Sri Lanka’s retail sector has evolved into a powerful driver of growth and opportunity. Over the last decade, fast-paced urbanisation has enticed significant investment in commercial real estate. As such, modern outlets are gradually replacing small informal merchants. While traditional vendors still play an important role in the market, modern convenience stores, hypermarkets and malls are poised to occupy an even greater share of retail space.

Changing demographics and a growing middle class have also played a role in altering the country’s retail market. Following the end of civil conflict in 2009, buying trends of brand-conscious consumers quickly shifted on the back of rising incomes. Not surprisingly, the island’s retail value chain has benefitted from significant investments in sophisticated warehousing and transportation facilities. On the back of aggressive expansion efforts, new international-standard outlets have propped up across Colombo, bringing with them a range of new brands supported by enhanced supply chains.

Despite changing dynamics, modern trade penetration remains low with only 12-15% of fast-moving consumer goods (FMCG) sales taking place in modern grocery outlets, according to the “The Year in Review 2017” report from global analytics firm Nielsen. “Organised retail penetration in Sri Lanka is an increasing trend, with the expansion of supermarkets and clothing stores, the advent of shopping malls and the recent arrival of global brands,” Leonard Perera, founder and head of business at the Sri Lanka Retailers’ Association, told OBG.

Size & Performance

Between 2009 and 2016 household consumption grew at an average rate of 11.6% per year. As a percentage of GDP, household consumption has been around 65-70% over the past decade. During this time, the percentage of income committed to necessities dropped as overall spending rose. According to data from the Department of Census and Statistics, combined wholesale and retail trade generated LKR1.4trn ($8.8bn) in 2017 compared to LKR1.3trn ($8.2bn) in 2016, reflecting growth of 10.63%. “Consumption levels increased in 2015 and 2016 following the appointment of a new government,” Perera told OBG. “However, margin pressures in 2018 from inflation and currency deprecation have resulted in weaker sales volumes.”

In addition, the beverage industry saw sales impacted by the introduction of a sugar tax, although as of early 2019, the industry expected to see an increase in sales on the back of levy adjustments. The original sugar tax, introduced in November 2017, was LKR0.5 ($0.003) for every gram of sugar. Despite objections from health organisations, the Ministry of Finance reduced the sweetened beverage tax to LKR0.3 ($0.002) for every gram of sugar in the fourth quarter of 2018 as the government tried to recover popularity after the political crisis.

While Sri Lanka’s traditional retail sector has faced increased competition, it has still managed to improve its global ranking. Sri Lanka placed 12th on AT Kearney’s latest Global Retail Development Index of 30 emerging markets in 2017, scoring 51.8. By comparison India placed first with a score of 71.7, while China was second with 70.4.


The FMCG segment contributes more than 30% of GDP and provides around 20% of overall employment, according to the Nielsen report. However, growth within the segment has fluctuated in recent years due to inflation, taxation measures and a weakening currency.

Statistics from the Central Bank of Sri Lanka (CBSL) revealed that headline inflation as measured in the National Consumer Price Index (NCPI) decreased to 0.4% in December 2018 from 1% in November 2018, which was driven by the decrease of prices in both food and non-food categories. The transport sub-category recorded the largest decrease followed by price declines in the telecommunication, alcoholic beverages and tobacco sub-categories. The change in the NCPI measured on an annual average basis decreased to 2.1% in December 2018. Meanwhile, food inflation decreased to -4.5% in December 2018 from -3.9% in November 2018 while non-food inflation also decreased from 5.2% in November 2018 to 4.7% in December 2018. At the same time, core inflation and annual average core inflation were 3.1% and 2.4% in December 2018, representing no monthly change.

Structure & Oversight

Sri Lanka’s retail sector ranges from a mix of small informal merchants to a network of modern retail outlets. The majority of the urban market has been captured by supermarkets, and, while traditional merchants still play an important role, their market share is being encroached on by these larger stores, which offer a wider range of food and other household goods.

Within the supermarket segment there is a small number of players who dominate the market and occupy a mixture of owned and leased properties in prime locations. Cargills Food City, Keells Super and Arpico are the three largest operators of modern grocery retail chains in Sri Lanka. Cargills Food City forms part of a Sri Lankan retail, FMCG, banking and restaurant company, while Keells Super is owned by John Keells Holdings, the largest conglomerate on the island. Arpico Super is owned by Richard Pieris Group, and LAUGFS Supermarket is another diversified local conglomerate that has expanded its presence in the supermarket arena over recent years. Other smaller players have grown in number inside the country’s urban centres, but have a minimal presence in suburbs and villages, including Kings Super City, Sentra, Sunup and Crystal.

There are a number of international retail brands in the country, including Cold Stone Creamery from the US, Abu Dhabi’s Tablez Food Company and Mitra Adiprakasa from Indonesia. Foreign investment within the retail sector needs to meet a minimum capital requirement of $1m.

