IMT & LMT POSITIONING IN PAKISTAN

BY: SOORAJ KUMAR (ERP:11215)

RETAIL ENVIRONMENT IN PAKISTAN

 Pakistan’s retail sector, like that of most South

Asian countries is largely disorganised and
therefore mostly undocumented. Figures on its
exact size can vary significantly, making it
necessary to treat any number as a mere
guess-estimate.
RETAIL ENVIRONMENT IN PAKISTAN

 Pakistan jumped from $96 to 133 billion, a 38.5% increase in four years. The current value of Pakistan’s retail
sector is estimated to be $152 billion, as per Planet Retail (a global retail consultancy) figures. It is the third
largest contributor to the economy (after agriculture and industry), accounts for 18% of the total GDP, and is the
second largest employer (after agriculture), providing jobs to more than 16% of the total labour force.
 Nosherwan Ali, Director Sales Modern Trade, Unilever Pakistan puts the total figure approximately $35 billion
(about 17% of GDP).
 However, a GAIN (Global Agricultural Information Network) Report issued by the USDA Foreign Agricultural
Service on the Retail Food Sector in Pakistan sheds more light on the turnover of different types of stores.
 According to the Report, kiryana stores have an estimated annual turnover of three billion dollars; domestic
convenience stores (utility stores, cash and carry’s and CSDs) have an estimated turnover of $200 million,
whereas modern markets (hypermarkets and supermarkets) have an estimated turnover of $176 million.
 It is important to note that there are over 700,000 kiryana stores spread across Pakistan. Therefore,
although kiryana still accounts for 70% of all grocery purchases in the country, modern retail – in spite of its
comparatively limited presence – contributes 18-20% in terms of sales, a number which may be even higher in
certain food categories.
GROWTH OF MODERN TRADE IN PAKISTAN

 The scope and influence of modern trade is growing for a number of reasons. The fragmented and disorganised
nature of Pakistan’s retail sector is a great attraction for foreign retail chains, which see this as an opportunity to
carve a niche for themselves in an emerging market.
 According to figures published by Planet Retail (a global resource on retail), per capita consumer spending in
Pakistan increased by 37% between 2006 and 2011. Per capita grocery spending increased by almost 30%, whereas
per capita non-grocery spending increased by a vibrant 46%.
 While the average Pakistani still spends 42% of his/her income on food products, spending on beauty and personal
care products (a category which has grown by over 300% in the last six years) and consumer electronics and
durables has increased sharply.
 Foreign retail chains and local supermarkets are cashing in on this trend by adding better value for money (bigger
trade discounts in exchange for better brand visibility) and an improved shopping experience to the equation.
These factors appeal especially to the salaried class of people who, as a trend, now prefer to do their grocery
shopping on a monthly basis.
INTERNATIONAL MODERN TRADE IN PAKISTAN

 Hyperstar has six stores in Lahore, Karachi and Islamabad. Its recently opened store at Emporium is spread on a
7,500 square metre sales area. A positive trend that is supporting the hypermarkets is the opening of large-sized
malls in urban centres of the country. The Dolmen and Lucky One malls in Karachi, Centaurus in Islamabad and
Emporium and Packages malls in Lahore display the trend as the right mix of convenience stores
 Metro’s annual turnover in 2017 may cross Rs 40 billion as compared to Rs 38 billion in 2016. After its merger
with the House of Habib (HoH)’s Makro, it has now nine stores in four major cities of Pakistani – Karachi, Lahore,
Faisalabad, Islamabad – with a 12 per cent potential customer reach. Each store is spread over 5,000 square metre
area while its sales volume/inventory turnover per store is around Rs 300 million to Rs 350 million. Due to its
large set-up and inauguration hiccups, Metro has been unable to dent the local market and is now opening small-
format convenience stores.
 UK’s Tesco has also recently started its franchise in Pakistan through Alpha store in Karachi’s Ocean Mall in
Clifton.
LOCAL MODERN TRADE IN PAKISTAN

 Although Imtiaz does not disclose its financial statistics, as per an estimate its yearly turnover is from Rs 40 billion
to Rs 60 billion. In the past few years, Imtiaz has emerged as the biggest store chain in Pakistan, providing a
pleasant shopping experience. Currently, it has five stores in Karachi, with two new ones in the pipeline. Imtiaz’s
first Punjab store is at Gujranwala’s King’s Mall and the second store in Faisalabad last month.
 Naheed expanded its footprint from the original 1,100 square feet of retail space to a 32,000 square feet, four-
level departmental setup.
 Chase up also falls into the category of LMT or hypermarkets which provides quality discounting in retail sector.
The size of stores range between 6,000 sq. ft. to 20,000 sq. ft. and the product line varies from store to store
depending on its size.
 Agha’s, Motta’s and Paradise in Clifton, are also among the few retail outlets where customers have the luxury to
browse shelves stocked with limited varieties of imported brands and/or local packaged goods.
LOCAL MODERN TRADE IN PAKISTAN

