API Term Report Group 7 Sugar Confectionery Industry PDF

SUGAR
CONFECTIONERY
INDUSTRY
OF PAKISTAN
GROUP NUMBER: 7
GROUP MEMBERS:
1. Sanya Baig (19299)
2. Shaharyar Haris (19231)
3. Sheena Nasrullah (18773)
4. Rida Fatima (19343)
5. Sameer M. Saleem (19288)
Submitted On: 2nd May 2021
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API TERM REPORT
TABLE OF CONTENTS
Abstract.................................................................................................................................................................. 5
Acknowledgement ................................................................................................................................................. 6
Executive Summary................................................................................................................................................ 7
Introduction ........................................................................................................................................................... 8
Overview.................................................................................................................................................. 8
Economic History of Pakistan .................................................................................................................. 8
Branded Versus Unbranded Sugar Confectionery Industry ................................................................... 10
International versus National Comparison ............................................................................................ 10
Contribution of Confectionery Industry to Pakistan .............................................................................. 11
Product Analysis .................................................................................................................................... 11
Product Categories and Market Leaders ............................................................................................... 11
Market Analysis & Major Players/Brands .............................................................................................. 12
Market Drivers ....................................................................................................................................... 12
Young Population .................................................................................................................... 12
Sweet Toothed Nation ............................................................................................................ 13
Festive Consumption ............................................................................................................... 13
Widespread Retail Sector ........................................................................................................ 13
Key Trends ............................................................................................................................................. 13
Healthy Lifestyle ...................................................................................................................... 13
Love Mark Brands .................................................................................................................... 13
Environment Friendly Lifestyle ................................................................................................ 13

Porter’s Diamond Model ..................................................................................................................................... 14
Factor Conditions................................................................................................................................... 14
Firm Strategy, Structure and Rivalry ...................................................................................................... 15
Demand Conditions ............................................................................................................................... 15
Related and Supporting Industries ........................................................................................................ 16
Government Intervention...................................................................................................................... 16
Chance ................................................................................................................................................... 17
Analysis of Pakistan’s sugar Confectionery Industry based on Porter’s Diamond Model ................................... 18
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Factor Conditions................................................................................................................................... 18
Workforce ............................................................................................................................... 18
Raw Materials.......................................................................................................................... 18
Packaging................................................................................................................................. 19
Machinery ............................................................................................................................... 20
Firm Strategy, Structure and Rivalry ...................................................................................................... 21
Structure.................................................................................................................................. 21
Strategy ................................................................................................................................... 21
Rivalry ...................................................................................................................................... 22
Demand Conditions ............................................................................................................................... 23
Specifics about Local and International Demand .................................................................... 23
Order-Based Operations ......................................................................................................... 24
Price Elastic Market ................................................................................................................. 24
Seasonal and Traditional Demand........................................................................................... 25
Correlation between Local Demand and Foreign Demand ..................................................... 25
Related and Supporting Industries ........................................................................................................ 26
Sugar Industry ......................................................................................................................... 26
Retail Industry ......................................................................................................................... 26
Transport Industry ................................................................................................................... 27
Packaging Industry .................................................................................................................. 27
Government Policies.............................................................................................................................. 27
HSE Policies and PSQCA........................................................................................................... 27
Sindh Food Authority .............................................................................................................. 28
Key Issues .............................................................................................................................................. 31
Barriers to Entry and Fixed Price Point .................................................................................... 31
Presence of Replicas in the Market ......................................................................................... 32
Smuggled Iranian Confectionery ............................................................................................. 33
Fluctuation in Exchange Rate, Oil Prices and Raw Materials................................................... 34

Recommendations ............................................................................................................................................... 37
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Creating Awareness About Replicas ...................................................................................................... 37
Strengthening Supply Chain and Presence of Local Confectionery Products ........................................ 38
Tapping into the Market of SEC A.......................................................................................................... 38
Increasing Collaboration with the Supporting Industries ...................................................................... 39