As of early 2019 the convenience store market was undergoing some changes. According to a report on the sector by the Institute of Certified Management Accountants (CMA) of Sri Lanka, Go-getter, a convenience store that entered Colombo in 2002, was in the process of exiting the market in 2018, while Cargills, Keells and Arpico, were filling the demand in this segment with a number of mini establishments under their brand names. However, convenience stores as a whole are not very popular in the country.

While spending power declined in the latter half of 2018, retailers remain optimistic. According to the CMA report, the aggregate financial performance of Cargills, Keells and Arpico equated to LKR120.9bn ($761.4m) in 2017, compared to LKR99.5bn ($626.6m) in 2016, representing 21% in growth between the three players.

Regulatory Change

There have been concerns about the frequency of policy changes in recent years, which were amplified in the third quarter of 2018 when regulators imposed a new cash margin on the import of most consumer durables in an effort to strengthen the currency and bolster the current account. Prior to the legislation, retailers could open letters of credit with banks with no cash margin requirement. While the policy is only a temporary measure, the move has been seen as a drastic attempt to prevent the heavy currency outflow. Shortly after the change, Fitch Ratings warned that the operating cash flow of retailers is likely to weaken as the new regulation imposes a 100% cash margin on electronic appliance imports like refrigerators, air conditioners, televisions, mobile devices and washing machines. The agency also highlighted that the need for additional working capital to fulfil the margin requirement could reverse recent leverage improvements of consumer durable retailers.

At the same time, the monetary board of the CBSL imposed a 100% margin deposit requirement against letters of credit opened with the commercial banks for the import of motor vehicles for non-commercial purposes. The requirement is expected to curb non-essential imports of vehicles, which will in turn ease pressure on the current account and the exchange rate. As part of the reforms, the government has also suspended the issuance of vehicle permits for members of Parliament and state sector employees for one year and six months, respectively. The import of vehicles for state institutions has also been suspended for an undisclosed period.

Sri Lanka has a standard value-added tax (VAT) rate of 15% for products imported as well as goods and services supplied within its territorial limits. Any entity that has quarterly turnover in excess of LKR3m ($18,800), or has exceeded LKR12m ($75,500) turnover per annum, or likely to exceed LKR3m ($18,800) in the following quarter or LKR12m ($75,500) in the next 12 months is liable for VAT registration. The Inland Revenue Department collected LKR331.9bn ($2.1bn) in VAT payments in 2017, an increase of approximately 68.4% over 2016.

Consumer Confidence

Correlating with a drop in economic activity, Nielsen’s quarterly Consumer Confidence Index declined towards the end of the first quarter of 2018. According to the survey, 5% of respondents expected their financial affairs to be in a good position in the period ahead, compared to 30% of respondents in January.

Nielsen’s first quarter 2018 survey revealed household concerns surrounding purchasing power. aSome 99% of respondents were doubtful of their ability to purchase durable items for the next 12 months. According to latest available CBSL data, per capita GDP reached $4000 in 2017, after remaining at around $3800 over the previous three years.

There are concerns that higher fuel costs could dampen retail activity and reduce consumer confidence in 2019. According to an outlook review for leading retailer Abans by Fitch, the decision by the state-run Ceylon Petroleum Corporation to raise petrol and diesel prices could translate into sluggish growth for the retail sector. While the move is expected to make the company more profitable by raising petrol and diesel prices by 5.8% and 8.3%, respectively, it will also reduce discretionary spending and demand for consumer durables.

Despite the warnings of a decline in demand for FMCG, Fitch affirmed Abans’ national long-term rating of “BBB+” in August 2018 with a stable outlook, in part due to its strong market share in consumer goods and extensive brand portfolio.


Technology is gradually playing a greater role within Sri Lanka’s retail sector, with a number of traditional retailers adopting e-commerce platforms to complement existing retail channels. One such example is the department store Odel, which has been trying to reach more rural and urban shoppers online. In recent years, electronic retailers, such as and have increased their market shares. The ability of traditional sellers to challenge larger retail outlets has been bolstered by a growing number of cloud-based platforms, such as 99RetailStreet, which enable sellers to reach underserved rural pockets.

In mid-2017 Sri Lanka’s online shopping market was worth an estimated $40m, growing to $50m by mid-2018. Given the growing amount of pre-purchase research online, the e-commerce market shows no signs of slowing. According to estimates by, a South Asian online retailer founded in 2012 by German venture capital company Rocket Internet, e-commerce activity in Sri Lanka could expand to $500m by 2025. Acquired by China’s Alibaba in May 2018, believes Sri Lanka’s online sales industry could expand significantly in the next five to seven years, provided the right investments are made between now and then.

