OBG talks to Ravi Singh, CEO, CPL Group

Interview: Ravi Singh

What is the potential of the retail sector in PNG?

RAVI SINGH: There is no question that retailing is a promising industry in PNG, as consumption patterns are far lower than anywhere else in the world, even for basic things like toothpaste or sugar. It is true that there are a limited number of consumers in the domestic market; however, the sector can continue growing even in a declining economy because we are starting from such a low base. Thanks to our network of markets and convenience stores, we are able to recognise the urgency with which consumers are seeking new products and shopping experiences, as long as their disposable incomes allow them to do so.

I remember the last time there was an increase in minimum wage, which now stands at PGK2.29 ($0.93) per hour, our sales went up 15% nearly overnight, with food remaining the biggest expenditure.

To what extent has the recent economic slowdown affected the retail sector in PNG?

SINGH: My view on the current economic contraction is that it will not last long and that growth will continue, although at a modest pace compared to recent years. Low international commodity prices clearly had a negative impact on the local economy, which is dependent on the Asian market, but today everything is interconnected in the so-called global village. Even though capital is expected to flow out of emerging economies into mature markets like the US, which is gradually recovering, it is difficult to predict how this will affect the domestic market.

Many factors are at play, but our general gut feeling is that, with the liquefied natural gas project coming on-line, there will be enough cash reinjected into the economy to see us through this transitional period, especially because the PNG government owns 22% of the project’s shares. It remains to be seen how the government will spend this new inflow of capital, but at least the kina should improve towards the fourth quarter of 2014. Retail sector operators will have to adjust.

What would you say are the fastest growing segments of PNG’s retail market, based on your company’s experience as a diversified group?

SINGH: As I mentioned before, food remains the biggest expenditure for the average family in PNG, but the hardware business is also growing exponentially because of the construction boom currently under way, which does not show signs of slowing. According to a study that we conducted with KPMG, a professional services firm, as much as 60% of the population in PNG is under the age of 18. This segment continues to drive the demand for new housing, especially now that a sizeable middle class is finally emerging in the country.

Clearly, there is pressure in cities such as Port Moresby to provide safe and secure housing, and the hardware business is bubbling along this trend. As land is scarce in PNG and building a house is becoming more expensive, especially considering the infrastructure in place, our group is concentrating mainly on the low-cost, easy-to-build house model.

Despite the domestic market’s contraction, your group is about to launch a new shopping mall in Port Moresby. Why is this a good time for an expansion?

SINGH: Like in any other business ventures, risk is part of the game, especially for retail. However, we currently feel that the market is ready for new concepts. With that in mind, we aim to introduce in PNG what are already known in North America as strip malls, which have traditionally outnumbered large shopping malls in mature markets. Besides offering a variety of brands to consumers within a 20,000 sq metre shopping area, strip malls have the advantage of featuring a large parking lot located at ground level, which is an important element considering Port Moresby’s persistent congestion problems and lack of parking spaces. Port Moresby boasts a population of nearly 500,000 people and we hope to attract at least 600,000 shoppers on a monthly basis, so overall we are positive about the industry’s performance and prospective for the future.