Singapore is a relatively small but potentially lucrative Southeast Asian market that deserves closer inspection. Cameron Gordon walks you through it.
Singapore is a ‘Dragons’ den’ for many international food and beverage exporters. Considered the showcase market of Southeast Asia, Singaporean buyers are savvy and have a finely honed instinct for picking winners.
But, impressing the Dragons is not your only challenge. Your next consideration is to understand the costs of entry and factor them into your business model. Assessing this small, value-driven market can take a considerable amount of time, but like the old adage says, ‘‘being there is everything’’ and Singapore should be carefully considered within a greater Southeast Asian export development strategy.
With a population of just over five million people, Singapore is by no means a large consumer market. Granted, on a per capita basis, consumers in Singapore have far greater purchasing power to buy premium goods than those in the Philippines or Indonesia for example. But at the end of the day the consumer catchment in Singapore simply cannot compete with that of some of its regional neighbors. It’s about value, not volume in this den.
Free of the red tape and bureaucracy that is rife in many Southeast Asian countries, Singapore’s open economy is rightfully praised for creating an environment in which it is very easy to do business. Without regulatory constraints putting up roadblocks as in other ASEAN markets, companies seldom hesitate to include Singapore in their export strategy and the competition is fierce. Walk into any major supermarket chain in Singapore and you’ll find an abundance of international brands, from very niche specialty products to global household names.
Strategically, having a presence in Singapore can be very important if you plan to develop other markets within Southeast Asia such as Malaysia, Indonesia, Thailand, Vietnam and the Philippines. Major buyers within all these economies regularly travel to Singapore to survey the products available for sale in retail outlets and often the first question most importers from neighboring countries will ask when considering a potential partnership is, “are they selling in Singapore?”
Obviously, product attributes such as quality, food safety and novelty are key features of a winning strategy, but the true litmus test in Singapore is whether the opportunity costs associated with launching a new brand through the retail channel merits the exercise. It is this factor that importers and distributors will focus on before committing to a partnership with an international brand.
Put simply, if your retail pricing will not be competitive then the return on investment will not justify the effort required to successfully sell your products.
Factors for success
As with other markets in Asia, two factors that play a major role in successful negotiations with potential partners in Singapore are the division of payment for Retail Listing Fees and the size of the Advertising and Promotion (A&P) budget committed.
Two major retail groups in Singapore, which each have a variety of retail outlets catering to different segments of the market, are NTUC Fairprice (www.fairprice.com.sg) and Hong Kong’s Dairy Farm Group (www.dairyfarmgroup.com). These titans rule the retail world and to succeed in Singapore you need to be on their shelves.
As a general rule importers and distributors in Singapore expect that the principal (exporter) will pay the Retail Listing Fees, as well as all or part of the compulsory A&P costs that retailers demand suppliers commit to in order to secure a listing for their products in their stores. The most common argument put forward by importers and distributors is that it is the principal that owns the retail listing and history shows that in many cases principals have a tendency to shop around and change their partners over time, so it’s only fair that the principal pays.
Feedback from the market in Singapore suggests that Listing Fees for major supermarket chains at the lower end could cost SGD100 per Stock Keeping Unit (SKU) per store. Further, variants of the first SKU, as long as the category, size and price of the product are the same, could be listed at SGD30 per SKU per store. To enter sixty stores with five SKUs, one SKU paying SGD100 and the other four variant SKUs paying SGD30 each, could cost SGD220 per store. To enter sixty stores could cost around SGD13,200
To gain a listing in major Singaporean supermarket chains, feedback from the market suggests that brands would need to commit to at least one, but more likely two, promotional campaigns annually. I’m told that the cost of participating in a promotional campaign could range from approximately SGD7000 to 20,000 for a ‘standard campaign’ and somewhere between SGD30,000 and 80,000 for a ‘mega campaign’.
An important point to understand when considering these costs, is that they do not absolutely guarantee your ownership of shelf real estate long term. Because of the scarcity of space on shelves in the most popular retail outlets, if a product does not perform within three or four short months, it could be removed, with no refund of listing fees and/or advertising and promotion funds paid. Further, failure the first time around can make it much more difficult to get back on retail shelves on a future attempt.
As a result of the costs involved in entering Singapore, international food and beverage brands can opt to go direct to the retailer, supplying major retail chains such as NTUC Fairprice and Cold Storage directly to take advantage of concessions retailers may be willing to make on market entry costs. While this strategy can work well for some brands, there is definite value in working with a local partner who will not only import your product and put it on the shelves, but also fulfill the all important role of brand building, ensuring your product remains on the shelves for longer than three months before being turfed out because of poor performance.
Being seen
The decision-making process employed when weighing up the costs and benefits of growing a retail business in Singapore should include consideration of much more than the simple forecasting of sales in Singapore. Any investment made in growing a retail business there should also factor in the opportunities that can be created in other Southeast Asian markets through “being seen” in Singapore. As with any market, the chances of succeeding in Singapore can be increased greatly by working with a local partner who will work in a true partnership with you to increase the visibility, consumer awareness and resulting sales of your brand in the market.
