KEELLS SUPERMARKETS JOURNEY ON RETAIL INNOVATION

SINCE RENEWING ITS FOCUS ON GROWING ITS SUPERMARKETS IN 2012 , KEELLS HAS MADE GIANT STRIDES . NOW THAT THE BUSINESS IS SCALED IT’S ADAPTING TO NEW CHALLENGES AROUND SUSTAINABILITY, PRODUCTIVITY AND INNOVATION

SRI LANKA’S ‘MODERN TRADE’ INDUSTRY HAS BEEN EVOLVING RAPIDLY SINCE 2000 WITH DISPOSABLE INCOME RISING, URBANISATION AND LIFESTYLE CHANGES.

Keells Super, as one of the vital supermarket chains in the Island, opened its first store in the basement of liberty plaza in December 1991 and is about to open its hundredth store. President of Keells Retail Charitha Subasinghe says, “It was more of an occasion rather than convenience, and that was the situation when modern trade started”. Excerpts from an interview…

From opening your first store to now, what hurdles did Keells face in its journey?

When our first store was opened, shopping at a supermarket was more of an occasion than a convenience. When others talked of a vision, mission and all that stuff, we looked at our business in a different way to stand out.

We saw that there were rapid changes in the country. Lifestyles were changing. People were looking for more convenience, and we saw the opportunity in terms of driving modern trade (supermarkets) business. So, we set up core purpose; to improve the quality of people.

The start was slow. During the early years, we weren’t profitable, but we had the backing of our parent. Until 2000 we opened only five stores. It plateaued because the group had other priorities; developing hotels and South Asia Gateway Terminal.The retail sector was revisited in 2012 when the group renewed its interest in revolutionizing modern trade (supermarkets). By then, there were many competitors, each with a similar product. So, we had to innovate. We were the first to develop a bakery section and a juice counter, and that differentiated us.

However, supermarkets account for only 15-20% of retail sales. With around 2,000 outlets, neighborhood grocery stores dominate the sector. So our biggest challenge when putting up a new store is to attract new customers. Start-up costs of each retail outlet are around 100 million with long payback periods and narrow margins. We must build scale quickly to become profitable. The other big challenge is to attract employees to work in a retail store because there is no glamour in food retail jobs. It is not a cosy job, that’s one reason why we cannot give a career in retailing, either the employee will move up within the company or move out.

To manage the gap in knowledge is another hurdle. We came up with a module to train employees and continuously enhance their knowledge. This helped them gain a basic understanding in 3-months and another 3-6-months to specialize. Millennials want to make their own decisions, so we have left the option open for them to decide how they want to study and to be reviewed. We are selling a plan to work for a potential employee rather than a job.

Jobs in supermarkets are seen to be physically demanding, how does Keells tackle this challenge?

It is shift-based, with two shifts of 10 hours. We’ve introduced equipment and tools to reduce manual work. For example, we have introduced roller cages to pick up products from the distribution center and unload into the lorry before being rolled out into the store.

How do you build relationships with your stakeholders?

In line with our core purpose, we identified our immediate stakeholders.

First, comes the customers. To give the right price, to create an enjoyable shopping experience for them, ensuring the availability of goods and providing the freshest of food and grocery.

Another element is the employee. To provide them with the best possible structure to help them develop and continue learning. We promise our employees even if they enter at the lowest level, such as a customer service assistant, that they can advance to the level of an outlet manager. We have online courses to help them develop professionally. The third element is the supplier.

That can include farmers and small and medium-sized suppliers too. We have around 800 farmers we directly work with. Over time we have helped farmers develop and produce better quantity and quality with new production methods. And then comes the general public and the country, where sustainability plays a significant role. We have pledged to reduce the usage of polythene by 50% by 2025, and we have converted many outlets to also use solar energy.

How does Keells keep innovating?

When we revamped in 2012, we started looking outwards. We introduced lots of globally used processes in modern trade, and we have been continually benchmarking against global best practices. Sri Lankans are traveling widely, and are being exposed to new things, so we were motivated to offer similar services to become a complete brand. Soon enough, some international players entered the market over the past couple of years, and we were ready to compete with them. To keep innovating, we conduct panel and customer surveys regularly to understand new customer preferences and concerns and decide what new projects would be relevant in the market.