Conclusion............................................................................................................................................................ 41
Bibliography ......................................................................................................................................................... 42
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ABSTRACT
This report analyzes the existing Sugar Confectionery Industry of Pakistan and its competitiveness based on
David Porter’s Diamond Model. Our main aim was to understand the definition of competitiveness that thrives
in this industry and whether it was actually a product of research, innovation and training of the labor force and
not due to increasing exports caused by depreciating Rupee or abundance of cheap labor force. Our focal point
was the structured sector of the local confectionery industry which comprises of the three giants: Candyland by
Ismail Industries, Hilal Foods, Giggly by Volka Foods and six other players. We have also highlighted some issues
that were faced by our confectionery industry and provided realistic recommendations to the respective firms
and authorities which would assist this industry in achieving long-term sustainable competitiveness.
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ACKNOWLEDGEMENT
The completion of this term report would not have been possible without the assistance and guidance of our
able instructor, Dr. Khadija Bari who provided us with this golden opportunity to step out in the corporate world
and learn beyond the walls of the classroom. Due to her valuable guidance and constant motivation, we were
able to progress smoothly without facing any major hurdles.
Secondly, we would also like to express our gratitude to Nida Vohra, Teaching Assistant of Analysis of Pakistani
Industries, for being extremely approachable and answering our multitude queries which ensured that our
concepts remained crystal clear throughout the course of the semester.
Thirdly, since the Confectionery Industry of Pakistan remains highly undocumented, not many reports and
research articles have been published regarding it. Therefore, majority of the insights that we obtained were
from primary sources. We would like to thank Mr. Shoaib, Production Officer at Candyland for providing us with
valuable insight on our research trip to Candyland’s factory located at Hub Industrial and Trading Estate,
Balochistan. We would also like to thank Mr. Zahid Abbasi, Production Officer at Hilal Foods for providing us
with latest updates in the confectionery industry on our research trip to Hilal’s factory located at Korangi
Industrial Area, Karachi. We would also like to express our sincerest gratitude to Mr. Rohan Soobani, Assistant
Business Development Manager, Ismail Industries for taking out time from his busy schedule and giving us a
detailed interview.
Lastly, we would also like to thank all the wholesalers and shopkeepers at Jodia Bazar, Karachi for providing us
with information regarding the unstructured sector of our local confectionery industry.
Regards,
API Research Group 7
Members: Sanya Baig, Shaharyar Haris, Sheena Nasrullah, Rida Fatima, Sameer M. Saleem
Date: 2nd May 2021
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EXECUTIVE SUMMARY
The Sugar Confectionery Industry mainly operates in Pakistan while being divided into two sectors: branded and
unbranded. Regardless, the overall contribution of the Confectionery Industry to the annual revenue of Pakistan
is $0.44 billion. The trend of growth is at a positive 9% which is significantly higher than the global trend of 4.9%.
The market leader within Pakistan is Candyland (Ismail Industries) for jellies, lollipops and marshmallows closely
followed by Hilal and Giggly (Volka Foods) in these categories along with leading in the category of chewing gum.
Overall, Candyland controls about 49% of the share in the market. The market is driven by a young population
and a nation which prefers sweet products and consumption increases significantly during festivals alongside a
widespread retail sector. The key trends that have been observed includes an inclination towards a healthier
and more environmentally friendly lifestyle while maintaining loyalty to love mark brands like Ding Dong by Hilal.
The factor conditions which play a vital role in the operational aspect of the Confectionery Industry of Pakistan
are the workforce, raw materials, machinery, and the packaging which is used for the product. The main strategy
which is used by the nine major players in this industry is to keep their product’s price competitive and operate
on minor profit margins to gain a large amount of market share. Research and development also play a
significant role where both, new as well as existing products are worked upon according to their feasibility. The
main rivals of the locally manufactured products are the smuggled confectioneries from Iran, forged products
and other imported confectioneries which mainly targets socioeconomic class A (SEC A). The conditions which
influence the demand within the market are the presence of price elastic market and varying demands according
to seasons and traditions. The confectionery industry functions on an order-based operation due to fluctuating
demands all around the year. The main industries which are related to the confectionery industry are sugar,
retail, transportation, and the packaging industry. The government ensures the adherence of these firms to HSE
(Health, Safety and Environment) through different regulatory bodies like Pakistan Standard Quality Control
Authority and Sindh Food Authority.
The key issues which plague the industry are the presence of high barriers to entry and a fixed price point
alongside replicas in the market which harms the reputation of confectionery firms. Moreover, smuggled Iranian
confectionery and the frequent fluctuations in the exchange rate and prices of oil and raw materials also creates
hinderance. We recommend the confectionery firms to work on creating awareness about replicas to capture
the massive portion of socioeconomic class C (SEC C) which they are currently missing to deal with the increasing
smuggled confectioneries from Iran, the company should strengthen their supply chain and work on increasing
their local brand presence so that they can gain increased sales in Balochistan in Sindh where smuggled
confectioneries are widespread. A new market for SEC A can also be tapped in by manufacturing export quality
premium products which would appeal to buyers of luxury chocolate. The confectionery industry can also
collaborate with local supporting and relating industries and focus on ‘cluster development’ to reduce reliance
on imported raw materials which are getting expensive due to depreciation of Rupee. These recommendations
would enable the local confectionery industry to prosper and grow at a steady and smooth rate.
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INTRODUCTION
OVERVIEW
Pakistan is considered as a nation of ‘sweet toothed’ people as our per capita sugar consumption is
approximately 25.7 kg which is higher than the world average (Warraich, 2019). Moreover, children, aged
between 5 to 16 years, accounts for 46% of our total population which significantly raises the local demand for
confectionaries (Confectionery Industry in Pakistan, 2006). As a result, Pakistan’s Bakery and Confectionery
Industry has grown at an average annual rate of approximately 9% in the last decade (International Finance
Corporation, 2011).
Our local Confectionery Industry can be divided into two broad segments: baker’s confectionery and sugar
confectionery. Baker’s confectionery also known as flour confectionaries comprises of bakeries and sweet shops
like Asr-e-Shireen which sells different traditional sweets, pastries, and other baked items whereas sugar
confectionery comprises of chewing gums, jellies, biscuits, chocolates, candies, and toffees produced by large
companies like Hilal Foods and Ismail Industries. Baker’s confectionery is an unstructured sector which lacks
documentation (Zia, Ajaz, Tauseef, Tarique, & Munir, 2014). Due to this, variables like market value, contribution
to GDP and major players are difficult to measure and identify accurately. Therefore, the purpose of this report
is to analyze the branded Sugar Confectionery Industry thriving in Pakistan.
ECONOMIC HISTORY OF PAKISTAN

Pakistan came into existence on 14th August 1947 with around 10 million migrants moving to the new land which
used to play the role of breadbasket for the undivided subcontinent. After independence, the country had
approximately 335 industrial units with majority functioning in West Pakistan. The initial years revolved around
tackling problems of security and refugee settlement along with water issue and unfair division of assets
between the two countries. Pakistan’s initial years were supported by trading with India until 1949 when Pounds
sterling devalued and Pakistan, unlike other nations, decided not to devalue its currency. Although, this policy
caused hinderance to trade with India, but Pakistan wanted to send out a staunch message to the world of
having a separate economy from India. The 1950 Korean War helped Pakistan explore new markets and sell its
over-priced commodity products to developed countries, which started stockpiling in fear of a possible outburst
of World War. This led to high influx of money into the country and therefore Pakistan witnessed high growth
rates. Our over-priced currency incentivized the merchants to invest in the industrial sector, kick-starting the
industrialization process.
Ayub Khan came to power in 1958, resulting in Pakistan’s first martial law. In the 1960s, Pakistan witnessed high
GNP growth of 15% which was three times higher than India. The industrial sector witnessed expansion in heavy
machines, cement, and automobile industry (Ahmed, 2015). Ayub Khan introduced ‘Green Revolution’ in the
country with the purpose to boost up the agricultural sector. He introduced the Export Bonus Scheme to
encourage industrialists to produce value-added goods. Although the economy was booming but the unfair
accumulation of wealth within twenty-two big families, controlling around 75-80% of banking sector, created a
big gap between the upper and middle classes of the population (Ahmed, 2015). The economic progress during
his regime was also a result of high foreign aid which contributed to 40% development in his era including the
construction of two dams (Mangla and Tarbela), seven canals and multiple infrastructure projects.
East Pakistan played the most crucial role in the industrial development of Pakistan. Around 52% of the total
population resided in East Pakistan and their agricultural support, in the form of Jute contributed significantly
to the GDP of Pakistan. Although the East wing was contributing the most, it was receiving the least attention
from the government due to lack of investment in this wing. During Ayub Khan’s regime, an average Pakistani
from the West wing had thirty times more wealth than the resident of the East wing. This clearly indicated the
misallocation of resources between the two wings. The unfair division of wealth along with political and
geographical reasons resulted in the separation of East Pakistan in 1971.
After partition in 1971, Zulfiqar Ali Bhutto came into power after capturing the public sentiments of social
inequality. His era witnessed drastic fall in foreign funding and along with 131% devaluation in currency leading
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to 100% rise in procurement prices of raw materials. He brought stringent labor laws alongside the policy of
nationalization. His policies seemed in favor of the lower class of country, but the aggressive implementation of
these policies resulted in more harm than good. The efficiency of industrial sector decreased due to less private
stake holding and as a result, industrialization reached a stand-still. Inflation in his era increased and reached
30%.
Zulfiqar Ali Bhutto’s democratic rule was taken over by military rule of Zia-ul-Haq in 1977. He promised adopting
pro-industrialization and privatization policies which were not adopted fully but he was successful in reviving
the confidence of the industrialists in the government. His era witnessed influx of money in the country due to
USA-Russia proxy war. His era ended in 1988 and Benazir Bhutto became the first elected female prime minister
of the country. In 1990s and 2000s Pakistan experienced decline in remittances and rise in external deficits
(Anjum & Sgro, 2017). Unemployment rate reached 7.2% in 2000 (Anjum & Sgro, 2017). From 2000 to 2010
Pakistan experienced high inflation rates and energy crisis.
In the most recent general elections of 2018, Pakistan Tehreek-e-Insaf (PTI) came into power and took over the
‘economy on ventilator’ as described by ex-finance minister, Asad Umar (Dunya News, 2018). The country had
a fiscal deficit of 6.8% and current account deficit of 5.7%. Pakistan had an exceptionally low saving rate, of
around 10.99% (as % of GNI), (The World Bank, n.d.) when compared to other Asian counties. Our non-
development expenditure was 16.9% of GDP which was primarily included debt servicing and salaries of
government officials. PTI’s government tightened the fiscal policy and imposed high sales tax on commodity
products. PTI also adopted a policy of import compression by putting heavy duties on imported goods to correct
the balance of payment. The measures taken by the PTI government although saved the economy from
drowning but crushed the middle and lower socioeconomic classes of the country.
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BRANDED VERSUS UNBRANDED SUGAR CONFECTIONERY INDUSTRY
The Sugar Confectionery Industry can be divided into the branded sector and the unbranded sector. The branded
sector includes famous brands like Ding Dong Bubble and Dairy Milk which are largely sold at Local Modern
Trade (LMT) and International Modern Trade (IMT). On the other hand, the unbranded sector of cottage
industries which produces soft candies, and, in some cases, forged products to sell them at ‘kiryana stores’ (local
shops). The branded sector of the Sugar Confectionery Industry has twenty-three units with a total capacity of
54,300 tonnes. However, the yearly production is estimated to be 32,580 tonnes resulting a production
efficiency of exactly 60%. On the other hand, the unbranded sector has as a production capacity of 12,000 tonnes
per year (Zia, Ajaz, Tauseef, Tarique, & Munir, 2014).
Figure 1: Breakdown of Total Production

