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Pakistan’s Rising Middle-Class Pushing Up Consumer Spending

According to the bank, to be a member of the middle class in 2015, a Pakistani adult must have a wealth of at least $14,413. At a rate of Rs106 to a dollar, this comes to Rs1.53 million. The bank calculated the total wealth in Pakistan at $495 billion, or Rs52.47 trillion. It used the IMF’s series of purchasing power parity to drive the equivalent middle class wealth bounds in local terms.

In a 2011 publication titled ‘Estimating the middle class in Pakistan,’ Dr Dur-e-Nayab, an economist associated with the Pakistan Institute of Development Economics (PIDE), came up with a figure of 61 million people (about 40 percent of the population) for the country’s middle class. The categorization was on the basis of a criterion she called ‘expanded middle class’. On the basis of the same definition, the Indian middle class is estimated to be 25 percent of that country’s population.

Many top tier local companies and multinationals have commissioned research studies on the size, value, trends and spending capacities of different social classes in Pakistan from reputable service providers, such as Euromonitor, McKinsey, Neilson etc to evolve their corporate strategy in the country.

Overseas Investors Chamber of Commerce and Industry (OICCI) Secretary General was helpful and said valuing the country’s middle class market at Rs30 trillion appeared credible. Pakistan’s growing middle class of over 40 million people has resulted in consumer spending growth of 20 percent per annum.

The country has 18th largest ‘middle class’ in the world. Half of our economy is undocumented. In its Global Wealth Report 2015, Credit Suisse said Pakistan had the 18th largest middle class (6.27 million people) in the world. Unlike the more common practice of using income and the standard of living to define a social class, Credit Suisse used the measure of ‘personal wealth band’ to determine the middle class.

Pakistan’s middle class consumer market assessed on the basis of reports of market research companies and data from multiple sources is projected at Rs30 trillion ($290 billion). Adding the share of the country’s huge informal market would make the numbers increase higher. Keeping aside the rural area, urban side has shown a tremendously clever consumer buying habit. In Pakistan many discount offerings are attracting more and more buyers.

 

Rise In The Buying Habit

Makro and Metro have developed a new shopping experience in Pakistan. Hyper star gets better response. With the opening of store in Karachi at Clifton in Dolmen Mall, Hyper star has given a remarkable result in catching attention of customers. Despite down in the economy of Pakistan, the shopping experiences along with what these stores are offering. It is evident that consumer buying habit will take an exciting change. Now people will spend more due to incitement buying.

The presence of potential buyers in Pakistan has been observed by many international brands like Mother Care, Crocs and Monsoon who are working on having their stores working in the country. A 200-year-old British Departmental Store, Dabenham has been opened in Karachi. For big purchases like automobile, buyers are getting support of consumer financing schemes offered by banks and other financial institutions. Pak Suzuki Company showed a satisfactory growth. The same can be said of Mehran and Bolan.

Consumer spending is predicted to increase in 2018. Having population of over 200 million and per capita consumption of $836.3, Pakistan certainly justifies the potential for increase in consumer spending. According to a global resource on retail, per capita consumer spending in Pakistan has increased by 37 percent between 2006 and 2011.

Advertising in print and electronic media, discount offers, increased billboards and in store promotional campaigns all proves the consumer spending is definitely accelerating. Pakistan has opportunities for product expansions and market expansion. The marketers need to have the imagination to drive the consumer buying behavior to their products.

Pakistanis spent almost half of their household budget on food in 2012, the highest ratio in the world, a survey found. According to a report by the US Department of Agriculture’s Economic Research Service in which 84 countries were surveyed. Pakistanis spend more of their income on food than any other country. An average Pakistani spends 47.7 percent of their house hold budget on food consumed at home.

On the other hand, people in United States spent the least on food, even less than Europeans and Canadians. An average American citizen spends only 6.6 percent of their house hold budget on food at home.

In Pakistan, where average consumer expenditures per person, which comprises of personal expenditures on goods and services, are $871 people spend $415 on food at home. In comparison, Americans spend nearly $2,273 on food. It is necessary to note that while US citizens spent a smaller amount of their budget on food, the amount spent on food is almost five times of what an average Pakistani spends on food. The clear difference could possibly be explained since the per capita income of Pakistan stood at $1,299 in 2012-13, while the per capita income of US was $53,143.

People in Singapore, United Kingdom and Canada spend less than 10 per cent of consumer expenditure on food. An average Singaporean spends almost 7.3 percent of their household income on food, while Britishers and Canadians beat almost 9.1 and 9.6 per cent of their house hold budget on food. An average Indian spends almost $220 every year on food at home, which translates into 25.2 percent of their total consumer expenditure every year.

The sales data of different items, like Honda selling motorbikes in leaves one astounded about the purchasing capacity of Pakistani households. The spending habits of the middle-class households are transforming fast as they aspire to go higher on the social strata and enter traditional bazaars, modern malls or switch to online shopping.

With the rising in GDP growth, many households are joining the millions enjoying unrestricted consumption. Inspired by the performance of multinational fast moving consumer goods companies (FMCGs), and electronics, food, clothing, cosmetics, drug and auto industry firms aspire to enter the Pakistani market.

This vigorous middle class, which is understood to be an innovator, is expected to expand by over 6 percent annually in the next few years. The companies’ active in Pakistan will need to build adjustability into their systems to make quick adjustments to match the changing preference of consumers. It will also be necessary as more foreign companies enter the domestic market, escalating competition.

Besides closely observing the market for changes, the old players will have to monitor the actions of their current and future potential competitors that will drive companies to offer better value for the money spent. This dynamic middle class, which is understood to be an initiator, is expected to expand by over 6 percent annually in the next few years.

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