S.KAMAL HAYDER KAZMI,
Research Analyst, PAGE
Dec 6 - 12, 2010
The retail sector is characterised by intense pressure of competition, ever-changing portfolio of products, various customer requirements, and sustainability in a mass market.
These and many other features of the retail sector make it a tough battlefield. Another important feature of retail is that it creates job opportunities for thousands of different companies.
Retail sector has a complex and scattered structure. To manage hundreds of stores, which spread throughout the country, even thousands different stores on a world scale, and to create the same quality of service in each store is quite a tough job. The management of the value chain of retail side is the most challenging one.
Retailers who are working with hundreds of different suppliers and who have to manage these relations in dozens of different areas are required to perform a full integration. Creating a transparent structure between these retailer companies and suppliers, performing information sharing with each other effectively, and supporting each other's business processes are required.
The outlook for Pakistan's retail sector and its consumer has taken a major hit after devastating floods of August 2010. It is estimated that there are over 125,000 retail outlets all across Pakistan. Approximately 94 percent of these are miniscule corner shops and small retail outlets in cities and villages. Perhaps most critically, there is no nationwide chain of retail or even wholesale outlets.
This poses a significant challenge for most businesses looking to enter the food and agribusiness sector. Despite the fact that Pakistanis spend close to $36 billion a year on food and other retail shopping, businesses find it very difficult to reach the mass market of Pakistani consumers simply because it is not a single marketplace but tens of thousands of little shops.
Urban areas have markets that are more concentrated. Some 30,000 stores serve close to 55 per cent of the population. Yet even this market does not have a single chain of retail outlets that have its own integrated supply chain. This fragmentation of the market has a very real impact on the profitability of food and consumer goods producers. Furthermore, logistics is an exceedingly important cost component that eats into the margins of most producers of retail consumer items in Pakistan. Logistics costs constitute close to 19 percent of their revenues, which depress the profitability of a machine.
The high costs also mean that businesses that seek to invest in processed food and consumer goods manufacturing are dissuaded from doing so, despite the existence of a very large population, a significant portion of which has disposable income. Pakistan does have a large middle class. While it is not growing at the breakneck speeds as the Chinese or even the Indian middle class, it is a substantial market, one worth selling to for most food and consumer goods firms. Carrefour, the France-based chain that is the second largest retail chain in the world, has been operating a store in Lahore since 2007 and plans to set up at least 10 stores in Lahore, Karachi, Islamabad and Faisalabad in the coming five years.
Metro Cash & Carry announced its operations in Pakistan in 2006. Metro is now successfully operating five wholesale centres, two in Lahore, one in Karachi, one in Faisalabad, and one in Islamabad. Metro plans to invest in Pakistan on a sustained and reliable basis in the years to come.
Makro-Habib demonstrated a commitment to grow in Pakistan by entering the wholesale sector and with plans to invest around USD300 million in the next four years. Makro plans to open eight stores in Pakistan by 2011. ARY has also launched supermarket in the country.
The commodities prices of which increased during October 2010 over September 2010 are: eggs (13.2 percent), honey (10.3 percent), pulse moong (8.5 percent), vegetables (5.8 percent), gram whole (4.9 percent), gur (4 percent), vegetable ghee (3.9 percent), mustard oil (3.8 percent), cooking oil (3.4 percent), dry fruit (3.3 percent), readymade food (3.1 percent), wheat flour (3 percent), pulse gram (2.67 percent), fish (2.46 percent), besan (1.9 percent), rice (1.8 percent), cereals (1.5 percent), maida (1.2 percent), sweetmeat & nimco (1.1 percent), silk, linen, woolen/cloth (1.6 percent), woolen readymade garments (1.5 percent), readymade garments (1.1 percent), hosiery (1.1 percent), kerosene (6.7 percent), plastic products (1.7 percent), furnishing (1.5 percent), sewing machine, and clock & needles (1.3 percent), furniture readymade (1.1 percent). However, the main commodities which showed a decrease in their prices during the same period were: onions (29.9 percent), tomatoes (18.58 percent), chicken farm (10.97 percent), potatoes (10.6 percent), fresh fruits (4.2 percent) and sugar (1.1 percent).
Retail is a dynamic, complex and a competitive sector embracing an array of sub-sectors across a wide range of retail channels. It is frequently challenged by affluent and discerning consumers who expect choice, value, and high ethical standards from those they are buying products. Technological, cultural, and economic factors are key drivers in the retail sector and which generate new and exciting opportunities. In Pakistan, there is a vast assortment of job opportunities available within the retail sector. The challenge for the government is to protect the vulnerable groups of the society by stabilising prices of essential items.