Capacity of Confectionery Products (Branded)
Chocolates
8%
Bubble Gum
14%
Sweets
Toffees 56%
22%
INTERNATIONAL VERSUS NATIONAL COMPARISON

Confectionery Industry does not significantly contribute to the GDP of Pakistan as the total revenue is
approximately $0.44 billion which barely makes up 0.15% of our annual GDP and the per capita revenue is
approximately $2. Pakistan’s share, based on revenues, is 1.26% of the global confectionery market., The
average price per unit for confectionery items in Pakistan was recorded at ~$3.7 which is almost half of the
average price per unit globally. Overall, the Confectionery Industry has seen a positive growth trend which stands
at ~ 9% and appears higher than the global value of ~4.9%. This can be attributed to the fact that our local
consumption for sugar and sugar related products is higher than the average international consumption. The
domestic average per capita consumption for confectionery products in specific is 20.6 kg which seems to be
growing over the years as well. (Tauseef & Ain, Food Products, 2020)
Table 1: International vs National Comparison of the Confectionery Industry
Revenue (USD) ~35 billion (Global)
~0.44 billion (Pakistan)
Average Price per Unit (USD) ~6.8 (Global)
~3.7 (Pakistan)
Compound Annual Growth Rate (2020-2025) ~4.9% (Global)
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~9% (Pakistan
CONTRIBUTION OF CONFECTIONERY INDUSTRY TO PAKISTAN

1) The industry has been a valuable source of earning foreign exchange as the value of exports of
confectioneries from Pakistan is $63 million in 2020. The top five international markets for Pakistani
confectionaries are Afghanistan (imports worth $22 million), Oman (imports worth 5.57 million), Kenya
(imports worth $4.45 million), Nigeria (imports worth $4.12 million), and Yemen (imports worth $2.56
million). (UN Comtrade, 2021)
2) The Confectionery Industry contributes $ 0.44 billion to the yearly revenue of Pakistan.
3) Pakistan’s Confectionery Industry has a global market share of about 1.26%.
4) Our local market for confectioneries grew at a rate of 5.4% in the last five years due to rising local demand.
(Tauseef & Ain, Food Products, 2020)
5) 85% of the total sales in the local market are captured by Pakistani brands.
PRODUCT ANALYSIS
Confectionery Industry in Pakistan has various product lines. The sugar-based products are mainly segmented
into jellies, lollipops, bubble gums, toffees, chews, marshmallows, and chocolates. All these products are rich in
carbohydrates and sugar content. Chocolate has the most weight to be segmented into a separate industry, as
it can have larger pricing ranges and value addition. The rest of the product share in the confectionery market
can be divided as below:
Figure 2: Product Share-Confectionery Industry

(Business Recorder, 2006)
Jellies
11%
Candies
39%
Gums
33%
Toffees
17%
PRODUCT CATEGORIES AND MARKET LEADERS

• Jellies (Market Leader: Candyland, Competitor: Hilal)
• Lollipops (Market Leader: Candyland)
• Bubble gums (Market Leader: Hilal, Giggly)
• Marshmallow (Market Leader: Candyland)
• Toffees (Several producers)
• Coated Chews and Truffles (Market Leader: Candyland)
• Pure Chocolate (Market Leader: Cadbury)
• Combined Chocolates (Market Leader: Candyland, Cadbury)
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MARKET ANALYSIS & MAJOR PLAYERS/BRANDS
The market fragmentation is high in this sector and therefore one particular company or player cannot move
the industry into a specific direction. However, there are two main companies who have a bigger share of the
market than others, namely Hilal and Ismail Industries Ltd (Euromonitor International, 2020).
Figure 3: Company Shares
Ismail Industries Ltd.
6%
7% Hilal Confectionery (Pvt) Ltd
9%
49% Volka Foods International Ltd
10%
19% Asian Food Industries (Pvt)