 Imtiaz’s strength remains budget grocery offerings, such as flour and masalas (a USP the store maintains), Naheed
differentiates itself by introducing imported brands of biscuits, cereals, chocolates, chips, coffee and other
beverages, as well as ice-creams.
 According to a report, Imtiaz accounts for one-fifth of the Karachi’s retail segment.
 There was a time when every neighbourhood had its kiryana store (traditional trade). Families had fixed
monthly grocery lists that were handed over to the shopkeeper, who would put all the items together, bag them
and hand over a chit with the billed amount scribbled on it.
 Other than these, shopping excursions were limited to Juma bazaars or visits to Laloo Khait (now Liaquatabad),
Empress Market or Jodia Bazaar – the wholesale hubs of Karachi.
 "When Imtiaz first started, shopping for groceries was about buying maheenay ka rashan – rice,
flour, sugar, salt, cooking oil and spices.Today, this kind of shopping is not considered a chore
anymore; rather, it is seen as a fun, family outing.“ –Imtiaz Abbasi
IMPACT OF MODERN TRADE

 Traditional retail comes under pressure. A prime reason for the rise of modern retail is consumer demand for a
better and quicker shopping experience. However, kiryana stores have not lost their value or influence in this
environment.
 Kiryana stores are also still of prime importance in the rural areas where modern retail has made no in-roads, and
is unlikely to do so at least in the near future. But as urbanisation increases and more supermarkets are
established in urban and semi-urban areas, they will also attract the population from the surrounding areas and
this could pose a potential threat to traditional retail.
 Furthermore, as more foreign players enter the market and existing chains expand their presence, modern retail
will account for greater sales volumes, making it necessary for smaller retailers to reassess their business model
in order to remain profitable.
IMPACT OF MODERN TRADE ON BRANDS

 Brands are under pressure. Pakistan’s retail environment is modernising quickly, putting brands and FMCG
companies under immediate and direct pressure.
 No doubt the self service modern retail environment can work in a brand’s favour as it allows customers to look
at, feel and in some cases even smell what they are buying. However, because supermarkets and hypermarkets can
carry anywhere between five to 20 different brands of the same product, the competition is also far more intense.
 By virtue of this large variety of brands, FMCGs have lost their bargaining power with the modern retailer. While
the kiryana stores depend heavily on being able to stock the brands of certain MNCs and large local companies to
achieve their targeted turnover, large retail chains have no such dependencies
 The small retailer thinks his business is highly dependent on a few suppliers. On the other hand, the big players
will tell you, ‘you are only a small percentage of my turnover’. So their bargaining power increases.
 Small retailers are brand focused, while modern retail is category focused.
 Every square foot of shop space is crucial to the large retail chain, so if the top or bottom line in a particular
category is suffering, the retailer will expect brands and the companies behind them to provide incentives and
activities that will jumpstart sales for the entire category, not just their own brand.
IMPACT OF MODERN TRADE ON BRANDS

 Pepsi and Unilever are the biggest suppliers of Imtiaz while Nestle is the biggest supplier of Metro. The average
total sales by an Imtiaz store amount to Rs 5 billion in comparison with Rs 1.8 billion at Metro.
 The average monthly sales by just one supplier – Nestle – amount to Rs 230 million at Metro and Rs 180 million
at Imtiaz.
 The combination of stiff competition and reduced bargaining power has made it necessary for brands to look
beyond offering trade discounts and view the retail environment in a more strategic light.
 Visual merchandising and shelf placement also play a key role in influencing buying patterns. Well-known brands,
such as Dalda, Head & Shoulders, Lux and Rooh Afza, are placed at the lowest or the topmost shelves because
customers will spend extra time and effort looking for them. New brands, on which retailers charge higher
margins from manufacturers, are placed at eye-level to ensure greater visibility and ease of access to induce trial
purchasing.
WHAT’S THE FUTURE?

 The swift change in Pakistan’s retail environment is being precipitated by the demands of urban (and to some
extent rural) customers who (as a result of media exposure) are expecting more value from both the brand and
the shopping experience. This presents great challenges and opportunities for FMCGs and retailers.
 Online grocery stores are also the next big thing. Almost all IMTs and LMTs have already started working on
online shopping option. Imtiaz alone has nearly one million home-delivery customers already.
 Most people would want to experiment with ‘purchase now and pick later’ online platforms with improved home
delivery options.
 In the context of the brand, integration between ATL advertising and in-store promotion is now more important
than ever before.
 Finally, the success of modern retail (and in fact the retail sector as a whole) will depend almost completely on
meeting customer demand in every conceivable way. The lack of proper measurement and documentation in this
sector will present challenges, as expansion will depend upon insight and research into consumer spending
patterns.
THANK YOU!