SWOT and Porter’s Five Forces for Sheng Siong Essay

Introduction Growing up in a pig farm, the CEO Mr. Lim Hock Chee and his brothers have brought Sheng Siong Group Ltd to an over 800million market capital, Singapore Exchange listed supermarket chain. The group’s humble beginning in the year 1985, from its first store in Ang Mo Kio which surrounded by 5 other grocery stores, has now expanded to be the one of the largest supermarket chain in Singapore. Sheng Siong is publicly listed at the Singapore Exchange (SGX) on August 17, 2011. Since then, it grows to become a major supermarket chain in Singapore with a total retail area of 400,000sq ft over 33 outlets island-wide. Sheng Siong’s outlets are designed to provide customers with both â€Å"wet and dry† shopping options ranging from a wide assortment of fresh, live and chilled products, such as meat, seafood and vegetables to processed, packaged and preserved food products as well as general groceries. Over the past few years, they have developed a selection of house brands to offer customers alternatives with at ample savings. Sheng Siong has now over 400 products under their 10 house brands. With the long history and reputation for quality products at competitive prices, the â€Å"Sheng Siong† brand had become an established household name in Singapore. Widely recognized by consumers, Sheng Siong were awarded the â€Å"Superbrand† status by Superbrands Singapore since 2008 (Superbrands, 1994). Mission: We strive to offer communities in which we operate quality products at reasonable prices together with good service in order to create value to our customers Vision: Our vision is to be the preferred retailer in the market, starting from Singapore and then further ashore. SWOT analysis Strengths Weaknesses 1. Strong brand recognition 2. Experienced management 1. Susceptible to rent hikes and labour cost hikes. 2. Lack of a formal succession plan Opportunity Threats 1. Overseas expansion 2. Untapped areas in Singapore 1. Losing market share 2. Supply disruption Strengths Strong brand recognition Sheng Siong is among the top 3 supermarket chain in Singapore. Sheng Siong launched a television show titled â€Å"The Sheng Siong Show† since year 2007 to further raise its profile amongst national audiences, on top of the traditional marketing mediums. Strong recognition by Singapore residents as a value-for-money supermarket chain. Awarded â€Å"Superbrand† status by Superbrands Singapore, a global organization that recognizes the most valued and exceptional brands, every year since year 2008. Experienced management Sheng Siong is founded since year 1985 and focus only in retail business in Singapore. Management of the group since then rests in the hands of the three founding Lim brothers: Mr. Lim Hock Eng (Executive Chairman), Mr. Lim Hock Chee (CEO) and Mr. Lim Hock Leng (Managing Director). They have almost 30 years of experience in grocery retailing, equipped with in-depth knowledge of the industry in Singapore. Weaknesses Susceptible to rent hikes and labour cost hikes The cost of rental and labour takes up 85% of Sheng Siongs’ operating expenses (Maybank KE, 2013) thus it is very vulnerable to hikes on operating cost in order to sustain their low-cost strategy. The Singapore Government had increase the restrictions for hiring foreign labour (Mom.gov.sg, 2013), which pressure Sheng Siong, in which one-third of its 2600 employees are non-Singaporeans, in their operating cost. (Michelle Teo, 2013) In Maybank KE’s research (2013), under the sensitivity analysis, an increase of 5% additional staff cost would incurred 9% of shortfall in Sheng Siong’s profit. According to Sheng Siong’s Annual Report in 2012 and 2013, rental expenses had been increased from 1.095million to 1.693million, representing  a more than 50% hike. In order to sustain the low-cost strategy, such rental hike issue had made Sheng Siong Group opened no new store in year 2013, whereby they cannot find suitable and affordable space to rent for expansion. La ck of a formal succession plan The founders, Lim brothers are holding more than 60% of the shares of Sheng Siong Group and also on the top managing positions. (Annual Report, 2013) The lack of a formal succession plan could prove to be a weakness in the long-run. The listing of Sheng Siong in the SGX had made incorporation of some outside talents including Mr. Tan Ling San (Executive Director) and Mr. Wong Soong Kit (Finance Director) into the management ranks, however if the Lim brothers decide to retire or step down before a formal succession plan is put into place, it may lead to a potential loss of strategic direction. Opportunities Overseas expansion Despite the foreign markets are also dominated by major players, Sheng Siong might able to seek chances in overseas expansion, especially in neighbor countries such as Malaysia and Indonesia. The benefits of overseas expansion including increase brand value, find new customers, seek for tax incentives and reduce excessive domestic, single market reliance and furthermore enjoy the robust economic development of the region of South East Asia. Especially in Malaysia, Sheng Siong has had various suppliers which relationships had been established for decades, the expansion into the market is not impossible. Untapped areas in Singapore There are still many highly populated areas in Singapore where Sheng Siong has no presence such as Bishan, Tampines, Hougang, Sengkang and Bukit Merah. This means that Sheng Siong still has a lot of room to grow its store network. Furthermore, Sheng Siong had commenced an e-commerce pilot project in December 2013, in the Thomson