In Sri Lanka ice cream has hardly been the stuff mega-business is made of.
But with the entry of an international ice cream brand to Sri Lanka the icy dessert has become the unlikely stage for a heated battle.
The wake-up call for the ice cream industry was sounded by Walls, made by a wholly owned subsidiary of Unilever. The multinational has already pumped in more than Rs 800 mn to set up a high-tech factory and distribution system. The factory alone has cost Rs 600 mn. By next year, total investment would top one billion rupees.
It would be a daunting prospect for a local company to counter this kind of financial clout. But already Ceylon Cold Stores makers of Elephant House ice cream is gearing themselves to fight for their bite of ice cream. The prospect of taking on a multinational holds no terrors for this local company which has been in the ice business since 1863. In 1932 it acquired Ceylon Creameries Ltd., and went into the distribution of fresh milk and ice cream in a big way.
Elephant House already holds its own against Coca Cola and Pepsi in the carbonated drinks business, using home grown strategies, and is quite unperturbed about the entry of Walls.
“What we feel is that with the entry of Walls the market for ice cream is going to expand,” says Ceylon Cold Stores Chief Executive Sumithra Gunesekera.
“Earlier we had to carry the burden of promoting the product alone.”
It was no accident that Unilever made its entry to the market at this particular moment in time.
“We had to wait till per capita income rose and for there to be sufficient disposable income to support the ice cream eating habit,” says the project manager sent from Unilever headquarters in Europe to set up the Walls operation in Sri Lanka.
“It is not a product you eat because you are hungry, or thirsty, but for pleasure; for self indulgence.”
With 16 years of ice cream experience behind him mostly in France, Project Manager Lalith de Coonghe has already set up two factories in Italy and Thailand. Now back in his native Sri Lanka he is transplanting a system of production and marketing that has been tried and tested in numerous other markets.
The product itself is made at a clinically sterile hi-tech factory in Banduragoda off Divulapitiya which is complete with a Rs. 50 mn water treatment plant. The treated water is used to irrigate the factory ground which had been landscaped at a cost of Rs 2 mn.
Inside the factory ingredients are brought together in a computer driven mixing plant and piped into a production line capable of turning out 12,000 units of ice cream each hour. The factory now has two such production lines, which can be added to at a later date.
At the moment however almost all ingredients are imported, though talks are underway to develop local sources tailored to the Walls norms, of some inputs.
The recipes used are the same the world over. At the moment the range consists of 12 different types which Walls call stock keeping units (SKU).
“When a tourist comes here and buys Walls, it will be the same product he has eaten back home," Mr. de Coonghe said. "Our products have consistent standards, day in and day out. This is because everything has been documented enabling replication anywhere."
Anything from shop fronts to bicycle sellers and deep freezers to point of sale material are made to pre-determined norms, except for minor changes that are made to suit local conditions, like adding a little more sugar in Sri Lanka and Pakistan. The bicycle also seemed a bit to heavy for Sri Lankan sales boys, Walls has found.
“All our processes have been de-mystified,” says Mr. de Coonghe. “We have manuals to guide us through any process.”
Though the ice cream is called Walls in Sri Lanka, India and Pakistan (and in the UK), in Australia it is sold under the label ‘Streets’, in Portugal ‘Ola’ and Denmark ‘Frisko.’
The deep freezers for example had to be imported from Portugal Walls says because they a locally made freezer could not be found that suited their exact requirements. The freezers were first tested in Holland under simulated Sri Lankan climate to find out its freezing capabilities given local temperature, humidity and the average times a freezer door is opened an hour, to find out whether the product could be delivered to the customer according to Walls’ standards.
“The product is stored at minus 25 degrees and best eaten between minus 18 and 17 degrees,” Mr. de Coonghe says. “By minus 12 degrees it would not have the same mouth feel and taste.”
The 160 odd staff running the factory have all been trained in Sri Lanka except for Mr. De Coonghe himself.
Unlike Elephant House which has cornered the bulk ice cream market, Walls is eyeing a segment of the market which had so far not been exploited to its full potential.
“Walls is an impulse product, it is perhaps more a snack than real ice cream,” Mr. De Coonghe observed.
He says their products are not directly competing with any local product, except for the bottom of the range which is similar to ice palams.
“The strength of Elephant House is in the bulk ice cream market,” agrees Mr. Gunesekera. The company claims to account for more than half the ice cream market in Sri Lanka. The rest is shared between other brands including Highland and Kotmale.
Elephant house has also been increasing their investment in ice cream since its takeover in 1991 by John Keells Holdings.
“During the past two to three years we have put in about Rs. 100 mn into ice cream,” JKH Deputy Chairman Vivendra Lintotawela said. Product upgrades as a result included the new ‘Ripple Range’.
"But finance is not the only important element, people, the quality of human resources is very important."
Walls for example recruited all its 20 junior managers off the university. Factory operatives are also high scoring A/L students. Everybody, however, wears the same Walls tea shirts.
