a carefully researched scoop on news not usually available on any other media channel or in many cases noted before it appears in conventional media from an insiders perspective. The views are that of the author and are not guided by any other person or organization. A truly unique and independent opinion of SRI LANKA TODAY
Saturday, February 9, 2013
Unilever Sri Lanka war with Cargills Food City – self censored by our Media
Nowhere in the press has the full extent of the
battle with Unilever, that Food City is raging been shown. Why? Obviously both
Unilever and Food City spend Billions in Advertising that the Media, radio, tv
and newspapers depend on and they want to conduct a secret war, out of the
limelight!! Such is the power of Multinationals and Larger retailers in the Sri
Lankan business world.
If any of the readers have been to a Food City
store in the last month, one would notice that NO Unilever product is now being
replenished once the old stocks run out. That is simply because Food City has
demanded that Unilever reduce the net price of products which they invoice with
VAT so that Food City do not lose out when they sell the same product and pay
the VAT to the Inland Revenue after the imposition of VAT on businesses with
quarterly turnover that exceeds Rs 500M.
Unilever is playing hardball as they DO NOT wish
to reduce their margins by dropping their prices to Food City as the latter has
committed NOT TO raise the prices owing to the new VAT rules. Who will win this
tug of war is anyone’s guess, but I know there will be a compromise as both
Unilever want Food City business that accounts for 12% of its turnover and
similarly the sales of Unilever products account for 5% of Food City Turnover.
In the interim the products of other competitors of Unilever are selling better
at Food City, with many Food City customers getting fed up and deserting Food
City to buy their products elsewhere at the smaller stores.
Another factor to take into account is that the
smaller suppliers to Food City have had to eat the lower price that they are
FORCED to sell to Food City. In some cases as Food City accounted for 80% of
their sales, they are now making losses as they need the Food City business to
keep their machines running until or unless they can find alternative
businesses to sell their products to, which in a competitive environment is
difficult to do in the short term. After all some suppliers did not have to
have a large sales staff to sell to Food City as they had pre agreed quantities
to pre agreed destinations that could be fulfilled without delay, and lower
cost of transport and less need for sales trucks and related staff.
In this the consumer and the small producer
suffer, whilst the Government gains. It is the government which must shoulder much
of the blame in imposing VAT only on the four big retailers, as they believe it
is easier to administer and is a tax on the big businesses with Sathosa the Jonah
who should also be paying the VAT and I am sure through some quirk of Administrative
order will wriggle out of their part.