ITM Assignment-FairPrice Analysis

Table of Content

1.0 Introduction 2
2.0 Company Background 2
3.0 SWOT Analysis 3
3.1 Strengths
3.2 Weakness
3.3 Opportunities
3.4 Threats
4.0 PESTEL Analysis 5
4.1 Political
4.2 Economic
4.3 Social
4.4 Technological
4.5 Environmental
4.6 Legal
5.0 Porter’s 5 Forces Analysis 8
5.1 Threat of substitute products
5.2 Bargaining power of customers
5.3 Bargaining power of suppliers
5.4 Threats of new entrants
5.5 Competitive rivalry
6.0 Recommendations 10
70. Conclusion 12

1
ITM Assignment-FairPrice Analysis

1.0 Introduction

This paper is a compulsory assignment for Introduction to Management subject in Kaplan

Higher Education Academy Singapore. In this paper, we can find SWOT, PESTEL and
Porter’s Five Forces analyses for FairPrice as chosen company. Further, recommendations to
overcome its obstacles are provided as well. Research has been done to complete this
assignment. The goal of this assignment is to understand the study materials and apply the
concept of management knowledge through case study.

2.0 Company Background

NTUC FairPrice was established in 1973 by Labour Movement. The general business
activities are providing high quality groceries and other daily needs of customers with
competitive price. NTUC Fairprice is the leading supermarket and the largest retail chain
based in Singapore. In 2014, NTUC Fairprice Co-operative Ltd has more than 120
supermarkets consist of FairPrice Supermarkets, FairPrice Xtra and FairPrice Finest,
excluding the convenience store like Cheers and FairPrice Xpress which have over 160 retail
stores island-wide and they are still expanding to serve customers better.

Beside the tangible stores, they also launched FairPrice Online in 2002 to ease customers to
shop from their homes. As the most recognizable retailer in Singapore, the company
consistent to maintain its strong performance. It can be proved by its last three years net
earnings from year 2012 until the last report in 2014. From 2012, 2013 up to 2014 its net
incomes are $234.225.000, $111.932.000 and $144.181.000 respectively. Its strong
performance was due to higher investment income and an increase in retail sales. (NTUC
FairPrice Annual Report, 2014)

Early 2014 the company introduced a new self-scanning technology, named Scan2Go and
Click&Collect to cut down customer’s waiting time. This new facility will improve
productivity and upgrade efficiency. NTUC FairPrice is not only focusing on their business
and customers, but they also focus on contributing society. For the past ten years NTUC
FairPrice has already pledged $50 million. The company aims higher achievement and more
contributions in the next period.

2
ITM Assignment-FairPrice Analysis

3.0 SWOT Analysis

SWOT is a product of internal and external environmental analysis. Understanding SWOT

enables a company to determine the business opportunities and risks. It will suggest
appropriate actions for the company to be better off in the maketplace. For example, FairPrice
good reputation can be its strength when expanding to international markets.

Strengths : Weaknesses :
 Strong customer relationship  Little differentiation
 Over 280 stores across Singapore  High employee turnover
 Strong brand recognition and good  Perception as the cheapest brand
reputation
Opportunities : Threats :
 Potential to progress into global  Highly competitive environment
 Online sale security
market
 Widen the products range
 Private label products
Table 1: Fairprice SWOT Analysis

3.1 Strength

Since it established in 1973, FairPrice already captured customer loyalty. To strengthen the
relationship, the company carries out Pioneer discount, membership rebate and other
incentives. This relationship is very important to hold customers from switching to other
stores. With good distribution channel, over 280 stores across Singapore, FairPrice has
economies of scale that leads to cost advantage. Its strengths and good reputation may bring
opportunities to expand overseas as it was declared Southeast Asia's most valuable retail
brand in 2014. (AsiaOne, 2014)

3.2 Weakness

With little differentiation in products can be an issue when competitors lower their prices and
customers switch off. FairPrice has no pricing power in tough local market, but it can use its
strengths to expand into emerging markets or do cost leadership to offer lower price. The
company spent lots of money to train its 9.000 staffs which can be reduced with selective
recruitment. Perception as low price retailer may constrict its market segment and unable to
sell premium products in the future.

3
ITM Assignment-FairPrice Analysis

3.3 Opportunities

Penetration in neighboring countries is a good chance to increase its sales. FairPrice has
potential because of management experiences in the home country. Neighboring countries
which share same cluster is a safe starting place to begin its expansion. The company should
widen product range in purpose to distinguish similar competitors. Acceptance of FairPrice
private label by customers indicates to deliver more low-price private products that lead to
cost leadership.

3.4 Threats

The domestic market is overcrowded in both retail stores and online stores. Competitors are
putting effort to dominate the market. Online sales contribute to its revenue, but there is an
issue for shopping online. Safety and security issues make some people afraid and doubt to
buy from online. FairPrice needs to ensure that shoppers are free from hacking and do shop
safely.