"We have no tea boys, each will have to get their own tea by pushing a button on a dispenser," Mr. de Coonghe said, sitting in the cramped confines of his tiny project office. ( We left the amenities building to the last. It was more important to get the production and utilities buildings operational) "We try tp build an egalitarian society."
Though multinationals including Unilever has been accused of under-pricing products to drive competitors out of business Walls is priced much higher than other ice creams.
Its top of the range ‘Magnum’ sells for Rs 65, a somewhat expensive impulse. The best selling product is the Rs 27 .Feast'. “People feel that there is value for money in the product,” says Mr. de Coonghe.
Close on the heels of Feast comes ‘Top Ten’. Initially when Walls was launched in the outstations, all the products were imported. At the moment only the Magnum is imported.
“We wanted to see how the off take would be in the outstations,” Mr. de Coonghe said. “If it worked there, we knew it would work in Colombo.”
The company also wanted local production to be streamlined to prevent stock-outs once the retail network was set up. Still, outlets sometimes run out of stocks within hours, leaving disappointed customers with only pricey Magnums.
Elephant House is also planning to pump a further Rs 100 to strengthen marketing infrastructure. Elephant house says its new drive to improve brand visibility with Walls-like canopies started in late 1996 in an attempt to inject new life into market that was devastated by the power cuts.
“We had to withdraw large amounts of stock and destroy it,” recalls Cold Stores Director Billy Walpola. “We retained customer confidence but we had to start a new promotional drive to revive the market. Walls products started to become available around the same time.”
Elephant House of course fights on several fronts. A further Rs.. 250 mn investment is also planned for soft drinks, which has reported highest ever production levels last year, Mr. Lintotawela said.
"It is not only finance that matter, but people," he added.
The company is also planning a chain of franchise ice cream parlours called the 'Scoop', to be set up in Colombo and outstations. A pilot Scoop is already operating in Nugegoda.
At the moment Elephant house has only two products called the stick line and the slightly unglamorous tub, that can compete with Walls, but it will be upped to 8 by end 1997. The products however are price competitive. "Our prices are based on costs," Mr. Gunesekera said.
Mr. de Coonghe says by world standards the Sri Lankan market is small but is expected to grow rapidly with rising per capita income and disposable income. Unilever’s annual ice cream revenues topped Sterling Pounds 2.5 billion.
“In Italy the market was 200 million litres a year,” he recalled. The local ice cream market is estimated to be around 12 to 15 million litres a year.
But the market is definitely on the upswing. It has been growing by about 30 per cent in recent years except for 1996.
“This year we expect our own sales to grow by 40 per cent,” Mr. Gunesekera said.
“Per capita ice cream consumption in the US is about 27 pints, in Australia 22 pints and Canada 23 pints,” says Mr. Lintotawela. “But in India its 0.22 in Pakistan 1.3 and in Sri Lanka about 1 pint.”
This clearly underlines the growth potential of the product. At the moment Walls is not advertising as they can hardly cope with the demand. But even if the initial euphoria wears off, more and more Sri Lankans would often give way to the impulse to indulge.
No sooner the President and the Leader of the Opposition an nounced a bi-partisan approach to resolving the ethnic problem, we commended both parties for this approach. We also urged that the bi-partisan approach be extended to cover other national policies particularly those having a significant impact on the economy. Since then these sentiments have been echoed by other commentators and are often discussed at various gatherings of those concerned with the country's future.
Politicians and supporters of both parties, as well as others are hoping that there would be a greater consensus between political parties on economic policies, as well as a number of significant areas of national life which have an important bearing on economic performance.
One of these areas requiring a bi-partisan approach is the establishment of an independent civil service. It is recognised that politicisation has sapped the civil service of any initiative and that the best brains may not wish to join a service in which not only rewards are inadequate but initiative is not recognised. A weakened civil service would be a serious bottleneck to economic performance, especially when the momentum and complexity of economic activity get heightened and where quick decision making and impartiality become essential.
Another area in which a bi-partisan approach is vitally needed is in the setting up of a police commission devoid of political interference and one which would enable police officers to function without the fear of a political victimisation. Today police officers are unable to implement the law as they fear an impartial implementation of the law would result in transfers to distant locations and other punitive measures.
It is therefore in the policemen's interest to turn a blind eye. A society in which law and order cannot be enforced and gun culture dominates is hardly conducive to economic activities. Only a bi-partisan approach could effectively ensure that an independent police commission is established.
A third requirement would be to make the office of the Elections Commissioner more independent than at present. Although we have the mechanisms for an independent Elections Commissioner some of the recent inabilities to implement election laws are an early indicator that this office requires strengtherning. A greater independent clout is vitally necessary for this office.
Otherwise the credibility and legitimcy of those elected to power may remain questioned by the public and in the fullness of time the entire parliamentary system may lose its credibility, as has happened in several other Asian countries.
