NTUC FairPrice Co-operative Limited Essay Example

NTUC FairPrice Co NTUC FairPrice Co-operative Limited Essay NTUC FairPrice Co-operative Limited Essay NTUC FairPrice Co-operative Limited is one of Singapore’s largest chains of supermarkets, department stores and convenience stores. It was founded in 1973 by the Singaporean labor union with the objective of influencing Singapore’s high cost of living through the implementation of regulated pricing on many everyday consumer goods. Currently, FairPrice’s vast 130-outlet supermarket chain includes concepts like FairPrice Finest, Fairprice Xtra and Fairprice Supermarkets. Meanwhile, Fairprice also maintains two convenience store lines namely: FairPrice Express and Cheers- with both having a combined network of more than 150 branches. In response to the growing demand for online shopping, the company has also launched FreshPrice Online- a web platform that enables shoppers to buy their groceries online and have them delivered straight to their homes. FairPrice’s multiple and diverse selling channels enable them to serve more than half a million customers on a daily basis (FairPrice, 2017). According to Bloomberg (2017), FairPrice’s outlets offer mainly products like food items, beverages, frozen goods, fresh produce, alcohol, toiletries, health and beauty items and other similar merchandise. Aside from its regular retail and grocery operation, the company also maintains warehousing, trading and distribution businesses. PESTEL Analysis Political Factors Political factors pertain to the degree of influence and capacity of governments to intervene in the operations of businesses through public policy, tax laws, import and export restrictions and other trade regulations (Aguilar, 1967). Singapore, being a largely commercial and highly urbanized country, is mostly unable to grow its own agricultural products that are needed in the production of food and beverage goods. This being the case, the country is largely dependent on international trade with countries like the United States, Australia, a large part of Europe and the Middle East. The country maintains a relatively open economy- being able to conduct business with the aforementioned countries with minimal sanctions and restrictions. In fact, the Singaporean government does not impose any import taxes on most food and beverage products with the exception of tobacco and alcoholic goods. The government’s openness on international trade may implicate a great advantage for FairPrice whose merchandise are primarily imported food and beverage goods (USDA Foreign Agricultural Service, 2015). Economic Factors Economic factors pertain to key trends concerning consumer’s disposable income, general unemployment levels, interest rates, inflation rates and other economic indicators that can affect a populace’s willingness and ability to buy and to consume goods (Aguilar, 1967). According to Tang (2017), despite the general slowdown of the Singaporean economy in the recent years, the country achieved higher than expected economic growth in the final quarters of 2016. In fact, Singapore’s economy expanded by 1. 8 percent from 2015 to 2016. The country’s gross domestic product also grew by at least 9. % during the final quarter of the year. While this proves to be a positive sign for the economy, he still warns that 2017 may be marred with dismal business growth and a lack of consumer confidence as the Singaporean economy may get affected by the continued weakening of the Euro, the slowdown of the Chinese economy and the protectorate stance of the Trump administration. These events along with the fact that Singapore continues to be one of Asia’s most expensive cities to live in can cause great concern for customers and may seriously affect their ability to spend on consumer goods. Social Factors Social factors primarily pertain to the general behavior and mindset of a group of consumers. Particularly, it can pertain to their current set of preferences as dictated by their demographic profile, psychographic dispositions and the presence of new trends in the market (Aguilar, 1967). Singapore’s populace is generally characterized by a highly productive and fast-paced workforce. In fact, Singaporeans are known to clock in an average of 46 working hours per week- one of the highest in the world (Ministry of Manpower, 2015). This may have led many customers to develop of culture of convenience- opting for activities and services that can help them save time and be more productive. Firstly, this could mean a sustained increase for demand of instant and easily prepared food items. Secondly, it could also mean that more and more users are open to trying and subscribing to their online platform. Technological Factors Technological factors pertain to the advancements that can significantly improve a business’ internal and external operations. They may pertain to new discoveries that can help create new products or services or to new innovations that can streamline systems and costs (Aguilar, 1967). Being a highly urbanized society, the Singaporean market has become highly dependent on technology. This includes grocery shopping. In a study conducted by Shandwick (2014) about general grocery shopping behavior, more than 60% of the respondents claimed to prefer buying instant and readily prepared meals and goods. In the same year, more than 200,000 shoppers bought their groceries online to be able to save time and effort in shopping for their everyday needs (Jenner, 2016). This could imply a huge opportunity to grow FreshPrice Online. Environmental Factors Environmental factors pertain to the general attitude of customers and the stance of the government when it comes to preservation of the natural environment. The company may be affected by laws on waste management, energy consumption regulations, general environment protection sanctions and even the public’s perception on a company’s responsiveness to environmental issues. According to National Environment Agency (2017), Singapore’s daily solid waste output has reached 8,400 tons a day- marking an eight-fold increase from its waste output from the 1970s. This continuously increasing trend has forced the Singaporean government to implement a more systematic public waste collection scheme and a more stringent illegal dumping law. Being one of the largest producers of solid food waste in the country, FairPrice took a proactive stance and led the implementation of the Food Waste Index that essential measures and tracks the waste the company produces on a periodic basis. It is the first step towards the implementation of other key initiatives (Zero Waste Singapore, 2015). Legal Factors Legal factors pertain to the stringency of the government and other governing bodies in key aspects of business operations. These factors