Grocery firms' earnings resilient on global supply flexibility

Food procurement costs due to US tariffs can be mitigated through alternative markets.

Singapore’s grocery retail sector is expected to remain resilient amidst the volatility surrounding the US tariffs.

“We expect the sector to continue delivering on earnings and dividends going forward,” said Alfie Yeo, analyst for RHB, noting the sector’s defensive nature and earnings resilience.

The sector is reportedly on track to meet RHB’s expected 16% year-on-year earnings growth for FY2025.

Earnings remain defensive due to the grocery retailers’ wide international sourcing and import network across multiple markets.

“Food procurement costs can therefore be mitigated with similar or substitute products from alternative markets,” Yeo said.

“Hence, we believe the sector’s food costs and gross margins should not be significantly impacted by potentially higher prices from overseas supply sources. We like the sector, as consumer staples earnings remain defensive during an economic slowdown,” he added.

Yeo particularly highlighted Sheng Siong (SSG) for its stable earnings growth, and DFI Retail Group (DFI) for a turnaround play.

Both DFI and SSG reported FY2024 earnings that are in line with RHB’s forecast— DFID with a revenue decline on slower sales offset by operating margins, whilst SSG saw revenue growth and gross margin expansion but with slighter higher operating expenses.

However, an eventual knock-off effect could materialise in the form of a slowdown in domestic consumption from slower economic growth, Yeo said.

“If domestic consumption slows as a result of slower economic activity from the global 
tariff and trade war, we expect consumers’ spending patterns to shift – we believe there will be more downtrading from the higher-end grocery retail segment to the mass market,” Yeo said.

In such a scenario, mass market operators are likely to benefit more than the higher-end grocery retailers.