Ltd
Mondelez Pakistan Ltd.
Others
• Candyland is the strategic branch of Ismail Industries (Pvt) Ltd. which was founded in 1988 and within 30
years of its existence has developed its position as a market leader in the confectionery sector. It exports to
more than thirty countries (Ismail Industries Limited, 2021). In the confectionery sector of Pakistan,
Candyland has launched the most innovative and creative products which created their own demand out of
the ‘blue ocean’. It is the producer of ‘Yums’ and ‘Puff Marshmallows’ which have little to no competition
from other local companies.
• Hilal Foods (Pvt) Ltd. is a family business established in 1957 (Hilal Foods, 2021). Hilal Food exports to twenty
different countries including America, Europe, and Middle East. Their product line has seven categories out
of which candies, chocolates and chewing gums are categorized under confectionery. Hilal has managed to
maintain its product recognition through maintaining consistent product quality as its core value, and by
allocating sufficient budget to research, and development. With its stable financial position, Hilal Foods is
able to adopt diversification strategies and experiment with innovations in the confectionery sector.
• Other players like Volka Foods International (Giggly), Asian Foods Industries (Mayfair), and Pearl
Confectionery also gives tough competition to these major market players as any slight fluctuation in their
prices can shift their volumes to these alternatives. Among them, Mondelez Pakistan’s Cadbury is a product
of the international market and comes under the corporation of Mondelez International. It was established
in 1824 and has a global credibility. Cadbury is the market leader when it comes to pure chocolate category
with its ‘Cadbury Dairy Milk’.
MARKET DRIVERS
YOUNG POPULATION
The first and foremost market driver for the Confectionery Industry in Pakistan is a rising young population.
Pakistan is known to be amongst the youngest country in the world with 64% of population under the age of 30
and 35% of the population is under 15. Such statistics along with the practice prevalent in the industry where
key players make use of effective marketing campaigns on mass media targeted at the young generation
supports the growth of the local Confectionery Industry (Kundi, 2018). The marketing campaigns of brands like
Cadbury cater to the entire young population as it is a common occurrence to see young adults in the TVCs of
Dairy Milk.
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SWEET TOOTHED NATION
Secondly, Pakistan has a very high refined sugar consumption i.e. 25.7 kg per capita compared to per capita
consumption of other countries of South Asia. India stands at 14 kg, China stands at 11 kg and Bangladesh stands
at 10kg per capita consumption, respectively (Chapra et al., 2010). Therefore, in general, Pakistanis have a sweet
tooth and the natives of this country indulge in excessive consumption of products made from sugar, which
includes candies, chocolates, jellies, flavored gum base, and mints. This fact also goes handy with the high
consumption patterns of tea prevalent in Pakistan (The News International, 2020).
FESTIVE CONSUMPTION
Thirdly, the high confectionery consumption also stems from the culture of the subcontinent where households
collectively indulge in consumption of traditional confectionaries on all kinds of events like weddings, national
holidays, and religious festivals. Even deal closings are followed by exchange of sweets. In such a culture, it is
obvious that the intake of value-added products of sugar will be colossal. Even brands like Cadbury indulge in
marketing during the festive season to stimulate sales.
WIDESPREAD RETAIL SECTOR

Lastly, the formulation and formalization of the retail sector in every corner of the country has increased the
access of packaged confectioneries to almost every household. Packaged confectionaries have a very long-
lasting shelf life which makes it easier to be transported all over the country, through disciplined distribution
networks. Moreover, even the low-income households can engage in the consumption of these confectioneries
because of the negligible prices associated with candies, jellies, and chewing gums. This ultimately has given the
industry massive growth over the decades.
KEY TRENDS
HEALTHY LIFESTYLE
There is also a growing customer affinity for lifestyle aspects which involve health and wellness. To cater to this,
companies are releasing chocolates which are dark, having zero/low fat and calories. Candyland released
unsweetened dark cooking chocolate to cater to such demands by the masses (Ismail Industries Limited, 2020).
Moreover, the companies are also inclined towards incorporating nutritious add-ins such as nuts or fruits to
their products to make them more appealing to the customers who are health conscious.
LOVE MARK BRANDS

Local customers are looking for innovation, especially the younger generation which already has a lower
attention span and prefers things which look unique and flashy. Hence other than some love mark brands such
as ‘Chili Mili’ by Candyland and ‘Khopra’ by Hilal, the companies constantly need to come up with novel ideas to
ensure that the consumers stay interested. Another aspect which acts as a key factor are the childhood
memories and indulges of the older generation. The demand for ‘Chocki’ (a famous confectionery launched in
the 1990s) by people aged 21-25 is significant (Tahir, 2019).
ENVIRONMENT FRIENDLY LIFESTYLE

The change of the perception of the customer base towards leading a more sustainable and environmentally
friendly life has pressurized many companies to mend their practices and focus on the environment. An example
being the HSE (Health, Safety and Environmental Impact) Policy implemented by Hilal which takes under scrutiny
the routine and non-routine activities that have environmental impacts and works upon improving them (Hilal
Foods, 2020). The preference of the customer to not harm the environment also pushes the companies to move
their strategies in a comparable way.
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PORTER’S DIAMOND MODEL
Michael Porter’s Diamond Model, which is also known as Theory of National Competitive Advantage of
Industries, is a framework which analyzes why certain industries in a country are competitive while others are
not (Porter’s Diamond Model: Why Some Nations Are Competitive And Others Are Not, 2018). The diamond-
shaped framework identifies the elements that helps industries in a country to gain sustainable competitive
advantage over its competitors in other countries. This model highlights the four basic inter-related
determinants that enables an industry to consistently innovate and therefore be the market leader:
Figure 4
Figure 4
FACTOR CONDITIONS
Factor conditions refers to the different type of resources such as human, capital, and natural resource that a
country may or may not own. Michael Porter argues that a stock of factor at one point in time is less important
than the rate at which they are upgraded. A large pool of unskilled labor force is a stock of factor but the rate at
which they are being trained to learn a particular skill is very important for an industry to attain competitiveness.
Furthermore, factor conditions can be divided into basic and advanced factor conditions. Basic factor conditions
include unskilled labor and natural resources whereas advanced factor conditions include a specialized degree,
skilled labor, and unique knowledge (Porter's Model, 2018) . According to the Porter’s Model, every industry
should strive to transform their basic or generalized factor conditions into advanced and specialized factor
conditions. It is a prerequisite to attain long-term competitiveness as basic factor conditions are not unique to a
particular country. The United States of America has a competitive advantage in software and technology
because institutes like Massachusetts Institute of Technology are able to produce highly skilled software
engineers. This is known as ‘factor creation’ and a strong point of Porter’s Model is that created factor conditions
are more important than natural factor conditions.
Another important aspect of factor condition demonstrates how factor disadvantage can be converted into
competitive advantage. When industries face a factor disadvantage such as expensive labor or lack of local raw
materials, they invest more in research and development to tackle the problem. On the other hand, factor
abundance in industries or nations can leave room for inefficiency and reduce the will to innovate or improve.
For instance, Pakistan has been blessed with a 990 km long coastline, bifurcated into two points which has a
tremendous potential for setting up multiple fish processing facility. It can result in value-addition of fish and
diversified products can be manufactured ranging from fish oil, which is used in the treatment of Vitamin A and
D deficiency, to mince-based products. However, unfortunately, Pakistan isn’t even one of the top ten fish
exporting countries.
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FIRM STRATEGY, STRUCTURE AND RIVALRY
The circumstances of a country where firm operates and functions, determines the firm’s strategy, structure,
and rivalry. Strategy and structure refer to the policies within the firm and the steps taken that determines firm’s
most important decisions affecting its output and quality of products. It shows how firm behave and organize
within national boundaries to achieve its targets. Structure of a firm also studies the hierarchical system which
exist within a firm or company. Firm structure cannot be isolated from national and cultural environment. South
Asian countries have collectivist cultures where they emphasize more on personal relationship which is reflected
in their structure whereas individualist cultures such as that of Germany and United States reflects their cultural
attributes in their structure. Hence, we can summarize the national attributes that are reflected in local firms.
Rivalry refers to the domestic competition among the firms in one sector. The more intense the rivalry is among
the firms, the more the firms push themselves to innovate and come up with unique products with advanced
technological approaches. This rivalry gives local consumer better and more options to buy from since firms
compete to produce better and more price competitive products. The presence of rivalry in any industry creates
a hub of firms that compete for achieving quality, provided with the same resources which further pushes the
locally produced products to match international standards. The intense domestic competition makes it easy for
firm to compete on international level.
If no rivalry exists in a sector, then nation may produce national champions, but it cannot lead to sustainable
competitive advantage since it is local rivalry which leads to innovation and technological advancements. For
instance, the nail-biting competition and rivalry among Japanese cars produced by companies such as Toyota,
Suzuki, Honda, Nissan, Mitsubishi, and Subaru etc. (Business-to-you, 2018) has not only helped them to innovate
and produce best cars for themselves but have also mold their products to compete fiercely in international
market along with big players of other countries.
DEMAND CONDITIONS
Demand conditions in the Porter’s Diamond Model is an imperative part without which the model remains
unsuccessful in its purpose. This section is responsible to describe the local demand for the product in question,
and further describes the scale of the market operations. One important aspect of this section is that the local
demand shapes the industry’s dynamics that also become anticipatory of the foreign demand. If an industry sells
homogenous products in local and foreign market that are equally demanded in both the markets, then, in such
a case, the local demand becomes fully anticipatory of the foreign demand.
Demand conditions do wonders for an industry to develop a competitive advantage as the intensity of local
demand signals the producers/suppliers to provide the product with exact requirements as demanded. To be
compliant with those requirements create a challenging situation for the firms and the firm which fulfills those
requirements displays industry leading practices worldwide. Also, the demand conditions at home can be
influential in the world market. For instance, if a certain local product is greatly admired in the global markets,
then it depicts a wide acceptance of local tastes in the rest of world. Cultural pluralism is gaining momentum
owing to the rapid globalization and advanced media; in such a case, indeed the local demand is anticipatory of
the foreign demand (Porter, 2014).
Exploratory research is conducted by the local industries, aimed at making home demand representative of the
foreign demand. The sophistication of the local buyer is not only used as a tool to protect products from
vulnerability, caused by unfortunate circumstances occurring in the key foreign market(s) that reduce the
demand for products but also the producers rely on the sophistication of local buyers to discover alternative
potential foreign markets with similar level of sophistication (Stalker R. S., 2013). For example, if Bangladesh’s
demand for Pakistani ‘sarees’ (traditional South Asian dress) decreased due to increased inflation, then Pakistani
saree manufacturers must identify other potential foreign markets like India and Sri Lanka who have similar
sophistication of demand of ‘sarees’ as ours which includes the similarity between colors, styles and trends.
The theoretical application of demand conditions reveals the importance given by local industries to research
new markets to diversify their demand and develop innovative products that creates their own demand in order
to gain a competitive advantage in the trade of that product. Once an industry successfully establishes its
15
product and its demand, then it can easily gain a cost advantage over other competitors due to economies of
scale it can achieve.
RELATED AND SUPPORTING INDUSTRIES

