Sheng Siong Group all geared up to join e-grocery bandwagon

SGD20m alloted to boost its grocery retailing business.

According to Maybank Kim Eng, Sheng Siong will launch its e-commerce platform in 1H13. Despite being a latecomer to online retailing, Sheng Siong Group believes this move is a step in the right direction as shopping on the Internet will inevitably erode traditional grocery shopping in the future. 

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We expect Sheng Siong’s e-commerce platform will complement its warehouse capabilities and serve as a supplementary sales channel to its traditional brick and mortar channels. 

First movers do not always have the advantage. Both NTUC FairPrice and Cold Storage have been operating online as early as the 1990s. Various Internet start-ups have also appeared in recent years in response to changing consumer habits and an increasingly cosmopolitan population that finds online shopping a breeze.

While Sheng Siong may be a late comer, it has had ample opportunity to study the online grocery shopping model to (1) avoid spending excessive investment and (2) get the products offering right.

Sheng Siong has set aside approximately SGD20m of the net proceeds from its IPO for the development and expansion of grocery retailing in Singapore and overseas. Sheng Siong will implement its E-Commerce model in stages to ease it into its current “Pick to Light” inventory System that is currently in use at its Mandai warehouse.

Initial stages would include Call to Delivery and Online Selection, following which the customers will pick up their ordered goods through a drive-in or a simple walk in. Eventually, this could become a full home delivery service if the demand justifies it.

Low initial investment. The initial stage will not require much investment, as it will leverage on its warehouse capabilities, then systematically picked by workers in stores. Trial period will last at least two to three quarters with Home Delivery to be considered next.

The initial offering of Store pick-up is likely to be at Thomson outlet, where there is limited parking, and will be ideal as it is situated around several residential estates.

Still our favourite neighbourhood supermarket. We expect the online channel will take at least a couple of quarters to gain momentum and will be rolled out progressively by district.

We have a Street-high TP of SGD0.70 on our favourite supermarket due to its healthy FY13 growth and 4+% yield on the back of a 90% fixed payout for the next two years.