Sheng Siong Group

[weijian]

@LionFlyer,
A correction to the FPG's GPM of ~30% in my earlier post - A closer look at FPG's revenue composition reveals ~7% of revenue is from F&B. If we assume the typical F&B GPM of ~70%, a back-of-envelope calculation for FairPrice's aggregate GPM across all its grocery/FMCG retail formats would be ~26%. So matter of fact is that for every 10dollars of basket size, FairPrice does earn ~30-40cents less than SSG on a gross basis. Is that difference coming from sales price, supplier prices, basket mix (eg. house brands) or simply an accounting issue (shifting between COGS and SGA) - I am not too sure too without a detailed comparison/study.

@BigToe,
Thanks for providing some anecdotal observations. IIRC, DFI has been undergoing a turnaround since it first changed its first CEO in 2017 while undergoing cultural and organization revamps. On hindsight, some of it didn't work as well as the Taipans wanted, especially the Spore/Msia grocery ops resulting in their divestment as the Taipans themselves are revamping themselves at Jardine level. That said, I wonder why would the 2 Datuks take a picture with the existing DFI's MD of Grocery Retail Spore and say that retaining him is critical to Macrovalue's plans as below (in italics):

Macrovalue pointed out that the retention of Lim Boon Cheong, DFI Retail Group’s managing director for Singapore food, is crucial for the growth strategy. He has played a pivotal role in shaping Cold Storage for more than 30 years, with strong experience in retail and a deep understanding of Singapore consumers.

Must be those angmohs lah! Nevertheless, Cold Storage's real estate strategy is more similar to FairPrice than SSG. And so yeah, SSG will probably continue to dominate in the HDB retail space.

[Big Toe]

"Businessman Andrew Lim Tatt Keong, the co-owner and driving force behind the privately owned Macrovalue, said the S$125 million (US$93 million) deal with Singapore-listed DFI Retail Group, makes his company Malaysia’s third largest supermarket operator, after AEON and Lotus (formerly Tesco). It is also in line with his group’s strategy to achieve economies of scale in a fiercely competitive environment.

“The grand plan for any food and grocery business is to aggregate until you are of critical size to take advantage of better bulk discounts and back-end deal suppliers. Just like NTUC FairPrice and the Central Group in Thailand with 50 per cent of the market share in (the) primary food and grocery business … we hope to be that party in Malaysia,’’ Lim said. " Source CNA

So it seems that it is the same playbook as mentioned in my earlier post

[dzwm87]

It's more than just scale alone. DFI Retail Group has such large scale across SE Asia and Greater China which was why they were able to launch Meadows private label at such low pricing. They have bargaining power against the manufacturers. Yet profit margin remains to be low despite a considerable contribution from private label business.

[Big Toe]

Yes it is more than just scale. Product selection/etc is also key. Donki expanded at a relatively quick pace offering differentiated products(plus Pan Pacific International Holdings Corporation had scale back in Japan).

But if one were to align to the brands that Singaporeans are accustomed to, scale would be of utmost importance. DFI may have private labels, but their private labels at best have varying mileage across different markets. From my limited knowledge of meadows, it does not seem popular and probably viewed as a low cost, no frills brand.(no interest in DFI, no incentive to further my knowledge in meadows)

Also the private labels suppliers usually have their own brands that they sell to the supermarket as well. As a supplier I would be happy to supply more but the cost of the private label needs to be aligned to the brands that I am already supplying. Private Label is a lower priority.

For those not in the know, private Labels are essentially a group of products packaged differently from the same existing suppliers.

[weijian]

"Businessman Andrew Lim Tatt Keong, the co-owner and driving force behind the privately owned Macrovalue, said the S$125 million (US$93 million) deal with Singapore-listed DFI Retail Group, makes his company Malaysia’s third largest supermarket operator, after AEON and Lotus (formerly Tesco). It is also in line with his group’s strategy to achieve economies of scale in a fiercely competitive environment.

“The grand plan for any food and grocery business is to aggregate until you are of critical size to take advantage of better bulk discounts and back-end deal suppliers. Just like NTUC FairPrice and the Central Group in Thailand with 50 per cent of the market share in (the) primary food and grocery business … we hope to be that party in Malaysia,’’ Lim said. " Source CNA

So it seems that it is the same playbook as mentioned in my earlier post

Hi Big Toe,

Mr Andrew Lim's grand plan seems to describe 99 speed mart in Msia.  From a commissioned market study from 99 speed mart's prospectus on gross retail value in Msia:

FY18: Hypermart/Supermarket:29.9bil out of 69.3bil (43% market share)
FY23: Hypermart/Supermarket:27.8bil out of 79.5bil (35% market share)

So, Hypermart/Supermarket lost market share and sales in a grocery retail market that was growing at low single digit CAGR. It was declining before covid and after covid. The winners who took the market share and growth were mini marts (99 speed mart) and convenience (Family Mart, KK mart).

Macrovalue has a tough fight in Msia, though I suppose it will be easier in Spore. To be honest, I am not sure if having ops in both geographies is an advantage or disadvantage. DFI had close to 100 outlets of all formats in both countries - That looks like scale to me. I suppose these guys will double their outlets "for scale" under the noses of Lotus (CP Group), AEON (integrated grocery/shopping center), Mydin (Malay favored) or the more upscale ones like Jaya Grocer (owned by Grab) in Msia. And leveraging that new found scale/strength by somehow importing cheaper/better/faster Msian products to win Sporean shoppers from gov-backed NTUC.

Finally, I did a quick CSI on the 2 guys fronting Macrovalue. One of them took over Sogo KL and turn it around (maybe the dearth of street protests post Najib helped too ). They also owned Gamma mall located in central Penang downtown. Coincidentally, I stepped foot on it last Dec during my hols there and I wasn't exactly impressed.

[Big Toe]

Msia and Sg have vastly different purchasing power, so by "cheapening" and making SOGO/Gamma more affordable to the masses probably worked well for them. Singaporeans are not their target market. I visited a few "cheap malls" in East Msia and while they look like a mess, business is very brisk.

Operationally, I was not impressed by 99 speedmart, the ones I visited in KL. A lot of empty shelves and goods were not restocked. But I must admit, business is brisk despite its flaws, mainly due to convenience.

Onto supply chain, it is very diverse and very very complex. For a single product, maybe coke for example, it can be sold direct from Coke to supermarkets, it can be sold by a local distributor(market drink stalls usually get from single distributor as they provide a larger variety at a lower volume, less hassle), it can be sold by a parallel importer(Value Dollar). DFI is a large conglomerate tied down by a lot of red tape and unable to explore cheaper alternatives of the same brand/product.

The very fact that value dollar exist and able to expand with a fair number of familiar brands(drinks, chocolates, etc) hints to us that a lot more can be done. the last time I checked, Value dollar sells below the cost of what the supermarket buys the chocolate bar for. But I think the gap is narrowing of late.