Lull's over for Sheng Siong as it faces potential threats from e-commerce players

Online grocery suppliers are not affected by space and location constraints.

With the rise in popularity of online grocery suppliers, brick and mortar shops like Sheng Siong Group should not be complacent as they are about to face potential disruptions in the supermarket industry.

According to UOB Kay Hian analyst Nicholas Leow, Sheng Siong's positioning in the grocery category will be challenged due to increased competition from e-commerce players.

"There is a false sense of security that online grocery suppliers will always remain a niche or online retailers such as AmazonFresh and Redmart will continue to trip on last-mile deliveries," he said.

Leow argued that online retailers pose a substantial threat as they do not have to face the constraints of space, size and location nor are they as severely impacted by rising rent and staff cost.

"These disruptors are able to offer an unlimited product selection and operate with a structural advantage," he said.

Meanwhile, Leow noted that Sheng Siong has a track record of generating substantially strong operating cash flow, with a negative cash conversion cycle and high return on equity against its Asean peers.

More so, the analyst claimed that the group is expected to face near-term margin expansion as it operates on an opportunistic model by securing good locations on preferable terms when available.

"We believe SSG’s mass market positioning lends a defensive aspect to its business and allows it to deliver steady sales through economic cycles," he said.