may cover employment regulations, workplace safety requirements, product testing procedures, anti-trust laws, competitive regulations and other similar factors. According to Shaffer (2013), Singapore’s fairly controversial position of limiting the influx of foreign laborers in the country had significant detrimental effects on many food and retail establishments. Since as much as 40% of Singapore’s population can be considered foreigners, the government’s stance has cut businesses’ access to affordable labor- hampering their ability to expand swiftly. Porter’s Five Forces Analysis Threat of New Entrants (Low) The threat of new entrants in any industry implicates the possibility of losing market share to new players, hence having to split returns and profits amongst many competitors (Porter, 1985). In the case of FairPrice, the threat of new entrants can be considered low. Firstly, entering the supermarket and grocery industry requires substantially large capital to be devoted to the purchase of expensive real estate, building and infrastructure requirements as well as the different facilities and fixtures used in day to day operations. The business will also require huge investments in inventories, warehousing and wages for the labor force. Bargaining Power of Buyers (Moderate) The bargaining power of buyers implies the customer’s influence and capability to put pressure on the company to make changes in their strategies (Porter, 1985). In the case of FairPrice, this can be considered only moderately threatening. For instance, individual customers purchase in relatively small quantities which create a fairly insignificant portion of the company’s total sales. The decisions of one customer may prove immaterial in the long run. However, in the unlikely scenario where FairPrice decides to increase prices or suffers from the poor service of their personnel, it is not impossible for customers to opt for different supermarkets. Bargaining Power of Suppliers (Low) Likewise, the bargaining power of suppliers pertains to their ability to put pressure and influence the strategic decisions of a company. Because of the scale of FairPrice’s operations, the bargaining power of suppliers can be considered significantly low. Suppliers may prove to be very careful in negotiating and doing business with a client of over a hundred branches as they may be easily replaced with a different brand. In fact, FairPrice may have enough leverage to demand the lowest prices and the biggest margins from its many suppliers. Threat of Substitutes (Moderate) The threat of substitutes pertains to the propensity of current customers to try out alternative products and services (Porter, 1985). In the case of FairPrice, this can be considered as a moderate threat. On one hand, online shopping has yet to capture a significant portion of the market to be considered highly threatening. However, the threat for substitutes can be considered relatively high in some product lines that FairPrice is carrying such as alcoholic beverages, hair care products, cosmetics and others similar goods. Customers may easily opt to purchase them in other shops such as liquor shops, drugstores and the like. Competitive Rivalry (High) FairPrice has equally popular and trusted competitors in the likes of Dairy Farm Singapore, Sheng Siong and Cold Storage (Singapore Business Review, 2012). Because the prices for consumer goods are relatively transparent and easily comparable, small variations in pricing can cause customers to prefer a competitor over another. Besides the proximity of the grocery stores from their residences or offices, there is very little motivation to keep customers loyal to a single line of grocery. Management Recommendations Prioritization of FairPrice Online While it can be said that there is still minimal demand for online grocery shopping, the steadily increasing adoption rates and customer usage suggest that the channel can be a significant contributor to sales in the next few years. If FairPrice could occupy and dominate the online grocery shopping market first, it may help avert tight competition in the future. It may be an opportune time for FairPrice to invest heavily in marketing their platform through the use of social media, in-store advertising through their shops and subsidized promotions amongst many other options to try and raise the adoption level amongst Singaporeans. Creating and Improving Customer Loyalty Programs The Five Forces Analysis reveals that while FairPrice can be considered one of the stronger players in the grocery market, it is still susceptible from losing customers due to tight competition. One way to address such an issue is improve the already-existing NTUC Plus Card which entitled frequent buyers to rebates. Instead of just offering rebates, allowing loyal customers to choose from a wider range of rewards like free travel, discounted spa treatments, and other lifestyle-based rewards could prove compelling. In addition, FairPrice could tie up with leading electronics, luxury or fashion brands and have them offer exclusive deals to the most loyal customers. Maximizing Environmental Programs FairPrice’s proactive stance on environmental programs could be a source of sustainable competitive advantage. FairPrice may invest in a full-blown department solely devoted in studying its environmental and waste footprint and finding ways to reduce them through technology. Firstly, such an investment can pay off in savings from avoiding waste products. Secondly, FairPrice can strengthen the reputation of its brand. Reinforcement of Concepts’ Branding While the FairPrice brand remains popular and distinct, the concepts under it like FairPrice Xtra and FairPrice Fresh amongst others may benefit from further brand building. By differentiating and specializing each one, they could occupy different spaces in the market and further reinforce the market leadership of FairPrice. A good start could be the launch and maintenance of separate marketing communications campaigns for each one. Conclusion The PESTEL Analysis reveals a relatively favorable external environment for the continuous growth of Fair Price. Despite the underperformance of the economy, the Singaporean government remains very supportive of major business activities like importation and exportation. Technological advancement has made it easier to cope with an ever-changing changing customer profile and preference. And by taking a proactive stance, FairPrice is able to manage most environmental and legal issues surrounding their business. On the other hand, the Five Forces Analysis reveals the innate strength of the FairPrice brand and organization. With the large scale and span of its operations, FairPrice is susceptible to few risk factors aside from the perennially tight competition amongst players.