Future of retailing in Pakistan

In a report titled 'Hidden Heroes - The Next Generation of Retail Markets' (2011) published jointly by Deloitte and PlanetRetail, ten emerging economies, with huge potential for growth of retail sector, were identified. Pakistan was included in the list of 'hidden heroes', ten markets which are expected to register phenomenal growth in retail sector in coming years. There were a few reasons for including these countries in the list: first mover advantage by one or few retail players in the market, product offer & availability, financial credit, regional expansion and multi-format strategy. The purpose of suchreport may be to draw attention of global companies towards high potential retail markets which do not exist on their 'conceptual map' or even if they do, the understanding of those markets is extremely limited. There may be other impediments as well including legal system, cultural barriers and security reasons because of which global players are not 'positively inclined' towards such markets. It is hardly surprising to see that investors sitting in USA, Germany, UK or some other country do not have in-depth knowledge of these hidden heroes in general and ofthe retail sector in those countries in particular. However, local entrepreneurs or local professionals working for MNCs operating in those countries should be able to see the 'bigger picture'. The purpose of this article is to share a few thoughts about the retail sector in Pakistan with particular emphasis on current status, few success stories and possible landscape of retail sector in the coming years. The companies operating in Pakistan, whether national or MNCs, are making use of retail sectors for their products in accordance with their own understanding and knowledge about local retailing. There are only handfuls of FMCG companies, nearly all of them being MNCs, which have access to 'actionable' data about retail sector in Pakistan. Most companies, particularly national ones, lack market insight function which is essential to have such information. The absence of vital information vis--vis retail sector on the part of such companies is a major obstacle in having a pragmatic strategy for effective utilisation of retail sector. In corporate circles, it is not unusual if 'Head of Sales' admits that he does not have a complete list of outlets where his

products are sold. How can we make optimal utilisation of retail channels through a 'robust' strategy if even basic numbers are not available? A Look at Pakistani Retail Sector

The dearth of concrete and reliable data does not allow companies in Pakistan, whether national or MNC, to formulate 'fact-based' plans for product availability, channel wise trade marketing activities, rolling out trade incentives or similar undertakings. Research companies like Nielsen and Ipsos do provide data (retail audit, limited censusetc) about retail sector with major focus on FMCG retail but very few Pakistani companies make use of such services due to the 'perceived' higher costs. Because of this mind-set of Pakistani entrepreneurs, we rarely find vigorous 'market insight' function in local enterprises and these individuals thus rely on gut feeling instead of on hard numbers. It is not to deny that many business decisions are taken even when all the facts are not available; however, this is not desirable especially if such facts can be made available. At this stage, some basic numbers about retail sector in Pakistan make an interesting reading. The significance of retail sector in our economy can be gauged from the data published by Pakistan Bureau of Statistics according to which retail and wholesale sector worth is Rs 3.6 trillion representing around 18% of GDP 2011-12. Further, there are around 2 million retail outlets in a country of 180 million people(India: 15 million outlets for 1.2B people). Out of these retail outlets, approximately 800,000 outlets represent FMCG channels including 'kiryana' stores (mom & pop), 'pan' shops, department stores, medical-cum-general stores and the like. About two third of FMCG outlets consist of neighbourhood 'kiryana' stores, commonly called general stores, which sell multiple brand grocery items of daily use. Such outlets are generally owned by a single individual and managed by him alone or with some help from his family members. Unlike developed markets, the majority of 'kiryana' stores in Pakistan do not have walk- in areas and thus rely on counter sales only. The counter sale outlet phenomenon is a major challenge to trade

marketers who find it extremely difficult to implement various sales promotion tools like shoppers' messaging, planogram and category management. The bulk of FMCG business comes from these 'kiryana' stores due to large numbers, location (proximity to shoppers), convenience and long business hours. Other retail channels include 'pan' shops, petro marts, department stores, medical-cum-general stores, book shops, road side eateries and other specialty shops. It is interesting to note that a number of 'pan' shops, particularly in urban Sindh and Punjab, carry various fast moving items like beverages, candies and biscuits in addition to their core products ('pan' and cigarettes). A significant number of these 'pan' shops, particularly in Sindh, is very small and have semi-permanent structures. In Punjab, however, one finds bigger 'pan' shops carrying more products than their counterparts in Sindh.These 'pan' shops provide a platform where people, mainly young, get together, particularly in the evenings, for socialisation. Low Organised Retail Penetration

