Retailing in Pakistan

Historical Perspective on Retailing (Khan, 2006)

The evolution of retailing took place in various phases; historically buyers and seller used to meet at the
market place to buy and sell goods. The goods were later sold in huts and then came the concept of shops.
The factors that could be attributed to the gradual change in the retailing scenario could be explained with
the help of the following diagram:

FACTORS OF CHANGE IN THE RETAILING ENVIRONMENT OF

PAKISTAN

 Education:
o Enhanced education, knowledge and experience
o Education brought a change in standard of living.
o Education helped in increasing the number of products and
services
 Disposable income
 Consumer Lifestyle
 Increase in Consumer Goods
o Increase in consumer goods required more and more number of
retailers and better marketing
 Government Rules
o Vocational training required for medical store owners
 Changes in technology
 Changes in housing
 Urbanization

Diagram developed based on the report written by Prof. Dr. Mateen A. Khan titled “Retailing in its
broader dimensions” published in the Marketing Review, 2006 issue.

And, Consolidation in Pakistan’s Retail Sector by Jawaid Abdul Ghani published in Asian Journal of
Management Cases.

Retailing in Pakistan

Retailing is a very important contributor to the economy of a country. Here are some facts about the
Pakistani retail environment:

 The Pakistani retail market, currently estimated at $42 billion and rapidly growing, is viewed as
an attractive opportunity for foreign investors. (2011 estimates)1

1
The Express Tribune, December 2011.
  There are around 2.4 million retail outlets in Pakistan (The info Shop). These are all types of
retail outlets such as eateries, salons, banks etc; the total retailing universe for the FMCG sector is
600,000 outlets (Mirza).
 Retailing employs 4.43 million people, which is 11% of total employment according to the 2003
figures (The info shop.com).
Retail Consolidation:

Trade in Pakistan could be divided into:

a. Traditional trade such as Kiryana stores, neighbourhood stores, Jodia Bazaar etc. The traditional
segment is largest in terms of trade. According Mr. Shariq Iqbal, Sales Manager at Colgate
Palmolive, approximately 80% sales comes from this segment.

b. Local Modern trade such as Agha’s, Naheed, Imtiaz, Best way, HKB, EBCO etc

c. International Modern Trade (IMT) such as Metro & Carrefour (Hyper star).

IMT is gradually changing the retailing landscape of Pakistan and has a significant impact on the local
retailers and end consumers. IMT is skewed towards the urban areas (currently operating in 4-5 major
cities with expansion plan of maximum 8 cities). As far as the impact on the urban shoppers is concerned,
it is there but not to a great degree. Even in the urban areas, people from all SECs cannot access IMTs
because of the purchasing power (usually grocery is done on daily basis and shoppers even get credit
from the mohallah outlets) and also because of the transportation problems. As far as the impact on the
retailers is concerned, it has definitely impacted the retailers in the adjoining areas of IMT but not really
otherwise, for reasons mentioned earlier.

FMCGs are happier with the traditional trade because the IMTs are more demanding in terms of slotting
fees and other merchandising requirements as compared to the traditional trade. However, with the
passage of time IMTs will evolve (50% Traditional-50% IMT) as in the case of Thailand and other Far
East Asian countries. Overall the IMTs have contributed towards higher purchase because of the
following reasons:

 Offering various deals

 Offering options of bulk buying

 Upsizing (Metro shopping cannot be worth less than Rs. 2000)

 Accessibility (Metro Saddar, Star Gate, SITE)

 Convenience

 People end up buying more because of the ambience and other environmental factors.
Let us have a look at the international chains operating in Pakistan:

a. Metro:

METRO Cash & Carry announced its operations in Pakistan in January 2006. Since then, it has
established itself as a potential market leader in wholesale. METRO Cash & Carry Pakistan opened its
first store in the city of Lahore in October 2007 (metro). The customers of Metro include:

 Traders
 HORECA
 Companies and Institutions

However, it does cater to the end shoppers as well if they meet certain conditions.

Retailers/End shoppers prefer going to Metro due to the huge assortment of goods under one roof (from
stationary to food items to electronic goods) and also because of the good deals such as buy one pack of
detergent and get toothpaste free. Initially, retailers greatly preferred going to Metro because the rates at
Metro were cheaper as compared to what the companies were providing them through their delivery vans.
The difference in rates provided by the company and Metro had caused some of the retailers to only make
their purchases from Metro. This issue was hurting company sales as some retailers were neither buying
from the company vans nor from Metro. Companies had to resolve this issue by bridging the gap (to a
great extent) between Metro prices and the company van prices.

b. Hyper Star (Carrefour):

Hyper star in Lahore, Pakistan and internationally well known as Carrefour is a hyper market which was
opened in Pakistan by the Majjid Al-Futtaim Group. MAF is planning to open as many as 10 Carrefour
stores in the next five years in the major cities of Pakistan (Carrefour).
Challenges Faced by the Retailers

An overview of some of the challenges faced by the retailers can be understood by the diagram given
below:

Exchange Relationship-Retailer and External Forces: Challenges

Retailers Government

Manufacturers

Shoppers

Diagram Developed based on the article taken from WARC Titled “un squeezing the squeeze”

Now let us discuss in detail the challenges faced by the retailers:

a) Smart Shoppers:

Marketing has become rather sophisticated and the true essence of marketing lies in understanding the
consumers and gaining the insight. Where do the consumers buy their goods from, why do they buy, how
do they buy and what are the underlying motivations.

Rising inflation has given rise to the era of frugality. The price conscious consumers are trading
downwards and looking for more deals. This is one set of shoppers, there is another set seeking more
emotional engagement and the time conscious set seeking for online and home delivery solutions. The
retailers have to deal with a wide array of shoppers and they need to prepare themselves in order to
remain profitable in the competitive environment. A great example of this is Imtiaz home delivery and its
launch of outlets at three different locations of Karachi.

