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Can Local Supermarkets Compete With Amazon & Alibaba?
Amazon arrived in Singapore with much fanfare in the month of July 2017. Even before the launch of Amazon’s services in Singapore, Singaporeans have been anticipating the arrival of Amazon to Singapore with one of its most aggressive delivery service worldwide.
With more than 600 million consumers, growing wealth and digitisation in the Southeast Asia region, Amazon’s expansion into the region puts it in direct competition with Alibaba as well as the brick and mortar retail stores in Singapore, especially the supermarkets.
Amazon: Disrupting consumer behaviour
Amazon launched its services in Singapore with an eye on disrupting the grocery sector in Singapore. Currently, online sales contribute to less than 2.0% of revenue of the supermarket incumbents in Singapore (such as Sheng Siong and Dairy Farm).
With the entry of a big name like Amazon, more consumers could be converted from offline shoppers to online shoppers. That could speed up the penetration of online grocery retailing in Singapore.
Furthermore, Amazon could potentially package its e-grocery service with a wide range of services from unlimited movies to television shows to kindle books to photo storage.
Can retailers survive competition from Amazon?
Can incumbent retailers like Sheng Siong and Dairy Farm really survive the competition from a cash-rich giant like Amazon? According to analysts at RHB Research, the answer seems to be ‘yes’.
Building resiliency through fresh offering
Based on Nielsen’s global survey 2014, consumers are more comfortable with purchasing non-consumable products online.
The key competitive advantage of brick-and-mortar supermarkets lies in the fact that customers “still prefer to purchase perishable products in-store as they get to see, touch and pick the freshest products”.
Building resiliency through niche offering
Brick-and-mortar supermarkets have also been increasing their niche offerings to its customers.
For example, Dairy Farm has been investing in good quality corporate beauty brands to differentiate itself from other supermarkets and e-grocers.
NTUC Fairprice also announced a strategic partnership with Tesco to offer 400 Tesco products in 60 FairPrice stores and Fairprice Online.
Resilient due to SG landscape
Given that Singapore is a small country, it is highly convenient to visit a supermarket in Singapore.
Analysts believe that the push to switch to e-commerce is not compelling. Moreover, some supermarkets are open 24 hours a day, almost similar to e-grocers.
Brick & mortar supermarkets still holds edge, especially Dairy Farm
Future trend in retailing lies in omni-channelisation
According to RHB Research analysts, the future of retail lies in omni-channelisation, rather than “only-online”. Both Alibaba and Amazon have been going into brick-and-mortar in China and US to improve consumer experience.
As such, chain supermarket operators with storefronts across Singapore could follow in their footsteps to create a more dynamic shopping experience for consumers.
Chain supermarkets could still compete against the big boys (Amazon and Alibaba) in online and offline services integration to provide flexibility to Singaporean shoppers.
Edge still lies with Dairy Farm
Dairy Farm still holds an edge that cannot be replaced by online sellers – allowing customers to see and touch items before purchasing.
Another area that Dairy Farm has been working on is to increase its fresh offerings to consumers. Just last year, Dairy Farm completed its fresh distribution centre (DC) in Singapore.
Dairy Farm is set to open a DC in Philippines and another in Malaysia this year. Analysts believe that the wide array of fresh offerings would increase margins for the group and raise its resiliency against e-commerce.
RHB Research: Dairy Farm International Holdings Limited (SGX: D01) – BUY; Target Price $10.00
