Tuesday, September 11, 2012

Carrefour leaves room for supermarket sweep


The Business Times
Monday, Sep 10, 2012
SINGAPORE - As French hypermarket Carrefour says its farewells, it opens the door for incumbents to extend market share in an industry already dominated by a select few, as the French retailer found out.

While a new entrant could help even the playing field a little, it would either require a rival with sufficient heft and scale to take on the big boys or a competitor that caters specifically to a niche segment, industry observers say.

In late August, Carrefour Singapore announced that it was shutting down its 140,000 sq ft store at Suntec City and its 81,000 sq ft outlet at Plaza Singapura before year-end, effectively pulling the plug on its operations in Singapore after some 15 years, citing its inability to gain significant traction. The French chain's market share in Singapore is under 2 per cent, according to a Reuters report.

If the world's second largest retailer after Walmart could not make much headway into the Singapore market, then who can?

Dairy Farm - which counts Cold Storage, Giant, Shop n Save as well as the more upmarket Jasons and ThreeSixty brands among its portfolio - has something of a stronghold on the industry, catering to a broad range of shoppers from the value-conscious to the more sophisticated consumer.

Aside from nine Giant hypermarkets, Dairy Farm currently has 49 Cold Storage supermarkets, six Market Place stores - which includes ThreeSixty and Jasons - and 61 Shop n Save outlets under its umbrella. Meanwhile, NTUC FairPrice operates some 105 supermarkets and hypermarkets.

Singapore-Exchange listed Sheng Siong has 29 outlets island-wide with two more opening by year end. "We are actively looking for suitable retail areas to expand our network of stores," Sheng Siong said.

With substantial scale, not to mention accessibility and clearly calculated proximity to residential areas, existing players have a leg up in terms of economies of scale in an industry with thin margins, said to be in the range of 3-5 per cent. In addition, their knowledge of the local market and wide variety of local products may also give them a slight edge over a brand such as Carrefour or Yaohan.

"Location is important (and) you need to have economies of scale," said managing director (retail) for Knight Frank Peter See-Toh, adding that competition is also stiff given the saturated market.

"Carrefour does very well in bigger countries like Malaysia and China. They started well but when you can't expand beyond a certain scale, it's hard to continue to grow. Hypermarkets tend to do well in suburbs, outside of the city."

In Singapore, Carrefour was forced to contend with rivals for space, and was further handicapped by the fact that hypermarkets with their specific operating format have certain requirements and criteria - such as requiring backroom support - making it tougher to find suitable sites, Mr See-Toh pointed out.

In contrast, rival hypermarket chain Giant has shown to be more flexible in the size of the stores that it chooses to open.

Still, head of retail for Jones Lang LaSalle Hannah MacDonald reckons there is a need for another operator to enter the market to boost competition in the sector, pointing to potential candidates such as British market leader Tesco, which has operations in Asia. Interestingly, Tesco was said to be among the bidders for Carrefour's South-east Asian assets in 2010, when it first wanted to quit Singapore and Malaysia.


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