vicinity to provide customers the convenience of shopping groceries online via the website â€Å"allforyou.sg†. The possible success of this e-commerce project can reduce dependence on human labour, save cost on warehouse management and create new and better shopping experience of customers at their convenience. Threats Losing market share Sheng Siong operates in a highly competitive environment where it faces intense competition from other major super market chains as well as traditional grocery retailers, wet markets and even petrol kiosks. Its existing stores may face competition from new competitor outlets in their operating areas; it may lose market shares in the area where new competitor’s outlets are open where Sheng Siong is absent. Sheng Siong has suffer zero expansion in retail outlets in year 2013, making it a crucial threat of losing market shares due to expansions of its competitors. Supply disruption Supply disruptions arising from harsh weather conditions, force majeure events or natural disasters might hit Sheng Siong because about 30% of its revenue (Ocbc is from the sale of fresh produce. Porter’s 5 forces Competitive rivalry – High Sheng Siong is in tough competition with major direct competitors such as NTUC FairPrice and Dairy Farm’s Cold Storage and Giant, yet there are many other smaller retailers in the market. The 4 major supermarket chain had a dominant market share of more than 85percent (Euromonitor, 2014) (Maybank KE, 2014), making the business to be in a semi-consolidated industry. Supermarkets are having very low level of product differentiation. The retail sectors is growing steadily but slow. (Singstat.gov.sg, 2014) For the full year, retail sales in Singapore contracted by 4.3%, a reversal from the 1.3% expansion in 2012, but supermarket sales grew by 4.3% at current prices and 2.4% at constant prices during the same period, compared with an increase of 7.5% and 5.3% respectively in 2012. (Economic Survey of Singapore, 2013) The increasingly intensive competition may result in lower sales and greater operating costs and have an adverse effect on Sheng Siong. Threat of new entrants – Low The big 4 supermarket chains took up to more than 85percent of the total  market shares in Singapore, thus becomes a huge barrier for new entrants to meet the excessive capital requirements into the harsh competition. A new entrant would have to achieve the economies of scale needed to compete on cost advantage with the major market players, therefore not an easy barrier to cross over. Branding is another barrier to entry. A new entrant would need to differentiate themselves with the big 4 and to attain identity through promotions and advertising which may incur extremely high expenses. The highly responsive to competition of the big 4 supermarket chains to sustain market share also makes the barrier higher for new entrants. New entrant also face disadvantage in lack of expertise and knowledge of consumer trends, as the big players had been in the business for decades. Difficulties in accessing to distribution channels and locations is also an entry barrier for new entrant as Singapore is a matured market. Threat of substitute – High Chains of convenience stores such as 7-eleven and Cheers are emerging in the market. Convenience stores are selling some Fast Moving Consumer Goods (FMCG) like dairy products, soft drinks and packaged food which also sold by supermarkets, thus become a substitute of supermarkets. Restaurants, kopitiams (coffee shop) and food centers are also substitutes for supermarkets. People may want to dine outside rather than purchasing fresh meats, fishes and vegetable to cook at home. Pharmacies which are selling medicine, personal care, and baby care and toilet / pocket papers are also a substitute of supermarket. Traditional wet markets are considered another substitute for supermarket business. Newly emerged online groceries shopping brings threat of substitute to supermarket also. Bargaining power of customer – High Sheng Siong is facing intense competition from traditional grocery retailers such as wet markets, supermarkets and hypermarkets, and from non-traditional competitors such as, petrol kiosk convenience stores, convenience stores and restaurants. Customers have various options when comes to buying groceries. While pricing is one of the keys, convenience also plays a significant role in groceries shopping. People might choose to buy daily groceries from neighborhood grocery store just on their doorstep or buy drinks from the  nearest convenience stores, rather than purposely go to supermarket. Bargaining power of supplier – Low Due to the nature of grocery retailing business, Sheng Siong purchase goods from a large number of suppliers and contract manufacturers. A large network of over 1,000 suppliers and contract manufacturers had been established for Sheng Siong’s business. Some of the supplying relationships had established since the commencing year of 1985. The large and stable supplying relationships have enabled Sheng Siong to have a continuous supply of products without major disruptions and allow them to wield greater bargaining power in terms of the purchase prices of their products. No single supplier or contract manufacturer contributed more than 5.0% of Sheng Siong’s total purchases. (Prospectus, 2011) Summary Competitive rivalry: High Threat of new entrants: Low Threat of substitute: High Bargaining power of customer:High Bargaining power of supplier: Low The analysis above shows Sheng Siong is in a really intensive business environment. Therefore, the management team should act really cautious on