Cargills (Ceylon) (Cargills) is engaged in operating a chain of retail outlets. The group operates Food City and Food City Express brand retail outlets. Cargills also operates a chain of Kentucky Fried Chicken (KFC) and TGI Fridays (TGIF) restaurants under the franchise agreement. The group is also engaged in the distribution of products related to international brands such as Kodak, Kraft, Cadbury, Bonlac, Oreo, Nabisco, Tang and Toblerone. Cargills operates in Sri Lanka, where it is headquartered in Colombo.
The company reported revenues of (Sri Lanka Rupee) LKR71,441.9 million for the fiscal year ended March 2016 (FY2016), an increase of 15.9% over FY2015. In FY2016, the company's operating margin was 4.8%, compared to an operating margin of 2.5% in FY2015. In FY2016, the company recorded a net margin of 2.3%, compared to a net margin of 0.9% in FY2015. The company reported revenues of LKR20,965.2 million for the first quarter ended June 2016, an increase of 11.2% over the previous quarter.
Modern Sri Lankan Retail Industry
Modern retail trade in Sri Lanka is at a promising stage when compared with the other Asian Pacific countries. Retail industry in Sri Lanka is driven by the companies and consumers waiting for the industry to make new standards. Currently there is a new trend of movement of consumers concerned for more about the health and nutrition with the increase of income. This also play an extensive role in integration of local agriculture with modern retail. According to Jones Lang LaSalle (JLL): a global real estate consultancy reported in October 2013 that Sri Lankan retail market is valued $25-$30bn in 2013. According to local retailer's Sri Lankan retail market is growing at 20% annually.
Currently there are more than 500 supermarkets, hypermarkets and convenience stores in the country. The Sri Lanka Retailer's Association was founded in July 2016 to enable professionals in the retail industry to achieve their full potential. With limited formal retail penetration, Sri Lanka's modern supermarket-hypermarket segment is among the fastest-growing sectors, with supermarket penetration increasing from 5% in 2005 to around 8% in 2012. The leading companies in the Sri Lankan retail industry includes Cargills Food City, Keells Super, Laugfs Sunup, Arpico, and Lanka Sathosa. Most of the major supermarkets are in Colombo and JLL reported the major retailers are aiming to open 3 to 8 outlets annually.
Cargills is the largest retailer in the country by sales and number of stores they own. The company holds 50% market share and operate 177 supermarkets and more than 220 retail outlets. The company started its operation in 1983 and in 2016 Cargills food city is rated as the 10th most valuable brand in Sri Lanka by Brand Finance Index ratings. The state-owned Sathosa operates 250 convenience stores, Keells has more than 50 hypermarkets and Arpico has 13 hypermarkets
Five stage of consumer decision making model
The consumer decision making is a complex process with involves all the stages from problem recognition to post purchase activities. Five Stage Model initially proposed by Cox et al. (1983) is regarded as a general model of consumer decision making. The Five stages of consumer These stages are: recognition of need or problem, information search, comparing the alternatives, purchase and post-purchase evaluation. This simple model demonstrates the process that takes place in the market from need recognition to post purchase evaluation.
Five stage model
The initial stage of decision making is the problem recognition. This stage is where the customer recognizes what he/she need. The customer feels like something is missing and needs to address it to get back to feeling normal. If a corporate can can determine the target market of their product and develop a product in recognizing what target market need, they capitalize on that opportunity as profit generating avenue.
This is the stage where customers discover the information about the product. Old method of doing this was by visiting shops that had the same product for different price with unique features. Today this has changed to Google (other search engines are available - apparently). Today customers are weigh in other's recommendations and their previous experiences when making their own decision because consumers want to get the best for the price they pay.
Evaluation of Alternatives
Once the customer has determined what will satisfy their want or need they will begin to seek out the best deal. This may be based on price, quality, or other factors that are important to them. Customers read many reviews and compare prices, ultimately choosing the one that satisfies most of their parameters.
