Below is the transcript of a CNBC interview with Seah Kian Peng, Group CEO, FairPrice Group/ Group CEO, NTUC Enterprise. The interview played out in CNBC's latest episode of Managing Asia on 15 April 2020, 5.30PM SG/HK (in APAC). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan (CT): February 7th this year, the day Singapore turned DORSCON Orange, do you remember the panic buying that followed? Were you taken by surprise?
Seah Kian Peng (SKP): Yes, I remember that day, it was a Friday, very clearly. In fact, before DORSCON Orange was officially announced by the government, we could already see the build-up of crowds at our stores. But the minute it was announced, it was… for lack of a better word, it was like all hell broke loose. They were buying in quantities -- you've seen some pictures - it was like there was no tomorrow. So, it created obviously a lot of strain. It also raised the anxiety of everyone, both staff and customers. We had to scramble. I remembered somewhere in the evening, I had to immediately put out a statement. I crafted my own statement because there was no time to talk to my corporate communications people and I just posted something on my Facebook. After that, actually, it spread quite widely and subsequently, my leadership team - we all went to the stores that night to check them out. I convened a meeting at midnight with my leadership team to talk about what we needed to do immediately. As you reflect, I think it's not unexpected. It's natural for anyone to feel that. Because we're essential services – you'd want to make sure that there is food on the table. There will be a case where I will not be able to go out or I can't get the things I need for my family. You can understand why people wanted to go to the stores today and not tomorrow; and then, having gone to the stores, they wanted to buy more than what they needed. And it was a bit of peer pressure or you could say, herd mentality that when I saw someone else buying, I think I'd better buy a bit more. It all added up and therefore, we ended up with that situation across the board, not just at our stores - across all supermarket chains.
CT: Singapore came under the scrutiny for the hoarding of one essential item, toilet paper. In all your years working at NTUC FairPrice, do you have any deep insights as to why this item was so hot?
SKP: Well, that's something for the Harvard Business School to look at. Initially, we all thought that maybe it was an Asian phenomenon. Because that very day, again on February 7 earlier in the day, Hong Kong experienced a run of toilet paper. But as it turned out as we knew - whether you were in Australia, the United States, the U.K., everywhere - toilet paper, amongst other things, people were buying them in huge quantities. We made two main decisions: one was the imposition of purchasing limits on a few categories: rice, instant noodles, toilet paper or paper products and vegetables - to make sure that as many people could get a fair share of what they needed. That was a one key decision. The other was to quickly arrange for the media to join me at one of my warehouses, to show them that we actually did have stock of quite a few things, including toilet paper.
CT: Still, there are concerns about food shortage and grocery items shortage when they go into your supermarket and they see your shelves are empty. Can you clarify for us? Can you give us an idea of the stockpiles you have in your warehouse in terms of supply? How many months are we talking about?
SKP: Well, for different categories, you would have different requirements. We have always had a stockpile of rice, for example. Under certain situations, we may increase our stockpile from X months to X + Y months. Of course, during this period, we have had to review and rethink many of our strategies. In fact, our Minister for Trade and Industry Mr Chan Chun Seng had already mentioned that as a country, we are managing stockpile covering a few key categories: carbohydrates, proteins, fibre, health supplements and things like that. Pre-COVID, we were already importing from something like 70 countries. Because of COVID, I think we have strengthened our network of sources, so now we buy from even more countries and different new suppliers. As a result, I think we are lot more resilient. But this is always work in progress. This is always work in progress.
CT: So, just to be clear, when we go into your supermarkets and we see that the shelves are empty, it's not because there's a shortage of food and grocery items, it's because the supplies from your warehouse are not being replenished fast enough?
SKP: Yes, that's right, Christine, because as you can imagine, every single item – they could be in the warehouse - but it needs to be moved from the warehouse to our stores. Even when it reaches the stores, it needs to be moved from the back of the store to the front of the store - the shelves. So, all this takes time. Of course, there are also issues. I concede that right now, there could be a few factors that also disrupt our supply chain. There may be countries which impose lockdowns so their people cannot go to work and they cannot produce. Then, there are also situations where countries impose export restrictions, that will also impact us, which is why I think we need to make sure that we continue not to be overly reliant on one particular source and one particular country, but to have this diversified sourcing. At the same time, the government has also been working on a what we call a 30/30 project, where 30 percent of our local consumption comes from local sources. That's a very important project.
CT: You've also launched a COVID-19 initiative called "FairPrice on Wheels", which essentially allows residents in certain locations to buy groceries without venturing too far away from their homes during the circuit breaker period. What's the response like? How you doing?
SKP: We've been trying all options. Actually, this "FairPrice On Wheels" is going back to the good old days when you had mobile vans that went to a particular location, so that people didn't have to venture very far. The five locations are picked because number one, we know that there is a large concentration of the elderly. Number two, we know that within about 500 meters of that location, there is no supermarket chain around, whether us or my competitor. I think the reception has been very positive, particularly the elderly. But I won't just say the elderly, all those that use it have found it very useful and they are giving us very good feedback as well. So, I can tell that the things we are carrying in that mobile van - some things will remain the same, but we may also change the assortment.
