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Make-or-break
era for ailing giant Cash-strapped and struggling with rising debts, the fastest and biggest supermarket chain in 2003 is heading for an imminent collapse in coming weeks if the government fails to respond to a plan to resurrect it. "At one time we could have revived it. But now it's too late - the situation has worsened. We have asked the government to either take over management of the company or buy our (40 percent) stake," said Lakshman de Silva, director at International Grocers' Alliance (IGA), the consortium that bought a stake and full management of the ailing giant in end 2003. IGA comprises the Richard Pieris Group, Ceylon Biscuits and Carsons. The retail firm owes millions of rupees to suppliers and banks are unwilling to lend it money unless the company, 60 percent owned by the government, is fully controlled by the IGA. Unilevers, one of its biggest suppliers, has stopped supplying to Sathosa "We have recovered most of our money though a little more is due to us and in lieu of that we are pulling out stocks from Sathosa outlets," a company spokesman said. Retail industry sources said apart from the crisis with the government, IGA was also to blame for the chaotic situation at Sathosa. "The company failed on two counts - proper logistics in getting suppliers and having the right product in the right outlet," one source said adding that, "selling cereal to a rural populace is like selling refrigerators to Eskimos." There was no proper focus; no market plan, the source noted. But IGA defended its management style and blamed the UPFA government for delaying a decision on a rights issue that could have revived the company. "We have been waiting for more than a year for the government to take a decision on this," de Silva said. At issue is a 300 million-rupee rights issue that the IGA had recommended in February 2004 for a full recovery if the company. Under this, IGA was to invest Rs 120 million in line with its 40 percent stake while the government was ploughing in Rs 180 million as its share. The then UNP administration agreed to the move but the April 2004 election delayed that decision. The new board of directors led by Upali Gunaratne, appointed by new Trade Minister Jeyaraj Fernandopulle, also agreed to the rights issue but later said reversed the decision saying it was unable to raise money which was required to offer a VRS (Voluntary Retirement Scheme) to lay off staff. In desperation late last year, IGA directors met and urged President Chandrika Kumaratunga to intervene. De Silva said the president had asked PERC to submit a report on the issue but nothing happened. March/April and December are the most profitable months for supermarkets due to the Sinhala/Tamil New Year and Christmas. De Silva said March sales last year clocked Rs 350 million while this year daily sales have slumped to Rs 1 million from Rs 14 million. In the best years under state control, March seasonal sales recorded in excess of Rs 500 million, de Silva said. IGA directors met Minister Fernandopulle on Monday for a resolution of the crisis and the latter was confident the government could efficiently run Sathosa Retail Ltd. "He (minister) seemed positive that they could run it," de Silva added. At the moment 85 outlets don't have any stocks, shelves are empty while at another 60 outlets stocks are low. De Silva said staff salaries have been paid till April. "We failed because we had too much staff and needed to do a VRS to reduce staff," he said. The company estimates between 1,200 to 1,500 jobs must be shed for the retail chain to recover. "We either resolve this crisis (after negotiations with the government) or we quit," a top source at Carsons, a member of the consortium said. |
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