Keells Foods exploring new avenues to maintain sales volume

Although the impact on Keells Food Products PLC(KFP)byt he corona virus induced business interruptions during the three months to March 2020 was modest, the company anticipates some deeper implications for the sale of its processed meat as the virus has decimated the Horeca sector, which accounts for a considerable segment of its business.

The company also expects the impaired disposable incomes, unanticipated changes in consumption habits and reduction in social gatherings, where its products are mostly consumed, to weigh on the business as COVID-19 has upended how we people live, work and interact with each other, at least in the short-term.

Non-essential nature of its products and the consumer discretionary category to which the company belongs make KFP relatively vulnerable for prolonged economic downturns.

But the company is exploring direct-tohome channels to make up for possible loss of business.

The leader in processed meat had revenues of Rs.808.7 million for the January-march 2020 quarter, briefly down from Rs.830 million in the year earlier period as all its channels where the company retails its products remained shuttered from mid-march.

For the full year ended in March 2020, the company had sales of Rs.3.59 billion, up 5 percent year-on-year (YOY).

The company was making gradual recovery of its business since Easter Sunday attacks and the improvement in consumer discretionary spending witnessed was from the last quarter of 2019.

“Consumer discretionary spending remained subdued in calendar year 2019 due the lackluster performance of the economy and dampened consumer and investor confidence.

Although, discretionary spending witnessed a rebound towards the fourth quarter of the year under review, the recovery was hampered by the outbreak of the COVID-19 pandemic and the resultant disruptions arising from the curfew imposed from March 2020 onwards,” KFP Chairman Krishan Balendra said.

While modern trade showed improvement in sales, other two channels—general trade and Horeca sales contracted.

“The modern trade channel recorded 5 percent growth, while the general trade, Horeca and hotels channels posted contractions in volume mainly due to reduced activity in the tourism sector due to the Easter Sunday terror attacks”, Balendra said in his annual review of operations to shareholders. To penetrate into the general trade sector more effectively where there is heavy price competition, the company expanded its wallet-friendly budget range with the launch of a 100g-sausage pack for the general trade channel at an attractive price of Rs.100.

Kochchi bites and cheese balls were also released in smaller pack sizes to address the ‘low volume and low-priced product’ strategy of competitors operating in the general trade market.

The company sells its products under the brands, Keells Krest, Krest and Elephant House.

Last October, KFP entered into dry-foods space by launching ‘Keells Krest EZY Rice,’ an instant, ready-to-eat rice after some little boiling, which gives a taste similar to fried rice.

The company invested Rs.220 million on the launch while it continued to spend heavily on creating awareness and improving visibility of the product. This weighed on company profits. The company’s earnings fell to 17 cents a share or Rs.4.4 million for the three months under review from Rs.2.46 a share or Rs.62.7 million in the year earlier period.

For the year ended March 2020, the company reported earnings of Rs.5.89 a share or Rs.150.2 million compared to Rs.10.48 a share or Rs.267.1 million in the previous financial year. “Company profitability was impacted primarily on account of an increase in advertising and promotional expenses, on account of the launch of “EZY Rice” and related escalations of raw material prices and production expenses due to the initial stage of the EZY Rice production,” Balendra said.

Despite the challenges posed by the pandemic, the company is exploring opportunities through its own and third party e-commerce platforms to deliver its produce, as consumer movements are restricted, he added.

John Keells Holdings along with John Keells PLC own nearly 90 percent of KFP.