Businesses need to shed old beliefs on consumers and ramp up the uniqueness of their products and their pricing strategies.
A Maybank Kim Eng report revealed previously that Singapore's convenience stores have been losing out to supermarkets that keep expanding their variety of goods at lower prices. However, their problem lies not only with the takeover of the supermarket giants, as analysts suggest that Singaporeans may be tired of the usual convenience stores.
Amidst lower sales and a nearly five-year trend of store closures in Singapore, Dairy Farm started to cooperate with 7-Eleven Japan for delivering advances in ready-to-eat and 7-Eleven’s private label range. CEO Ian McLeod said this indicates “a consumer shift to more convenient retail formats.” This lifted profits amidst the gloomy operational circumstances.
According to RHB Research analyst Juliana Cai, the 7-Eleven chain made its offerings distinct with unique, exclusive products. "Some of these include Kose Sekkisui products and limited edition peach Coca-Cola from Japan," she observed.
Cai explained that, like Dairy Farm, convenience stores and supermarkets would need to find ways to differentiate themselves from supermarkets in order to survive. “Contrary to other ASEAN countries, the smaller formats are losing out to supermarkets in Singapore. Singapore is a small country with high supermarket penetration. Since a few years ago, supermarkets have begun to operate 24 hours. This greatly dilutes the need to go to convenience stores which have limited range of products and are priced at a premium,” she added.
IGD head of Asia-Pacific research Nick Miles agreed with Cai because, in markets like Singapore, supermarket penetration is high. "Convenience stores need to differentiate themselves and become ultra-convenient. This is often achieved through stronger fresh food, attractive food-to-go solutions and unique products that satisfy time pressured shoppers,” he added.
However, Savills Singapore senior director Alan Cheong begged to differ and said that product price is the one simple reason convenience stores are losing out to supermarkets. "Take for example beer. In Hong Kong, convenience stores sell them at competitive prices. In Singapore, we find them selling very much higher than even mom and pop provision shops in the HDB precincts. That is a very unusual pricing behaviour because, in an ageing economy, price elasticity becomes increasingly acute. However, instead of relooking at their pricing strategy, many simply stick to the status quo, believing that because they are deemed a convenience store, people will continue to put up with that and pay for the convenience factor," he said.
"The poser is, is this a 90s mindset that didn’t keep up with times? " he added. "Many of these convenience stores are owned by the same supermarket chains that are undermining them. Not only are there issues about pricing, but there is hardly any cross-selling of their network and related companies’ goods and services. If the left hand is undermining the right hand, then obviously the retailing body is dysfunctional.”
On the other hand, Miles concluded that convenience stores are allowed to work on not only their offerings and prices but also on other factors. “The convenience channel possesses many growth opportunities, however, to unlock this growth, retailers must develop the right format, ranges, price position, and services to appeal to shoppers. In many ways, more important to this is an agile supply chain and an ability to flex stores to deliver local appeal," he said.
He added that Singapore has the capacity to tap into convenience retailing, which is currently the fastest growing bricks and mortar channel in other Asian markets. “IGD forecasts that Asia’s leading convenience retailers will grow 6.6% a year to 2022, with some retailers in the channel seeing strong double-digit growth," he added.
Do you know more about this story? Contact us anonymously through this link.