The cluster of competitive industries in an economy help the firms attain long term competitive advantage.
Related and supporting industries provide a strong footing to the local industry to prosper in the economy and
sustain growth. Firms in any country depend on other industries to produce better quality and price competitive
goods. The healthy long-term relationship between supplier and producers strengthens the industry. The
presence of good relation provides the industry with first access to products, innovative inputs and technologies
which makes industry cost-efficient (Nayal, 2020). When suppliers and producers work closely with each other
they can monitor the needs and demands of the consumer and provide the relevant information to each other.
The effective communication helps them to share insights and work on research and development together to
come up with innovation that gives competitive edge to the firm.
Moreover, healthy trade relations between local firms and suppliers reduces the cost of transport since they no
longer have to rely significantly on raw material from foreign markets. It helps firm to gain economies of scale
and maintain it much quicker and easier. Furthermore, the changing global dynamics and international relations
with other countries does not concern the local industry very much as its dependency on global suppliers
decreases and it becomes more dependent on suppliers within the national boundary.
Although it takes times to build strong relation between firms and supporting industries, but the long-run output
provides country with regional benefits along with making the nation a market leader in an industry. The
flourishing relation automatically pushes the academia to respond which results in information transparency
and research articles on that particular sector encouraging the youth to become part of the sector. The industry
also starts gaining government and public attention which benefits its progress, making it an important
contributor of economic well-being. The interrelation between firms also promotes a check and balance on each
other’s progression since downfall in one sector results in output decline in other industries as well.
For instance, the leather and footwear industry of Italy completely understands the local demand and work
together to provide with best footwear which is admired worldwide. Silicon Valley is also a notable example of
hub of industries that work together to provide technological support to each other resulting in competitive
advantage of USA.
GOVERNMENT INTERVENTION
Porter’s Model does not see government as an essential helper and supporter of industry (Business to You,
2018), but it believes that government should not completely step out of the industry but instead, keep a check
by encouraging incentives and healthy legislations without interfering in the structure of the firm. The role of
the government for external and internal speculation is important from a regulatory point of view but
interference to alter the operation cycles or cash flows is not essentially what it should be responsible for.
Government’s micro-level intervention in the industry cannot provide industry with long-term competitive
advantage. It may help the industry to attain short-term goals but in the long run, it is the industry’s own ability
to stand on its foot that help it to succeed and maintain a constant international market share. If an industry
becomes dependent on the government, then its long-term sustainability is hard to maintain. For instance, the
Pakistan Sugar Mill Association demands annual subsidy from the government to export bumper sugarcane and
government’s yearly provision has made the sugar mills inefficient and their cost of production is higher than
the world’s average.
Government should play the role of motivating the industry by providing good geo-political ground for it to
prosper such as creating a stable political environment, providing reasonable infrastructure, and stimulating
local demand that is anticipatory of foreign demand (Business to You, 2018). It can take a number of measures
to stimulate the four factors of the Porter’s Model to ensure the development of a certain industry like
establishing educational and training institutes, encouraging cluster development of related and supporting
industries, and providing support and ease for information gathering and research to industries.
16
CHANCE
The element of chance was not included as one of the key dimensions in Porter’s Model, but it was indicated in
his research paper that the role of certain external events like natural disasters or national and international
happenings can negatively or positively create an impact on the industry. These events could be beyond the
control of government or local industries. For instance, after 9/11 terrorist attacks in USA, the tightened border
security decreased USA’s import volumes for Mexico (Business-to-you, 2018). As a result, Mexican exporters
were negatively affected by these stringent rules that exists even today and had to find alternate markets for
their products. Sometimes, events can include some significant scientific breakthrough which creates
advantages for certain industries while disadvantages for others. The invention of digital cameras in 1980s
resulted in the discontinuation of Kodak’s analogue camera and its famous film, Kodachrome in 2006 after 74
years of production (Brand Minds, 2018).
17
ANALYSIS OF PAKISTAN’S SUGAR CONFECTIONERY INDUSTRY
BASED ON PORTER’S DIAMOND MODEL
FACTOR CONDITIONS
WORKFORCE
The Confectionery Industry of Pakistan is labor-intensive as not only labor is required to monitor the working of
machineries, but the weighing and packaging of the products is also done manually by them. At the firms of the
two largest players, Hilal and Candyland, there were approximately 40-60 unskilled labor on one production line
who were assigned the following duties:
• Manual kneading of dough to homogenize all the ingredients after which it is loaded in the mixer tank.
• Ensuring that products are in a straight line when it comes out of the cooling tunnel after being molded.
• Quality checking as any anomalous product is picked up and kept in a separate basket.
• Weighing the packets on a digital weighing machine and packing them into cartons.
There were skilled employees too as every production line was supervised by two Production Officers and one
Head of Production. The Human Resource Department of the structured confectionery industry is very specific
when it comes to recruiting employees due to the technicalities of the production process. The requirements of
some specific jobs in this industry are mentioned below (Zia, Ajaz, Tauseef, Tarique, & Munir, 2014):
• Manager Quality Assurance: MSc/BS (Food Science & Technology) with 3-4 years of relevant
experience in food industry
• Production Executive: MSc/BS (Food Science & Technology) with at least 1-2 years of relevant
experience in Food Industry
• Manager Export: MBA in Marketing with 3-4 years of relevant experience in International
Marketing/Business Development
• Export Officer: Graduate with 2 years of working experience in Export Department
Training of unskilled and skilled labor is also an important an important indicator of the competitiveness of the
confectionery industry. Although, no particular time period was mentioned by Hilal or Candyland after which
they shortlist their employees for training or job rotation, but a certain number of hours was allocated to shift
engineer as key performance indicator (KPI) to train the labor at production line daily. The two major areas of
daily training were:
• Health Safety: Machines such as boiler and timed cutter can prove to be dangerous if not used with
proper precautions and it is the duty of shift engineer to train the labor between 6pm and 8pm (break
between morning and night shift) about its functioning.
• Area Safety: The unskilled labor is instructed to keep the passageway clear of any obstructions such as
baskets and dough pans which could be result in a hazard.
RAW MATERIALS
Most of the raw materials that the Pakistani Confectionery Industry uses like egg powder,
gelatin, fresh butter, and cream are mostly imported from Indonesia and Malaysia
because the manufacturers in these countries are Halal certified and this in turn help firms
like Hilal and Candyland to earn SANHA Pakistan Halal Certification. Prior to 2014-2015,
most of the firms used to import gelatin from European countries until the issue of Haram
versus Halal gelatin came into limelight. There were two policy statements to conclude Figure 5: Logo On The
this issue (What is Halal Gelatin?, 2016): Packets Of Hilal And
Candyland
1. If the gelatin uses pig bones, then it is automatically Haram.

