PAKISTAN FOODS

Pakistan Foods is a startup company indulged in the confectionary and bakery businesses and
also having 12 retail outlets in the posh areas of Lahore. It was started by Ahmed and Imran
who previously used to work together at Gourmet Pakistan. Ahmed was the CEO while
Imran was designated as CFO. To start up a company like this was not very easy. Both
Ahmed and Imran brought in their own equity of Rs. 5 million each which helped Pakistan
Food to secure a further debt financing of Rs. 25 million from Faysal Bank Limited. Pakistan
Foods has a total of 120 employees out of which 25 were working in various managerial
positions as administrative and functional managers, while the remaining is non-managerial
staff included over the counter sales force, support staff and production workers etc. It has
three manufacturing units responsible for providing end products to the retail outlets. These
include the Kot-Lakpat Unit, responsible for all bakery items like, pizza’s, patties, breads,
buns etc. The Sunder Unit, responsible for production of all dairy products including ice
cream, milk and yogurt etc, and the Green Town unit that is responsible for producing all
sweet and confectionery items like pastries, cakes etc. Fresh Raw material like fruits, dairy
items, chicken and meat etc. are brought in every morning at around 4 a. m. by the fleet of 25
delivery vans which are owned both by the company and its suppliers, to provide fresh
ingredients to the three production units of Pakistan Foods. Some items are brought from the
vegetable and fruit market in the wee hours of the day, while others are supplied from
renowned whole sale suppliers like Metro, CSD canteens etc. Before any item can be sent to
the inventory room, they are inspected and checked by the quality assurance staff and all
defected items are returned on the spot. Using an intelligent delivery tracking system,
deliveries of raw materials are made twice in one day i.e. at 4 a.m. and at 4 p.m.

Given the external environment dynamism, the company has created a strategic plan for the
next 3 years, where its main strategy is first to sustain their business and then by the third
year, to grow by expanding in other cities of Pakistan. Pakistan is currently facing a very high
inflation ration touching almost 17%. With very few barriers to entry, many confectionary
bakeries and restaurants are opening up in the vicinity of Lahore and adding fuel to fire, there
are 100’s of existing competitors like Gourmet foods, International Bakery, Kitchen Cuisine
etc. exerting high competitive pressures on businesses and the price rages offered for their
products is fluctuating constantly by the day. One reason for such fluctuations are the
increasing or decreasing fuel prices currently and the commodity prices of raw materials like
oil, sugar, wheat etc. The good news is that Pakistan foods is advances in the area of
technology it possesses. Furthermore confectionary items do not require a very high tech state
of the art technology for its production and processes.

Some analysts expect that the growth potential of this industry is somewhere in the range of
over 15% p.a. and if companies strategize correctly, they can expect to have an average of
200-250% profit potential but for this they would have to take extreme measures to manage
their operational productivity and overall capacity utilization effectively. Based on a recent
survey conducted by Gallup Pakistan, the confectionery industry is only operating at 50%
capacity. One of the main reasons for this is that there are very few entry barriers for new
potential entrants and therefore new entrants are constantly entering in the industry as need
for technology and branding is not a very significant issue for industry players.

Pakistan Foods believes that good marketing can be the key for success; therefore Pakistan
Food is indulged in aggressive marketing. For Example it delivers flyers and pamphlets to
houses near its locality and advertises on the local cable channel as well. Pakistan Foods
believes in aggressive advertising especially on social media and therefore has hired a
company under the name of Ad Vision specifically to make its presence felt in social media.
A fully functional HR department oversees all recruiting, selection, compensation, benefits
and training of its works force. There is a formal induction process for all managerial
positions; a proper pay roll system using ERP Module of HR is in place which calculates all
salaries, incentives and compensations. As far as purchasing is concerned, production
machinery used for the operations was imported from China and Italy. All customized
packing materials are ordered from Package’s Limited and supplies like flour, sugar, creams,
coco etc. are purchased from a wide range of suppliers and wholesalers like Metro. Some dry
raw materials are purchased in bulk and stored at the factory warehouses, while other
materials are procured on daily bases given the fact of permissibility. Although the business
is not very high tech, but still it uses the state of the art mixing and cooking ovens along with
dough making machines which they imported recently. The entire chain of retail outlets have
latest Point of Sales computerized billing systems, and are linked though the WAN internet
so that management can track sales of each store. High speed internet connections are
provided at the retail outlets and at the factory floors, all connected with computers and ERP
that link the POS terminals and the machines working in the production area to give updated
real time information on production runs, costing, inventory etc.

