SINGAPORE (Aug 2): Amazon’s launch in Singapore will have little impact on the grocery retailers under its coverage — at least for now, says brokerage RHB.
Last week, Amazon launched its Prime Now express delivery service via its mobile app.
See: Amazon announces launch of Prime Now in Singapore
However, Singapore’s online grocery market share at present stands at a mere 1.2%.
On top of that, says product assortments available on Amazon -- especially fresh produce -- are still limited and can’t compare to that found in Dairy Farm and Sheng Siong which are on RHB’s radar.
In fact, RHB thinks the duo could have an edge over the competition should they put in more concerted effort to embrace changes.
In a report on Wednesday, analyst Juliana Cai says, “Looking at the longer term, we believe the future of retail lies in omni-channelisation. On this note, we still think that supermarkets are in good stead to defend their market share.”
Cai says in the US and China, both Amazon and Alibaba have gone into brick-and-mortar to improve consumer experience. Hence, she thinks that chain supermarket operators with storefronts across Singapore could actually create a more dynamic shopping experience for consumers.
See: Amazon’s Whole Foods purchase set to upset the grocery cart
Today, both Dairy Farm and Sheng Siong have their own e-grocery platforms.
Cai thinks their physical outlets could serve as mini-fulfilment hubs to hasten delivery timing or serve as click-and-collect locations.
“Ultimately, chain supermarkets could still lead when it comes to integrating online and offline services, thereby providing a holistic shopping experience, if they choose to put in the effort to do so,” adds Cai who is maintaining its “overweight” on the Singapore grocery retail sector.
RHB’s top pick is Dairy Farm with a ‘buy” and target price of US$10.00. It just built its fresh distribution centre (DC) in Singapore last year and is set to open a DC in Philippines and another in Malaysia this year.
“We believe the wide array of fresh offerings would increase margins for the group and raise its resiliency against e-commerce,” says Cai, “Dairy Farm is also building up its portfolio of corporate brands to give consumers more reason to visit its outlets for exclusive products.”
And although RHB recently downgraded Sheng Siong to “neutral” due to a limited upside in gross margin expansion and a recent cut in its dividend payout ratio, Cai believes that Sheng Siong, with 44% proportion of sales driven by fresh food, would be relatively more resilient against the online competition. RHB has a $1.05 price target on the stock.
As at 10.02am, shares of Dairy Farm and Sheng Siong are trading at $8.02 and 94 cents respectively.