2. If Muslims are forbidden from consuming carrion and if bones do not count as carrion, then they must
only be of a slaughtered animal to be Halal.
18
After this, SANHA Pakistan Halal Certification made their laws stringent and confectionery firms had to provide
them with the Halal certification of their suppliers.
Moreover, other products like flavors and colors are sourced from various countries depending on their cost and
the fluctuation of exchange rate. The international and local demand is also a strong determinant for the source
of procurement of colorings and flavors since many countries like USA Food and Drug Administration (FDA) has
banned synthetic colors and only natural colors are permitted for confectioneries whereas synthetic colors and
flavors are used for the local market. E colors are additives that have a natural origin and some of them are listed
below which are permitted to be used for the making of imported confectioneries: (Rademaker, 2003):
Table 2: E Food Color’s Description (Source: DermNet NZ)
Number Name Description
E100 Curcumin Naturally occurring orange/yellow

color, obtained from turmeric
E102 Cochineal Natural red color obtained from

egg yolk
E160 a - f Carotenoids Plant pigments derived from

carrots, tomatoes, apricots,
oranges, and green vegetables
which provides a variety of color
from red to yellow
E160b Annatto Peach pigment naturally derived

from butter and cheese
E163 Anthocyanins Plant pigments with colors ranging

from red to blue obtained from
red cabbage and grapes
Lastly, the only raw material that is locally sourced is sugar as Pakistan is the 6th largest cane sugar producer in
the world (ISO, 2019). The firms in the confectionery industry have annual contracts with the sugar mills who
provide them with quantity fixed according to the forecasted demand of the market. Out of the total national
sugar production, 60% is consumed by processed food sector including the confectionery industry.
PACKAGING
Most confectionery firms have outsourced the printing and packaging to mainly two companies that are Delux
Packages, which is located in Korangi Industrial Area, Karachi, and Delta Packaging, which is located in Sunder
Industrial Area, Lahore. These companies are well-equipped as Delux Packages owns Koenig & Bauer’s KBA
Rapida 106 which can print 18,000 sheets per hour to be made into labels, wrappers, and packets (Koenig &
Bauer, 2017). These firms are also well aware of international standards of packaging as the plastic used for
imported product’s packaging is 7 ply whereas for the local market, it is 3 ply.1 Furthermore, they also provide
innovative solutions for cost cutting on packaging. For instance, the packaging of Hilal’s Choco 10 (Bunty) initially
1
Rohaan Sobani, Assistant Business Development Manager, Ismail Industries Limited
19
consisted of imported aluminum and PVC which eventually raised the cost due to depreciation of Rupee.2
Therefore, that packaging is only restricted from imported Choco 10 whereas a new volumetric packaging is
introduced for the local market. Lastly, when these cartons and packets are filled with confectioneries at the
firm, the manufacturing date, and the expiry date (usually 9 months after manufacturing date due to its shelf
life) is printed on them using an industrial stamp.
MACHINERY
To understand the machineries used in the process, it is important to recognize the generalized production
process of confectioneries: (Source:PACRA)
Figure 6: Generalized Production Process
Due to least focus of Pakistan on manufacturing capital goods, around 95% of the machineries used in these
firms are imported and the depreciation of Rupee has multiplied the burden of importing these expensive
machineries. The different capital goods used in the production process are listed below:
Table 3: Machineries and their Functionalities
Machine’s Name Process
Mixertank/Churner Dissolving, Kneading
Cooking Unit Boiling
Cooling Tunnel Cooling
Hoppers, Starch-bed Impression Plant, Molds Molding
Bagging Machine Sorting
Manually Wrapping, Weighting, Packing
2
Zahid Abbasi, Production officer, Hilal Foods (Pvt.) Limited
20
The main companies from which machineries are procured are as follow:
Figure 7: Machinery Manufacturers, (From Left to Right, Bosch – Germany, Pan Pacific – Malaysia, Tonelli – Italy, Simionato – Italy)
FIRM STRATEGY, STRUCTURE AND RIVALRY
STRUCTURE
The structured Confectionery Industry of Pakistan has nine major players, and a prominent level of competition
is observed between them. The name of these nine firms are:
1. Ismail Industries (Candyland)