How successful has the rebranding been?

I think the proof is in what we have achieved. The FMCG business was pretty bad last year, but we gained market share. Brand Finance ranked us the 12th most valuable brand in 2018, up from 14th in 2017. They also valued us as the most valuable supermarket brand in the country last year, for the first time, since the rebranding in 2017. This showed us that the transition had delivered results in a short time. However, when we used the colour, green people assumed it was a message about being environmentally friendly, but the green came purely from the fact that the brand was focused on freshness. We had looked at different colour palettes, and the ‘fresh green’ look seemed the most relevant.

How is Keells addressing sustainability?

Out of our 99 stores, 40 have solar panels, and we plan to include solar power in every new outlet. In outlets which have solar power, it accounts for around 30-35% of the energy consumed. The repayment period for solar is about five years. In some of the older outlets, the leases’ don’t extend that far so we have not converted them. There are various ways to manage emissions. If one lorry takes consolidated goods to the outlet, it will reduce emission and maximize truck utilization. Centralization is the way forward. Now, we have a centralized point where we bring all the vegetables from our collection centers in the morning. Vegetables and meat are then trucked separately to outlets. Fifty percent of our dry goods are centralized in a warehouse. To centralize further, we need space.

We are now building a large state-of-the-heart 250,000 square foot warehouse. It is an investment of Rs4 billion. Construction has commenced, and it will ready by end 2020 and is located out of Colombo. It can store up to 400 to 500 outlets capacity of goods.

THE POSITIVE THING IS WE HAVE BEEN ABLE TO CREATE A MARKET SPACE FOR LOCAL FARMERS AND CREATE JOBS

Supermarkets have moved beyond something for the elite. How has this impacted communities and is there a trickle-down effect?

The positive thing is we have been able to create a market space for local farmers and create jobs. In terms of real estate, we offer a decent rent for the land which may have been otherwise unutilized. In terms of tax, what we pay is also substantial, because it’s on the income we generate. On the flip side, some may argue that corner stores are being driven out of business by supermarkets. But the critical aspect here is where do consumers prefer to go? Even small groceries have updated and the people who have done that have created loyalty.

What are the determinants for Keells to set up in an area?

The determining factor is the population and their income so that sales generated could sustain the outlet. We had been focusing on the Western Province until two years ago but have expanded by opening stores in Kandy, Galle, Matara, Kurunegala and Puttalam since.

The use of polythene has become a massive concern in our country and supermarkets are a contributor to this issue. Is Keels addressing this?

We’ve pledged to cut polythene usage in half over the next five years. Most of the polyethene used in a supermarket is between the meat, vegetables and checkout counters. We have already switched to paper bags in the bakery counter, and we are going to use compostable bags in meat counters, which will take off 50% of polythene used within the store.

The other half of polythene is used in the checkout counter. This will be reduced by the recycled bags we have introduced. The recycled bags are sold below the margin, and for customers to use the bag, we offer extra loyalty points. A few years ago, supermarkets, together with the Central Environmental Authority (CEA) pledged
to charge customers for polythene usage. We witnessed a drastic drop in usage. But due to a petition at the Supreme Court, we had to abandon the initiative. We will continue to lobby with the government as an organization to reinstate a charge for polythene usage because then, people will start looking for alternatives. It has to
work both ways. As an ethical organization, we will look at reducing polythene usage, but some kind of legislation will help with the initiative.

With millennials and Gen Z’s entering the workforce, what shifts in purchasing habits can be expected?

The food and grocery sector will take a while to transform because consumers still prefer to touch and feel the goods. Our online sales are less than 1% of revenue, and half of those are purchased by foreign customers. However, we are gearing up for a change. In a few years,’ online sales should pick up. We are working on developing to shift to omnichannel. We have started piloting with PickMe for our food deliveries. We started in two outlets because PickMe is also trying to get the model right. We recently had a chat with them on how to scale fast. Another exciting thing is to see if they could do groceries too. We will scale up in food within a month or so, but on the grocery front, we are still planning.