Foundation University Institute of Engineering & Management Sciences

Engineering Management
Report Chain of Super Markets In Pakistan

Groups Members: Muhammad Imran (4364) Bilal Naeem (4348) Salik Riaz (4366)

Table of Contents
CHAPTER 1 INTRODUCTION 1.1 1.2 Over view Objective and Scope of study

CHAPTER 2 Chain of Super market in Pakistan 2.1 Utility Stores Corporation (USC) 2.2 USCs Region wise Location of Stores

CHAPTER 3 TECHNICAL EVALUATION 3.1 3.2 Product Range Retailing Technology

CHAPTER 4 GOVERNANCE AND MANAGEMENT STRUCTURE 4.1 4.2 4.3 4.4 Management Structure Governance and Management Structure System and Procedures Trained Employees

CHAPTER 5 Market / Need Assessment 5.1 5.2 5.3 Evolution of Retailing Need Assessment Prospects for new Projects

CHAPTER 6 CONCLUSION

Chapter 1 Introduction 1.1 OVERVIEW

Pakistans sole chain of retail stores, the Utility Stores Corporation (USC) commenced operations in the seventies and at its peak had 975 retail stores / outlets all over the country in the 1990s. Owing to management problems and financial losses, it was compelled to curtail operations reducing countrywide Number of outlets to 363 in July 2005. The organization seems to have weathered the difficult times and is in the process of consolidating its position. A gradual increase in the number of outlets is now being witnessed, both in Karachi and other urban centers which indicates that the organization has achieved a Turnaround and is now a profitable company. Two new companies have been announced which plan to set up chain stores in Pakistan. One is Makro-Habib Limited which intends to set up 30 high volume outlets (each having 100,000 square feet of area, 200 employees and parking for 300 cars/vehicles). Makro Asia is wholly owned by SHV Holdings of Netherlands. The second is Metro Group of Germany (the worlds fifth largest retailer) which is also planning to establish 30 department stores in Pakistan at an investment of US $ 400 million. It operates more than 2,300 retail stores in 28 countries including supermarkets, hypermarkets, departmental stores, home improvement stores and consumer electronic stores. Some smaller companies are running limited number of stores, usually in one city and do not qualify to be categorized as chain stores. The retail sector in Pakistan is now attracting the attention of both foreign and Pakistani investors since at least two foreign and a few local companies are reported to be actively engaged in setting up chain stores in the country.

1.2 OBJECTIVES AND SCOPE OF STUDY

This business is different from conventional manufacturing and processing industries since it is a service business and its retail stores will be located at considerable distance from one another. Furthermore there is no need for machinery and equipment which forms the bulk of investment in manufacturing industries. Facilities and utilities needed for retail outlets, regional offices. The objective of this pre-feasibility study is to assess the operational, market and financial viability of setting up a chain of supermarkets (retail stores) in the country. Retail outlets in selected cities will be established in the first phase, followed by addition of more stores as necessitated by consumer demand.

CHAPTER 2 Chain of Super market in Pakistan

A number of new ventures have recently been announced which, when implemented, will mark the commencement of modern day retailing business in Pakistan. Reviews of USCs business and of the new ventures are given here under.

2.1Utility Stores Corporation (USC)

This service sector is in its nascent stage in Pakistan, with only one organization which can justifiably claim to be operating a chain of retail stores in the country the Utility Stores Corporation (USC). Some smaller retail groups are also operating limited number of retail stores, but these are generally confined to single city operations. The Utility Stores Corporation (USC) is a wholly owned venture of the Government of Pakistan which was set up in the seventies to serve the masses especially by ensuring the availability of those essential items which were prone to shortages, and therefore to price fluctuations i.e. abnormal price rises. The organization was also mandated to provide a socio-economic service to the people and was not primarily a profit making, growth oriented venture. USC has developed three categories of stores based on market experience. These categories of stores have been developed to cater to diverse segments of the countrys population.

Supermarkets and Hypermarkets

In Pakistan the category of stores known as supermarkets and hypermarkets refers to very large sized units, generally with floor space of 100,000 square feet or more, and offering over 40,000-50,000 items to the Customer. Supermarkets and Hypermarkets operate on the principle of high volume-low margins and are becoming increasingly popular with the public. A leading business house of Pakistan in joint venture with an established company from the Netherlands is setting up a chain of such stores in Pakistan.

