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The Threats To Super Group’s Growth

Instant beverage manufacturer Super Group (SGX: S10) is certainly not one to rest on its laurels when it comes to the pursuit of growth. This week, my colleagues and I at The Motley Fool Singapore had a chance to tour the company’s factory in Malaysia and speak with a few members of its management team.

My big takeaways from the visit include: 1) Learning about Super Group’s competitive advantages in its fast-growing Food Ingredients business; and 2) the many different avenues for growth that the company is pursuing.

But, as an investor (speaking in general terms), one should always look at both sides of the coin; a company with good prospects for growth might also have huge challenges to overcome while trying to grow. Here are some of the risks the company might face as it attempts to advance its business.

Price wars

The instant coffee space has never been one that is known for brand loyalty. Price is a huge consideration for consumers of such products. In addition, the distributors of such products also take into account prices when deciding if any brand would get a chance to have shelf space in retail outlets like supermarkets.

The instant coffee market, especially in the Asian region (which is Super Group’s focus), has always been dominated by Nestle. If the leader decides to start a prolonged price war with its competitors, it is highly unlikely that such a move will not have an adverse impact on Super Group.

New markets

Nestle has already been moving into the instant premium coffee market with its Nespresso machines. Working with a Gillette-type business model (the Nespresso coffee pods are analogous to Gillette’s razor blades), I can see how the Nespresso machine might slowly eat into Super Group’s market as some customers switch up from the mass-market instant coffee mix to the premium coffee capsules.

If Super Group does not try to tackle the issue while it is still manageable, it might have to contend with a competing segment that would become too large to handle in the future.

The risk of overextending itself

Super Group seems to be engaging in many growth initiatives at the same time, as alluded to earlier. The company is exploring new markets, new products, and new businesses. There is a risk that it might overstretch itself by fighting a war on many fronts and end up causing more damage than good in the long run. Super Group might need some super coordination (pun intended) and implementation of its growth plans, or it might end up finding out that its resources have been spread too thin.

Foolish Summary

There are many challenges for Super Group in its key instant beverage market. Only time will tell if the company has what it takes to succeed in this competitive landscape.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.