3 Key Challenges for Super Group Ltd and What it Plans to Do for 2016

Super Group Ltd (SGX: S10) had faced tough challenges in 2015.

The instant coffee maker saw its sales slide by 6% during the year. Meanwhile, profit fell further, tumbling by 31%. Consequently, the company’s stock price had been cut by 17% from the start of 2015 to yesterday. Given these as a backdrop, it would be natural to wonder whether the challenges that Super Group faces are temporary or much longer-term in nature.

Darren Teo, Super Group’s assistant general manager, gave his take on the three key challenges that the company will face in 2016 in a recent earnings briefing:

“I believe that 2016 is going to be filled with uncertainty. The macro environment is unlikely to improve, compared to 2015. This is mainly due to certain headwinds and key risk that the company face, such as what Chun Yuan [Super Group’s Chief Financial Officer] has highlighted, the currency fluctuations, especially in emerging markets, where Super is strong in, like Myanmar, Malaysia and upcoming markets like Eastern Europe. The depreciation of the Singapore currency against the US dollar will continue to have an adverse impact on the business.

Secondly, the weaker consumer market sentiment. I think given the current commodity prices, such as oil prices and all, you probably can see that this will affect consumer spending. Raw material prices; it will continue to fluctuate and this will continue to affect our performance as well.

And last but not least, the intense competition for the market. What we are seeing is that competitors are more aggressive, in terms of price point. So, what we are very focused on, is to give more value back to consumers in order to protect or gain market share in difficult times like these. And, these are the forces that will affect the company’s performance in general in 2016.”

Teo did not stop with just the challenges confronting Super Group. He went on to outline two key initiatives that the company will be focusing on. Here’s a snippet from the briefing:

“In particular, two of the things I would like to talk about is branding and innovation. Because these are the two key things that we believe that can differentiate ourselves from competition and also having a first mover advantage on new products in the market is also a very important factor for us to capture market share in new categories.”

Long-term followers of Super Group may remember the three-pronged growth strategy that Super Group had outlined in early 2015, namely, Branding, Innovation, and Diversification. Here’s Teo elaborating on the first two prongs:

“I would like to talk a bit about branding. Probably, those who have been following us since 2011, we have talked a lot about how we want to brand ourselves, change our branding, focus on keeping our brands updated to the current consumer trends.

This started with Owl’s rebranding in 2011, and Super’s rebranding in 2013. The result of that is that we have seen positive brand recognition and top-of-mind awareness from consumers, post-rebranding. The brand itself is aligned with what young consumers want, in terms of how they want the packaging to look like, and how they want the brand to communicate with them. I believe that this rebranding exercise in 2011 and 2013 was crucial to ensure continuity in the business that we have created.

Moving on next, I would like to talk about Innovation. Post-2013, after our rebranding, we felt that what we had in place was a new brand image to communicate with consumers, especially the younger users. However, what we felt was lacking was there wasn’t much innovation within the coffee space. Since we created the 3-in-1 instant coffee product in 1987, there isn’t much innovation within the instant coffee space.

That is the reason why we felt that there was a need to redefine what coffee is for consumers. That also led to the birth of two of our new products, one that them which we launched in late-2015. One of them is ESSENSO Microground coffee, which uses 100% arabica coffee. It uses not only instant, but also a mixture of instant and  microground coffee within the finished product. We also launched a traditional coffee which is called the Owl Kopitiam Roast, which replicate the coffee taste which we have in the coffee shop.

This has given us pretty encouraging results. They were saying that our initial campaign has gained traction among consumers for ESSENSO in Singapore and Malaysia, and Owl Kopitiam Roast in Singapore.”

The new products introduced by Super Group appear to have caught on. In 2015, the company was able to keep sales at its Branded Consumer business segment stable, despite the challenges outlined above. Moving forward, the instant coffee outfit is looking to roll out its ESSENSO and Owl Kopitiam Roast products into regional markets. Furthermore, Super Group also hinted toward new product launches in the cereal and tea product categories in the future.

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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 Chin Hui Leong owns shares in Super Group