4.0 PESTEL Analysis

4
ITM Assignment-FairPrice Analysis

It is important to understand the main drivers of change that give different impact on
organizations, industries and markets. For instance, new environmental regulation to reduce
the use of plastic bags forces companies to replace it with environmentally friendly bags.
(Channel News Asia, 2015)

Political  Stable political structure

 Political support for infrastructure and manpower
Economic  Growth in developing countries
 Strong currency
 High labor cost and rent
Social  Educated and skilled workforces
 Cultural diversity
Technological  New inventions and development
 Growing popularity of m-commerce and online
marketing
 Developed infrastructure
Environmental  Public awareness of environmental issues
 Environment friendly products trend
 Pollution control
Legal  Changes to advertising laws
 Product safety regulations
 Employment act
Table 2: FairPrice PESTEL analysis

4.1 Political

Singapore has supportive government and stable political situations. This low risk condition
is favorable to conduct a business. Political issues will be main concern for international
companies. Business operations are influenced by political situation in a country. Changes in
the regulations and rules will affect the business. For illustration, if the government increases
the tax, the company will suffer as it cut their revenue. This is an unplanned change and
inevitable that force business to make quick actions to minimize change effects. Singapore
government actively supports infrastructure and manpower development through Economic
Development Board (EDB). It provides highway and port for infrastructure and professional
workers for manpower. Facilitating businesses is an action to help economic growth.

4.2 Economic

Singapore is the 21st largest export and the 16th largest importer in the world based on the
Economic Complexity Index (ECI) in 2013. Therefore, currency value cannot be separated
from it. Foreign currencies are needed to convert the foreign exchange payments from

5
ITM Assignment-FairPrice Analysis

exports or to pay a foreign company for importing products or services. In the case of
FairPrice, most of the products are imported from overseas, such as FairPrice Gold tissue
from Indonesia. It can use the strategy of Leading which means pay quickly when Singapore
dollar get stronger and Lagging which means pay slowly when Indonesian rupiah get stronger
against Singapore dollar. The cost to run a business in Singapore is high, especially the rent
and salary. Company like FairPrice employs ten percent foreign workers as its staff to reduce
the cost since foreign workers paid lower than Singaporean. The company should exploit
opportunities in overseas market. The reasons are growth rate and potential in neighboring
countries and success in local market.

4.3 Social

In order to increase productivity, workforce must have deep knowledge and skilled through
education and training program. To make it happen, the Singapore government provides good
education institutes and training system. The well-educated and skilled workforce will fill the
important position in a company such as strategic and tactical manager position. High quality
workforce also attracts innovation seeking MNEs to settle down in Singapore. In a
multicultural country like Singapore, there are some cultures and languages. Languages skill
is needed in business to communicate with overseas clients. Therefore, FairPrice needs to
increase the variety of products to satisfy different customer preferences. For example, it sells
Indian spices for Indian race customers.

4.4 Technology

Technological advancement affecting business and economic. The rapid development of

technology brings both opportunities and threats. To survive in competition, companies need
to invest in research and development and be innovative. Using technologies to help business
cut cost, increase productivity and ease transaction is common today. FairPrice applies
Scan2Go to save customers’ time and to cut salary. The amazing broadband speed and IT
infrastructure in Singapore lead FairPrice to launch online shop and to advertise on social
media. Online shop contributes to sales revenue as almost all people have smartphone to
access and easy process. Technology helps businesses in their distribution, marketing and
sales.

4.5 Environment

Environmental issues are main concern for business due to environmental influences

6
ITM Assignment-FairPrice Analysis

businesses. To reduce the damage of environment, government and society require companies
to implement environmental conservation principle to keep environment sustainability.
Environment regulations drive companies to create or sell environmental friendly products.
As an example, FairPrice encourages customers to bring their reusable bag through FairPrice
Green Reward Scheme and it saved more than nine million plastic bags in 2014. In addition,
as responsible retailer FairPrice withdrew paper products produced by Asia Pulp & Paper
(APP) that was under investigation for haze problem in 2015. This is an act to reduce
pollution by does not support environmental unfriendly producers. (Tan, 2015)

4.6 Legal

To conduct a business in a country, company must follow the local laws and regulations. In
Singapore, advertisement should not offend other products and be honest. Tobacco products
are banned to display at cashiers and standardize cigarette packaging. Singapore puts high
standard for product safety in order to protect consumers. Some products are required to
register with SPRING Singapore as safety authority. And unsafe products will be removed
from the market. For employment act, it helps employers and employees understand their
rights and obligations. It covers such on-time salary payment, sick leave and overtime
payment.

5.0 Porter’s Five Forces Analysis

Porter’s five forces analysis is helpful for firms to diagnose the attractiveness and the
competitive pressure in the industry which determine the profit. For instance, high income
potential buyers in Singapore will attract new entrants.

