Here are three potential reason that could obstruct the Sheng Siong in the future.
Challenging China market
Sheng Siong recently has one supermarket in China and looking for further enlarge its brand in the country. China has vast potential and larger market as concern to the growth of Sheng Siong, there are umpteen challenges when dealing with international expansion.
For one, local competitors should already have a head start. Also, government regulations may affect Sheng Siong’s expansion plans.
Possibility of market saturation in Singapore
Due to the small size of Singapore market there is already inflexible competition in the supermarket space. In addition, Singapore has 114 wet markets and hawker centers scattered all over the island. NTUC Fair Price and Dairy Farm International Holdings (SGX:D01) operate around 140 and 110 stores respectively.
Sheng Siong currently has 48 stores in Singapore. There seems to be still place for store count growth with same store sales increasing in recent quarters,. However, this cannot go on indefinitely and there could be a point when the market starts to get saturated or new stores, due to their close presence, may utilise existing store sales.
Online competitors
The technology involved in traditional growth market, online retailers may also create a threat. Sheng Siong introduced its online shopping website (allforyou.sg) in December 2013. But according to its investor relations team, online sales only account for around 1% of total sales.
If consumer behavior divert towards online grocery shopping, Sheng Siong will need to reinvent itself and improve its online shopping experience to attract customers to its platform.
The Foolish bottom line
There are certain reasons to be positive about Sheng Siong. However, as with all companies, there are uncertainties and potential pitfalls ahead. Investors should at least be aware of the risks before making an investment decision.
