Lanka Sathosa to return to profitability by year’s end, says CEO | Sunday Observer

Lanka Sathosa to return to profitability by year’s end, says CEO

Dr. S.H.M. Faraaz     Picture by Chaminda Niroshana
Dr. S.H.M. Faraaz Picture by Chaminda Niroshana

Lanka Sathosa which has become a trendsetter in providing essential food items at low prices to consumers, aims at becoming a profitable State institution by the end of the year.

With proactive marketing strategies and promotional activities, it will have a competitive edge over other retail giants in the country.

The modernised Lanka Sathosa outlets have been well accepted by consumers as a convenient place to shop for all their monthly needs, Chief Executive Officer Lanka Sathosa Limited, Dr. S.H.M. Faraaz said.

However, he said that being a State institution, it has drawbacks as well as positive factors.

“We provide a service to consumers and our main objective is not to make profits. We have created a platform for SMEs to develop as we procure our supply mostly from this sector. With the expansion of the SME sector, we believe that the economy will benefit and grow at a faster rate where the country will accelerate its socio-economic development,” he said in an interview with the Business Observer.


Q. Explain the present situation of the Lanka Sathosa network?

A. Lanka Sathosa was launched in 1949 after the country gained Independence. It was then knowns as Sathosa which aimed at supplying essential goods to local consumers at a reasonable price.

Due to several reasons, Sathosa went bankrupt after a few years. The new look Sathosa was launched in 2005 as a retail chain catering to the public as a supply oriented retailer. Before becoming bankrupt, Sathosa was engaged in wholesale and carried out the import and distribution of goods throughout the country.

In 2005, Lanka Sathosa was formed to operate as a retail establishment to provide essential items at the lowest price in the marketplace. One of the prime objectives of Lanka Sathosa was to reduce the cost of living. The government’s strategy was to use Lanka Sathosa as a means to control the cost of living.

Sri Lanka is a developing country. Over 50 percent of the population fall under the low and middle income category. A lesser number of families fall into the upper income class. Therefore, an establishment such as Lanka Sathosa plays a vital role in supporting to uplift the living standards of the people.

During the past seven decades, Lanka Sathosa underwent dramatic changes. It started as Sathosa and was renamed as Lanka Sathosa and there is also the Cooperative Wholesale Establishment (CWE) as a separate entity engaging in the distribution and supply of goods.

These institutions went through tough times and were also pictured as one of the most corrupt loss making entities. With the new government coming into power in 2015, its main focus was to make Lanka Sathosa a profitable organisation.

The institution was subjected to a one year study by KPMG to ascertain the reasons for its downfall. It recommended measures to make the company profitable to the Ministry of Commerce and Industry. One of the key changes that was made after the study was to recruit personnel for the top management positions from the private sector with the necessary qualifications and experience.

They were given the responsibility to re-engineer the process and this resulted in Lanka Sathosa turning black from red. It recorded a turnover of Rs. 27 billion in 2016 and crossed the Rs. 31 billion mark last year.

We have targeted Rs. 40 billion for this year. For the first six months of this year, it reached the Rs. 18 billion mark with the festive season coming in December. We are confident that we could go beyond the current figure.

Q. How much of consumer needs are fulfilled by Lanka Sathosa?

A. Lanka Sathosa has recorded a 23 percent growth for period 2017 to 2018 despite the drawbacks. It accounts for 12 percent in the FMCG market. We have seen the trend of customers shifting from major retail chains to Lanka Sathosa in the first two quarters of the year.

We have become the price setter in the market. Our slogan is ‘the lowest price’ and we ensure that this promise is kept. People patronize Lanka Sathosa due to it offering the lowest price in the marketplace.

Q. What are the immediate challenges for Lanka Sathosa?

A. In an open economy, market forces decide the price and it is not controlled. Price control is not good for Sri Lanka. The government wants Lanka Sathosa to have the lowest price as a mechanism to reduce the cost of living.

Apart from being the price setter in the country, Lanka Sathosa is fast becoming a profitable institution. Although there was an operating loss of Rs 3.7 billion last year, we will be completing the year with a profit.

When talking about the institution, we also like to mention about the allegations levelled against the institution. Due to some incorrect media reports, Lanka Sathosa had to face a difficult situation.