This is the stage where customer decide what to purchase and when where to purchase the product. At this stage, a customer has either assessed all the facts and come to a logical conclusion, made a decision based on emotional connections/experiences or succumbed to advertising/marketing campaigns, or most likely a combination of all of these has occurred.
Post Purchase satisfaction or dissatisfaction
If a customer finds that the product has matched or exceeded the promises made and their own expectations they will potentially become a brand ambassador influencing other potential customers in their stage 2 of their next customer journey, boosting the chances of your product being purchased again. The same can be said for negative feedback which, if inserted at stage 2, can halt a potential customer's journey towards your product.
Brand equity refers to a value premium that a company generates from a product with a recognizable name, when compared to a generic equivalent. Leuthesser (1988) offered a broad definition of brand equity: ' the set of associations and behavior on the part of a brand's customers, channel members and parent corporation that permits the brand to earn greater volume or greater margins than it could without the brand name'. Companies can create brand for their products by making them memorable, easily recognizable, and superior in quality and reliability.
Brand Equity is one of the most valuable assets to the company and therefore there are many ways to measure the value of the brand equity. There are three approaches of measuring brand equity.
1. Financial based brand equity - measures for the firm, focuses on the monetary or financial value of the brand in the marketplace
2. Consumer based brand equity - multidimensional concept that involves the value added to a product or service by consumers' associations and perceptions of a brand name
3. Combination of consumer based and financial based brand equity- Online Brand equity.
The perception that a consumer segment holds about a brand directly results in either positive or negative effects. If the brand equity is positive, the organization, its products and its financials can benefit. If the brand equity is negative, the opposite is true.
Factors affecting the consumers decision making
According marketing experts there are five factors come into play when consumers make decisions. Most of the consumers decision making is based emotion and expression but researchers found the following reasons for consumer decision making
1. Consumers disposable income
2. Group influence
3. Personal preferences
4. Economic condition
5. Marketing campaigns
Consumers disposable income
Purchasing power of a consumer is a key factor in influencing the consumer behavior. The consumers first consider their ability to purchase when considering buying goods and services. This is a major factor when it comes to the purchasing power of Sri Lankans. According to the most recent survey on mean household income of Sri Lankans in 2012, the monthly mean household income was Lankan rupees 45,878 ($312.80). This gives consumers less disposable income to spend on FMCG products and bulk of their monthly disposable income is spent on daily essential items like food and bills.
Group influence is also seen to affect the decisions made by a consumer. The primary influential group consisting of family members, classmates, immediate relatives and the secondary influential group consisting of neighbors and acquaintances are seen have greater influence on the purchasing decisions of a consumer.
At the personal level, consumer behavior is influenced by various shades of likes, dislikes, priorities, morals and values. In certain dynamic industries such as fashion, food and personal care, the personal view and opinion of the consumer pertaining to style and fun can become the dominant influencing factor. Though advertisement can help in influencing these factors to some extent, the personal consumer likes and dislikes exert greater influence on the end purchase made by a consumer.
Consumer spending decisions are known to be greatly influenced by the economic situation prevailing in the market. When there is a low interest rate in the market it helps the economy to expand (expansionary monetary policy). Therefore, consumers are more confident to purchases made of vehicles, houses and other household appliances. A positive economic environment is known to make consumers more confident and willing to indulge in purchases irrespective of their personal financial liabilities. When there is high interest rate in the market the consumers are less confident to purchase goods and services therefore the over role effect is that economy contracts (contractionary monetary policy).
Advertisement plays a greater role in influencing the purchasing decisions made by consumers. Marketing campaigns can shake the market share of the companies in the industry and can bring a competitive advantage over the competitors. The Marketing campaigns done on regular basis can influence the consumer purchasing decision to such an extent that they may opt for one brand over another or indulge in indulgent or frivolous shopping.
