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by Chandani Jayatilleke

The Cooperative Wholesale Establishment (CWE) better known as Sathosa has created a revolution in supermarketing industry in the country by bringing a new market segment - the middle and lower income group to the market place, CWE Chairman Lal Wickrematunga told the Daily News.

"We have started repositioning the CWE with a new 'supermarket concept'. The program currently under way in the Western Province has been able to reap better dividends with sales increasing by about 300 - 400 percent," he said in an interview. The CWE has already opened a few mega supermarkets within Colombo and the next few supermarkets will be opened in Kalutara, Kandy, Kurunegala and Gampaha.

"One would get the impression that we are doing these changes to compete with the private sector supermarkets. But our objective is completely different from that and our main concern is to provide the best services to our market segment which is a 90% of the middle and lower income group while maintaining our core business," he said.

"Some people have been pleasantly surprised to see these changes in a government institution. In fact the private sector should welcome this because we have brought in a new segment of customers to the market place." I am sure that this market segment will probably want to visit other supermarkets and compare prices and so on which is an increasing development in the super market concept in the country, he said..

However, this indigenous institution is now proposed for privatisation by giving a 40 % stake of the CWE with 100% management control.

Referring to the proposed privatisation program of the CWE, he said: "The government feels that the CWE should be restructured and run as a commercially viable venture and have decided to give a 40% of the CWE stake and a 100% of the management to a strategic partner through a comprehensive management agreement.

No state funds

The State will not inject any more funds to run CWE outlets. The private sector partner which will be chosen in the restructuring process will have to infuse working capital from the time they assumed the management.

Bids

The CWE received bids from almost all supermarkets and five major bids from local/foreign consortia were short-listed for due diligence. Currently, the bidders have completed the due diligence and are due to submit proposals to the board soon. However, Wickrematunga did not divulge the bidding price and said they were pleasantly surprised about the bids which have come in. "We even feel that the bidders will further increase their bids with the present developments," he said.

Privatisation

"We expect the private sector partner to do better and provide a quality customer-oriented service. The partner should be cohesive to take the institution forward. After the due diligence and the restructuring committee had meetings with the successful bidders, we will inform our findings to the Treasury and the Cabinet appointed Tender Board. Hopefully the cabinet should approve the buyer by late February.

The committee includes the Secretary to the Ministry of Consumer Affairs, representatives from the PERC, the Treasury, Earnst and Young - auditors and the Chairman, CWE.

Staff

In the event of privatisation, the CWE management will come to an agreement with the interested party about the staff. "We do not intend to send them home unreasonably. We are evaluating staff and also had discussions with interested consortia about them.

They will take over the management with the existing staff. At the same time we are also looking at various other options such as offering a Voluntary Retirement Scheme (VRS)."

The management is also planning to revive the CWE wholesale division. "After discussions with the Treasury, we will look for a private sector partner to take over the wholesale division too. We want to do the same with the transport and security divisions later, depending on the success of the current transaction," Wickrematunga said.

He said the CWE has already set in motion certain reforms of the institution. "We have started retiring people over 55 as per their letters of appointment. We had to take this decision in an effort to reduce excessive staff."

Negative balance sheet

Referring to the negative balance sheet he said most of the loans and the negative balance sheet is due to borrowings from banks. "Bank borrowings are large and accounts for Rs. 6 billion and losses are over Rs. 10 billion. If you take interest and other overheads into consideration, the CWE will have to supply 25 to 30 percent of the entire country's food requirement to pay these dues. This is not possible. We need working capital and a huge marketing exercise to do this," he said.

The CWE should not be a burden on the government. Therefore, the management has looked at each section of the CWE and in the future they plan to make the division profitable. "Now we see an upward trend in profit margins. We have also looked into other non-sale related income such as advertising within the premises and we have been able to cover a major portion of overheads by this," he said.

Night shopping

Since the launch of the night shopping concept in CWE outlets, sales have increased dramatically in some areas. Some other areas are yet to record improvements. However, the management hopes that the changes will happen gradually. "The night concept was launched in an effort to gainfully employ its excessive staff who are now working on three shifts. Therefore, the all night shopping concept has not cast extra burdens to the CWE, he said.

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