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5 Minutes With… Leong Sze Hian on NTUC discounts

Posted by theonlinecitizen on May 2, 2008

TOC spends 5 minutes with Leong Sze Hian and asks him for his views on the issue of NTUC FairPrice’s discount vouchers for needy Singaporeans.

(Reference: Straits Times report – “FairPrice extends 5% discount to end-July”.)

TOC: In the Straits Times report – referenced above – NTUC Chief Lim Swee Say announced that NTUC Fairprice will be extending the discounts on NTUC housebrand products till the end of July this year. He said that “the discounts cost the supermarket chain $4.5 million in all” and that “it was a ‘big stretch’ on FairPrice’s bottom line.”

Is it true that the $4.5m it costs FairPrice is a “big stretch on FairPrice’s bottom line”? What was Fairprice’s profits last year?

Sze Hian: NTUC FairPrice’s profits increased by 89 per cent from $53 million in 2006 to $100 million in 2007. (Fairprice.com – pdf file)

NTUC itself had about $4.5 billion in revenue last year, up from $4.14 billion the previous year, an increase of 9 per cent. What is the figure for NTUC’s profits? I am not sure. The information is not easily available.

I would like to suggest that one perspective to look at, may be to ask the question – Does the $4.5 million discount, which is only a drop in revenue of only 0.1 per cent ($4.5 million divided by $4.5 billion), translate into a significant profit drop for NTUC?

With the discounts, in a way, free advertising to buy from FairPrice, will the higher sales volume generate perhaps even more profits to offset to some extent the $4.5 million discount?

TOC: Looking at the 5% discount itself, what comes to your mind?

Sze Hian: I would ask: Will FairPrice still make a profit? What is the cost of purchasing the products from the suppliers? How much will such profits amount to in total?

TOC: The discounts, according to news reports, are only for NTUC’s own housebrand products. Why do you think NTUC is limiting the discounts to only its own housebrand products?

Sze Hian: One possible reason may be that house-brands have, in a sense, a unique edge from a marketing perspective, because unlike branded items, it may not be easy to make any meaningful comparison on the pricing, quality, etc, relative to other supermarkets and retailers. To illustrate this point, for example, if we are buying X brand rice, we can check different places to compare the price, and the quality would be the same. If N Supermart and S Supermart sell their own house brands, it may be harder to make any apple-to-apple comparison.

TOC: In conjunction with the launching of NTUC’s new logo, Minister Lim Swee Say said that it will always start with the interests of workers and end with the interest of workers.

Sze Hian: Such words may perhaps be best translated into action, by extending the discount.

Is this small sum (relative to our $6 billion surplus, and NTUC’s revenue of $4.5 billion), too much to ask for, to help workers and Singaporeans cope with another 26-year high inflation?

TOC: The ST reported that, “Coffee at NTUC Foodfare’s food courts, for example, will remain at between $0.70 and $0.90 despite higher bean prices.”

Sze Hian: I think $0.90 for a cup of coffee may be a bit on the high side compared to some coffee shops and food centres. However, compared to air-conditioned food courts, I believe the price of $0.70 and $0.90 is good value. I think just like the FairPrice profits issue, perhaps an alternative perspective may be to look at the total profits of NTUC Foodfare, whether they have increased, and if so, by how much, rather than just focusing on the price of 1 item like a cup of coffee.

TOC: But even NTUC FairPrice’s housebrand products seem to be increasing in prices, in some instances, by up to 60%. In a letter to the Straits Times forum page on May 1 2008, a Mdm Lily Cheong complained about this.

NTUC FairPrice increased the price for a 5kg bag of rice from $8.50 to $10.80 or $11.80 a week ago. On Tuesday, the price shot up again to $13.80. The two price rises amount to an increase of more than 60 per cent.