Dimension Evaluation Remark

Threat of substitute products High  Competitors sell similar products

7
ITM Assignment-FairPrice Analysis

 Growth of e-commerce i.e. Redmart

Bargaining power of customers
Bargaining power of suppliers
Threat of new entrants
Competitive rivalry
Table 3: FairPrice Porter’s analysis
 Price and quality are competitive
High  Number of competitors
 Similar products with little price gap
Low  Purchase huge quantities
 Competition among suppliers
High  Easy process to get business license
 Chain stores
High  Rivals are numerous
 Rivals have equal power

5.1 Threat of substitute products

FairPrice has strong competitors that sell similar products such as Cold Storage, Sheng Siong,
Giant and Seven Eleven. The online shop competition also heats up. Each company offers
low price products and does promotions. It has become tougher since a website named
diffmarts.com is able to compare prices from these shops. Customers can go to other stores
easily. Cold Storage store location mostly in downtown and Seven Eleven located at high
traffic foot places. Competitors are trying to capture customers with immediate need who
ignore price and quality gap. Great competitors pricing strategy can bring down their prices
and threat FairPrice. (Yap, 2014)

5.2 Bargaining power of customers

Customers are the most important for any businesses because they determine the success of
the business. In the retail industry, customers have many shop choices they can go to. Some
branches of different companies are located nearby. Factors like quality and price of products
and service are main concern for buyers. Companies should keep an eye on their competitors.

5.3 Bargaining power of suppliers

A big company like FairPrice purchases huge quantities of goods from suppliers. It makes the
company becomes crucial for suppliers. They will loss large amount of revenue if FairPrice
switches to other suppliers. The competition among suppliers is also tough because of many
factories produce same type of products. They compete to supply the big retailers and
wholesalers by offering lower prices or higher quality. Those factories spend on advertising
cost to introduce new products and persuade people to buy their products. High demand for
those popular products will be responded by retailers to order from suppliers.

8
ITM Assignment-FairPrice Analysis

5.4 Threat of new entrants

Starting a business in Singapore is pretty easy due its friendly processes and regulations. It
will emergence new retailers in the domestic market. Big overseas chain stores such Walmart
and Hypermart may establish a branch in Singapore since it is a potential market. Although
FairPrice has experience in local market, it must be aware of new entrants’ potentials. Price
leadership can be a strategy to capture customers from new entrants.

5.5 Competitive rivalry

The competition is getting tougher every year. Singapore is a small market for so many
grocery retailers. FairPrice is still leading the market share, however, competitors are
aggressive to be the best. Each company has strengths and strategies to attract the customers.
Those companies are in massive pricing and advertising campaign wars condition. Maintain
its performance is a must to remain in top position.

6.0 Recommendations

Integrated and coordinated strategies are needed to overcome company’s weakness and
threats and to gain competitive advantages. Good strategies will help companies to reach its
opportunities.

6.1 Adding value

FairPrice should add value to company’s products, especially for their private label. Adding
value can be the source of core competencies that rivals cannot follow. One way is offshoring
to optimal locations which have lower costs so they can offer more affordable prices to

9
ITM Assignment-FairPrice Analysis

customers. The other way is consistently works to improve customer’s satisfaction by giving
them rebate and free resources.

6.2 Product development

Increasing in sales for FairPrice private label products indicates acceptance by customers.
Private label products are five to twenty percent cheaper than other labels. Growing taste for
private labels can be a good opportunity for the company. FairPrice should choose the type of
products that have high demand such as mineral water and cooking materials. (Straitstimes,
2014)

6.3 Joint-venture

The company can try to do market expansion when it feels domestic market are saturated or
success in the local market. There are obstacles when it expects to open new branch in
overseas market. Inexperience and high establishment cost can be serious problems and cause
failure in an unfamiliar place. FairPrice can do joint-venture with local company to share
cost, risks and get partner’s knowledge. Partner selection will determine the success.

6.4 Cost leadership

Cost leadership does not always mean sell lower price than its competitors. It means earn
bigger profit from selling the same products as well. It requires efficiency to achieve cost
leadership. The company can offer lower price by manufacturing mass volume or ordering
huge quantity from suppliers so they can receive special price. The company can order huge
volume since it has numerous stores island-wide. Cutting down the unnecessary cost will less
its expenses and impact to increase in profit. FairPrice should do selective recruitment instead
of workers training that hold every year.

6.5 Maintain its performance

The enterprise should always maintain its performance and quality of services. Every strategy
must be evaluated regularly to check its effect to revenue and sales. On purpose to make
better decision, FairPrice must do a survey to assess customer satisfaction. All these efforts
are to protect its customers from other retailers’ strategies. In a competitive market, customer
loyalty is really important. FairPrice needs to maintain this relationship to build up sales
volume and ride down experience curve in purpose to create high switching cost. It is a
never-ending process and need quick responses.

10
ITM Assignment-FairPrice Analysis

7.0 Conclusion

FairPrice overall performances in term of pricing strategy and management are really good. It
has low price and well distribution that attract more customers at once satisfy customers with
a wide range of products as customers are different.

In addition, the company is successful in creating fair workplaces for employees and
contributing to community and environment.

To conclude, FairPrice has done lots of improvement and gain ability to dominate market
share. It’s all make FairPrice on the top of retail industry in Singapore and get many awards.

11
ITM Assignment-FairPrice Analysis

12