Hi everyone, this is analysis of Sheng Siong from business & expansion perspectives as the results of the voting on Wednesday.

Hope you guys like it.
Please feel free to give any comments below and have a good weekend :)

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$Sheng Siong(OV8) ’s strategy change in recent 6 years

Given the fierce competition in Singapore’s retail supermarket industry, Sheng Siong is facing the threat from powerful competitors and the fear of declining market share. During the time period of 2008-2010, Sheng Siong put their emphasis on consolidation, upgrades and renovation of their existing outlets. This explained why Sheng Siong merely opened one new store in each year of 2008 and 2009, and did not add any outlet into the brand in 2010. The financial year of 2011 is important for Sheng Siong, the firm launched the e-commerce project and adopted strategy of expansion in both local and overseas market.

2011: Expansion without debt burden
In 2011, Sheng Siong’s revenue decreased by 8% due to intense competition. Government announced to reduce the ratio of foreign workers, which leads to rising cost of labor for Sheng Siong since then. However, Sheng Siong cleared off all their debt and held abundant cash in balance. The company realised the strategic meaning of increase presence of outlets to reach more customers, thus opened 4 at Elias Mall, Teck Whye, Woodlands Industrial Park and Thomson Imperial Court.

2012: Aggressive expansion
In 2012, Sheng Siong brought 8 new stores to places which they didn’t reach previously. Under the circumstance of weakened market and unfavourable policy, Sheng Siong’s revenue increased by 10.17% and net profit almost doubled from $27.256m in 2011 to $41.677m, which benefits from soared online sales and increasing revenue from new stores. For overseas market, Sheng Siong had a wholly owned subsidiary in Malaysia called Sheng Siong (M) Sdn. Bhd. The 8 new stores are spread out across the island which includes Toa Payoh, Yishun Central, Jalan Besar, Geylang, Bukit Batok, Bedok North, Ghim Moh and Clementi.

2013: Services upgrade
In 2013, Sheng Siong stuck to their strategy of spread wings and located at places without previous presence. However, they didn’t manage to secure appropriate place for new operation, instead, Sheng Siong extended open hours of their 29 stores. After that, 29 out of 33 outlets of Sheng Siong provided 24 hours services to consumers. Sheng Siong observed 7.86% revenue increase but 5.6% drop of net profit compared to performance of 2012 because Sheng Siong didn’t win a bid for retail place and constructions near their stores at Bedok Central and The Verge impacted their sales.

2014: Cost management & preparation for further expansion
In 2014, Sheng Siong kept their strategy to mainly hire elderly singaporean in order to avoid rising cost of hiring foreign workers. Actually their started to do this since 2013, and in 2014, Sheng Siong’s efforts got paid off as they observed the lowest ratio of administrative cost to gross profit over 3 years. Additionally, profit margin improved from 5.66% in 2013 to 6.56%. Sheng Siong preferred to acquire capital from equity compared to using debt and borrowing, and the firm issued 120 million new shares at $0.67 each, which reflected persist expansion plan of the management group. At the end of year 2014, Sheng Siong held additional $30m cash when compared to balance in last year.

2015: Another wave of expansion
At the beginning of 2015, Sheng Siong held cumulative cash amount of $130m, which jointly contributed from business and stock issues. With sufficient funds, Sheng Siong added amount of stores to 4 more locations. At the end of 2015, Sheng Siong stated in their financial report that “out of this 5.3% growth, 4.6% was contributed by the new stores opened in 2014 and 2015 and 0.7% from comparable same store sales. ” It turned out the dynamic expansion strategy, which Sheng Siong adhere to, eventually bring them good return. While at the same time, competitor hypermarket like Giant plunged into an unfavourable position in competition because of expansion weakness. For overseas market, the firm set up a 60% owned subsidiaries in China called Sheng Siong (China) Supermarket Co, Ltd.

2016: New era of retail business
In 2016, followed the spread pace in 2015, Sheng Siong opened 4 new stores at Circuit Road, Upper Boon Keng Road, Fernvale and Yishun Junction 9. The firm noticed opportunities that technology and new shopping habits of consumers bring to grocery retailing. As there is a growing number of consumers who prefer shopping online and enjoying payment with their electronic devices, thus Sheng siong devoted themselves to e-commerce, mobile wallet and collaboration with different credit card issuers. Greater frequent usage of self-service payment machine also saved Sheng Siong some manpower costs.

Key takeaways

This article explains detailed change of Sheng Siong’s expansion strategy, and how the firm makes efforts to solve problems of high administrative cost and updates to cater new preferences of customers. Also, by hiring elderly singaporean employees, applying self-service payment machine and improving management, Sheng siong managed to maintain growth under intense labor policy. Based on Sheng siong’s performance in recent years, I found that the management team has a clear awareness of problems, formulates practical solutions, able to stick to their plans and adapts to the newest trends.

Outlook for 2017
In 2017, still, Sheng siong will seek for appropriate places for new outlets and further expansion. Apart from NTUC fairprice and Dairy Farm group, some small supermarkets such as Yes, U Stars and Ang Mo Supermarket brought competition to Sheng Siong. Recent news has reported that Sheng Siong failed to secure some HDB sites in the competition with smaller players. However, Sheng siong has made statement in their 2016 financial report that they will not consider to win a bid at a price price that they do not think makes economic sense. For the overseas market, Sheng siong's 60% owned subsidiary in China will start operate at 3Q2017. In the future, Sheng Siong should focus on products differentiation and improve their customers’ brand loyalty. Though the competition with NTUC fairprice and Dairy farm will still be intense, Sheng siong is supported by strong financial position and a well-managed team.

This article is written by @fayewang from InvestingNote.
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*Data source: Sheng Siong Annual report 2011-2016, http://www.shengsiong.com.sg/pages/investo...
*All the dollar unit ($) in this article refer to SGD.

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9 likes 4 comments
CoryLogics

If I remembered correctly, often is my personal bias LOL, Sheng Siong mentioned the business kind of complement NTUC. I think location play important role in how they complement each other to support the community.

As for Diary Farm like Cold Storage, their market segment is quite above what Sheng Siong targets. The intense comes from competitors like ang mo.

Elliot

Reply to @corycat : Convenience is the top factor for me. Sheng Siong is closer to my home, within very short walking distance. Second factor is the availability of products I want. So yes, location is key.

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