SUPERMARKET INDUSTRY “ROBUST”
Retail experts CNA spoke to acknowledged that profit margins are thin in the supermarket category.
Supermarkets are traditionally low-margin businesses worldwide and this region is no exception, said Dr Terence Fan, an assistant professor of strategy and entrepreneurship at the Singapore Management University (SMU).
“Clearly, DFI has seen a difficult time in the past decade or so since the emergence of RedMart, then the onslaught of online retailers and finally COVID,” he said.
“It is likely that (DFI) had already been planning to exit from this industry as its margins have slowed and remained super-competitive relative to its other businesses, here and elsewhere,” said Asst Prof Fan, who is also an academic director of accreditation at the university.
He added that Macrovalue likely bought the supermarket chains due to the proximity between Malaysia and Singapore. It already owns the Cold Storage and Giant stores in Malaysia, having acquired GCH Retail Group, which operated the brands there previously, in 2023.
“Our small population in relation to Malaysia meant that Macrovalue can easily and better leverage its economies of scale while DFI no longer could. In a super-competitive business, every bit of scale advantages counts,” Asst Prof Fan added.
The supermarket sector in Singapore is robust but expected to register “only modest growth” going forward, said Professor Lawrence Loh from the National University of Singapore (NUS) Business School.
Apart from DFI, NTUC FairPrice and Sheng Siong dominate the local supermarket sector, he noted. The new ownership is unlikely to disrupt the current three-player landscape, though established supermarkets must stay nimble in the face of niche entrants such as Don Don Donki and Little Farms.
Despite the closure of the 11 Giant outlets last year, supermarkets are not in decline. Retail sales for supermarkets and hypermarkets grew 11 per cent year-on-year as of January, according to figures released by the Department of Statistics Singapore.
Cold Storage and Giant also earned profits last year. The operating profit of DFI’s food division – which the two supermarket chains fall under – stood at US$57.8 million for the 2024 financial year, an increase from US$45.3 million in FY2023.
The sale reflects a strategic pivot by DFI and not because the supermarket business is not profitable, analysts said.
Associate Professor Lau Kong Cheen from the Singapore University of Social Sciences (SUSS) said it was not surprising that DFI intends to focus on the convenience and beauty and health segments given that the group has a larger number of outlets in these categories than FairPrice.
Guardian currently operates about 130 stores while FairPrice’s Unity has about 90 outlets around the country. Meanwhile, 7-Eleven’s nearly 500 stores vastly outnumber the 180 or so Cheers and FairPrice Xpress stores.
Such stores also require less manpower to operate, and their products fetch higher profit margins.
“Thus it makes good business sense for DFI to focus in this direction,” said Assoc Prof Lau, who is head of SUSS’ marketing programme.
On online grocery retailers edging out supermarkets, especially those without an online presence, he pointed out that these retailers have their own costs to bear, such as logistics and handling fees.
“Although online retailers trump traditional ones without (an) online presence in terms of convenience, there are quite a number of customers who still prefer to buy perishables at physical stores to verify their freshness,” he said.
“What would really hurt retailers without (an) online presence is … if they do not have (a) sufficient spread of physical stores.”