These are three of several areas in which bi-partisan action is vitally necessary. Regrettably what is condemned by the opposition is precisely what is done when the opposition becomes the government. And the former government now in opposition condemns the same activities which they themselves did while in power. Such a process is no less deserving condemnation as university ragging where senior students justify ragging freshmen on the basis that they themselves suffered the year before. When a government and opposition behave in this manner with party positions depending on whether they are in office or not, the public and the country are the continuous losers.
The government and opposition must realise that in a democracy they are in power for a limited period and must perform functions both in office and out of office. They must therefore get together to establish systems in the long-term interest of the country rather than take advantage during their period of office.
One way of ensuring that the government and the opposition adopt bi-partisan approaches would be for various interests in the country to group themselves together and formulate the needed reforms and urge political parties to espouse them. Without the public taking an active interest in forging a bi-partisan approach political parties left to themselves may only indulge in the rhetoric of bi-partisan politics and practice politics of an extreme partisan nature enabling them to profit politically irrespective of impact of their actions on the public. Perhaps chambers of commerce, the academic community and professional associations could give the lead.
If bi-partisan approached could be brought to bear on these specific issues that we have mentioned, as well as in the formulation of economic policies and their implementation, then the country would have taken a giant step towards establishing a solid foundation for economic development. Failure to extend bi-partisan approaches to other vital areas would mean that the coming together of the government and the main opposition party may not be as productive as the people of the country hoped for and do expect.
Kelani Valley Plantations Limited has produced Rs.212.7m. turnover for the three months ended 31st March 1997. This shows an increase of 4% over the corresponding period in the previous year.
However, there had been a decline of profit with Zero taxation by 27% from Rs. 41.1m. to Rs.30.0m. according to the provisional accounts. Shareholders' funds increased by 25% from Rs. 294 m. to Rs. 369m. due to increase of revenue reserve.
Provisional financial statements of James Finlay & Co. (Colombo) Limited indicate favourable financial results for the 3 months ended 31st March, 1997.
During the period under review, the group turnover was up by 9% from Rs. 252. 7 m. to Rs. 276. 3 m. There had been a twofold increase of profit before taxation - from Rs. 9.2 m. to Rs. 18.5 m.
Profit after taxation also shows an increase of 95% from Rs. 7.6m. to Rs. 14.8m. The increased profits for the period was the major contributing factor for the increase of shareholders’ funds by 11.5% from Rs. 459.6 m. to Rs. 512.7 m.
The company has announced a Rights Issue (fully underwritten), of one share for every two shares held, at a price of Rs. 50m inclusive of premium of Rs. 40m. After the rights issue the company’s issued share capital will increase to Rs. 150m. from Rs. 100m. and share premium account will increase by Rs. 200 m. to Rs. 330m.
Aitken Spence & Co, Ltd. has reported modest growth of profit and turnover for the year ended 31st March 1997.
1996 1997 % Change (Rs.m.) (Rs. m.) increase Turnover 2739 2879 5% Profit before tax 95 122 28% Profit after tax 74 94 27% Shareholders’funds 2444 2517 3%
During the 12 months ended 31st March 1997, the Swadeshi Industrial Works Limited was able to earn a pretax profit (consolidated) of Rs. 20.4m. against Rs.28.2m. loss incurred in the previous year.
Profit after taxation was Rs. 14.1m. in place of Rs. 30.2m. loss. This achievement was made inspite of a decline of turnover by Rs. 5.0m. from Rs.337m. to Rs. 332m.
Shareholders’ funds of the group increased by 23% from Rs. 58.6m. to Rs. 72.1m. as a result of the new trend.
The World Bank has released nearly £350,000 to the International Accounting Standards Committee, to develop a new accounting standard for the agricultural sector.
"This is a fairly new concept to use fair value accounting methods to capture the biological growth in agriculture, said President, Institute of Chartered Accountants of Sri Lanka Reyaz Mihular.
Agiculture plays a vital role in the economies of many developing countries. There is little agreement worldwide on appropriate accounting practices in this industry and many widespread accounting practices differ from these used for similar items in other industries - for example on the valuation of inventory.
In reponse to a request from their members in developing countries, the International Accounting Standards Committee (IASC) has formed an Agricultural Steeing Committee. Chaired by Mr. Mihular (the only Sri Lankan). The committee comprises representatives from Australia, France, Thailand and the Netherlands, as well as representatives from the IASC and the World Bank.
One of the significant features of the Steering Committee's proposals in accounting for agriculture, is to capture the biological growth element of all biological assets. These assets may be of the bearer type or consumable type. However, they do demonstrate the element of biological growth and the cost incurred to bring about the growth which cannot be adequately captured by historical cost accounting.
The relationship between the biological growth and the cost incurred to bring about the growth is remote, and thus does not effectively capture this growth phenomenon.
Consequently, the Steering Committee's draft proposals include a recommendation to use fair value accounting to capture this biological change. Such recommendations will drastically affect our normally accepted historical cost framework within which accounts are usually prepared.
Sri Lanka, having a large agriculture base, will no doubt await the outcome of the Steering Committee's work with much interest.
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