Most of the sales are conducted over the counter, when customer walks into the bakeries of
Pakistan Foods. Each customer is assisted in their purchasing by a sales person till the time of
billing at the Point of Sales (POS) terminals, where the items are scanned for payments.
Customer service at Pakistan Foods is of prime importanance. The company believes in the
fact that the “customer is always right” and if any customer comes with any complain
regarding the products, the company policy is to immediately replace the items with “no
questions asked”. To keep its business progressive, the company currently undergoes both
product R&D, by adding new product lines and extensions, and process R&D which helps
them to identify new ways of producing efficient bakery and dairy products at lower costs.
The production process is semi-automated, where most of the items are made by workers
putting the right amounts of ingredients into the machines and ovens to make products like
bread, buns, cakes, pizzas etc. These are then manually packed in customized packaging and
loaded on delivery trays which are then checked for quality under quality inspection where
items are randomly selected and tested for quality, hygiene, freshness and weight. Once
passed items are sent to the shipping department. Production runs start at around 6 p.m. for
the next day, and by 4 a.m. all freshly cooked items are sent to the shipping department,
where they are loaded on the company owned refrigerated delivery vans to take the freshly
cooked products to the 12 retail outlets well in time before the early customers start to walk
in. The company uses a hub and spoke method of delivery covering all the retail outlets.

As the company is breaking out of its infancy stage, it has to invest a lot in marketing
advertising and machinery therefore its Return on investment is only 2% right now, where as
its current assets to current liability ratio is 0.45. Most of its cash flows are tied in purchasing
stock and hence the company finds many problems in terms of on time payments to suppliers
and salary and wages given to employees. The only assuring factors for Pakistan Foods is its
high inventory turnover ratio, which is a breath of fresh air for the company.

A key breakthrough for the company was its successful promotional campaign, that
competitors are trying to imitate. This promotion offered at Pakistan Foods is in the shape of
a very robust customer’s loyalty program. Each new customer is offered to get a loyalty card
made when they shop for the first time at Pakistan Food. Every sales gives the customers a
certain amount of points e.g. If they shop for Rs. 1000 they get 10 points. Once the customers
have accumulated enough points, these can be redeemed at any outlet though cash back
incentive which can be used to pay for the purchase of the items at the store.

Given this situation, Pakistan Foods maintains strict checks on product quality with
inspections being conducted at various stages and adherence to freshness of products. All this
results in good quality products, but considering the market, there are other competitors
providing equivalently good and in some cases better quality products to the market.
Currently Pakistan Food has estimated to have captured a good 09% market share of Lahore,
aggressively going after big giants like Gourmet who have a current market share of 21%. As
Lahore’s are food lovers, they keep on switching brands and keep trying out new offers
provided by various competitors. Given all this, Pakistan Foods due to its given nature of
backward and forward integration has good control over its own supplies and acts as its own
distributor through its fleet of vans, and its own outlets and its three production units.
Although the company has its 3 production plants and retail outlets, it has high manufacturing
capacity but given the nature of perishability and product freshness, the plants only operate at
60-65% utilization. To this end the management of Pakistan Foods says that given the
potential of future growth in the market due to expansion of the city of Lahore and high
population growth rates, plus people shifting from other cities like Karachi, Peshawar
because of security reasons, the current underutilized capacity of production plants will come
in handy for future growth.