle-East (e.g. lots of imports from India, no pork). The store is generally crowded so space is efficiently used. I am placing the company higher on uniqueness because it is mainly targeting one minority ethnic group.

Wet market stalls. I have not listed the hundreds of individually owned wet market stalls. However, this is a very important part of the food retailing industry in Singapore. With a lot of research, it would be possible to place individual wet market stores in figure 1 too. Each wet market typically has a number of stores focusing on each product category (poultry, pork, beef, vegetables, fruit, eggs, dry goods). However, stores next to each other have different positioning. Some stores have a larger selection of vegetables or fish, whilst other stores have a smaller selection but offer lower prices. Some stores with a large selection also have lower prices aiming for a higher turnover.

Note to self: Should add Prime Supermarket (17 outlets, 1.5% of total market in 2011). Should also describe Giant hypermarket. I have not included convenience stores, e.g. 7-Eleven (561, 6.7%), Cheers (125 outlets, 1.1%).

Observations

Once the strategy possibility frontier has been constructed some interesting observations regarding strategic positioning can be made. Here are a few illustrations.

Carrefour. The company's exit in 2012 should come as no surprise. The company should have addressed its lack of strategy much earlier to have a chance of surviving.

Shop n Save. The company is quite vulnerable to the rise of Sheng Siong and the upgrading of Fairprice. In 2012 the parent company Dairy Farm group took the decision to merge the Giant and Shop n Save brands. A combined brand will have a larger chance to compete with Sheng Siong. However, they also need to update their retail format to compete with Sheng Siong.

Cold Storage. There is no other major company threatening Cold Storage's position. Right now the company seems to be using its unique position to charge high prices; probably the correct choice strategically. However, the company must be vigilant about overreaching and potentially alienating its customer base. Still, the risk is rather small since food retailing is local and the company is well located in expensive neighbourhoods. It is likely that they are testing different pricing strategies in different outlets.

Fairprice. The company is a cooperative so it can exist without making a profit, but if we were to analyse the company as a for-profit company its positioning is unclear. The rise of Sheng Siong and potentially a revamped Giant is able to offer lower prices and more efficient operations. Fairprice has economies of scale and good retail locations in HDB buildings, so there is no urgent threat. Since Singaporeans are used to high-end shopping malls it might be tempting for Fairprice to move more towards uniqueness. That makes the company more vulnerable on the low-cost end and not being close to Cold Storage's degree of uniqueness. The solution would be to either move the whole operation closer to Sheng Siong's position or two create two different business-units under different brands; one competing directly with Sheng Siong and the other with Cold Storage. Currently all Fairprice branded outlets have identical price levels. Since Fairprice is the largest food retailer in Singapore they could be a formidable competitor to Sheng Siong.

Sheng Siong. The company has during the last couple of years had problems finding locations for new stores. All existing neighbourhoods are already served by grocery stores so most new store openings have taken place in new neighbourhoods. In recent years the sales per square meter has moved down, closer to that of Fairprice. This is problematic for Sheng Siong's ability to keep its current strong position. If Sheng Siong and Fairprice were to move closer to each other, competition will be harder and profitability lower.

(There are some additional information about events from 2012 and 2013 that I have not included in the analysis above.)