Why Sheng Siong can shrug off threats from Amazon

Amazon's scale is relatively small.

Supermarket giant Sheng Siong has all the right to be complacent for now even with the launch Amazon's Prime Now in Singapore.

According to DBS Group Research analysts led by Alfie Yeo, there is no reason for this to send jitters to Sheng Siong’s stock investors as it is not necessarily a threat for now. 

For one, Singapore's online grocery retail market remains small at less than 2% or $96m of modern grocery retail sales of $6b.

More so, Amazon's scale is relatively small: its 100,000-sqft warehouse is comparable to Redmart’s but far smaller than Dairy Farm’s 260,000-sqft, Sheng Siong's 500,000-sqft, and NTUC Fairprice’s 730,000-sqft warehouses.

With this, Amazon would pose a direct threat to Redmart and not Sheng Siong as they both target the same customers in the online grocery space.

Raising another reason, the analysts said they do not see the market size swelling just because Amazon is coming in, as the growth of the grocery market is
still largely based on population size and inflation, which requires a real shift from store to online for Sheng Siong to be affected.

"Our initial price comparison showed that Amazon’s pricing is not exactly cheap at the moment, making it difficult to take share off the physical stores at current prices," Yeo noted.

Finally, the analysts pointed out that Sheng Siong’s target customers are largely not the tech-savvy millennials who are open to buying from online channels.