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Sri Lanka

Sri Lanka: Asia Securities Consumer Sector Panel Discussion 2022 - Key takeaways

  • Presentation – Himalee Madurasinghe, Director/Head of Kantar Sri Lanka

  • Panel Discussion – Gihan Cooray, Deputy Chairman, John Keells Holdings

  • Panel discussion – Himalee Madurasinghe, Director/Head of Kantar Sri Lanka

Asia Securities
21 July 2022
Published byAsia Securities

The 2022 Consumer Sector Panel Discussion organised by Asia Securities Research was held on 19 July 2022. This year’s event themed “The Fight Against Inflation: Navigating through hyperinflation and sector dynamics” was held virtually. Gihan Cooray, Deputy Chairman and Group Finance Director of John Keells Holdings and Himalee Madurasinghe, Director/Head of Kantar Sri Lanka were the panelists at the event.

See below our key takeaways from the event.

Presentation – Himalee Madurasinghe, Director/Head of Kantar Sri Lanka

  • FMCG volumes and values grew strongly during COVID-19, however in recent months volumes have started to come down, while value has maintained an upward trajectory.

  • FMCG market is roughly 400bn LKR currently, with the F&B category accounting for 75%.

  • In the most recent quarter (Mar-May), Home Care (HC) and Personal Care (PC) has shown strong value growth (59% and 39% growth, respectively) together with modest volume growth, mainly because of the limited availability of substitutes.

  • The drop in number of household product categories purchased was more pronounced in urban and upper socioeconomic class (SEC) over the past few months, indicating that current economic conditions are impacting everyone.

  • On average, consumers purchased 22 FCMG packs less (-15%) than the same quarter last year, while average spend has increased by 3,500 LKR. Purchase frequency is unchanged.

  • Higher volume decline is seen within the rural population (-10%), compared to urban (-5%) mainly due to higher concentration of farming population impacted by the fertilizer crisis.

  • Highest penetration drop (number of households purchasing a particular product category) seen in milk powder (-18%), tinned fish (-10%), ice cream (-7%), butter and margarine (-7%)

  • Loyalty erosion was primarily seen in categories which saw the highest price increases, including milk powder, washing powder, soap, shampoo, instant noodles and biscuits.

Panel Discussion – Gihan Cooray, Deputy Chairman, John Keells Holdings

  • Ensuring product availability is the key issue faced by the retail business. Overall volumes have reached pre-pandemic levels in the recent quarter. At the moment, not seeing a significant impact on volumes despite price increases.

  • Footfall is positive and has shown growth despite recent mobility restrictions.

  • Observing a shift from general trade to modern trade due to better product availability.

  • Expanding private label offering and direct imports of essentials are key strategies in ensuring better product availability. Sourcing of raw materials for manufacturing continues to be a key challenge due to forex shortages.

  • Although the Dollar value of remittances has declined, the equivalent LKR value has not been impacted due to depreciation. This could explain the resilience in rural demand.

  • Will selectively continue to expand the retail store footprint. Modern trade penetration in the country is low and there is a continued shift from general trade to modern trade.

  • Tendency for overregulation and interventions similar to price controls remain a risk.

Panel discussion – Himalee Madurasinghe, Director/Head of Kantar Sri Lanka

  • Rural population contributed roughly 52% of 400bn LKR annual FMCG basket. Before COVID, 21% of working population was employed in agriculture, and this increased to nearly 30% during COVID. Impact on agriculture income due to fertilizer shortage had a strong impact on rural consumption levels. Consumption will recover once fertilizer issue is remedied.

  • Based on a digital survey conducted last year, roughly 1/3 of the online gaming population in the country were females based in outstation areas, indicating a significant untapped demographic opportunity for businesses and marketers.

  • Products like milk powder are becoming unaffordable for certain consumers. Biscuits are emerging as a key substitute product and a cheaper source of nourishment.

  • Strong growth was seen in all FMCG categories during COVID-19 due to many reasons, such as government cash support and strong in-home consumption due to travel restrictions.

  • Some of the key challenges facing manufacturers in the near term are cash flow pressures, increase in cost of funds, and importing raw materials for manufacturing.