Profit Making Enterprise Beats Workers Cooperative in Worker Welfare

One of, if not the most positive story to come out of Singapore in the last few weeks is the announcement by the Sheng Siong Group that they would be awarding their staff with a 16-month bonus. Like the other supermarkets, Sheng Siong had an exceedingly good year thanks to Covid-19 and the “circuit breaker” in April and May of 2020, where the only place where people could go to.

From a Public Relations perspective, the move was brilliant. After the announcement, people started talking about how great Sheng Siong was and there were people who voiced their opinion on why they should shop more often at Sheng Siong and stories like the post below:

 

Then there was an unfortunate comparison with their largest rival, NTUC FairPrice, the supermarket which is owned by the cooperative under the National Trade Union’s Congress. (NTUC). While Sheng Siong’s generosity was be compared the “non-action” from FairPrice. Stories like this started coming out online:

https://www.theonlinecitizen.com/2021/01/27/sheng-siong-being-compared-to-ntuc-fairprice-after-rewarding-staff-with-up-to-16-months-bonuses/

As well as shopping at FairPrice (Near my home and I’ve become familiar and friendly with the staff), a part of my income is derived from Fairprice (worked most of my weekends in January 2021 as a promoter of frozen meats), I wondered if the comparison between the two supermarkets was fair.

Let’s start off with the most obvious starting point. Sheng Siong is a listed company on the Singapore stock exchange. Listed companies by their very nature are profit driven enterprises and they have both a moral and legal obligation to maximise returns for their shareholders. Listed companies are by law required to publish their financial results (ie you know how well the company is doing) and the compensation of top executives are also disclosed (you know what the top man is making).So, in the case of Sheng Siong, we know what the chairman, CEO and MD are all making and as a side note, we know that they are related.

By comparison, Fairprice is cooperative under the umbrella of a trade union. Whilst listed companies have a moral and legal obligation to maximise returns for shareholders, cooperatives are by their nature designed for a social cause, which in the case of Fairprice is to keep the price of basic household items affordable for its members. The cooperative states that its operations are grounded in its social mission as can be seen from its website:

https://www.fairprice.com.sg/wps/portal/fp/oursocialmission

The CEO of FairPrice, Mr. Seah Kian Peng, who is also a Member of Parliament (MP) for Marine Parade Group Representation Council (GRC), told CNBC Asia that FairPrice is not a listed Company and that profit maximization is not important and the profit margins that FairPrice has are significantly lower than that of Sheng Siong:

 

Mr. Seah has also said that everything that FairPrice does must be line with its social mission:

https://www.hnworth.com/article/spotlight/influential-brands/ntuc-fairprice-ceo-seah-kian-peng-we-intend-to-continue-to-be-the-local-market-leader/

With this very clear distinction between the nature of a listed company and cooperative, we must also appreciate the fact there is a clear difference between the way that the tax authorities treat listed companies and cooperatives, clubs and societies. Corporations pay corporate income tax on their profits. How IRAS treats Clubs and Societies can be found at:

https://www.iras.gov.sg/irashome/Other-Taxes/Clubs-and-Associations/Working-out-your-taxes/Know-What-is-Taxable-and-What-is-Not/

With this understanding in mind, let’s see how the two organisations compare. The most obvious starting point is money. It goes without saying that both Sheng Siong and Fairprice make a lot of money and thanks to Covid 19, both had exceedingly good years. The 300 plus shops across the island have helped FairPrice to make in excess of S$100 million every year from 2014 all the way through to 2019.

 

 

 The 61 (as at May 2020) shops owned by Sheng Siong have also not done badly by their shareholders. While the stock is not the “sexiest” (as in a start-up that makes overnight billionaires), the company has done enough to pay out a dividend for the past eight years. Based on their track record, owning Sheng Siong stock can help pad your retirement account.   

 

Knowing that both these organizations make a lot of money. The next question is what do they do with it. One of the key areas for a good old-fashioned enterprise like retail, is the employees. Old fashioned retailing is inevitably about people. You need people to move things and you need people to front customers and so on. Outside of rents, the largest component is inevitably people and paying a reasonable wage to get them to show up on time and do their jobs reasonably well.

A look at the following website for cashier salaries provides one with an interesting view of things:

https://www.glassdoor.sg/Salaries/singapore-cashier-salary-SRCH_IL.0,9_IN217_KO10,17.htm

 

 

 

It’s interesting to note that the worst paying supermarket is Cold Storage, which targets higher end customers, while the organization that pays the best is Sheng Siong, which is aimed at the most price conscious of consumers. It should also be noted that the sum of S$1,300 a month is the baseline that proponents of a minimum wage have argued for.

The other area to look at is in pricing. Both Sheng Siong and FairPrice target the everyday Singapore consumer living in the heartlands. These are the consumers who hunt for bargains and demand “cheap and good” products.

I also need to stress that Mr. Seah of FairPrice has stated everything that his organization does is routed in the social mission of “moderating” the cost of living for Singaporeans and that profit maxmisation is not a consideration. So, when FairPrice talks about offering the best prices, they are not talking about their business strategy but their reason for existing.

I found two sites, which provide interesting price comparisons between the two. They can be found at:

https://blog.moneysmart.sg/shopping/sheng-siong-online-vs-ntuc-online/ ; and

 

 

https://blog.seedly.sg/supermarket-house-brands-singapore

 

 

It’s interesting to note here that in many products, Sheng Siong’s prices are cheaper and if you look at the money smart table, you will notice that the items that are being compared are common retail items – i.e items that someone else made and the two organisations were merely retailing them. Hence, price differentials between the two cannot be written off to cost in manufacturing or quality.

What do these things tell us? A good place to start is that Sheng Siong has blown away the idea that you there is a trade off between being profitable and paying living wages to ground level staff. The argument that you cannot pay ground staff more because it is bad for profitability, investment and job creation has been used too often in Singapore. If you suggest that a bus driver should be paid more, everyone from the minister downwards will tell you that public transport fairs must go up (they go up anyway regardless of what happens to the bus and train drivers). If you suggest that the cleaning aunty age 70 should get paid more for a day of cleaning dishes, the officials will tell you that your price of noodles will have to go up. The most shameful examples came from last year’s Covid outbreak in foreign worker dormitories. As cases exploded, you actually have clowns arguing that housing workers in places that didn’t infect people with horrible diseases would be bad because it would make the price of real estate go up (obviously said by people who don’t pay a mortgage – Singapore’s land prices are ridiculously high)

So, Sheng Siong’s management should be commended for showing that you can pay fair wages to workers (above market rate), offer cheap prices and still make returns for your shareholders. The government should study what Sheng Siong is doing right.

The second question is what is FairPrice about. While FairPrice is on the scale of things relatively cost-competitive, one has to ask if it is doing its job. It’s not as cheap as “Sheng Siong” nor does it offer the exclusive products of “Jasons” or even “Cold Storage.” In terms of its “Social Mission,” FairPrice has been taking a back seat in terms of giving back to workers and being the cheapest to keep prices low for ordinary people, which is strange when you consider the fact that FairPrice was established to do just that.

Sure, FairPrice has made money. Then again, like most large players with a government association, it should be making money or it would take intelligence to lose money given that they have a commanding hold on a necessity. Mr. Seah talks about his margins being lower than Sheng Siong’s because he does make maximizing profits a priority. However, he’s selling many of the same products as Sheng Siong for more, yet paying staff less. While Mr. Seah has by no means been an awful manager, such comparisons against a competitor with less advantages leave many questions unanswered. Perhaps it would be best for every stakeholder if FairPrice were to compete as a public company rather than a government linked cooperative?