Will fresh food offerings dispel Sheng Siong's fears of muted earnings?

Headroom for sales mix is predicted to improve to 50%.

Despite it having to face threats from e-commerce players, Sheng Siong group still has tricks it can rely on to drive earnings.

According to a report by DBS Group Research, Sheng Siong can anticipate higher gross margins should the group expand through direct sourcing, house brands, and higher mix of fresh food.

The report noted that Sheng Siong's product mix which stands at approximately 40% fresh versus 60% non-fresh could deliver better sales mix.

"We see headroom for sales mix to improve to 50% for each as it skews its store offerings more towards fresh products," the report stated.

More so, the group's revenue growth will be led by new store openings.

"Sheng Siong currently operates 42 stores. Compared to the other local operators, it has scope to expand its store network, particularly in areas such as Serangoon, Hougang and Seng Kang where it has a low presence. Management targets to ultimately operate 50 stores islandwide,"

What the group has to watch, according to the DBS report, out for are the excessive discounts and promotions by competitors in the market, as these may ultimately result in lower margins.

Meanwhile, DBS stated that generating more same-store-sales growth (SSSG) is essential to the group to support earning growth.

"Sheng Siong has been able to maintain positive SSSG since 4Q13 (excluding 4Q15, 1Q16) through longer operating hours and renovation of older stores, offering the correct products and effective marketing," the report said.