CT: You've also increased your online capacity to cope with this huge surge in demand as people are staying at home, how much work was involved upgrading your online grocery infrastructure? How many more people did you have to hire dedicated just for your online service?
SKP: Indeed, online has clearly picked up. For us, likewise, the surge in volume is four to five fold. So, demand is huge. Admittedly, we are unable to cope to meet all the demand. We have been ramping up our capacity, but whatever we could put out is more than taken up. We are still short. So, we have been ramping up our current fulfilment centre. We are increasing to the maximum capacity that the infrastructure technology allows. At the same time, we have also been ramping up what we can fulfil from our stores and online – actually, the picking is done at some of our stores and delivered from our stores. The third thing which we are now trying out - at this very moment, we have closed one of our physical stores to turn it into what we call a "dark" store, which means that the public cannot go in. We converted this physical store into a "dark" store to do purely online orders. Will there be a second dark store? I think I will not rule that out.
CT: Your local rival Sheng Siong reported this huge surge in revenue and net profit in the first quarter and they're rewarding their workers by giving them one extra month in terms of salary. How did NTUC FairPrice do in the first quarter? Any plans to reward your staff as well?
SKP: First, Sheng Siong under Mr Lim Hock Chee has done a great job. I know him personally. He's a very nice, hardworking and humble man. I'm proud that he has grown Sheng Siong from nothing to what it is today. I would say that all supermarket chains would have seen a huge increase in terms of sales during this period. We too also saw a huge surge in our sales. In fact, to meet the surge, we have to employ a lot of additional staff. Just in the month of April which just passed, we employed over 3,500 additional staff. Some are full time, some are part time, some are temporary staff in order to handle the surge in sales. So, all the supermarket staff - not just in Singapore but worldwide - are working extremely hard. The hours are long. Fatigue does set in, and they are also under quite a lot of stress. So, I think it's only right that all of us should reward and recognize our staff for their hard work, as we should.
CT: You will reward your staff in terms of salary?
SKP: Yes, certainly. Certainly.
CT: In terms of revenue and profit jump, what sort of percentage are we talking about at NTUC FairPrice?
SKP: NTUC FairPrice, as you know, is a cooperative. We are organized as a cooperative, owned by almost 800,000 Singaporeans. We are certainly not out to maximize profits, but we do make money. We do make profits, but a lot of the profits are ploughed back to the community. We also give rebates to our customers at the end of each year. So, quite a lot of it goes back to the community for various causes: some for charity and some for community groups. Our financial year ends in December.
CT: Sheng Siong's gross profit margin is somewhere in the high 20s, what are your margins like at NTUC FairPrice?
SKP: Well, when it comes out, you will see it. (Laughs) We are not a listed company, and as I said, profit maximization is not important for us. Building a sustainable business is important. How we use the profits we make is also important to us because this is part of our DNA... even setting benchmark pricing. Being the market leader, that is a rule that's expected of us and we do it to the best that we can. Sometimes, people asked me, "Is NTUC FairPrice too big?" I always answer that question by turning it around and say, "If there is no NTUC FairPrice, will the community and Singapore be better off?" I leave that for the public to answer that themselves.
CT: So, just to go back to my previous question, your margins are much smaller than Sheng Siong's?
SKP: Our margins are smaller. Smaller than Sheng Siong's. Gross margin is smaller.
CT: Singapore imports about 90 percent of the food it consumes, how much of your conventional supply chains have been disrupted as a result of delays we're seeing in at the ports, at the road and sea transportation?
SKP: Supply chain disruptions are very real, and we are monitoring it very, very closely. Things can change… seriously, from day to day. There are so many developments. Some may be political. It goes back to having a diversified and comprehensive network of suppliers. I will say that we have very good, long relationship with all our business partners. Even globally, I think all grocers and food manufacturers are aligned in that we should all keep the supply lines open, for everyone's sake.
CT: Still, there have been disruptions. To what extent has this led to an increase in food prices and how are you managing this increase at NTUC FairPrice? How much do you try to absorb?
SKP: Right. Indeed, prices have gone up because, well, it's natural, right? Demand is much more than supply. Freight cost has gone up quite a lot. So, yes, some prices have gone up. So, on our part, we try our best to keep prices as affordable as we can. Last March, we announced that we will hold the prices of our top 100 house brand products - these are the popular essential items -- firm from March last year to June this year. That's almost 15 months. We are a retailer, not a manufacturer, but we are committing to hold the prices firm. In the past 15 months till next month, have the prices gone up? Sure, but having made the pledge, we have to honour it and we will.