2. Hilal
3. Volka Foods (Giggly)
4. BP Sweets
5. Asian Foods (Mayfair)
6. Mitchell’s
7. DanPak
8. Kidco
9. SweetHill
Despite the number of firms, three firms i.e., Candyland, Hilal and Volka Foods has captured approximately 78%
of the market (Euromonitor International, 2020). This reflects an oligopolistic nature of the industry as the
structure of most of the firms is backed by expensive capital goods along with a labor-intensive packing line.
Even the cost of one Chinese bagging machine is USD 18,000 (Source: Foshan Soon True Machine Equipment,
China) and therefore a huge capital investment is required to start a confectionery firm which is only possible
by high-net-worth individuals along with the contribution of bank financing. Moreover, to penetrate in the
confectionery industry and gain significant market share, a variety of products need to be produced. The greater
the diversification of product line, the higher is the chance of meeting different demands, which in turn increases
sales. If a company wants to have a larger volume of products circulating around the market, they also need to
have a plant of significant size which can accommodate the production. Only then, economies of scale are
reached during production, which decreases variable cost leading to a higher profit margin per packet. All of the
above process requires significant amount of financing which increases the barrier to entry in this particular
industry.
STRATEGY
The firms in the confectionery industry are highly price competitive and all products operate upon minor profit
margins, and even a slight price increase can lead to them losing significant market share. Hence, the general
collective strategy followed by all of the confectionery firms in the market is pricing. The firms cannot increase
their product's retail prices regardless of the amount of cost they are bearing in its production. The reason
behind this constraint is that the primary target market of the confectionery industry is SEC B and C. Since these
socio-economic classes do not have much disposable income, their demand is elastic, and hence even a slight
increase in the price of the products in the market can lead to them simply not purchasing it.
A recent technique employed by the firms to cut down on costs is the introduction of ‘party-packs’. These
packets are usually sold at a retail price of PKR 50 and are profitable for the firms because they save on packaging
costs as there are more units packed within one packet. Consumers also prefer the ‘party-packs’ as they have
more candy/jellies inside them and hence are enjoyed more by the younger generation, which is the primary
21
target market. Other than pricing related strategies, the confectionery industry is also heavily inclined towards
exports by sending their best-selling products to foreign countries where there is a prevalence of Pakistani-origin
citizens. The main advantage that firms have in exporting their products is that they can charge a higher price
and earn a greater profit. For instance, Chili Mili which is sold in local markets for PKR 5, is sold in USA for $19.98
for 24 packets (PKR 125/packet) (Source: Amazon)
The second main strategy which plays an important role in expansion of product lines according to shifts in
demand is research and development (R&D). All the employees in this industry play a significant role in the
research and development (R&D) of existing and new products as every member of the workforce is, either
directly or indirectly, linked to the R&D Department. For instance, an Export Officer at Giggly (Volka Foods) can
identify the trend in international demand for a specific product which he/she can highlight to the R&D
Department so that they can innovate something similar. The above-mentioned department has two main
focuses:
• New Product Development (NPD): In a saturated red ocean of confectioneries where there are nine
major players, it is very important to innovate and keep the customer loyal to you. Usually, when a
confectionery firm launches a new product, the market testing is done on a limited scale and the
outcomes in terms of market response is generalized over the whole market. For instance, when Hilal
diversified Fresh-Up’s flavor and added strawberry and cardamom, it only launched it on a limited scale
in large LMTs and IMTs in Karachi. Unfortunately, the response was below than expectations compared
to the launch of Fresh-Up spearmint flavor. Therefore, Hilal decided not to expand the production line
for these two flavors.3
• Existing Product Development (EPD): Existing products in the market also require an upgrade in terms
of flavors, packaging, and price as well. However, not all changes are welcomed by the local market.
When the Marketing and Creatives Team at Hilal designed a new cat mascot for Ding Dong’s packaging
and TV commercial in 2017, there was a huge outcry on social media, and it also affected the sales of
Ding Dong. Therefore, R&D Department must analyze all aspects of its decision before implementing it.
RIVALRY
The main rivalry that exists in the Confectionery Industry in Pakistan is between the structured and the
unstructured sector of the confectionery industry. While the structured sector contains nine major players, the
unstructured sector consists of cottage industries which produce replicas (also known as unbranded sector) and
the smuggled Iranian confectioneries. The replicas are packaged in a similar way to the company's original
product, and thus many people fall prey to it and end up buying it even though it is not the authentic product.
This, in turn, reduces the customer base since many consumers would mistakenly buy the fake product from the
sellers and hence not purchase the authentic product. Smuggled confectioneries from Iran also give tough
competition to the local industry since they are widespread in many markets like Jodia Bazar in Karachi which
increases their reach to the potential SEC C market. The unstructured sector does not fall under the rules and
regulations which are applicable on the structured sector such as taxes and food related regulations by
government authorities.
Other rivals of our local confectionery industry are imported chocolates such as Snickers and Mars. These
imports are generally high priced than local products and thus target SEC A as they have the disposable income
to afford such things. Hence, the main competition provided by imports is for SEC A, a sector that is not a primary
target market since companies mainly focus on SEC B and C, as mentioned earlier.
3
Zahid Abbasi, Production Officer, Hilal Foods (Pvt.) Limited
22
DEMAND CONDITIONS
SPECIFICS ABOUT LOCAL AND INTERNATIONAL DEMAND

Although, the market leader for confectioneries in Pakistan is Candyland but some categories of confectioneries
have significant competition from different firms as illustrated in the table below:
Table 4: Most Demanded Products in the Local Market
Brand Product Category
Candyland Chili Mili Jelly
Hilal Ding Dong and Fresh Up Chewing Gum
Giggly Boom Boom Chewing Gum
BP Spacer Toffee Toffee
Mayfair Creamers Candy
Cadbury Dairy Milk Chocolate
The international demand for Pakistan’s confectioneries comprises of mostly Middle East countries and their
shares of Pakistani exported confectioneries are as follows:
Figure 8: Major Importing Countries of Pakistan's

Confectioneries (Source: Trend Economy)
UK Mauritania
UAE 3% 3%
Djibouti 4%
Somalia 5%
5%
Afghanistan
Yemen
45%
5%
Nigeria
9%
Kenya
9%
Oman
12%
23
ORDER-BASED OPERATIONS
The firms in the Confectionery Industry of Pakistan are made operational according to specific orders based on
local and international demand. Since these firms have a large variety of confectionaries in their portfolios, like
Giggly has seventeen production lines, they do not produce all products simultaneously. Hence, their production
can be divided into a constant production and seasonal production. For instance, Hilal produces Ding Dong
throughout the year in periodic regular batches but the products that have a niche demand are produced in
smaller quantities purely based on the demand-outlook of the product. The demand outlook consists of sales
forecasting by the company and specific orders received from external businesses.
PRICE ELASTIC MARKET