She also added this about FairPrice’s own housebrand cooking oil at FairPrice’s outlets:

For a 2kg bottle, the price rose from $2.35 to $5.25 or $5.35 a week ago. On Tuesday, the price spiked again to $5.90… And this was for cooking oil sold under FairPrice’s house brand, which has been labelled as a ‘low-price item’ for the past six months.

How does FairPrice justify raising the prices of its products – including its housebrand ones – and say that they’re giving discounts to consumers? What’s going on here?

Sze Hian: Well, I think if you raise the price of rice by $5.30, which is an increase of about 60 per cent in just more than a week, this is, by any measure or reasoning, still a hefty increase that deserves some explanation from those who are accountable.

Also, this is in the context of announcing the generosity of giving a discount of 50 cents for every 10 dollars spent, or asking MPs to purchase the 5 per cent discount vouchers for “non-union member” needy Singaporeans.

The example given for FairPrice’s cooking oil is an increase of about 150 per cent in a week or so.

Mdm Lily Cheong who wrote to the Straits Times made a very good point in that since we were told that we don’t have to hoard rice, because there is a three-month stockpile, why are prices being raised so soon and rapidly for what was possibly purchased three months ago when the price was still much lower?

Is this a case for the Committee Against GST Profiteering (CAP) or the Ministry for Trade and Industry to investigate? Like the “Jack and the beanstalk” story, the trust and faith that Singaporeans have may now be diminished.

I think there may be an issue of transparency here – what is the cost, the mark-up, profit, total profits due to higher sales volume because of all the media coverage, the total profits derived from the “discounted items”, overall total turnover profits, etc?

If I may use an analogy, if the HDB housing grant is increased, but say the price of new HDB flats increase more than the grant increase, is it really a grant, a subsidy? By the same token, if the price increase is more than the discount or the 2 per cent GST absorption, perhaps we need to ask to what extent has the discount been discounted?

TOC: NTUC announced recently that it will be setting up low budget retail stores for the poor.

Sze Hian: Why does it take more than nine months to do this? By next year, inflation may well have subsided. How about setting up a low budget section at selected stores now, to help the poor?

TOC: In the ST report mentioned above regarding FairPrice extending the discounts period, Mr Lim was reported as saying:

Our view as the labour movement is that by growing our social enterprises, not only will they have greater resources to do more good for union members and workers, but more importantly, serve as a very effective tool to check against profiteering.

Your view on Mr Lim’s statement?

Sze Hian: How effective are those who are doing the check and balance on profiteering? I understand that the Committee Against GST Profiteering (CAP) has yet to take anybody to task for profiteering, and the Ministry for Trade and Industry (MTI) recently replied in newspaper forums that it has yet to receive any complaints from anyone on profiteering from the rise in the price of rice.

The question that may need to be asked is – when a social enterprise’s profits increase by 89 per cent in a year, is it too much? How (and what proportion) are profits being returned to the people?

When a social enterprise has revenues of $4.5 billion and say profits of about $250 million (I don’t know the figure, and am just giving an estimate assuming the same profit to revenue ratio of FairPrice), is terminating the discount in July really necessary? If it’s $4.5 million in all, how much money are we talking about for every month’s extension? What’s the point of growing to have greater resources, and then cutting back when so little (relatively) is involved, at a time when another 26-year high inflation for March has just been announced?

In a sense, isn’t the fact that inflation keeps hitting 26-year highs an indication of the effectiveness (or ineffectiveness) of social enterprises – such as FairPrice – “serving as a very effective tool against profiteering”, as the minister said? Of course, it may be debatable whether price increases are or are not, and to what extent, profiteering.

In this context, I think the reference to profiteering may perhaps be more appropriately described as “curbing price increases”, rather than “profiteering” per se. Or, could it be that the effectiveness is so great, that no one has been able to find a single case of profiteering?

Perhaps an independent Committee of Inquiry (COI) could be formed to examine pricing policies.

By the way, the $4.5 million it costs FairPrice for the discounts is just over twice the minister’s annual pay.