However, we have overcome these challenges at present. The institution is growing and expanding its outlets to rural areas as well. With the concept of reaching the villages going beyond the city, the outlets are becoming popular among customers.

As the main objective of the Lanka Sathosa is not profit, but to work as a service oriented organisation. The expansion plan has some logistical issues and to overcome this we have signed an agreement with a private entity to provide logistics.

Since we are a State owned organization, we have a different set of challenges posed by the political environment as well as non-political factors. We are given stiff competition by the retail giants and have been able to face them satisfactorily. However, we need to protect Lanka Sathosa.

Q.How much does Lanka Sathosa import?

A. Lanka Sathosa does not import essential goods. They support the government in the case of an emergency such as a natural disaster where there is a shortage of essential food items such as rice to maintain prices in the market.

Q. How much is bought from local producers?

A. We call weekly tenders for procurements. The goods are purchased at the lowest price and we pass this benefit to consumers. Most of the modern traders follow this. We confidently say that we are the price setters to the nation.

Consumers get the benefit of this low price and this has compelled other retail giants to lower their prices. We have a large number of registered suppliers numbering 10,000 to 12,000 providing groceries and engineering items essentially SMEs.

We purchase from local firms and have made a platform for the SME sector to build upon. We have an MoU with the Industrial Development Board to enable small timers to supply their products. This opportunity has helped them provide jobs to people.This is a win-win situation.

Q. What new sales strategies are you considering?

A. Winning the Neilson People’s Award was a huge encouragement for us. We competed with the retail giants in the country and won this award as the people’s choice of brand. This demonstrates that a state institution can be competitive and efficient in terms of providing public service.

The new look Lanka Sathosa has been well accepted by the people. The People’s award as the preferred FMCG brand is a testimony to our success. The change has been well received and we are confident that this will augur well for the institution in the long run. Other elements such as changes made at management level by recruiting qualified and experienced personnel from the private sector, training outlet staff and improving customer service has benefited the institution. The main strength of Lanka Sathosa is the customer. Lanka Sathosa was not a customer friendly organisation in the past. But It has transformed to be a better customer serving entity and has mainly focused on training staff.

They are given in-house on the job training as well as outside training to be more efficient and friendly towards customers.

We have signed two Memoranda of Understanding (MoU), one with the USAID for a four year contract on staff training and development on the basis of training the trainer and the other with the Sri Lanka Institute of Marketing which focus mainly on customer service, communication and effective selling to take Lanka Sathosa to the next level.

We strive to make a delighted customer and any one who visits our outlets can feel this difference.

Lanka Sathosa has 4,000 staff and plans to set up an exclusive training centre for the staff.

We are the market leader in essential items. We started the lowest price strategy and this price factor has become a deciding factor in consumer purchasing. We have concentrated on other grocery items as well.

Customers need to have a single place to purchase all the monthly requirements. We have signed up with fisheries, pharmacies, ATM, vegetables and fruit suppliers to enable them this facility, The first mega Lanka Sathosa outlet was opened in January in Welisara this year. This outlet is being well patronised and has recorded a sales growth of 210 percent for the first six months.

Earlier, we did not have a marketing budget, but now the board of directors has given a marketing budget to do effective marketing.

Q. Can you elaborate on the current marketing plan?

A. We are competing with other commercial organisations. We conduct promotional activities such as ‘Salli Wessa’ and ‘Car Dinana Bak Maha Ulela’. As we have the lowest price and quality products we have the competitive edge over other retail giants.

We request customers to call on our hotline 0113670190 and 0113670191 as public support is necessary to develop this organisation. We are ready to take up their suggestions. Lanka Sathosa was not computerised before and all 400 outlets will be computerised shortly. We will also be issuing a customer loyalty card.

CCTV cameras will be installed in all outlets to provide security to customers. We plan to reduce overtime and introduce biomatrix. This will reduce and control cost and make our organisation a profitable one.

As we have made Lanka Sathosa turnaround 100 percent and make it a profitable organisation with increased turnover and an improved organisation, customers are willing to accept the change and patronise our services.

Whenever the country faces a disaster, the government use Lanka Sathosa to assist the victims.

We act as a relief provider for the affected and therefore, there is a need to maintain Lanka Sathosa to contribute to the nation’s forward march.