SINGAPORE — Consumers will stand to gain from NTUC Enterprise’s takeover of Kopitiam, said experts, as they pointed out that the move will lead to better economies of scale that will reduce operational cost, and in turn, keep rental and food prices low.

However, some cautioned that it remains uncertain whether low prices will remain in the long run.

On Thursday (Dec 20), the Competition and Consumer Commission of Singapore (CCCS) gave NTUC Enterprise the go-ahead to buy over Kopitiam after it assessed that the takeover will not lead to a “substantial lessening of competition”.

Among the key reasons for approving the move, the competition watchdog said that both parties are not each other’s closest competitors and there are still other strong rivals. It also noted that the barriers to entry and expansion of eating establishments are “likely to be low”.

Commenting on the approval, NTUC Enterprise said the takeover will “strengthen our ability to provide affordable cooked food, thereby furthering our social mission of moderating the cost of living”.

It plans to reduce coffee and tea prices and also expand existing initiatives meant for lower-income consumers.

Associate Professor Lawrence Loh, the director of Centre for Governance, Institutions and Organisations at the National University of Singapore’s business school, said that the takeover will enable better economies of scale. “Given the broader base that it will have to exercise efficiency, they would be able to sustain the low prices,” he added.

Lawyer Robson Lee, who is a partner and specialises in mergers and acquisitions at law firm Gibson Dunn, agreed that having better economies of scale, enhanced group branding and a stronger bargaining power could be a “positive thing for consumers”.

The competition watchdog, he added, will continue to monitor any risks of anti-competitive practices to ensure consumers do not suffer any disadvantages following the acquisition.

Adjunct associate professor Zafar Momin at Nanyang Technological University’s business school said that since NTUC Foodfare – which is overseen by NTUC Enterprise – is a social enterprise, it would want to keep prices affordable by seeking cost synergies between both parties through its “larger footprint”. This will be done in areas such as procurement and supply chain.

Still, he noted that “as is the case with many acquisitions, the rationale is easier to articulate than to successfully pull off”.

As part of its assessment, the competition watchdog conducted public consultation over a two-week period in October with stakeholders such as stall owners, customers and hawker associations.

Although a majority did not object the takeover, some expressed concerns that NTUC Foodfare will enjoy stronger bargaining power. This could lead to higher rental fees and food prices because there will be fewer operators.

Lawyer Kala Anandarajah, who is the head of competition and antitrust and trade practice at law firm Rajah & Tann, said that with a seemingly stronger bargaining power, “there is always a risk that rentals may go up” for stall owners.

But she also noted that NTUC Foodfare’s social mission means it will be “under pressure to keep rentals low to enable a friendlier priced environment for consumers”.

Currently, NTUC Foodfare runs 14 food courts, 10 coffee shops and nine hawker centres. Kopitiam, on the other hand, operates 80 establishments — 56 food courts, 21 coffee shops, three hawker centres — and two central kitchens as well as manages more than 1,000 food stalls and employs over 1,000 people.

Even with the takeover, both parties have said that they will continue to operate separately.

Ms Anandarajah pointed out that the competition watchdog did not go into details on how economic efficiencies would be achieved if separate management teams and employees are to remain in place.

While there could be some degree of collective purchasing that could reduce costs, there is still a lack of clarity on this part, she added.

“The presumption would be that through scale of operations, there will be efficiencies that will result in savings, which in turn will benefit consumers through the lower prices,” said Ms Anandarajah.

“The question is how long. That is a factor of extraneous circumstances that only time will tell.”

But other experts noted that time is needed for both parties to make adjustments as they move towards integrating their operations.

Mr Lee said that maintaining the status quo “for a certain transition period will allow senior management and staff time to better integrate policies and operations, and for customers and suppliers to continue supporting the businesses with less disruption”.

Echoing that, Assoc Prof Zafar believes that after the smooth transition, there will then be gradual changes “to try to introduce better economics and customer experience for the merged entity”.