Fair trade and ethical sourcing movements are also heralding a reawakening of consumers' consciousness
of the system that supplies them (Jary). Retailers in Pakistan need to watch out for such movements in
Pakistan.

The retailers can also greatly influence the shoppers to buy more. Simple understanding of certain
consumer behavior principles could lead to massive impact on the sales. Principles of color, music,
layout, size of trolley, display can actually make a huge dent on the shoppers’ wallet.
 b) Retailing Research

i) For the Retailers (Akhtar, 2009)

Research can help the retailers to answer the following questions and better equip them in dealing
with the competition.

 Who are my core shoppers? How should I define them?

 Who are my loyal shoppers? What can I find out about their loyalty?
 Are my core shoppers also my loyal shoppers?
 Are my core and/or loyal shoppers buying my core/key categories?
 How can I increase my number of core shoppers?
 How can I increase the loyalty of my core shoppers meaning they visit my stores more and
purchase more?
 What % of category buyers are shopping in my chain/stores.
 In general how can I increase my buyer conversion of categories meaning % of category shoppers
who shops in my stores also buy the category in my stores?
 Which categories drive retailer growth?

Source: The retail Shake up in Asia by Laurent Zeller, Taylor Nelson Sofres and Helen Passingham-Hughes

Through research, the retailers should be able to identify average time spent by shoppers on each
category, which indicates how much he/she buys. This will help them to resolve problems of less selling
categories (Underhill, 2009). Other important aspects of store layout such as what categories should be
placed at the front or what categories should be located at the right side of the store could also be taken
care of with the help of research; retail observations show that it is the general tendency of people to drift
towards the right when they enter the store (Underhill, 2009). Overall, observing these trends can help the
retailers overcome some of the major retail sales issues. The question is how many Pakistani retailers
have adopted these strategies?

An important issue in retailing research is the lack of availability of current data. According to Mr.
Humayun Akhtar, a senior research analyst at Atlas Bank (Retailing Seminar, IBA):

“Nielsen conducts retail census survey every 3-4 years in Pakistan. Based on this census, retail outlets
(general store, Kiryana store etc.) are classified and categorized in different channels. This census also
helps in determining each channel’s contribution to the retail trade. Based on the findings of retail census
survey, Nielsen Pakistan draws a representative sample of retail stores for their retail audit service. In
Pakistan, Stores are sampled based on 1998 population census using stratified random sampling method.
Nielsen field force visit these sample stores on a periodic basis to collect product movement data through
paper and pen method and then the volume (rupees, units etc.) collected from the sample retail stores is
projected on a national level and reported to the client on a periodic basis”.

“Another important issue in retail audit in Pakistan is the “coverage of the retail universe” i.e. Nielsen
sample and its projection of retail sales accounts for less than 70% of manufacturers shipment to
wholesalers and retailers on a national level. This issue is only for some categories and not for all of
them. In case of coverage issues and in order to validate the relevancy of the drawn sample and projection
accuracies, Nielsen Pakistan conducts mini retail census for select geographic locations on an annual
basis.”

ii) For the Manufacturers:

Manufacturers need to conduct in-store research in order to identify how people are purchasing brands,
how many people actually looked at their brand or looked at it long enough to read what it says
(Underhill, 2009). Also, research should help them identify which retailers drive total market growth,
what kind of shoppers are buying at which retail outlet and where the retail opportunities for their brand
are.

c) Retailing and experientialism:

Retailers have a challenging role to play in today’s environment. They are not only supposed to sell goods
but also provide the right kind of environment to the shoppers. This is sometimes necessary for certain
product categories however, in other cases it becomes a method of differentiation. Take the example of
bookstores which are not just selling books but also feature on coffee shops and lounge chairs (Mulhern).

d) Role of the government:

Like the other sectors of our economy, retailing also does not receive a lot of government support in terms
of infrastructure, finance and security. There are more than five thousand utility store departments in
Pakistan and due to poor management, operational inefficiencies and corruption, their “utility” remains
restricted.
On the other hand retailers pose a lot of challenges to the government as well, primarily because of their
unorganized and informal method of doing business. In order to evade taxes, the retailers are reluctant to
adopt new technology and work on the “purchi system basis”. This leads to the inability of the
government to track the exact volume/amount of sale that takes place each year.

e) The Ever Demanding Manufacturer:

The plethora of SKUs and variants of the same brand and the ever increasing demand of the
manufacturers for frontal displays certainly makes the life of the retailers difficult. Each manufacturer
wants to have the best location for his brands in the retailing environment. Having said this, retailers are
also benefitting from this situation because they are gaining additional discounts, slotting fees etc; so the
greater the bargaining power of these retailers the more they’ll benefit from this perplexed situation.
References:

(n.d.). Retrieved 2007, from The info shop.com.

(H. Akhtar, Performer) APWA Auditorium, Karachi.

Jary, M. (n.d.). what to watch for in retailing. Retrieved april 2010, from warc

Khan, P. D. (2006). Retailing in its broader dimensions. marketing review.

Makro. (n.d.). Retrieved May 13, 2010, from http://www.makropakistan.com.pk/news.htm

metro. (n.d.). Retrieved may 13, 2010, from http://www.metro.pk/servlet/PB/menu/1005221/index.html

Mirza, M. A. (Performer). (n.d.). Retaling and distribution seminar. APWA Auditorium, Karachi.

Mulhern, F. J. (n.d.). Marketing at retail and marketing management today.

Underhill, P. (2009). Why we buy.