Factors and Trends affecting consumer decision making in Sri Lankan retail market
The above-mentioned factors the general factors effecting the consumers decision making and this change from one country to another. Slim Nielsen is a global marketing research company in the world. According to Slim Nielsen 2017 survey on about what Sri Lankan consumers say about the economy and their reasons weigh in when making decisions. Following are the reasons identified by the researchers.
Consumer confidence is flat
There was a significant 50% ebb point drop of consumer confidence from October 2015 to July 2016. But January 2017 remains flat for the past seven months in the year 2017 and is worrying sign for the FMCG market.
Meanwhile, 80% of consumers say that job prospects will not get better in the next 12 months whilst 90% say that personal finances will be unsatisfactory and 92% state that their purchasing power will deteriorate in the next 12 months. The above finding indicates the consumers perspective about government in power and researches reveal that when the stomach of a Sri Lankan consumer is challenged, the government in power loses its popularity.
Increasing food prices
The next major issue for Sri Lankan consumer is that increase in the spends on children's education and utility bills. This is major issue in decreasing the consumer confidence of the Sri Lankan consumers in the FMCG category according to the Nielsen report.
Latest research reveals that people are moving away from using personal care products like shampoos on a regular basis, reducing the ‘usage' of the product, whilst in some categories like sanitation and hygiene the penetration going down indicates the pressure on the purse. Due to this the FMCG companies are struggling to achieve their planned sales targets due to the above-mentioned issues in the first quarter of the year 2017
Consumers state that the key issues faced by the Sri Lankans are the economy, politics and corruption. The government faces the huge crisis of stabilizing the budget deficit and trade deficit which was worsened during the last 10 years. But the issues faced politically are very worrying given that on a daily basis there are protest campaigns which is in essence the agitation of different segments of people.
A multilateral organization found out that country losses 100 million in a day due to the protest in Colombo city and Yahapalana government is in the process debt restructuring and developing a economic model based on massive export oriented national strategy. Also, the delay of provincial government elections as planned in the last year has created stagnated public sector in the provincial level. Due to this many business are underperforming regional wise in the country.
Following are the trends recognized by the Neilson report
Moving away from supermarkets
Super markets introduced themselves as a more convenient way of shopping to the Sri Lankan customers at the beginning. In Sri Lanka, the reverse was at play in 2016. From 23% of shoppers purchasing products from supermarkets in 2015, in 2016 the number has dropped to 19%. On the other hand, grocery shopping has increased from 46% to 53%, a significant increase of 7% in grocery shopping. This shows that consumers are more rational when it comes to making decisions.
Local companies grow
Another main trend is that the increased in the sales of Sri Lankan companies against multinational companies. This means that people are moving towards local brands and multinational brands are losing their market share in the Sri Lankan market
Internet is increasing
Given the changing consumer dynamics like the use of smart phones we see that internet usage has increased to a penetration of 32%. What is more important is that the investment by companies on digital media communication has increased proportionately. Even though the national budget increased the cost of data usage, the behaviour has not yet changed. In fact, this is the future and this budget proposal is against global trends which is strange.
Recommendations and conclusions
Supermarket industry is one of the most competitive sectors in the world and to survive the companies must capitalize on opportunities and grow on weaknesses to combat this situation. Also, they must introduce new retail channels to each market segment so they could maximize their profit.
As per the brand equity analysis the company focus on a combination of consumer based and financial based brand equity. This is the online brand equity. This is an important factor when it comes to increase in the usage of smart phones and social media. Investing on technology is a crucial factor if a company is trying stay ahead of their competitors in the Super market retail industry.
A few possible recommendations would be as follows:
1. Developing an online marketing channel to increase the relationship between customer and company. This will increase the sales and long-term growth of the company.
2. Acquiring a logistic company in the market which can provide customers online purchased goods to their doorstep. This will increase the efficiency and sales of the company.
3. Implementing loyalty customers point system and providing them better discounts and raffle draws to increase the customer relations.
4. Partnering with major commercial banks to implement discount sales for credit and debit cards to increase the sales of the company. This will increase sales and reduce good storage time and increase the cash flow of the company.
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