Consumers are attracted to shopping online due to the low prices, the convenience of purchasing and delivery, wider selection, as well as ability to shop on the go or a 24/7 access. Amazon Prime’s entry to Singapore on end Jul-17 had put retailers on the hot seat.
How do we view this?
We do not think that Amazon will grapple all market share away from existing players:
We remain Overweight on the Singapore Consumer Sector. After three lacklustre years, we expect the present rebound in economic conditions to continue and filter down to better consumer sentiment.
We have ‘Buy’ ratings on both supermarkets, Sheng Siong (TP: S$1.13) and Dairy Farm (TP: US$9.89). They have own Fresh distribution warehouse in Singapore, allowing them to ramp up fresh offerings as well as to leverage economies of scale. Fresh products are less vulnerable to Amazon’s threat. Improving operating efficiencies will support their profitability and thus more resilient and sustainable. In addition, they are also expanding their stores network, bringing their presence closer to consumers.
On F&B segment, we have ‘Buy’ on homegrown curry puff chain, Old Chang Kee (TP: S$0.98), and the dominant spirits manufacturer, Thai Beverage (TP: S$1.18), as well as an ‘Accumulate’ on FNN (TP: S$2.83). Food and beverage manufacturers could collaborate with online intermediaries, to complement their existing distribution network. For example, Old Chang Kee’s engaging Food Panda for delivery services, products of Thai Beverage and F&N are available on Lazada, Redmart, and Amazon Prime.
It’s All About Variety, Price and Convenience
A saturated and competitive market
In addition, Singapore has a high level of cross-border trade with more than half of Singapore’s online consumers are buying from international merchants. Consumers have been shopping overseas online for years, for items that are not available locally in Singapore or that are available at a lower price.
This also implied lack of customer’s loyalty to a single platform. The online world has increased price transparency, leading to more bargain-hunting consumers.
Figure 1: Examples of entry of online businesses in Singapore up till 2015
Figure 2: Fragmented market with no retail platform is the preferred platform for >20% of consumers
Fresh products, a sweet spot and the least vulnerable to Amazon’s threat
On the other hand, products that involve expensive shipping costs, large return costs, high investment costs in distribution and logistics, requires high customer engagement, or simply consumers’ preference to purchase in-store, raised the barrier to entry. E.g. cars, luxury products, and fresh groceries.
Figure 3: Online or in-store shopping preference for selected product categories by consumers worldwide as of 2017
Amazon Fresh was launched in 2007, offering a greater selection for groceries. However, in order to enjoy same-day delivery for fresh and frozen products, Prime members would have to fork out an additional monthly Amazon Fresh membership fee of US$14.99 (approximately S$20.39).
After a decade since launched, this service is currently only available in some US states, London, Tokyo, and Berlin. In fact, three months after acquiring Whole Foods, instead of expanding its grocery distribution network, Amazon is scaling back its Amazon Fresh delivery service. Amazon had just announced to shut down Amazon Fresh in at least 9 states in the US. The reason to cut back service, and whether Amazon Fresh would return to affected areas, are unknown.
Perhaps, PwC’s 2017 Total Retail Survey managed to shed light on the issue. According to the Survey, only about 10% of shoppers in US purchase their groceries online.