Read also: NTUC’s “gift” – helping the poor or blatant exploitation?” by Leong Sze Hian and Andrew Loh.

——————

Update: Straits Times, May 3, 2008, “Rice and cooking oil lead price rise”:

“The FairPrice brand of fragrant rice, for example, increased from $5.75 to $6.50 per 5kg bag, an increase of 13 per cent.”

——————

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24 Responses to “5 Minutes With… Leong Sze Hian on NTUC discounts”

  1. Robert HO said

    RH:

    I cannot stop praising TOC and Mr LEONG enough. TOC is undoubtedly the BEST site in Singapore, by far. I had previously termed TOC a WEB-RESOURCE instead of a blog, so important and valuable its work is. I end with a simple, heartfelt statement :

    “ONLINE, whether you are blogspot.com or nyt.com, nobody gives a shit. You all look the same. It’s the CONTENT that counts. Trying for respectability through academic pretensions is stupid and futile. Online is merciless. Keep posting good stuff and they keep reading. Once you post mediocres, readership drops. Being a PhD has the least relevance online. In advertising, they have a saying, that ‘you are only as good as the last ad you wrote’. It is the same online.”

  2. NTUC Fairprice’s is, after all, a co-op. How’s the membership rebate (up to S$6,000 per year per member) affects the overall picture?

  3. Tripartitism said

    Don’t forget that the GST is pecked in percentage terms, so each
    time the price of a commodity is raised, the amount of money
    collected by the govt in real terms is also increased. This may
    be the main reason why the govt allow the prices to keep going up
    – so that it can increase its coffers. So actually three parties
    – NTUC, their suppliers and the govt – are making money at the
    expense of ordinary people.

    This is the real meaning of Tripartite Symbiotic Relationship!

  4. tunkudon said

    ya total agreed . keep up the good work . thk for the info

  5. seveneleven said

    As usual, it doesn’t pay to listen to them. On one hand, we are told not to hoard the rice because there are sufficient to last up to 3 months, On the other hand, the increased in rice price did not come after 3 months.

    If there’s anyone trying to profit from the present suitation, you know them now. Is CASE going to “bite” them? Probably not. You can’t expect too much from the toothless tiger

  6. abc said

    No more going to NTUC.
    Hypocrite people running the store.

  7. Mindy said

    Lim Swee Say should stick to crying for our poor badminton players who fail to win medals….

  8. Seeking Salvation said

    OPEN LETTER COFFEE SHOP TALK

    Subject: Dear Prime Minister, tolong please …….

    Coffee Shop Talk – Dear Prime Minister, tolong please…

    From: ChinChaiOne

    28-Apr 12:15

    Dear Prime Minister,
    We citizens of Singapore urge you to PLEASE MIND YOUR OWN BUSINESS.

    We DO NOT NEED your help. Every time, you mention HELP, we have to run for cover!!!

    Help the poor? Raise GST!

    Help traffic flow? Up ERP!

    Help passenger service? Up Bus fare/MRT fare!

    Help us get taxi? Raise taxi fare!

    Help us get good government? Raise Minister and Civil servant salary!

    Everytime YOU WANT TO HELP, we all PAY FOR IT!!!

    THANK YOU THANK YOU…TOLONG LAH, please, we will HELP OURSELVES, no need your help liao.
    We DARE NOT ask for help any more!!!

    Sir, most honoured sir, I urge you NOT TO HELP Singapore INVEST also!
    Everytime your wife invest, we all lose money! Kao liao, kum siah!
    Just let us have a dose of bad governance, like recently the Mat Selamat
    case, like dat….so far, it is ok,
    your incompetence, we ACCEPT!
    PLEASE DO NOT help us have better security! Wait we all kena PAY FOR IT!!
    I believe ALL SINGAPOREANS PREFER NOT TO HAVE CRUTCH MENTALITY!
    I think it is ok lah, please just take your salary and enjoy life ok?

    Thank you thank you,

    I am very chin chai one, any how any how, no need to help oso can one.