Warehouses
Warehouses usually located on the outskirts of the city where rents are comparatively much lower and overall organizational overhead expenses are also very low. Their main advantage is low product prices. Customers are willing to travel considerable distances to reach these stores which offer very competitive prices.

Mail Order Houses

Mail Order Houses operate through catalogue marketing. The office and warehouse can be located anywhere in the country (usually where overhead expenses are very low) and they print very attractive catalogues which are sent to prospective customers addresses. Each product is illustrated, coded and described in terms of operational performance features. Price of each product is given along with additional expense for sending by mail / postage. Terms of payment are also specified (usually payable on delivery, by credit cards, etc.). These stores have introduced on-line order placement for customers convenience. In this type of retail business the customer does not visit the business place, nor meets any of the organizations staff.

CHAPTER 3
TECHNICAL EVALUATION
Considerable investment goes into the setting up of one retail outlet and the selection of a suitable site is extremely important in its successful and profitable operation. Decision on a site needs to be based on a proper survey of the target area involving the following aspects: Consumer segmentation (based on income levels) Competition from other stores Traffic flow Parking space availability Rental rates of commercial space Site selection decisions should be reviewed by at least 2-3 levels of management in order to minimize the probability of taking a wrong decision. This would not only cause financial losses, but also reflect poorly on the companys image.

3.1 PRODUCT

RANGE

Retailing covers a very wide range of products, commodities and services and it would be very difficult indeed to list all of them. For the purpose of this study it may be safely stated that the proposed chain of retail stores will generally carry all grocery and related items which are carried by supermarkets worldwide.

3.2 RETAILING TECHNOLOGY

The establishment and successful management of large retailing companies which have hundreds of retail stores spread all over the country, each outlet stocking thousands of items, requires a high level of management expertise in a number of disciplines. The relatively more important areas of technological expertise needed to manage such projects are analyzed below:

1. MERCHANDIZING POLICY:
This basically involves formulation of the procurement policy of the company and requires entering into commercial contracts with literally thousands of suppliers located all over the country.

2. QUALITY CONTROL: Checking products for quality and related aspects ensures customer satisfaction. All stores offer unconditional replacement of defective, sub-standard products and also pass on manufacturers guarantee/warranty, however, in todays busy and fast-paced modern life. An adequate and effective system of quality control helps to reduce customer complaints and the level of product replacements. 3. BRAND MANAGEMENT: A useful tool in developing consumer loyalty, proper brand management allows the company to ensure maximum impact and to gain maximum value through customer goodwill. Without developing its own brand, the chain store will forever be marketing some other companys brand and fail to create goodwill for its own brand/company name.

4. OPERATIONS This involves all organizational operations at the store level which combine to run the store/outlet smoothly (inventory management, human resource, finance, marketing, customer relations, etc.). The store management is in charge of all operational matters for that unit and they need to be suitably trained.

5. COMPUTERIZATION The head office, zonal offices/warehouses and all outlets need to be connected through an appropriate computer network system. The company also has to investing procuring suitable software to manage operations, maintain inventory, list suppliers, payroll and accounting records, etc.

CHAPTER 4
GOVERNANCE AND MANAGEMENT STRUCTURE

4.1 Management Structure

4.2 GOVERNANCE AND MANAGEMENT STRUCTURE

The project involves large investment in setting up a network of retail stores supported by regional offices, centralized warehouses and a corporate head office. Professional management in all spheres and at all levels is essential to ensure high efficiency and profitability. The proposed management structure is described below. 1. BOARD OF DIRECTORS: This is the highest level of policy making and supervisory body, presided over by the Chairman of the Board of Directors. It is selected by the shareholders at the Annual General Meeting, and performs various functions as laid down in the Companies Act 1984 in conjunction with the Memorandum of Association and Articles of Association of the Company. 2. Managing Director: The Managing Director performs his functions in accordance with the MA of the company and as per policy guidelines laid down by the board, to which he is accountable. The Managing Director must be a qualified, experienced professional in the field of distribution and retailing. 3. Directors for Operations, Marketing, Finance and Administration: Directors for Operations, Marketing, Finance and Administration are all senior level executive positions which need to be filled by professionally competent persons. Director Marketing will perform a crucial role in the successful marketing of the stores products, whilst the Director Finance and Administration will be responsible for financial control and administrative matters. Director Operations will be responsible for all merchandizing, inventory management and retail store operations. 4. Employers: The chain of supermarkets project will need to employ persons with expertise and professional experience in management of large retailing operations. In addition skilled and unskilled workers will also be employed.

