NEO Group - RHB Invest 2016-09-16: Traditional And Modern Fusion

NEO Group - RHB Invest 2016-09-16: Traditional And Modern Fusion NEO GROUP LIMITED 5UJ.SI

NEO Group - Traditional And Modern Fusion

  • Being a food caterer, Neo Group is early in the adoption of e-commerce.
  • Last year, it amplified its advertising efforts via a plethora of marketing channels. 
  • While online platforms have been used to engage the younger audiences to a certain extent, we note that traditional advertising methods have copiously raised the company’s visibility and outreach to the masses. 
  • Increase usage of online directives would be needed in the future to counter intensifying competition from other F&B E-commerce players.

E-commerce at heart of the business. 

  • Internet has become one of the main building blocks of food catering business. Having an extensive online platform facilitates customers to select the menu at ease and enable catering companies to record orders accurately. Today, with rising rentals and labour costs, Neo Group is rationalising its retail store count and focusing efforts on delivery sales.
  • Technical know-how garnered from its catering platforms has enabled Neo Group to quickly develop online sales for its Umisushi retail brand.

Social media taking a backseat. 

  • Much like most of the other Singapore-listed consumer companies, Neo Group is still in early days when it comes to social media marketing. Most of Neo Group’s marketing efforts still center around mainstream media, as its target audiences are still the mass public. 
  • Although it has established Facebook and Instagram accounts to engage younger consumers, we have not seen any significant push advertisements or attempts to encourage sharing of posts by consumers. We believe this is an area Neo Group could work on to secure a more interests from the younger crowd.

Awesome gimmicks. 

  • Neo Group is dishing out six Mercedes Benz as the grand lucky draw prize to attract consumers’ attention. Considerable discounts are also given on weekdays and first-time corporate orders. 
  • Based to our channel checks with other industry players, these promotions have aided Neo Group in gaining traction. According to Euromonitor, Neo Group has 14.7% of the food catering market share in 2016. We believe its market share could rise another 2ppts in 2017 with its current promotion scheme.

Third party delivery services may intensify competition. 

  • We think third party delivery services like foodpanda and Deliveroo could potentially be a growing threat to the food catering business. The younger and tech-savvy crowd, in particular, could easily switch from food catering companies to these delivery platforms, especially for smaller group parties. 
  • Creating brand stickiness would be essential to maintaining leadership and market share in the long run.

E-commerce Strategy

One of the pioneers to e-commerce. 

  • To most of the consumer brands, e-commerce may mean having an online store or putting its products up on an online marketplace. However, to food catering or food delivery businesses, which do not have a brick-and-mortar store, an online platform is often the key connection to customers.

Leveraging on e-commerce more extensively. 

  • In view of rising business costs and high rental rates in Singapore, many traditional brick-and-mortar retailers are turning to ecommerce to remain competitive. Similarly, Neo Group plans to rationalise its retail stores by closing or relocating non-performing outlets when the leases expire. 
  • On top of that, Neo Group is applying its digital knowledge and logistical capabilities from its food catering arm to expand its retail brand, Umisushi, via delivery orders. This helps to enhance delivery sales which contribute 12.8% of Neo Group retail sales in FY16 compared to 11.7% in FY15.

Right model to pursue? 

  • While e-commerce may not be viable for all F&B players, we do think that Umisushi has a product range that makes delivery business viable. 
  • Umisushi’s delivery menu consists of mostly bento sets, sushi platters, salads and sashimi which are relatively easier to pack and deliver. However, the ability to maintain the quality of raw food (sashimi) would be critical in determining the success of this model.

Content and social media marketing 

Centers around mainstream media. 

  • As Neo Group is targeting the general masses, marketing efforts still center around the mainstream media. 
  • The company’s advertising expenses grew 79% to SGD5.4m in FY16. Most of which were spent on TV and radio ads, print media (newspaper and magazines) as well as printed brochures. Anecdotally, we have not seen other food catering companies advertising heavily on these channels with the exception of Select Group, which also sends printed brochures to homes. 
  • We believe these traditional marketing avenues allowed Neo Group to raise its visibility across all age group. They also create a recency effect when consumers are choosing food catering companies.
  • Even when it comes to promotions, Neo Group employs traditional means such as lucky draws with attractive prizes like Mercedez-Benz to entice consumers of all ages.

Social media participation. 

  • Neo Group has been engaging consumers via social media, mainly through its Facebook and Instagram platforms. To date, the company has thousands of followers on its social media accounts. 
  • Apart from keeping regular updates online, Neo Group also created mini online contests for followers to win cash prices and gifts.

Immaterial outreach. 

  • However, though Neo Group does marketing on its own websites, social media accounts as well as using SMS blasts, we have not seen any major push advertisements coming from these platforms. 
  • We believe that peer-to-peer (P2P) recommendation is one of the best forms of marketing to reach out to new customers in the F&B business. In this aspect, social media could be a game-changing platform for P2P sharing. However, neither Neo Group, nor any of its food catering peers, has a strong online presence. Its Mercedes-Benz contest has been largely unseen in the virtual world, with less than 10 likes and shares on its Facebook post.
  • Customer feedback and satisfaction is also important in P2P sharing. In this area, Neo Group has done well in allowing multiple online platforms for feedback and engagement on its Facebook, Instagram and company website.

Potential threats 

Food delivery as a growing alternative to catering. 

  • Convenience is a growing concern for consumers, especially with the fast pace of living in Singapore. 
  • In 2015, the food delivery industry managed to grow by 9% in sales, and we expect this trend to continue forward due to the growing number of 3rd party delivery services like foodpanda and Deliveroo. This affects the food catering business, especially for small social events, because food delivery acts as a substitute for their services, and consumers are also able to have wider range of options to choose from. 
  • However, for large social occasions or at an institutional or corporate level, we expect food catering to remain strong for formal events.

Maintain BUY with TP S$0.80.

Juliana Cai RHB Invest | http://www.rhbinvest.com.sg/ 2016-09-16
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.80 Same 0.800