It is important, at this point, to focus our attention on the format of retailing in Pakistan. Some estimatessuggest that the organised retail penetration in Pakistan (as percentage of overall retail sales) is around 5%. According to one study of FMCG sector conducted by a consultancy named 'Booz &Co', organised retail (also known as modern trade) penetration in different countries show varying degree of achievement: India 5%, China 20%, Indonesia 30%, Thailand 40%, Malaysia 55%, Taiwan 81% and USA 85%. The organised retail penetration of Pakistan is currently in single digit which reflects the primitive profile of retail outlets. However, this shows that there is ample opportunity to improve the format of our retail sector. Despite the arrival of international players like Metro, Makro and Hyper Star (Carrefour), growth in petro mart and launch of retail chains by local entrepreneurs, the retail universe in Pakistan remain predominantly unorganised due to channels like 'kiryana' and 'pan' shops. The unorganized retail sector has ahost of inherent limitations eg lack of

economies due to small scale operations, lower level of functional expertise and lack of financial strength. Such restrictions negatively impact the ability of unorganised sector vis--vis product displays, shoppers' messaging and the like. However, it does not mean that unorganised sector does not contribute anything positive towards the society in general. The so-called unorganised sector is generally quick to meet customers' requirements primarily due to their involvement in neighbourhood community. Lower operational costs and 'customer service withwarmth' are also hallmarks of this sector. The owner of a small 'kiryana' store in some 'mohalla' in Karachi or Lahore knows personally the residents of that locality as opposed to owner of departmental store in a main shopping area. Organised retail, on the other hand, offers large variety of SKUs (stock keeping units), innovative point of sales material and product displays for effective shoppers' engagement. The contribution of organised retail is expected to increase due to entry of global retailers, gradual increase in chain of retail outlets, growing petro marts and larger grocery stores. Entry of Global Retailers

During the last seven years, Pakistan has witnessed the arrival of a few global players which has set a new direction for local retailing. The merged entity of Metro-Makro now operates ten stores in major cities including Karachi, Lahore, Islamabad and Faisalabad. We find sizeable number of end consumers visiting these stores for their grocery and other shopping at these stores; however, bulk sales transactions also take place with small retailers who are supposed to be the real target of these stores. The opening of such mega stores few years back sent uncalled-for warning signals to small neighbourhood retailers who feared that shoppers' traffic would be diverted towards those 'glittery' mega stores. In overall retail market of $40 billion, the reported turnover of $350 million is not significant at least at this stage.

However, a look at evolution of organised retail in other international markets suggests that the growth rate of the unorganised sector will lag behind that of its organised counterpart mainly due to innovative merchandising tools and shoppers' incentives promotions. Two stores, one each in Karachi and Lahore, have been opened by France's Carrefour under the brand name of 'Hyper Star'. Dubai based Majid Al Futaim Group, which has Carrefour franchise in a number of regional markets, plans to expand the network of Hyper Star in Pakistan as well. The opening of such stores has helped shoppers to enhance their exposure in respect of product portfolio, latest merchandising tools and promotions. Such an exposure duly supported by electronic media has been instrumental in shaping shoppers behaviour in Pakistan. The liberal government policy towards FDI(Foreign Direct Investment) for retailing coupled with changing buying habits and rising expectations of shoppers will continue to provide enough incentives to global retailers to explore Pakistani market for any expansion plan. There have been unconfirmed reports about possible entry of Wal-Mart, the biggest retailer in the world, in Pakistan retail arena. Although there is no official confirmation from the retailer itself about its plans for Pakistan, the entry of Wal-Mart with annual turnover of $421 billion is bound to have major implications for local retailing. It is, therefore, not surprising at all if some other major international retailers decide, in coming years, to enter Pakistan, a silent hero for retailing. Government as Retailer

The role of government in retail sector needs to be reviewed since it manages, mostly directly, thousands of retail grocery stores and mini super markets through entities like Utility Stores Corporation (USC) and Canteen Stores Department (CSD). USC manages around 6000 stores which sell grocery items of daily use to general public at reasonable prices. We read and hear a lot about public hue and cry regarding quality of products being offered at utility stores; however, we tend to overlook the extent of public service these stores are providing by virtue of their geographical spread in the country. It is indeed heartening to note that

organised format retailing has its presence even in small towns through these utility stores. Nonetheless, one cannot overlook the need for bringing more professionalism in running such state run retail chains. The true potential for business generation through these stores is not being materialised by a number of companies, both national and MNCs. These stores present huge opportunities for implementing various 'basic' trade marketing tools in order to enhance sales volume as well as engage shoppers. Same opportunities exist for CSD stores, though at much smaller scale due to limited number of outlets (around 135). Chain of Retail Outlets

