New lease of life for Sathosa

by Chandani Jayatilleke

The decision to bring collapsing Sathosa back under the wing of the Trade Ministry is an encouraging move. Needless to say, the decision favours the country's wage earners and the many employees of Sathosa.

The absence of Sathosa during this New Year was severely felt by a sizeable section of the wage earners. Although Sathosa outlets were physically open, there were no essential goods and rations to purchase. In the absence of such a large network of retail outlets, the middle and low income group consumers suffered during the New Year.

During past New Year and Christmas seasons, Sathosa (also known as CWE) was an automatic choice for many to purchase their goodies and essential items at a reasonable price. During this season people would throng Sathosa outlets.

Sathosa employees hardly get any free time to even have their meals during such periods as they are so busy handling customers who come in large numbers. Its security staff too had to be alert and vigilant all the time and hardly got any time to rest their eyes.

During the period of the last Government, Sathosa even went on to open 'all under one roof' outlets and 24-hour services, because of the high demand for its goods and also to keep up with modern day marketing methods.

The Trade Minister of that Government promised to provide the best services to the customers through its islandwide outlets by way of privatising Sathosa Retail Limited. However, since the privatisation, Sathosa failed to live up to customers' expectations.

Sathosa was established in 1949 by an Act of Parliament under the purview of the Ministry of Commerce and Consumer Affairs to operate as a wholesale and a retail dealer of consumer products. It was the largest trading organisation in the country and it enjoyed much popularity with the general masses with a market share of approximately 70 %.

In the past, Sathosa had near iconic status as the common man's retail outlet in this country. Today, it is sad to see how its customers have deserted Sathosa. The common man had little choice but to move out in the absence of sufficient goods on Sathosa's shelves. This made Sathosa's turnover fall sharply to just Rs. 1 million a day from Rs. 14 million a day a year ago.

Sathosa's present state is really pathetic. Having served consumers from all walks of life in this country for over 55 years, Sathosa was in decline. After the privatisation in December 2003, it was managed by a consortium called International Grocers' Alliance (IGA) -formed by three of Sri Lanka's top corporates; Richard Pieris, Ceylon Biscuits and Carsons.

From the point of view of management and finance, they were strong enough to infuse new life into Sathosa and change the whole supermarket concept by providing additional services to the ordinary consumer. According to the privatisation deal, a 40 percent stake of the Sathosa Retail Limited (SRL) was sold to this consortium in 2003.

This private sector partner was chosen after a long evaluation program and the management of Sathosa's 150 retail outlets was given to IGA.

SRL was a wholly owned subsidiary of the Co-operative Wholesale Establishment (CWE) formed in February 2002, as a Special Purpose Vehicle (SPV) to transfer the retail activities of Sathosa to a special commercial entity.

Since SRL was formed specially to overlook the activities of Sathosa's retail outlets the company did not have carry-forward losses or any other liabilities. Therefore, we cannot assume that there were financial burdens to carry forward by the new company.

Then, what happened to Sathosa? Many consumers are keen to find out what actually has gone wrong with the company.

We spoke to a senior executive of the consortium to find out the present situation of Sathosa. Lakshman de Silva, a Director of IGA who represents Ceylon Biscuits said that although the new consortium took a 40% stake of the company, its largest stake of 60% was kept by the Government and on the board were six Government appointed Directors and four IGA Directors.

Following the privatisation, IGA was to invest Rs. 120 million and the Government Rs. 180 million, totalling Rs. 300 million in SRL to revive Sathosa and the money was to be raised through a share issue. This had already been approved by the board when the Government changed in April 2004.

The change of Government delayed the proposed rights issue. However, the new board appointed by the Trade Minister and led by Chairman Upali Gunaratne also agreed to the decision although it was never implemented. The UPFA board later reversed the decision saying it was unable to raise its share of money. Although IGA had already put their share of Rs. 120 million, they were forced to withdraw it as the Government did not want IGA to have full control of the management, he said.

At the same time Trade Minister said that the Trade Ministry would take over SRL management soon. According to him, Sathosa was going through a stagnant period for a year. "We knew that Sathosa was facing a huge problem and we wanted to avert the situation. Over the last one-year we were trying our best to reach a final solution for this issue.

We also met the Trade Minister, the Finance Minister and the President to discuss this issue. We gave three options to revive Sathosa in writing. The options were to invest Rs. 120 and Rs. 180 million by the Government and IGA respectively, to invest the entire Rs. 300 million by IGA or to hand Sathosa back to the Government," De Silva said.

Today, many of Sathosa's outlets have empty shelves. "With all these difficulties and with a poor turnover, we managed to pay the salaries of the staff till April this year," he added.

IGA has invested Rs. 100 million so far, in addition to the initial payment of Rs. 680 million, paid at the closing of the privatisation deal.

What about reviving Sathosa?

"If the Government wants to run Sathosa as a State institution, we are ready to support in whatever way we could. But in our case, it will be 'extremely difficult' to resurrect it by ourselves. There's a lot to be done. The staff of 3,100 is too much for the company. We need to offer a VRS (Voluntary Retirement Scheme) and reduce the staff to about 2,000. However, we would like the Government to take Sathosa under its wing and also take measures to restore its past glory at the earliest," De Silva said.

According to him, the consortium's effort to revive Sathosa after the privatisation failed, because the two main parties could not go ahead with its original plans.

However, Sathosa will soon come under the purview of the Government and the Trade Ministry.

Sathosa, in the common man's opinion, is a national asset. Irrespective of who runs the management, be it the private sector or the public sector, it is the responsibility of the authorities concerned to save such national institutions for the sake of millions of low and middle income consumers in this country. These consumers' only wish today, is to see Sathosa being restored to its past glory at the earliest.