Saturday, 19 April, 2014

Published December 18, 2013
Grocer with a social mission
CEO Seah Kian Peng explains to KALPANA RASHIWALA how NTUC FairPrice does well in its business in order to do good
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'Our interpretation of success goes beyond mere profitability ... Being in the centre of all the good that we do gives not just me but all my colleagues a lot of meaning and satisfaction in our work.'

' ... it is only through generating profits (that) we are able to continue to reinvest to meet customers' and Singaporeans' needs as well as in giving back even more to the community.'
- Seah Kian Peng, CEO (S'pore) of NTUC FairPrice Co-operative This monthly series is supported by IBM

A UNIQUE opportunity to do good while managing and running the business well is what gives Seah Kian Peng the greatest satisfaction as CEO (Singapore) of NTUC FairPrice Co-operative.

"Our interpretation of success goes beyond mere profitability ... Being in the centre of all the good that we do gives not just me but all my colleagues a lot of meaning and satisfaction in our work," he says.

NTUC FairPrice's overarching social mission is to moderate the cost of living. To do this, it has created FairPrice housebrands and an Every Day Low Prices basket of essentials, and gives discounts for seniors. The co-op's more than 630,000 individual members are able to save even more in rebates on purchases. For the year ended March 31, 2013, FairPrice declared declared patronage rebates of $50.9 million.

"In times of crisis or economic downturns, we ensure essentials remain available and affordable as we did through Sars, bird flu and the recession in 2008, when we held prices of necessities and gave out special housebrand discounts. We also absorbed GST when it was initially introduced as well as when GST was increased to help the community cope with these changes," says Mr Seah.

But in order to continue to do good, the group needs to perform well in a highly competitive market, he adds. To achieve this, it adopts sourcing strategies which moderate the prices of fresh produce, listens to its customers, and embraces technology to boost productivity at its stores and in the supply chain.

The group operates 275 stores across the island using various formats, giving it a 50-plus per cent share of the local grocery retailing pie.

Mr Seah highlights a misperception among some that FairPrice is given special priority or privileges when it comes to securing store locations. "We go through the same (rental) tender bidding process as our competitors and it is an open, transparent system. For every site we tender and win, we are also unsuccessful in many others. The key is to do your feasibility studies and work out your strategy like everyone else in this highly competitive market."

One way FairPrice has kept a lid on rental costs is to own some of its real estate. The group owns slightly under a quarter of the nearly two million sq ft in total retail floor area for its operations. This includes stakes in developments such as Thomson Plaza and Sports Hub. The group also has shareholdings in various real estate investment trusts (Reits) including CapitaMall Trust.

"Owning real estate is a means of controlling fixed costs like rentals from eating into our thin margins," says Mr Seah.

In addition, property investment provides a further source of revenue for the group.

Besides the increase in rentals over the years, the other key bugbear Singapore retailers face is the manpower crunch, a result of the government's restrictions on the influx of foreign labour. Fortunately, FairPrice has been hit less hard, with around 80 per cent of its nearly 9,000 employees being Singapore citizens, and permanent residents making up another 10 per cent.

To manage cost growth, FairPrice has been harnessing technology to boost productivity at both store-front and supply-chain levels. It has introduced self-checkout at some stores and an electronic shelf-labelling system. In 2004, it invested in an automatic sorting system at its distribution centre in Joo Koon. This has doubled the distribution centre's throughput to 110,000 cartons daily.

FairPrice's new distribution centre in Benoi Road, which will be begin operations in Q4 next year, will be 25 per cent faster than the current one at Joo Koon in terms of throughput. The new distribution centre will feature a combination of an automated storage and retrieval system, and a Caddy Pick system (where a robot moves around and picks items) - the first of its kind in the Asia Pacific.

To cope with ever-rising global food prices, FairPrice tries to moderate prices of fresh produce and food by diversifying its sourcing, engaging in contract-farm agreements and stockpiling.

"Having multiple sources allows us to ensure consistent supply of essentials while keeping prices affordable," says Mr Seah.

FairPrice imports from more than 70 countries. It buys rice from Thailand, Vietnam, Cambodia, Pakistan, India, Australia, Japan, Korea, the US and Taiwan.

