Drop in spending concerns CPL

Adjustments are being made by the retail sector to cater for a drop in consumer spending and deal with the ongoing issues of foreign exchange.
City Pharmacy Limited managing director MAHESH PATEL spoke to Business Reporter MARK HAIHUIE about the company’s operations and the retail sector in general.

A DROP in consumer spending and a rise in smaller, less compliant operators are concerns in the retail sector, according to City Pharmacy Limited managing director Mahesh Patel.
This has seen a sluggish start to the first quarter of the year for the three main business arms of CPL, he said.
“The pharmacies have been fairly stable and the supermarkets and the hardware are down from last year and it’s in terms of double digits for both,” Patel said.
“There’s just not enough money in the consumers’ hand as in our average basket size has dropped which indicates that either people have not got the money or they do but are not spending it as much as they used to. When we do our analysis the basket size has dropped slightly as well which is basically what is bought per basket and its value in terms of kina for that has dropped as well.
“And because supermarkets are mainly Port Moresby-based there are many independent supermarkets that have emerged all around the place and again the biggest concern that we may have is that we are not sure whether everyone is paying the right taxes in GST or not.
“That’s a big challenge that we feel that we are playing on an unfair playing ground. We are big and publicly listed and comply with paying GST as well as paying our employees proper market salary and we are not quite sure whether all the other independent retailers are doing the same or not.”
Patel also mentioned that CPL would be reopening its Waigani Central supermarket next month while noting the importance equal level of compliance for businesses in the sector.
“The simple thing is, and I think most businesses and government authorities would agree, that when you look at the number of companies registered under Investment Promotion Authority versus the number of companies registered for GST and tax payments there is a big mismatch in figures,” Patel said.
“There has to be an effective solution to address this because the government is missing out on revenue, those who are employed may not be paid proper salaries and contributions may not be made to superfunds and in the long term it is going to be hurtful to the economy and individual people as well.
“There has to be vigilance in tax collection and employment creation. We encourage competition as customers need stores in their areas but it must be on a level planning field.
“That’s a big challenge we have on our hands at the moment because we have expansion plans and we want to create employment and with our new Waigani Central opening in a months’ time we are, probably, recruiting another 100 people. I (have) got a report from the site inspection and we are on target to open in a months’ time. We are creating employment but it is a struggle competing with non-compliant retailers.”
Patel had a limited outlook on growth for the year, saying that the company was focusing on improving its operational efficiencies.
“What we are doing internally is creating efficiencies by doing things in a better way, having a greater use of technology in our operations and identifying ways where we can do cost-savings through improved processes,” he said.
The foreign exchange availability is also an ongoing issue which has hampered the operations of the company since last year, especially with the warehouse fire, Patel noted.
“No, it has not improved and is still causing delays in stocks. In fact the Waigani Central supermarket should have been opened during the Easter period but has been postponed because of a delay in supplies. “It’s not getting any easier and it still remains very difficult to pay our suppliers on time. There is light at the end of the tunnel, but it is going to be a tough hurdle. We need to make sure we do things more efficiently to keep our cost down but a lot of the problems we have had is after the fires last year where we lost our back up stock for about three to four months and is major reason behind why last year was so tough was we had a lot of empty shelves.
“Even now we don’t have one central warehouse and we are operating five satellite warehouses. It has cost, and creates complications about where our exact stocks are and then it drips down to the store level where we are not putting stocks on the shelves quickly enough. There are two levels, which are the delay with getting stocks with the foreign exchange and then the warehouse in terms of getting stock to shelves in a coordinated and timely manner. That warehouse fire last year is still impacting us in a big way.”
Creating more jobs and lowering operational costs for businesses are priorities, Patel said, when asked about government initiatives to address the challenging situation.
“There was an encouraging article on the PNG Power chief executive Carolyn Blacklock on plans to drop the electricity rates because you know if you look at our biggest costs they are rentals, electricity and the labour,” Patel said.
“The economy will pick up, so we don’t want to downsize our labour and we need to be ready for that and have the trained people.
“Rentals are one of them and we are renegotiating with landlords to see if they can give us some breathing space and if something like electricity costs come down it would be great help to us as we operate supermarkets 14 hours day
and we pay millions in electricity charges.
“Also there are some issues with domestic shipping between Lae and Port Moresby and there is a lot of room for that to be enhanced to reduce delays.
“But, externally, I think it is vital that the economy has to find ways to create more jobs as people having more money will have a positive impact in the retail sector.
“We keep talking about agriculture and tourism but we have to be serious about it. It’s not going to be fixed now, so we need to have a very long-term view when starting something.
“We are doing our part by buying from almost a thousand farmers and these people need to be encouraged to keep farming as it creates income in their hands. In my view one of the primary solutions should be to find ways to create more jobs.”
Patel commended the government for its proactive role in being more engaging with the business community, especially through the approach of Deputy Prime Minister and Treasurer Charles Abel.
“I have worked with Charles in the early days and he is very engaging but obviously he needs the whole team to support him in his visions and I think his thought processes are very good and sound plus he is a businessman in his own right. I think the willingness is there and promising as well,” Patel said.
“I have had meetings with the IRC and Treasury and they are committed to doing things but just need to get the required support to be effective in compliance and appropriate policies in place.”
Patel noted that despite limited prospects for growth this year, CPL was adjusting to be well positioned for the eventual recovery of the economy.
“We are a long-terms player, here for over 30 years and we will keep ploughing on and once the economy improves we will grow and create more jobs. I think the situation has certain benefits in that we are realising efficiencies as we have been so busy growing over the past years so now we are adjusting our processes to making more efficiency.
“This year may not be too promising but the economy will improve and we will be ready for that while retaining the customers that we have.”