Modern and general trade made up for lost sales from HORECA sector for processed food makers

The food and beverage sector saw a robust transition of volumes from the hotels and restaurant sector to the modern and general trade sectors, as the pandemic-induced restrictions on in-door dining, banquets, resort stays and other events upended consumer behaviour and where they enjoy their favourite foods. 

 
As the broader HORECA (hotel/restaurant/catering) sector, consisting of the hotels, restaurants and catering sector, took a deep dive during the virus-related restrictions, the processed foods makers largely held up their sales during this period, as the consumers, who preferred cooking at home to restaurant dining due to fear of getting COVID, didn’t forget to fill up more of these foods in their shopping carts. 

Analysing the financial performance at Keells Food Products PLC, a unit of the John Keells group and Sri Lanka’s largest processed meat producer and a proxy for the broader processed food sector, First Capital Research said the company’s double-digit growth in volumes “are strongly linked to the modern retail trade – supermarket-based retail trade – and general trade shifting from the HORECA segments”. 

The producer of Krest and Elephant House-branded processed meat products generated a sales growth of a robust 29 percent during the fourth quarter ended on March 31, 2021 to Rs.1.04 billion and earnings shot up to Rs.122.5 million, from just Rs.4.4 million in the year earlier period.  

Sri Lanka’s HORECA sector was brutally affected by the virus-related restrictions. 

Its brief returning to business was thrown again off course when the virus-controlling bureaucrats ordered to close it down during the third wave of the pandemic, prompting the industry collectives to join forces to demand for its reopening under guidelines before it goes out of business, losing hundreds of thousands of jobs in the industry. 
The processed meat producers such as Keells Food Products generates a sizeable sales amount out of the broader HORECA segment because the food types they produce are still not in the mainstream and thus are typically regarded as discretionary food by a large majority consumers in Sri Lanka. 

However, the change in consumer habits and the shift in the business channels caused by the pandemic-induced restrictions, these processed food makers managed to hold up their business volumes even amid significant stress on the business-to-business segment.  

For the full year ended on March 31, 2021, Keells Food Products reported sales of Rs.3.65 billion, up 2.0 percent and earnings of Rs.320.98 million, up 114 percent. 

“We expect a jump in KFP volumes and margins, supported by the new supermarket outlets,” First Capital Research said while estimating an annual organic volume growth of 5.0 percent with the trend is likely to be continued through financial years ending in 2024. 

“However, with the new outlets, we expect an additional boost to retail sales while the new in-house bakeries may further support to increase the overall volume growth to 10 percent in FY22 and 11 percent in FY23, taking the total number of outlets from 123 to 153,” the research firm said in reference to Keells Super-branded outlets.