Through eight suppliers, the group has contract-farm agreements across Australia, Malaysia, Indonesia, Singapore and Thailand. "We are able to advance buy produce at an agreed price, which makes us less vulnerable to sudden price changes due to shortages," he says.

FairPrice also stockpiles about three months' demand of rice, which it can use to stabilise prices - in the event of any price hike.

Besides offering quality products and good value, service is the other building block of customer service.

"We put a premium on customer feedback, focus groups and market research as this allows us to understand their needs and concerns and improve the customer shopping experience," says Mr Seah.

To become more accessible to customers, FairPrice has introduced round-the-clock shopping at 67 stores and expanded its store network.

From an initial ratio of one compliment to 3.3 complaints in 2005, "we are now constantly averaging way in excess of 10 compliments to one complaint", notes Mr Seah. "We are further encouraged that in the annual Customer Satisfaction Index of Singapore survey, FairPrice has come up tops in the supermarket retail sector for the past two years."

For the year ended March 31, 2013, the group's turnover rose 6.6 per cent to $2.8 billion. But net profit slid 52.2 per cent to $111.9 million as a result of a one-off investment gain in the previous year's accounts.

The co-op's origins date back to June 1973, when National Trades Union Congress launched its supermarket co-op called Welcome to help stabilise the cost of living and combat profiteering after the global oil crisis caused food prices to rise. In 1983, NTUC Welcome merged with Singapore Employees Co-operative to form NTUC FairPrice Co-operative.

Over the years, the group has added more store formats to its FairPrice supermarkets: FairPrice Xtra hypermarkets, Cheers convenience stores, FairPrice Xpress outlets (predominantly at Esso service stations) and FairPrice Finest.

While the co-op has been successful in Singapore, it has encountered setbacks and exited its earlier overseas ventures in Malaysia, Myanmar, Indonesia and China. This has not deterred the group from its expansion efforts. In May this year, FairPrice teamed up with Saigon Union of Trading Co-operatives to open their first joint-venture store in Ho Chi Minh City called Co.opXtra Plus, a new hypercash retail format. This format caters to consumers and business-to-business customers who can purchase goods in cartons and enjoy bulk discounts while enjoying free delivery and credit terms. Shoppers also enjoy bigger savings by buying multi-pack items instead of single items.

Since joining FairPrice in January 2001, Mr Seah says the most trying period for the group was probably during the Sars and bird flu episodes of 2003 and 2004 respectively, when he was the co-op's chief operating officer.

"We had to overcome our fear, which was as much a threat as the actual disease. In the midst of great uncertainty and anxiety, it was important to stay calm, collected and focused, and communicate with our staff on the important role that we played in providing for families and allay our customers' fears by assuring them that we will continue to serve their daily needs by remaining open and that there was sufficient supply."

He recalls that when Sars happened, there was a shortage of vegetables when the wholesale vegetable market in Pasir Panjang was ordered to close. Widespread profiteering occurred and merchants started to peddle vegetables at exorbitant prices. "We were able to directly procure vegetables from suppliers and sold them at normal prices. We also limited sales of vegetables to ensure as many of our customers were able to have vegetables for their families. Our efforts proved to be effective in allaying widespread fear of supply shortages and stemmed profiteering by unscrupulous merchants looking to make a quick buck," he says.

Conscious of its social role, FairPrice makes it a point to give back to the community.

The NTUC FairPrice Foundation, set up in 2008, has contributed more than $47 million to various charitable causes over the past five years.

Despite co-operatives being around in Singapore for more than 80 years, FairPrice's role is still misunderstood at times.

Says Mr Seah: "Some think that because FairPrice is a co-operative, we have to be the cheapest or that we enjoy special funding from the government. Some think that we should be wholly non-profit; some do not appreciate that it is only through generating profits (that) we are able to continue to reinvest to meet customers' and Singaporeans' needs as well as in giving back even more to the community.

"We 'do well to do good', and this is the mantra of many other co-operatives in Singapore and in other countries across the world."

This monthly series is supported by IBM