JKH puts off store expansion plans amid  uncertainties, elevated construction costs

John Keells Holdings PLC (JKH), which runs the country’s second largest privately-owned supermarket chain this week announced that it had delayed its store expansion plans due to the volatile macro conditions and elevated construction cost. While Keells branded supermarkets and the modern trade sector in general did better in the foregoing quarter ended June 30, 2022, with basket values and footfall going up due to massive jump in prices of everyday essential, the supermarket chain is delaying expanding its physical footprint until the conditions settled. 
While the elevated interest rates have already nearly killed construction activities, the rampant shortages of construction materials and fuel for their transportation have made building activities nearly impossible for the majority. 

While a company in the scale of JKH may have the means and the capacity to manage store building, they may also be assessing the financial viability of such an investment in the current context given the elevated capital cost and the dampened future cash flows. 

JKH currently has 128 Keells supermarkets, unchanged from the previous quarter. 
“Given the macro-economic disruptions, the construction of outlets was delayed and, therefore, no new outlets were opened during the quarter,” said JKH Chairman Krishan Balendra. 

“The business will closely review and monitor the timing of expansion due to the volatile macro-economic conditions and uncertainty over construction costs prevailing at present,” he added.

Even though largely remaining insulated from the prevailing economic crisis and the runaway prices, the operations of supermarkets were also affected to a degree from the lack of foreign exchange, shortage of fuel and other supply chain disruptions. 

As a result, while the inventory gaps in the supermarkets reached a peak during the quarter, the company expects such gaps to increase further in the ensuing periods should these impediments persist. 

Meanwhile, in another development, in response to the soaring prices of everyday essentials, the company also has ramped up its private label range to offer value for money to customers who are becoming increasingly unable to afford products made directly by their original manufacturers.