Sheng Siong shies away from aggressive store bids

But it continues to grow its store count with eight more openings by end-FY2018.

Amidst a growing pipeline of store tenders, Sheng Siong had indicated that it will not participate in aggressive or irrational store bids as it is cognisant of its operating costs, CGS-CIMB reported. Notably, it said that the two open bids it did not win earlier this year went to companies which had bid at $18-20 psf for the stores.

According to a research note, competitor NTUC is taking a less aggressive stance on HDB supermarket bids whilst Dairy Farm is in consolidation or restructuring mode in Singapore. “The consolidation/restructuring mode of its competitors, coupled with the displacement of wet markets, also opens up opportunities for Sheng Siong to garner more market share,” CGS-CIMB analyst Cezzane See said.

Sheng Siong will have a record year with eight stores scheduled for opening by the end of FY2018. This will take its store count to from 44 by end-2017 to 52. It expects two more leases for new stores to be signed by end-FY2018.

Also read: Chart of the Day: Sheng Siong and FairPrice are eating up the supermarket pie

Sheng Siong also guided that Singapore’s supermarket industry tender pipeline would still be healthy over the next three years. In July, HDB stated that there were at least four to five supermarket opening bid opportunities available over the next six months. “We project at least another 15 tenders after that, over 2019-2022F,” See said.

Meanwhile, CFO Wong Soong Kit and executive director Ruiwen Lin shared that the company’s on-the-ground operations are still robust. See noted that Sheng Siong was able to grow gross profit margins (GPM) from 22% at the time of its listing in 2011 to 27% in the second quarter of 2018, thanks to improved sales mix with a higher proportion of fresh food and the direct sourcing or bulk handling of its supplies.

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It guides that the GPMs for fresh food are higher than for dry goods, hence it has increased the average proportion of fresh food to its store revenue mix to 44-46% (vs. 32% in 2011).

According to See, To enhance its bulk handling/direct sourcing abilities, Sheng Siong showed forward thinking and completed its Mandai Link distribution centre in 2011 with a view to manage inventory centrally. This enabled it to shift its sourcing from wholesalers to direct suppliers, conduct bulk purchases and get supplier rebates that lower its cost-of-goods sold.

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