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The supermarket game: It’s survival of the fittest

SINGAPORE — When French hypermarket operator Carrefour entered Singapore in 1996, it barely realised that it had stepped on the toes of a sleeping homegrown giant.

The supermarket game: It’s survival of the fittest

NTUC has five FairPrice Xtra hypermarkets, including this one at Ang Mo Kio. FairPrice is now Singapore’s largest supermarket chain, with a network of more than 120 outlets. Photo: TODAY file photo

SINGAPORE — When French hypermarket operator Carrefour entered Singapore in 1996, it barely realised that it had stepped on the toes of a sleeping homegrown giant.

For the local supermarket NTUC FairPrice Co-operative, founded by the labour movement in 1973, the turf war unleashed by Carrefour pushed it to fight back with a fierce resolve. While Carrefour managed to attract customers, it found it tough to retain them as FairPrice responded with a razor-sharp focus on convenience, proximity and pricing.

In November 2012, the French retailer called it quits in Singapore and shuttered its two mega stores here. It said that its “expansion and growth perspectives did not allow reaching a leadership position in the medium and long term (in Singapore)”.

By April 2013, FairPrice had morphed from a single-format supermarket to a multi-format retail mammoth housing 96 FairPrice supermarkets, 10 FairPrice Finest stores catering to the affluent, five FairPrice Xtra hypermarkets, 136 Cheers convenience stores and 22 FairPrice Xpress outlets at service stations.

“When Carrefour came to Singapore, everyone — including us — was anxious,” recalled NTUC FairPrice chief executive Seah Kian Peng. “It was a top global retailer and its launch in Suntec was impactful. We learnt from them quickly … While we grew, Carrefour had a tougher time, expanding into just two outlets. Every time we opened stores, we saw them visiting us more and more. It was a good sign, they tried learning from us too. Eventually, they left.”

FairPrice is now Singapore’s largest supermarket chain, with a network of more than 120 outlets under the FairPrice, FairPrice Finest and FairPrice Xtra brands, as well as a network of 160 convenience stores under the FairPrice Xpress and Cheers brands. It also has a fresh food distribution centre and a centralised warehousing and distribution company.

Singapore’s retail landscape has changed drastically in recent years and multi-dimensional business dynamics have evolved with emerging disruptive business models. High rentals, rising wages resulting from the labour shortage, and the online onslaught have left retailers scurrying to protect profit margins.

Supermarkets, Mr Seah noted, are getting smaller in size, although they are increasing in number.

“Going forward, site selection continues to be key. New stores will come up, but supermarkets, be they small, medium or hyper, will continue to get compact for simple reasons. The land cost is high and big spaces at desirable locations are tough to get. It is a trend worldwide and likewise in Singapore. The days of the megastore are going … We closed stores. Fortunately the number was not very big. Those were very tough and painful decisions,” Mr Seah said, without revealing the number of FairPrice outlet closures.

Supermarkets, said Mr Desmond Sim, head of CBRE Research (Singapore and South-east Asia), are shrinking in size for a host of other reasons.

“It not only allows them to be more cost-efficient as they pay less rent, but also more space efficient with better store management and improved productivity. With the increased use of click and collect or even home delivery schemes, the need for large, inefficient displays is highly reduced,” he said.

With the growing population, supermarket operators such as FairPrice, Dairy Farm group-owned Giant and Cold Storage, as well as Sheng Siong and Prime, will continue expanding to capture the demand in the heartlands, analysts said.

A bumper crop of HDB flats will be ready this year while new ones are in the pipeline. The Government also recently announced the launch of 12,000 new flats in six HDB estates, including Bidadari (Toa Payoh), Bukit Batok, Choa Chu Kang, Hougang, Punggol and Sengkang.

According to a DBS research report, supermarkets in Singapore will grow ahead of hypermarkets and convenience stores, boosted by longer operating hours (such as 24 hours a day), superior product mixes, and outlet expansion into non-mature residential areas such as Punggol.

In the near term, FairPrice plans to open five stores catering to the heartland populations. “We will continue to expand and open stores across new housing estates, keeping pace with changing consumer demand and remaining impactful in terms of giving value to customers, accessibility, convenience and, above all, our social commitment,” said Mr Seah. “To grow beyond 60 per cent market share, certain major moves need to be made … I cannot share much on our plans. Our competitors are all strong, they are watching us closely.” He said maintaining market share at the current 58 per cent level is just as tough.

Amid rising overheads, balancing the co-operative’s social mission of keeping prices of essential food items affordable for Singaporeans against managing the bottom line and delivering dividends to shareholders is a constant challenge, said Mr Seah.

“Every decision — from opening a new store, bringing in a new product or launching a new initiative — has to be thought through carefully to ensure that we fulfil both business and social goals,” he said. “Some people have a misperception that NTUC FairPrice enjoys special privileges when it comes to securing store locations. We go through the same tender bidding process.”

Meanwhile, manpower shortages are an industry-wide concern, noted Mr Seah. The co-operative is tackling the labour crunch with systems developed to reduce the number of staff at stores, while re-positioning them to do more value-added work.

It has launched a new high-tech distribution centre, which it says doubles manpower productivity when compared with a manually operated one.

FairPrice Hub is the first of its kind in the Asia-Pacific region using robotic technology and vehicles mounted on a monorail system for warehousing operations. With capabilities to manage 120,000 cartons a day, this leads to a tripling of dry goods storage capacity.

Such initiatives have attracted the attention of its global peers, said Mr Seah. “Many international supermarkets and co-operatives are approaching us to learn from us. We could certainly be technical advisers to them,” he said. FairPrice’s joint venture in Vietnam is an example where the co-operative has partnered with a local company to help it set up a hypermarket there. “We recently opened our second store in Vietnam ... and will continue to grow there.”

However, as the supermarket chain celebrates its 42nd anniversary this year, it is staying rooted to its origins and has no immediate plans to grow abroad beyond Vietnam. “Going global is not our main goal ... We are 99.99 per cent focused on Singapore,” Mr Seah said.

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