  9. Weijia said

    haha seeking salvation, thanks. that was funny, and brightened up my day, for a little bit. hahaha you should submit it to talkingcock.com or smtg.

    as for the state of NTUC, there’s what happens when u run a “for-public” initiative as a “private for-profit” one; the bottom line becomes everything. Another area one can think of will be our privately runned “public” transport.

  10. Logicalman said

    Thanks for the insight, Mr Leong. They are certainly invaluable. It further strengthens our perception that the Govt is not doing enough, relative to what she’s capable of. Imagine a social enterprise that easily outperforms any other medium and large businesses.

    Like what Seeking Salvation said above, albeit in a satirical manner, we are not asking for the Govt’s help. Just do the right thing and don’t tax us beyond what is fair and reasonable. For one thing, the Govt is not short on reserves, and has netted hefty surpluses year after year. And as it is, prices are already escalating, yet the Govt continues to up taxes on higher prices, and upsize her surpluses. Her GST credits, rebates and dividends do little more than to put a few hundred dollars in our hands in two instalments, while GST increases and various price increases started last year and earlier. Other parts of her packages are deferred and offset in value against increased rates and inflation. Even if the Govt did hand out several thousand dollars worth of goodies per household to help the public this time around, I dare say they amount to no more than a thousand dollars in real terms and present value for the average household, with part of it going back to the Govt’s coffers in the form of GST alone.

    In effect, what we have here is a re-distribution of wealth, from the middle class & above to the Govt, and a trickle back to the lower class. When this happens over time, more of the middle class migrate south, resulting in a growing lower class that’s ever dependent on public assistance. Is this a desirable outcome for a nation that prides itself on economic growth and topping the charts everywhere?

  11. truthful said

    Anyone reads the paper today must marvel at the CASE president’s remarks about increasing prices.

    One wonder: is the gov, NTUC and CASE in cahoots? Didn’t the president of CASE just reiterate everything the govt say will reduce price. e.g. the higher exchange rate?

    Seems like CASE is a gone case.

  12. jenny_kopigal said

    It is not fair to anyone, least of all us lowly paid ah-sohs.

    All those well-paid NTUC leaders just say swee swee and ask you to buck up and retrain. Retrain what? Retrain as road sweeper and toilet cleaners? I recall NTUC chairman says: “go find some dark corners”. Siow! I mean, how to fight with China gals. They are hardworking, you think they want it. But they go back to China, they are rich tai-tais and meanwhile, we are left in Singapore with rising prices, a HDB mortgage to service, rising edcuation costs for our children, etc, etc.

    NTUC: give 50cents for every $10 spent and then jack up prices by the day. Like that, how to survive?

    Cry heaven, heaven also don’t hear.

    (Tears…)

  13. Gary Teoh said

    How to trust ntuc ? Labour MP is of no use, Seng Han Tong, Lim Swee Say, Lim Boon Heng, do you think they care for you ? They want to make more money only.You eat 3 meals or 2, is your own funeral!!! Vote them out,running dogs!!

  14. Elfred said

    The gahmen should import at cost and distribute basic nessessities at cost.

    Simple lah~ Hahahahahahaha~

  15. bad deal said

    I agree with the letter writer. the miniters who asked the people not to hoard rice should be taken to task. In the meantime NTUC has increase prices while their old stock is not depleted. If that is not profiteering then what is it? Of course NTUC may say it is ‘better for us’ to swallow the medicine incrementally instead of high prices all in one shot.
    If the goal of NTUC, like the miniters and stat boards are to increase revenue and profits, then we citizens are screwed.

  16. Alan Wong said

    If NTUC Fairprice is making S$100m profit, how come the annual dividend is so miserable.

    Someone must be definitely be profiting at the expense of the members.