Speaking at the Sri Lanka Retail Forum in 2018, Bart van Dijk, country manager at, stated that interest in the segment is on the rise, with around 64% of consumers engaging in pre-purchase research online in 2017, an increase of 30% over the previous year. According to local media, Daraz. lk recorded 300% growth in transactions in 2017.

Measures are also being taken to remove legal barriers to the development of Sri Lanka’s digital economy. In a bid to provide better protection for consumers in e-commerce, the Ministry of Industry and Commerce announced plans to establish a modern consumer protection framework to foster the development of the digital economy. Speaking at a forum on e-commerce reform held by the Consumer Affairs Authority (CAA) in September 2018, Rishad Bathiudeen, minister of industry and commerce, outlined five priority areas that should be given increased attention: education, awareness, payments, data protection laws and privacy.

In addition, the CAA is working with stakeholders to identify gaps in legal framework, with an emphasis on these key areas. Once the CAA concludes discussions with stakeholders, they are expected to propose new legislation that will support the expansion of e-commerce activity.


Sri Lanka’s supermarket segment continues to be dominated by Cargills, Keells and Arpico Super, with the LAUGFS Group some distance behind in the fourth spot. The segment is also seeing increased competition, and in the fourth quarter of 2018 local conglomerate Softlogic – after undergoing restructuring earlier in the year – began operations at its first supermarket outlet. While there was previously speculation that the company would enter an agreement with a leading foreign supermarket operator to launch the new subsidiary arm – which is housed under its retail sector holding company – this did not come to fruition in the end.

The state-run Sathosa stores also operate in the segment focusing on low-income consumers, while independent food retail chain SPAR International granted a licence to Ceylon Biscuits to operate its brand in the country in late 2017, announcing plans to open an additional 20 SPAR supermarkets within a five-year period. In January 2019 the company opened its second location in Sri Lanka in a suburb of Colombo. With 1000 sq metres of floor space, the store targets the middle-lower income bracket.

Shopping Malls

The number of urban citizens has steadily risen since 2013, reaching around 18.4% of the population in 2017 and growing at a rate of approximately 9.6% annually according to the UN, which is driving the growth of large-scale retail developments. Recent examples of this include family-run Damro Group, known for its furniture brand, which officially opened the LKR12.5bn ($78.7m) Marino Mall and Beach Hotel in Colombo in June 2018. Comprising 300,000 sq feet of space, half the site is devoted to retail. The 200,000-squarefoot Colombo City Centre Mall also officially began commercial operations in August 2018. Developed as a joint venture between local retailer Abans and the Singapore-based Next Story Group, the $180m-mixed-use project includes some 192 residential units and a hotel.

In addition to this, One Galle Face, a skyscraper, mixed-use development incorporating offices, residences and shopping, is slated for completion in the second quarter of 2019. The project, being developed by the Shangri La Group and located in Colombo, will include around 480,000 sq feet of leasable retail area and 250 outlets, making it the largest shopping mall in the city.

Mid-tier commercial real estate has also seen an uptick in activity, particularly the renovation and development of smaller shopping malls in secondary cities. In the latter half of 2018, local developer CT Holdings announced it was planning to revive a number of outdated cinemas in Kandy, Negombo, Bandarawela, Dematagoda and Katubedda, turning them into multiplexes, complemented by mini-malls with retail outlets. According to local media reports, CT Holdings plans to anchor the retail component of the developments with Cargills supermarkets.

According to an early 2018 report from property consultancy JLL, Sri Lanka’s stock of formal retail floor space is set to almost double to just under 2m sq feet once the two new mega-malls and other smaller complexes are completed. Despite this, demand for retail space is expected to outstrip supply for the next few years. Given the demographic shifts taking place through urbanisation, the JLL report estimates that there is room for almost 4m sq feet of floor space in the market.


While Sri Lanka’s new international standard shopping centres under development are set to add a combined total of 830,000 sq feet of retail space to the market in the near future, supply will still fall short of medium-term demand.

However, given the political crisis at the back end of 2018, consumer spending is expected to be sluggish in the first quarter of 2019, as citizens remain wary of additional instability.

While forecasting spending patterns on necessity items is a challenge, over the long-run the sale of luxury items should return to previous highs, provided that policymakers can achieve macroeconomic stability. Driven by the growing trend of rural-urban migration, the demand for household appliances should be fairly strong, as well.

Given the dominance of the existing players in the supermarket segment, new entrants may find it challenging to capture sizeable portions of the consumer base. On the other hand, Softlogic’s endeavour may prove an exception to the rule, considering the firm’s existing supply chain in growth oriented sectors. Any additional players may be deterred by the notable absence of third parties in the supply chain, but while this may present some challenges to newer entrants, it will be able to give sufficient opportunities for investors in supply-chain management.