Will new entrants fire up SL’s modern retail market?

Source: http://www.dailymirror.lk

Competition in Sri Lanka’s supermarket landscape is set to intensify with the entrance of at least a couple of international retail giants through well-established local partners in the near future, Mirror Business learns.

Independent food retail chain, SPAR International, last year granted the licence to Ceylon Biscuits Limited (CBL)—the manufacturer of Munchee biscuits—to operate the SPAR brand as SPAR Sri Lanka in a joint venture with SPAR Group Ltd South Africa.

SPAR Sri Lanka has announced plans to open 20 SPAR supermarkets within a five-year period. The first of such is currently being built in Thalawathugoda and is scheduled to open shortly.

The Amsterdam-headquartered company, with 12,100 stores, is present in 42 countries worldwide.
Meanwhile, the UK retail major, Sainsbury’s, is also believed to be looking at entering the Sri Lankan market partnering with a leading local conglomerate in the country, which has interests in consumer electronics, fashion retailing, healthcare and several other sectors.

Sri Lanka’s supermarket space is currently dominated by Cargills, Keells and Arpico. A distant fourth player would be the supermarket chain operated by the Laugfs group. The state also has a hand in the business with Sathosa stores, which focus on low-income earning consumers.

The supermarket or modern retail industry in Sri Lanka is still in its formative years as the informal sector, i.e. stand-alone retail stores, boutiques and weekly fairs continue to dominate the country’s retail industry.

According to an FMCG sector report recently released by Asia Securities, a Colombo-based stock brokerage, modern retail penetration in Sri Lanka only accounts for 20 percent, compared to 30 to 40 percent for regional peers, which shows there is ample opportunity for the existing players as well as new entrants to the market. The rising per capita income, a growing middle class, rapid urbanization, changing consumption patterns and a surging tourism industry, will also act as strong pull factors for international retail chains to look at Sri Lanka as a potential market, despite its relatively small population.

Meanwhile, partly to ward off the competition that may come from new entrants, as well as to cash in from the opportunities at hand, two out of the three main existing players have announced aggressive expansion plans.

Cargills (Ceylon) PLC is planning to add 70 to 80 new stores a year to its existing chain of over 315 stores covering all districts of Sri Lanka over the next two years and the majority of the stores will be set up outside the Western Province.

Ceylon Cold Stores PLC, a unit of the John Keells group and the operator of the ‘Keells Super’ supermarket chain, is gearing to add 35 to 40 stores a year in the next two years, largely within the Western Province. Going forward, the stores will be rebranded as ‘Keells’ and operate as a ‘green-conscious’ retail chain.

Both players are seeing giving priority to the quality and range of the products available, cleanliness and availability of ample parking space in the new stores that are coming online.

However, Fitch Ratings on a brief report on the Sri Lankan retail sector last year opined that the competition in the country’s modern retail sector may not intensify at least in the medium term, due to certain entry barriers the new entrants would have to overcome.

“The incumbents have secured a mix of owned and leased properties in prime locations in main cities that would be difficult for a new player to replicate at a time when the property prices and rents are rising. A potential entrant will also have to build strong relationships with suppliers to secure lower costs, which could take years,” the rating agency said.

Fitch also noted that the significant investment required to set up sophisticated warehousing and transportation facilities could also deter new entrants in the absence of third parties that provide such services.



Categories: Business, Retail, South Africa, United Kingdom

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