  17. CynSkep said

    With a PAP MP as CASE chairman there’s not really much hope that CASE will be of much use…

  18. Kim said

    Never liked NTUC since a long time ago for their seemingly unfair competition against other outlet chains. Then they try to return to the ppl by saying they do their best to give best prices e.g. they come up with inhouse brands to cut out the middle man. Any business person would know this is less of an attempt to cut prices for the masses, but more of an attempt to increase NTUC’s profits.
    I mean hey, these middle man importers also suffer when ntuc starts coming up their own brands and stop selling theirs, is that helping Singaporeans?
    I cant help but wonder if ntuc is genuinely interested in helping Sporeans. I can sometimes find cheaper items at my neighbourhood grocery stores.
    Granted ntuc does have tonnes of items we all need daily and we probably can’t live wo them, but that’s my pt, the lack of real competition really irks me.
    Tts why i’ve stopped buying from ntuc, i simply go to the grocery shops opposite my place, i think the hardworking uncles and aunties there need my money more than ntuc does.

    Man singapore is starting to become a very stifling place to live in, its beginning to look and feel overcrowded, everything is so darn expensive, the market is dominated by giants and quite frankly, its dashing the dreams of many young sporeans who try their best to work darn hard, save up (Spore has one of the highest savings rate), but cant reap the fruits of their hardwork to buy that bigger hdb, or get a more decent car let dad and mum ride comfortably. And govt wonders why there’s a brain drain. Duh if i had brains so highly sort after, I’d go to a place where i can really reap the fruits of my talents, why in the world would i stay in a place where the houses are so small and cost if living is so high.

    From what i gather, a new chpt in Govt-ppl relations is unfolding, there’s an increasing gap betw the govt and the ppl. And in the next elections, I hope to see some change happen, the local ppl want their voices truely heard, not heard, think we dunno what we’re talking about and say “Trust us”

  19. Exploitation. said

    ” The price of rice on the Chicago Board of Trade has climbed 60 percent in the past year as farmers harvested less of the cereal than is being consumed, and countries including India, China and Vietnam curbed exports to safeguard domestic stockpiles and cool inflation. ”

    http://www.bloomberg.com/apps/news?pid=20601091&sid=a_iFc5waeERQ&refer=india

    Now, if the price of rice has climbed only 60% world-wide in the
    past year, why is it that the price of rice at NTUC outlets
    climbed 120% in the past one year?

    Isn’t it quite clear that somewhere along the line, someone must
    be profiteering?

  20. gary said

    one word to describe them, (NEVER TRUST UNION CHIEF).

  21. Mun Kit said

    I want comment on the coffee price only…

    there is actually no ‘range’ of price.
    $0.70=(coffee kosong)- no sugar, no creamer/milk
    $0.80=(coffee black) – With sugar but no creamer/milk
    $0.90=(ocffee) – WITH creamer/milk and sugar.

    in short, sugar = $0.10, and creamer/milk = $0.10

  22. Fever Guy said

    Dun buy rice at NTUC. go to sheng siong or cold storage. Let the NTUC keep their expensive rice and rice you cant keep long if not all the bugs will grow inside. Making it quite qucky to look at and make sure dont buy discounted rice at NTUC. They are usually full of bugs and make sure check the expiry dates. Close to half a year from packaging will be good enugh.

  23. rebel said

    money minded idiots,

    you think you can bring all the wealth u have squeeze from the people to yr death bed? save all these ill gotten money for yr farking descendents for generation.it will be useful for yr love ones to spend all of these wealth in their hospital and medical bill cos it will be curse!!!!

  24. stjc said

    i realized the unreasonable price raise since the increased of the last gst.

    some of the item price different can be as much as $1 plus.

    for those with vehicle you can try to go tampinese giant big store and price cheaper as compared to fairprice, the parking is FREE.
    for those with no vehicle there shuttle bus available with quite a no. of pick up point(sorry i am not sure the pick up point but you can check with them)

    try to shop bi-weekly or monthly so that you can get all your things at a go.

    for fairprice some of the promotion item is still reasonable if you want you can get those item during promotion.

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