CT: So, does that mean that after June, once this freeze is over, that you've put in place that consumers should be mentally prepared that food prices will go up?
SKP: Well, for the 100 items, well, watch this space. We are reviewing it and we will announce what we will do henceforth. Just that one example is one way where we are trying to help moderate the cost of living and help people stretch the dollar.
CT: Does this also apply to your food court business? Can consumers continue to expect food court prices to remain low?
SKP: Yes, this is where we try our best to do some forward-buying where we can, stockpile and that allows us some space to play that role better. As I said, we have also been a big promoter of local products. While we say that we support (local), we should show it with our action.
CT: How hard did you and your sourcing team have to work in the last couple of months to find alternative sources for some of the food items you've put on your shelves?
SKP: My procurement team, my category managers and my buyers - they've been working on overdrive for the last many, many months. So, it's a tough job but they have been working hard at it. I think we are making decent progress.
CT: Give me an idea of some of the food sources that you've tapped on that you'd never really thought you would do in the last couple of months.
SKP: Yes. Again, let's go back to eggs because we all love our eggs, and we do consume a lot of eggs. In the past, they were largely just from Malaysia and Singapore, that's it. But now, we just brought in from Spain, and we'll be bringing in from Ukraine. Have I ever imagined we would get from these (countries)? No, for sure, but I think it just goes to show how important it is that we need to keep on looking to diversify our sources.
CT: You're in charge of about 10,000 employees, and they help you run some 300 stores across the island. As an essential supermarket operator, you've ramped up your service and remained open during this critical period. What are you doing to make sure your employees stay safe and healthy during this time?
SKP: Well, Christine, I think one of the first things we did at the onset of COVID-19 was to make sure that we protected our staff. These are must do's: giving everyone thermometers, making sure they have 3-ply surgical masks and sanitizers to protect them. This is first and foremost. They need to feel safe. During this period, regular communications - talking to them, engaging them, and also, being there on the ground to show our support for the staff; and getting the rest of those who are not on the frontline - they could be the headquarters but whenever we needed more help - we will press the button and the staff on headquarters will all go down to the stores to help.
CT: There was an incident at your Bedok Mall outlet where one of your employees tested positive for COVID-19. What immediate steps did you take to isolate the problem?
SKP: Right. In fact, that gentleman actually told us the night before that he tested positive, even before we were officially notified by the authorities. The next morning, we took a decision. We told all our staff at that particular store, don't come to work, stay at home, check your temperature etc; and we closed the store. Theoretically, after you do the deep cleaning of the store, you can actually open the store the following day, but we chose to open three days later. But I'm happy that that particular staff of ours, he has since fully recovered and back at home. In fact, he's back to work. So, we are all very happy for him.
CT: There are concerns about COVID transmission through food and food packaging. What are you telling your customers? What precautions are you taking?
SKP: The basic 101 is about all of us keeping our personal hygiene. This is an individual responsibility, which we need to be very serious about. I think that is probably the most important thing. But having said that, we need to make sure when the customers come to our stores, it's a safe environment. So, the things that we have done: increasing the cleaning regime of those high touch areas, being the first ones to introduce social distancing, being the first ones to introduce contact tracing and all that. I think these are things that we have to do, we need to do, and we should do.
CT: As CEO of NTUC FairPrice, your leadership is now being tested, how will you lead the social enterprise and your employees through this pandemic?
SKP: Well, the clichéthat we are all in this together. I have been at FairPrice Group for quite a few years and I've a good team with me. I'm also very supported by a very understanding and very supportive Board. Keep communication lines open, transparent and timely. It needs to be very timely. In some instances, I told my Board, "I have to do this first. I will tell you the details later." (laughs) If you have had those traits built in as part of your culture, as part as your leadership and management style, I think in any crisis you face, it makes your job a little bit easier.
CT: Any lessons from the past SARS crisis that you can apply to this particular crisis?
SKP: COVID-19 is the mother of all crises. We've never had such a crisis because it covers both health and economic aspects. It is something -- hand to heart from the start to now - we've been changing a lot of things, evolving and adapting. There's the need to respond and be agile, even have the courage to say maybe some things that you thought was the right thing to do turn out not quite because of new things you discover. Whether you're a leader or not, I think the courage to recognize that and to then move ahead, I think these are all important things that we all need to do.
CT: You hopeful that things will start to recover by the end of the year?
SKP: How we return back to life post-COVID, I think that is the question on everyone's mind. It certainly is on mine because in a sense, there's no status quo to go back to. The new norm will be really a new norm - the way we affect individuals, families, businesses, organizations and the government. I think a lot of things will change, but history has shown that human beings and certainly Singaporeans are resilient. We can be even more resilient, and we are very adaptable. Therefore, I think the conviction is there: stay together, work together, we will overcome.
CT: Mr Seah, thank you so much for the Skype interview. It was great talking to you.
SKP: Pleasure is all mine, Christine. You have a good day ahead.
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