Singapore's crowded retail arena bears down on online players

Online retailers still struggle to gain market share, as shown by Redmart's consolidation into Lazada and honestbee's severed ties with NTUC Fairprice.

Singapore welcomed a fresh wave of retail players in the recent years including Redmart, Amazon Prime, and honestbee’s habitat with the new entrants aiming to chip market share from brick and mortar grocery residents such as NTUC Fairprice, Dairy Farm, and Sheng Siong.

These new players presented consumers with fresh offerings to try to seal their standing in the city-state. honestbee’s habitat unveiled back in October tried to lure its way into consumers through its ‘NewGen Retail’ branding as it includes a supermarket, restaurant, and retail tech innovation lab all housed in a 60,000 sqft space.

Also read: Amazon's bid for e-commerce supremacy in Singapore falls short

However, these new entrants still need to toughen up to weather the competition by ramping up product volumes and varieties as well as obtaining favourable credit terms from suppliers, DBS Equity Research analysts Alfie Yeo and Andy Sim said.

The analysts cited recent changes such as the ceasing of NTUC Fairprice’s partnership with Honestbee as well as the consolidation of Lazada’s online grocery retail arm, RedMart, onto Lazada’s main platform.

Also read: Redmart to move into Lazada's platform on 15 March

“We believe that there is no reason for both NTUC Fairprice and Lazada to shift away from the status quo if the partnership and parent independent subsidiary arrangement were blossoming,” the analysts said.

Meanwhile, they noted that combining some overlapping functions at Lazada and RedMart could lead to cost savings and efficiencies as RedMart presents a range of non-food items anyway.

Also read: Online grocers risk losses with new experimental offerings

“We see the change in Lazada to consolidate operations as an attempt to improve scale and operational efficiency, whilst the NTUC Fairprice and Honestbee partnership may not have performed to expectations,” they explained. “Our initial view is that no changes would have been necessary if both businesses were operating and progressing well.”

Brick and mortar players on the greener side
Whilst challenges keep beating up online retail players, brick and mortar players are in luck.

“Whilst new players may give the incumbents a run for their money, we also note that those without sufficient scale and relationship with key suppliers, will find it difficult to compete profitably,” the analysts said.

The analysts noted that Sheng Siong has maintained its stronghold in the mass market amidst competition from online and smaller players through offering competitive prices and a large variety of fresh products. “We see Sheng Siong as a prime takeover candidate due to its vast store network and logistics chain, especially if online players eventually decide to move offline through acquisitions,” Yeo and Sim said.

Sheng Siong’s warehouse extension which is set to open this year could support higher gross margins. Moreover, a minimum of seven newly opened stores back in 2018 will see the fruition of a 12 month-revenue contribution by 2019, they noted.

Also read: Sheng Siong could be a takeover target amongst online players: analyst

Meanwhile, Yeo and Sim also observed that smaller players such as Hao Mart are moving to expand footprint by outbidding competitors for new HDB supermarket space.

“We believe that smaller players’ expanding scale such as Hao Mart (which has more than 35 small outlets) will greatly improve their working capital requirements aided by better credit terms provided by suppliers,” they explained. “But we may see lower operating margins in the form of higher rental expenses since these smaller players may have to outbid the competition to secure shop spaces.”