4.3 SYSTEMS

AND PROCEDURES:

An organizations performance is largely dependent upon the formulation of appropriate systems and procedures to cover all organizational aspects e.g. Marketing (Brand Management) Materials Procurement Human Resource Management

 Finance and Accounts Inventory Management Quality Control Due importance needs to be given to this management aspect by the board of directors and senior executives in order to ensure organizational efficiency.

4.4 TRAINED Employs:

Newly hired staff especially those stationed at retail stores will need to be trained regarding companys policies, dealing with customers, handling of operational problems, etc. Initial induction, briefing and training could be conducted by Manager HR/Training with special training programs arranged for groups of employees on different aspects which may be given by organizations/professionals engaged for such activities.

Chapter 5
MARKET/ NEED ASSESSMENT

5.1 EVOLUTION OF RETAILING:

Distribution and retailing is an integral part of the supply chain which makes mass produced goods and commodities available to the consumer, literally at his doorstep. Major impetus to this business was provided by the industrial revolution in developed countries when manufacturers concentrated on improvements in large scale (mass) production of goods and commodities, but did not have the time or resources to undertake nationwide distribution and retailing which was necessary to consume the mass produced goods. This gave rise to specialized distribution and retailing operations. Specialization in this field, as in most other commercial and economic activities, has created various forms of distribution and retail stores. Over the decades improvements have been witnessed in the retailing business and specialized forms.

5.2 NEED ASSESSMENT:

Assessing current levels of demand for retailing business, or ascertaining past trends would be difficult inasmuch as this activity is service oriented and spread over the entire country. Small retail shops, outlets make up a large number of contributors to this value added activity and evaluating their turnover will be extremely difficult.

5.3 PROSPECTS FOR NEW PROJECTS:

In view of annual sales of Rs. 6.00 billion by Utility Stores Corporation and fields, such as garments, fabrics, food items, electronics, etc. who are doing retail business in a relatively better and more modern manner, this still leaves about Rs. 736 billion of wholesaling and retailing business is still be met. This could be better performed by chain stores, supermarkets / hypermarkets, etc.

The project of Chain of Supermarkets in the country is not meant to create only new demand in the Retailing Trade, it is also meant to gradually replace traditional stores with chain stores, supermarkets and

hypermarkets in the country, as has been achieved in the developed countries.

5.4 PROPOSED LOCATION OF NEW STORES:

The project plans to establish a chain of 70 new retail stores all over the country as shown below in Table, supported by five regional offices / warehouses at: Karachi, Lahore, Islamabad, Rahim Yar Khan and Multan

Chapter 6 Conclusion
This service sector business has evolved over the last several decades to develop Specialized companies in distribution and retailing. The worlds largest retailer M/s Wal-Mart operates over 5,170 retail stores in USA and 10 other countries, Employs 1.60 million persons with sales of US $ 282.2 billion in 2004. Most large retailing companies in developed countries are listed on the countrys stock exchange i.e. shares are held by the public. The financial performance of retailing companies (sales and profits) is considered as an indicator of the countrys economy since it reflects on public spending for goods and services.

The Utility Stores Corporation is the only organization which is running a chain of stores in the country (363 outlets at present). At one time it had 975 stores, however, due to management and financial problems it was compelled to reduce the total number of outlets. There is large potential for establishment of various types of chain stores in the country. This prospect seems to have been recognized by investors of two groups which are implementing chain of stores (supermarkets/hypermarkets and department stores).

There would still be a very large void in the retailing sector and local/foreign investors need to be motivated to invest in the upgrading of this business activity.