Overview of Singapore Economy and Franchise Industry
At a Glance
Singapore's economy is expected to grow by around 3.5% in 2014 aided by healthy domestic demand and a strong services sector. Economic growth is expected to gather momentum from 2015 to 2018 as external demand strengnthens.
Singapore is an open friendly economy. For the 9th continuous year the World Bank ranked Singapore # 1 for ease of doing business. It is a forward country with solid supply chains and a developed infrastructure. The franchise industry is very well controlled and transparent so there are few regulatory hurdles compared to its Asian neighbors. Due to the trusted system there is a certain peace of mind when dealing with potential Singapore partners.
According to McKinsey, Singapore is ranked as the 4th most connected country in the world so offers a good hub for your regional headquarters and a springboard to expand across Asia. There are around 7,000 multinational corporations with more than half of them using Singapore as their regional headquarters.
Of 20 private economists surveyed by the Monetary Authority of Singapore (MAS) expected GDP growth for 2014 is 3.8% and this is forecast to increasingly grow over the next 5 years.
Since comparatively slower Asian growth, retail sales were up 5.5% in July 2014 (Singapore Department of Statistics) and are forecast to increase by nearly 20% from 2014-2016 (PwC).
The food and beverage industry contributed approximately 3.2% to GDP in 2013 with Singapore having the highest per capita food consumption in Southeast Asia (Research and Markets). The retail and wholesale trade sector accounted for 16% of GDP, up 5% from the previous year; the financial services sector grew 10.6% and business services rose 5.1% (HKTDC). The service sector is by far the largest employer and adds around 60% to GDP.
The government has a very global attitude and is reliant on global business and imported goods. There are a raft of global and regional free trade agreements with hardly any tariffs on most agri-food products. Franchise information (including financial incentives) can be found through the following government backed organizations:
SPRING-Standards, Productivity and Innovation Board.
International Enterprise (IE) Singapore.
Singapore has a very multi-cultural, globally aware population and is therefore a great test marketing location before committing to a regional launch. The population is small and predominately urban but has an enviable low unemployment rate. As a result, it is one of Asia's richest countries in terms of consumers, the level of per capita wealth is one of the highest in the region and has risen consistently over previous years.
The average monthly household income of Singaporeans rose from $ 8,110 in 2007/08 to $ 10,500 in 2012/13 with households spending an average of $ 4,720 a month on goods and services. Total consumer expenditure is forecast to grow by CAGR 5% from 2011-2016 and 36% of Singaporeans feel the next 12 months would be a good time to buy the things they need or want (Nielsen 2014).
Food is the 2nd largest expenditure behind housing and interestingly, private education accounts for a high percentage of spend-equivalent to university education expenditure (Singapore Department of Statistics).
Given the higher income, the average consumer is well traveled and is very brand savvy. They have a good level of sophistication and are very receptive to foreign products and services. The generally higher affluence means there is a less price resistant market-a useful point for premium brand companies to bear in mind.
The franchise business in Singapore is healthy; there are over 600 concepts with more than 35,000 franchises. Franchising and licensing accounts for 18% of total domestic retail volume and generates a turnover of about $ 6 billion. Franchisors from a range of countries are present, across a range of sectors. The majority of brands are from America though Singapore remains the most popular Asia destination for Australian franchisors.
Singaporeans are keen to find new franchise opportunities and are adept in dealing with foreign franchisors. They not only have a good understanding of their domestic market but also the regional market. This, combined with the strategic location creates opportunities for foreign brands to partner with knowledgeable Singapore companies in order to extend their brand across the region.
A successful foreign concept established in the Singapore market has the potential to be taken on by the domestic partner and developed across the region, therefore significantly reducing the risk and cost to the foreign company.
Useful information snapshots:
- Consumers will be very conscious of food safety and health.
- Singapore's consumer foodservice industry reported US $ 7.5 billion in total retail sales in 2011, a 3.3% growth from the previous year.
- Singaporeans spend about US $ 5 billion annually eating out. Restaurants as a group account for 37% while fast food outlets account for 13% of the total revenue in the food and beverage services industry.
- Nearly two thirds of Singaporeans (61%) surveyed ate out more frequently in the past year than they did in the two years prior (Weber Shandwick 2014)
- The Singapore confectionery market is promising having shown steady growth of 20% over the last 5 years. The US $ 210 million market is primarily led by sugar and chocolate products (Canadian Government).
- Profitability ratio of the overall food and beverage services industry was 7.3% in 2012. All food and beverage services reported increases in operating receipts in 2012 (Singapore Department of Statistics).
- Tuition and private education is a healthy sector and represents a growing expenditure for Singaporeans. They do however have greater respect for reputable, proven brands.
- Two major supermarket chains dominate the Singapore retail industry: Cold Storage (Dairy Farm) and NTUC Fairprice. In addition to this Singapore has another 1,300 specialty food and drinks outlets- and these enterprises are trending.
- Singapore is considered to be one of the most aggressive discounting societies (Reed).
- An estimated US $ 3.5 billion is predicted to be sent online in 2015. (asianewsnet.com). Weber Shandwick's 2014 survey reported over half of respondents (53%) purchased food online at least once and 15% buy between one and three times per month.
- Specialist products will rise, such as artisan bakeries, organic grocers and natural cosmetics.
- Bespoke beauty products and services are a growing sector.
- Unprocessed and functional foods will increase in popularity as consumers become more health aware.
- Guess what-cupcakes are the new big trend in Singapore.
- Healthy, fresh juice drinks will be an emerging sector.
- Restaurants that have a distinct environment and offer a unique eating experience are a present and future trend.
Consumers in Sinagpore are very open to purchasing foreign products and services. They are generally loyal to a brand so it is essential to offer some kind of retention scheme. However Singaporeans do like to experiment and will try new products-especially if they have seen the concept while traveling or hear about the quality or customer service.
Although they have a high standard of living they are innately very price conscious. The price point has to be appealing and match the market so it is recommended though research is carried out: pricing yourself out of this market could prove a catastrophic mistake.
Analyzing Singaporean consumer behavior does not seem so difficult as there appears to be a general consensus about why they purchase. It is suggested to push your brand through initial price promotions, thereby generating primary consumers, and retaining them (while simultaneously creating a great word of mouth campaign) with your level of quality and service.
As with the rest of Asia, convenience is becoming a main purchase motivator. Modern retail formats, lack of time and over work are factors supporting this change in behavior. Brands that facilitate the process of purchase and / or offer a variety of delivery channels will have a higher chance of success.
Lastly, Singaporeans like to have an emotional connection with a brand so a story behind the brand can be a key marketing point. Emphasize your heritage or the quality of your produce / service. Make much of your clients, endorsements and your domestic image.
The bottom line
A safe market that does not leave much to the imagination-don't read this as a negative. The clear regulations and trustworthiness of partners make for a simpler, more professional process than in some other Asian countries, and there is a lot to be said for that.
To conclude : A mature, solid market and well regulated industry, but small.