ECONOMYNEXT – Arpico’s supermarket chain in Sri Lanka now yield the highest profit margins and earnings per store compared with its rivals Cargills Food City and Keells Super, according to data in a new report by Fitch Ratings. Arpico, the retail arm of Richard Pieris & Company PLC, has 61 stores compared with 64 for Keells and 315 for Cargills with all three firms having rising margins since 2015 and revenue growth of 21% in 2017.
Fitch Ratings said the scale advantage shared by the three large players should continue to help them to source products at low prices.
“We believe Cargills is ahead of other two players in this regard because it has strong backward integration with farmers and suppliers,” the ratings agency said in its report on the modern grocery retail sector.
Cargills supermarkets had the biggest sales, Rs66.3 billion in the 2017 financial year, followed by Keells with Rs29.8 billion and Arpico with Rs24.8 billion with Keells having the highest revenue growth in the past three years.
Cargills supermarkets also had the highest EBITDA or earnings before interest, taxes, depreciation and amortization of the three.
Arpico, which has the biggest number of stores in the hypermarket format, had an EBITDA margin of 8% in FY2017, the highest of the three, followed by Keells’ 6.5% and Cargills’ 5.6%.
Arpico also had the highest per store EBITDA margin of 33% compared with 30% for Keells and 12% for Cargills, having been equal with Keells at 30% in 2016 when Cargills’ stores yielded only 9%.
Fitch Ratings said a material increase in the portfolio of premium product ranges or consumer discretionary products, which tend to do well as disposable incomes rise, should help improve margins.
“Arpico already follows such a strategy and enjoys margins around 150bp-200bp above those of its peers,” it said.
“Keells which is increasingly moving towards the hypermarket format that offers extensive products should see margins improve.”
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