Sheng Siong's 'bad' store locations are growth areas: RHB Research

Analysts see opportunities in outlets located away from malls such as Fernvale Street and Edgedale Plains.

Aside from the revamp of Sheng Siong's stores, the supermarket giant could have found another way to gain a competitive edge against FairPrice and Dairy Farm by having some of its stores built in so-called bad locations, RHB Research said.

RHB analyst Juliana Cai noted that some of Sheng Siong’s new outlets are not located near any shopping amenities such as malls or suburban centres that are within walking distance. "The outlets at Fernvale Street and Edgedale Plains, for instance, are in front of the river or forestry. As such, we believe the group has a captive consumer base, as the people living in these new HDB estates do not have other shopping alternatives in the vicinity," she said.

"Although there were a few supermarkets and minimarts located within 10-15 minutes walking distance (2-3 streets down) from the Sheng Siong supermarkets, we believe there is little incentive to travel to the next supermarket further away especially when carrying heavy groceries," she added.

Also read: Grocery retailers find growth in Punggol and younger estates

There were a large number of supermarket sites available for lease by HDB. Over the next 6 months, there would be 11 new commercial units available for supermarkets bidding, whilst another 11 new sites would be available over 2019-2021. "We maintain the view that the close proximity between some of these sites would eventually lead to cannibalisation of sales. But we think this would likely be felt two years down the road when most these new sites have been bid for and opened. Currently, the increase in consumer confidence and rising domestic consumption are likely to mitigate the saturation of supermarkets in Singapore in the near-term," Cai said.

Cai also noted that the new HDB sites for commercial leasing do not have any units allocated for wet markets in the new residential estates. "As such, we believe Sheng Siong would be
able to continue to raise its proportion of fresh mix through the displacement of wet markets in Singapore," she said.

Cai also revealed that the company's extension would add 100,000 sqft (+20%) to its existing capacity, as opposed to the previous guidance of 50,000 sqft (+10%). "Sheng Siong also tries to increase the level of automation within the new extension. We believe this would bode well for the group. We think there could be a potential upside to margins when this new extension commences," she added.

Sheng Siong hopes to get the extension completed before the Lunar New Year in 2019, Cai said.