Financial Times

JKH mulls Keells brand revamp

By Duruthu Edirimuni
John Keells is reviewing the positioning of their supermarket brands, 'Elephant House Super Pola' and 'Keells Super' under heavy competition from other supermarket chains.

Sumithra Gunesekera, Director, JKH and sector head of Food and Beverage, said that the conglomerate would implement certain changes in the supermarket strategies at the appropriate time.

"The group is reviewing their supermarket strategies at the moment and have conducted an in-house market survey on the two supermarket brands," he said.

Recently, the JKH Chairman, Vivendra Lintotawela told the media that their food and beverage business has not done well.

JKH Food and Beverage owns the 'Elephant House' brands in carbonated soft drinks and ice creams and 'Keells' in processed meat and supermarkets.

JKH Food and Beverage also holds the franchise for the 'Pizza Hut' restaurant chain in Sri Lanka and the Maldives.

According to the market survey, done a few weeks ago, John Keells is trying to decide on one supermarket brand.

Cargills, their arch rival, is offering stiff competition but analysts say that food and beverage sector is one which JKH cannot exit, as there are other benefits such as cross selling opportunities.

Keells Food Products Limited (KFPL), the processed meat manufacturer, currently has a market share of approximately 70 percent. The conglomerate has already decided to do away with their plantations according to the Boston Consultancy Group (BCG) survey they underwent recently.

Due to staff overheads being expensive, they also recently gave a voluntary retirement scheme (VRS) of Rs. 648 million to Elephant House employees, which affected their profit margins.

Analysts say that VRS set aside, the conglomerate's profit was pressurised in the food and beverage area with heavy rivalry for soft drinks from other market players and Cargills Food City supermarket chain giving some more competition on both their supermarket brands.

Though the conglomerate has recently expanded the Keells Super supermarket chain, its supermarket sector has not done well. Keells Super faced intense competition from Cargills when the latter established themselves in key locations. Also they have moved ahead with new market strategies such as approaching the farmer directly to buy produce.

These moves and Cargills' positioning its supermarkets as a 'non high-end market' have lent them an edge in the marketplace.

Meanwhile, JKH also faces high costs in food manufacturing. Also, competition for Keells Super is expected to increase following the privatisation of Sathosa, a state owned retailer who performed poorly, but is expected to show results under private management.

Market analysts said that in the food and beverage sector JKH had always yielded low margins comparative to their other sectors.

For FY 03, the conglomerate's food and beverage sector recorded 2.9 percent gross margins (profit before tax margins) as opposed to their transport sector recording 23 percent and leisure sector recording 15.6 percent in the corresponding year.

However, stock market analysts project that together with the cost savings derived from the recent VRS, the conglomerate's food and beverage sector will improve to reach profit margins up to five percent in FY 05.

The leisure sector has done exceptionally well together with the transport sector, which has shown a strong growth as expected.

The conglomerate is expected to make a profit of Rs. 1.69 billon for the FY 2004, analysts said.

Back to Business