their strategy planning for business operations as well expansions in order to stay competitive. Strategic planning As Sheng Siong is implementing low-cost strategy, it is very important for the management to plan their business tightly watch on their operational costs, as they are vulnerable to rental and labour hikes. On the other Hand, not having a succession plan may negatively impacts the operations of company in long run. Thus Sheng Siong should have plans with the goal to train and sustain the dynamic key management team for the company’s future growth. Goals Plans Control operating costs, Sustaining low-cost strategy Reduce dependence of foreign labours. Computerized operations to reduce labour costs. Seek new property rental or purchases opportunity in new high populated resident areas such as Punggol and Hougang. Make optimum utilize of the centralized warehouse cum distribution center in Mandai Link, to achieve economies of scale. Train and sustain the upcoming management team Set up a management training for potential employees from internal or external. Succession plan as well as a contingency plan should be well established as soon as possible to enhance the stability of the long term operations of the company. Organizing Sheng Siong is applying the functional organization where by it divides into different divisions such as Finance, Human Resources, Information Technology, Purchasing and Retail Operations. It is also a centralized organization since it was originally a family business. Most decisions are made by high-level executives and pass down for implementation. In my opinion, a transition should be made in the organizing system in Sheng Siong if the company wants to sustain in a longer run. Talents from internal or external should be brought up to managerial level through systematic trainings and being delegated in decisions making to cultivate fresh thoughts and ideas for the operations and growth of the company. The company should gradually decentralized in their organization to promote creativity and innovations, as well as act as a pathway for establishing succession plans. Leadership Despite using power of authority, power of rewards has been used in Sheng Siong’s leadership over their employees. 20% of the groups’ profit before tax was distributed in the form of various bonuses to its employees in the past 2 years. Relationship-motivated leadership Having policy such as provides one free meal per workday for every full-time  worker that has become a tradition of the company for 25 years. (Sheng Siong, 2013) The CEO Lim Hock Chee is an authentic and transformational leader. Although featuring at position 35 in Forbes’ Singapore’s 50 Richest list, Lim Hock Chee remains a humble man. He is known as the â€Å"towkay (meaning ‘boss’ in Chinese) who drives a lorry† due to that being his mode of transport for many years. He undertook a two-year car mechanic course and thus stood him in good stead as until recently he was known as â€Å"Mr Fix it† at Sheng Siong, regularly welding trolleys and fixing power outages. (Hunt, 2014) These good traits of leadership styles should be kept on in Sheng Siong to distinguish themselves from major trends in capitalized world that applies less relationships concerned leadership. However, a family business cannot sustain and grow if it stays only at family style, standardization and formalization should progressively apply and leaders should apply a balanced portion of task performance behaviors in their lead. Control In spite of bureaucratic control, market control is always being well-utilized in Sheng Siong. The plans and strategies in marketing, property renting and purchasing, and invests and divests are set according to close studies of the market. Sheng Siong emerged as Runner-up in the Retail & Household Goods category of the 14th Securities Investors Association (Singapore) (SIAS) Investors’ Choice Award – Most Transparent Company Award (MTCA) 2013. (Annual Report, 2013) This indicates Sheng Siong is having good control of their accounts and audits with optimum information stated in their financial reports. Despite the financial parts, management audits are closely monitored. The evaluations of the the company’s planning, organizing, leading and controlling is always printed in their annual report. It reviews what have been done and what the upcoming plans are, giving a clear picture to investors and business partners. Recommendations Sheng Siong should always prudent in its expansion and execution under the  harsh economic environment. Setting up a clear succession plan of short, medium, and long term to ensure the future operations of the company. Overseas expansion exposes to risks and opportunities, the company should well utilize the connections that it has to expand the business to another level, locally and regionally. Conclusion Sheng Siong had gradually emerged as one of the biggest groceries retailer in Singapore. Nevertheless, there are huge growth opportunity for the company. The company should stay dynamic and improve the weaknesses to keep explore the chances of growth in this competitive environment. Changing is not always a bad idea. From a family business to a listed company, from a small establishment to a corporate, Sheng Siong has gone this far, but be it just the beginning of the future great arms in supermarket operators in the region or even in the globe. Modern management studies will help Sheng Siong to embrace any possible threats in the future. The transition of Sheng Siong should not be stopped at this point but should keep improving, strive to achieve its mission and vision.