The Big Read: Consumers feeling the squeeze as industry disruptors come under pressure to deliver profits

The Big Read: Consumers feeling the squeeze as industry disruptors come under pressure to deliver profits

The spokesperson added: “We recognise that the external situation remains fluid, and we will continue to review our support measures and fares in line with prevailing market conditions, to ensure that our driver-partners are properly compensated for their time and hard work.”

ARE USERS AT THE FIRMS’ MERCY? 

While cutting costs and raising revenue earned from customers and merchants may seem like the most obvious ways to widen the profit margin, it is, in fact, a delicate balancing act, said industry experts.

“Given the increasing levels of competition and choice, consumers can be relatively price sensitive and switch platforms easily if they don’t like the price of services,” said Mr Bates of KPMG Singapore.

Asst Prof Fan of SMU added: “Delivery services that charge high fees may also face challenges as customers may choose to economise on the delivery fees by making personal visits to the shops.” 

He noted that such services earn by taking a cut from the order bill, not from the riders’ delivery fees.

“As a result, their profitability would depend more on people’s continued reliance on delivery service,” he said.

Services that are now deemed discretionary or “good to have” may also face bigger problems, said the experts.

Mr Ku pointed to how content streaming services, which surged in popularity when people largely stayed at home during the pandemic, may be seen as less essential now that people are out and about for work and worrying about the rising costs of basic needs.

“It’s a consumer demand pricing game,” he said. “When (these companies) start to increase prices, the danger is actually (them) starting to lose market share.”

A case in point is Netflix, he said. The streaming platform raised its prices a number of times prior to its loss of subscribers.

On the other hand, companies that try to find solutions for problems that have cropped up since the pandemic, such as supply chain or logistical issues, might thrive in the near future, he added. 

Correspondingly, investors’ funds could flow towards these firms instead. 

Mr Bates said: “Private equity and venture capital firms are refocusing their 2022 investments towards technology that will fuel industry transformation over the next ten years and beyond. 

“Fintech in the domains of climate change, supply chain, financial and crypto market infrastructure, artificial intelligence and agritech are attracting particularly high interest.”

With investments potentially harder to come by, platforms could seek to improve profit margins without necessarily raising prices or fees. 

Assoc Prof Theseira said: “For example, minimum order sizes, reducing delivery or order priority, being more selective about onboarding merchants — these are all ways that platforms can potentially improve profitability.”

Companies may also seek out new sources of revenue, either in the form of a new business segment or market. Mr Ku said that diversifying may make sense if the company is well resourced and finds a high-margin business to acquire.

Given the current economic climate, he said “the new division has to be a fast track”. “You cannot go, ‘Oh, I’ll go and try to build the stuff from zero’,” he added. 

Mr Quek pointed to how large unicorns — start-ups whose valuation exceeds US$1 billion each — used to seek out new markets to grow revenue.

“In the past, these unicorns could afford more budget and time to explore new markets, but now it seems trials are smaller and get cut faster. An example is Shopee expanding into India, Spain and France in 2021, but only to quickly shut (these) down in less than 12 months,” he said.

WHAT THE FUTURE HOLDS  

During its first-quarter earnings announcement in May, Sea Ltd said that it expects its e-commerce arm Shopee to achieve positive adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) in Southeast Asia and Taiwan by this year, before allocation of headquarter costs.

Its digital finance unit, SeaMoney, is “on track” to achieve positive cash flow by next year.

#Big #Read #Consumers #feeling #squeeze #industry #disruptors #pressure #deliver #profits

Leave a Comment

Your email address will not be published.