Interview: James Lau
How would you describe the sentiment of the retail sector, given the current economic slump?
JAMES LAU: I would characterise the mood as one of cautious optimism. The sector is facing several key challenges, but high-quality operators are continuing to exhibit growth, and the longer-term trends appear positive. The challenges include ongoing foreign exchange shortages, rising wage costs, fluctuating consumer confidence and infrastructure issues.
However, Papua New Guinean consumers are becoming more and more cosmopolitan, and the longer-term trends for retail are largely positive.
The foreign exchange shortages are creating the most immediate problems. Although our retail outlets promote and sell as many PNG-made products as we can, there are many items we can only get from overseas. The short supply of foreign currency creates bottlenecks for retailers and wholesalers that need to import products. These delays can range from a few weeks to several months, and are hard to predict.
As a result, retailers struggle to effectively manage inventory. We can no longer order items on a just-in-time basis. Orders must be placed well in advance, which can lead to shortages on the shelves, or the oversupply of some items. Many overhead costs are rising, while demand remains subdued. High energy and transport costs are a major preoccupation, as well as increasing security costs. In addition, the relatively low exchange value of the kina pushes wholesale prices up for imported goods, and many in the industry are concerned about possible changes to the goods and services tax that may be on the horizon.
On the demand side, we are seeing weaker consumer sentiment, lower disposable income, subdued spending on consumer discretionary items and increasing competition, particularly in the restaurant segment.
There are some things we can do to address these issues, such as better align our product mix, promotions and pricing wherever possible. Meanwhile, we will be hoping for the economy to pick up again in all sectors to increase private consumption.
What are the main challenges in the supply chain?
LAU: It is no secret that transport and storage are far from simple in PNG. Road links are limited, and where they exist maintenance and security are sometimes problematic. Coastal shipping is useful for transporting goods between the coastal cities of Lae and Port Moresby and the New Guinea Islands, but PNG’s infrastructure at ports also leads to high shipping rates.
All of this results in high transport costs to many parts of the country. We would like to see significant investment in transport infrastructure so we can service all parts of PNG with quality retail offerings. Better transport links and lower travel costs also help consumers to travel to retail outlets and arrive with more money. Other infrastructure challenges for the retail sector include unreliable electricity grids and water supply, resulting in the need to generate our own electricity, adding costs. Both retailers and manufacturers would greatly benefit from increased investment in electricity generation and distribution throughout PNG.
How can producers be better integrated into value chains for food products sold domestically?
LAU: Most communities in PNG are engaged in agriculture, and most households produce some surplus or cash crops. Many retailers engage directly with producers to source fruit and vegetables, as well as with larger domestic operators. We believe it is in the interest of retail operators to engage with producers, and provide a stable market for their output. In this way, we can encourage improved farming techniques and increased production, which benefits the producers; while expanding the supply base, which is good for retailers and consumers. Targeted government investment on transport and favourable tax treatment for agricultural inputs can also drive this improvement.
Read More from OBG