Unlike many other countries including developing ones, Pakistan does not have many chains of retail outlets. To many it may be quite surprising particularly in view of successful operations of national chains. One such success story is that of Gourmet Bakers, a family venture started in Lahore more than two decades ago. Now this chain of bakers has around 100 outlets nearly all in Lahore selling bakery/confectionary items in addition to their own beverages (Gourmet Cola) and dairy products. A family business with humble beginnings in 1987 has diversified in other areas primarily on the strength of their retail business. Shezanand Cakes & Bakes are also other two chains of bakers with concentration in Punjab. Doce Bakers are a recent addition in the list of retail bakers.Imtiaz, HKB, Al Fateh, Potpourri and a few others have more than a single outlet in urban centers, and can hence be termed as chain. The presence of global retail brands has provided Pakistani shoppers the exposure which is instrumental in changing the buying behaviour. These chains of supermarkets do provide modern format of retailing with large product assortments. The retail chains in footwear have been operating in Pakistan since long. Servis has got more than 400 outlets selling their products. Different retail formats are being used by Servis (servis stores - 300 plus, servis megastores and factory outlets). Bata has been operating in the country even before independence in 1947. English Boot House with its seven

branches (as per its website) has been focusing on Karachi only. The changing consumption habits and exposure to modern way of life have given momentum to growth of apparel and life style chain stores; Amir Adnan, Bareeze, Al Karam, Ideas by Gul Ahmed, Chen One, Cross Road, JunaidJamshed and few others have become house hold names. Further, chains of pharmacies coming up mostly in urban town in recent years have been instrumental in building buyers confidence as regards medicines. Such pharmacies have standardised set-up and are managed by qualified professionals. Servaid, Fazal Din, Mahmood Pharmacy, Zaka Pharmacy, Seven Seas Pharmacy are some of the prominent chains of pharmacies operating in the country. These pharmacies do carry variety of fast moving goods in addition to medicines and other medical items. Hamdard, Qarshi, Hakeem Ajmal and a few other pharmaceutical companies,dealing in 'Unani and ayurvedic,operate their own retail stores. In some of such medical stores, respective companies have appointed qualified 'hakeems' who provide medical advice to patients and prescribe medicines which are readily available at those outlets. Retailing in Pakistan What Lies Ahead

After looking at the dynamics of retailing in Pakistan, one confronts an obvious question: how retailing in Pakistan is going to be shaped in coming years and what are the implications for changing scenario for one's own business. There are few indications which are likely to emerge in future; however, it does not mean that local entrepreneurs should take these 'predictions' as given and let other forces decide their destiny as regards retailing decisions. The future direction largely depends on how pro-active role Pakistani entrepreneurs as well as professional working for national and multinational companies operating here undertake. Some likely trends on the retailing arena in Pakistan include the following: -- It is oversimplification to assume that kiryana stores, the key channel

representing unorganised retail format, will enter in decay process at accelerated rate. These neighbourhood outlets will instead continue to exist on Pakistan retailing map though their growth is likely to be much lower than that of modern-trade-format outlets particularly global retailers and local chains of departmental stores/super markets. -- Kiryana Stores channel will continue to embrace some of basic techniques of organised retail format particularly POP material and product displays. This process of evolution has already started as the share of branded products at such outlets has been growing over the years. This process will not only continue but accelerate in coming years. -- The current war of getting shelf space at global retail outlets and local department stores will intensify in future. The scope of this war will expand to department stores of second-tier towns as well as large grocery stores. The culture of 'paid shelf space' at retail outlets will spread and more national companies are likely to enter into this game which, at present, is primarily MNCs' domain. -- Although no crystal ball is available, few predictions regarding future role of new global retailers can be made. New chains of grocery and life style stores are likely to enter primarily in urban centers (including second tier ones). In case some giant global retailer like Wal-Mart decides to enter Pakistan, the process of retail modernisation may take a roller-coaster pace. -- The role of global retailers currently operating in Pakistan will continue to grow both through same store growth and additional stores. However, the growth rates in coming years may not be very different from current growth rates which, by any standard, are quite impressive. -- Existing chain of retail outlets irrespective of channel (grocery, pharmacy, apparel etc) will continue to expand their network though their focus is likely to remain on first (and in few cases, second) tier towns. -- Franchise based retail outlets are likely to grow both in numbers and their significance. Some financially strong local group may initially launch

some flagship outlets and following the success of those outlets they may start entering into franchise arrangement with existing stores. This model, if run professionally, may be a win-win situation both for the franchiser (readily available and willing retailers) and franchisee (outlet brand name, standardised shop presentation, reliable supply chain, training etc). -- Pakistan needs more professional people to manage affairs of retail sector. First challenge is to provide adequate training to existing small scale entrepreneurs and work force if we have to move to organised retail format in true sense. Any FMCG company which take the lead in providing basic but formal training in, say record keeping, storage techniques and merchandising, may be able to develop loyalty among retailers. Further, it will lessen the workload on trade marketing teams of companies selling the products at the outlets. The Final Word

Pakistan, being hidden hero of retailing, presents huge opportunities particularly in areas of organised retail format. Pakistani entrepreneurs and professionals need to take advantage of these opportunities. Those who take initiatives,have clarity about their destination, formulate their retailing strategies and implement the same, will get first mover advantage. Others may not be that lucky. (The writer is Business Consultant, Terra Biz)
Copyright