Perhaps, the strongest determinant of demand for confectioneries is price. Although, it is a fact that
confectioneries are considered as a luxury product due to which it is price elastic but in Pakistan, this factor
coupled with high inflation rate of approximately 10.74% in 2020 has made this sector highly price elastic
(Statista, 2020) . When Hilal increased the minimum possible price of Fresh-Up from PKR 1 to PKR 2, it suffered
a loss of approximately 25-30% in its sales volume4. Furthermore, this allows other firms to capture this market
by introducing a PKR 1 chewing gum. Therefore, the market is very price competitive, and firms have resorted
to different methods of cost-cutting instead of increasing price:
1. Weight Reduction: Hilal’s jellies like Chili Mili and ABC which weighed about 12.4 grams/packet initially
had to be reduced to 12 gram/packet as this strategy is not obvious to a layman customer.
2. Alternate Procurement of Raw Materials: Most firms in the confectionery industry keeps a maximum
of three month’s reserves in their storage due to the constant struggle of finding Halal certified cheap
vendors who could fulfill the requirements at a low cost in the future.
3. Quantity Reduction: Being the most disliked option, it is used by companies only in dire circumstances
as the change can be observed by the customer. Miftah Ismail, owner of Ismail Industries, revealed that
Cocomo’s quantity had to be reduced from five units to four units due to their shrinking margins in a
highly price elastic market (Current, 2021)
Secondly, the main market from which the demand arises for local confectioneries are the middle- and lower-
income groups known as SEC B and SEC C along with those at the bottom of pinnacle as 2.3% of our population
lives $1.9 purchasing power parity a day (Asian Development Bank, 2020). Therefore, most of the products are
skewed to the left to meet the demand of the masses as SEC A can afford to buy imported confectioneries.
Figure 9: Mayfair's Production Line

6
5
5
4
Price/Unit
3
2 2 2 2
2
1 1
1
0
Frooto Tiger Creamers Fruit Gala Mclairs Wobbly Frubar
Bubble
Confectionery Portfolio
4
24
SEASONAL AND TRADITIONAL DEMAND
Beside a constant demand from a rising young population where 35% of the population is under 15, there are
other traditional and climatic factors which affects the demand for different types of confectioneries in the local
and international market:
• Pakistan is a nation of sweet toothed people where social determinants like tradition and culture play
an important role in determining local demand. One such tradition is exchange of sweets (mithai) at
times of different festivities like Eid. However, the local confectionery firms identified this opportunity
and incorporated the idea of exchanging confectioneries, mainly chocolates during Eid-ul-Fitr through
excessive marketing and innovative packaging.
Figure 10: Cadbury Celebrations (limited time packaging for Eid)
As a result, the demand pattern for confectioneries, especially chocolates have seen a rise from the
start of the last Ashra of Ramadan and peaks at Eid.
• Most confectioneries like jellies, soft-boiled candies, chocolates and chewing gums required to be kept
in a cool environment. The optimum temperature for storing such confectioneries, especially
chocolates is 21 C (Lake Champlain Chocolates, 2020) However, in Pakistan, due to the effects of
climate change, the summers have become more warmer and the highest temperature recorded in
2019 was 46 C which was 4.5% higher than the highest of 2009 (Munawar, 2019) As a result, the shelf
life of confectioneries which is 9 months in optimum environment can significantly during the summer
season, particularly in July and August. As a result, the demand pattern by retailers for such
confectioneries is replaced by hard-boiled candies which do not melt since the chances for perishability
increases. Similar trends have been observed in the international market as the temperature of the
Earth is rising at 0.95 C annually and confectionery importing countries in the Middle East region
recorded a temperature above 50 C in July 2020 (Kelly, 2020).
CORRELATION BETWEEN LOCAL DEMAND AND FOREIGN DEMAND

Although, the statistics portray that there is both, local and international demand for Pakistan’s confectioneries
but there are some key aspects that reflects that local demand is not anticipatory of foreign demand:
• In most firms of the confectionery industry, the production lines for local and imported products are
different as displayed in the above-mentioned information of using synthetics colors for local markets
while E-colors for foreign markets. Moreover, the difference in packaging, with 3 ply being used for
25
local market while 7 ply being used for foreign markets, alters the quality and freshness of the product
with time.
• A significant difference was observed in the taste test of local versus imported confectioneries,
especially chocolate. Although, information regarding this was kept confidential and the only reason
presented to us was regarding the tweaking of ingredients to ensure a longer shelf in different climatic
conditions.5 However, no change of recipe was mentioned to us. However, according to Lawrence Allen,
a former executive at Hershey’s and Nestle, the three main determinants of taste of chocolate are the
amount of cocoa, the time of mixing and the flavor of milk and all three of these are a part of the recipe
being followed (Metz, 2005).
RELATED AND SUPPORTING INDUSTRIES

Pakistan’s Confectionery industry is an emerging sector with nine big players dominating the market. According
to a report around 35% population can be categorized as children, therefore, the demand of confectionery is
high in country and rapidly increasing with time. Growth of confectionery industry is directly proportional to the
population growth and as population grow, the demand of confectionery increases, leading to expansion of
industry and encouraging new players to enter this sector. The confectionery industry is related to several other
industries and any alteration in those industries’ output along with fluctuation in their prices impact the cost
and output of the confectionery industry. The most important industries related to confectionery sector includes
sugar, retail, transport, and packaging industry.
SUGAR INDUSTRY
In order to manufacture hard-boiled and soft-boiled candies, toffees, lollipops, chewing gums, jellies, milk
chocolates, chocolates and marshmallows, the most basic ingredient is sugar. The rising price of sugar affects
the profitability of this industry and may result in price increments of the confectionaries as well. Sugar prices
fluctuates quite frequently in Pakistan. Recently, sugar prices in country surged to PKR 90-96/kg in March 2021
which later decreased to PKR 83-86/kg in April 2021. Cartels in the country also create artificial shortage in by
stockpiling sugar due to which the prices rise exponentially and later the shortage is fulfilled by high-priced sugar.
These fluctuations and shortages hammer the forecasted costing and price projections of the firms in the
confectionery industry.
RETAIL INDUSTRY
The confectionery industry is closely linked with the retail sector since this industry make use of retail channels
to reach out to its existing and potential customers. LMTs, IMTs and GTs are the main point of purchase for
customers. Firms in the confectionery industry usually have a level-one channel (manufacturer to retailer) with
LMTs and IMTs such as Imtiaz, Metro, and Carrefour. The contracts between the manufacturer and the retailer
eliminates the presence of middlemen in this industry. The relation between the firm and retailer affects the
level of promotion of product and its trade discount. It also influences the placement of a product on shelf and
the assortments present in a particular store, which can impact sales. Firms, along with social and mainstream
media marketing, also depends on instore marketing of their newly launched variants to observe the public
response. The statistics from observatory research and surveys collected from LMTs and IMTs affects the
decision of company about the discontinuation or expansion of a product line based on demand.
However, with GTs, the confectionery industry generally has level-two channel (manufacturer to distributor to
retailer). General stores (Kiryana) have the greatest reach in Pakistan since the middle and lower socioeconomic
classes are the major customers in these stores. The imported confectionery, due to import tariffs and quality,
is relatively expensive whereas our locally produced confectionery is cheaper and affordable for SEC B and C.
From a generalized perspective, local jellies cost PKR 5, chewing gums cost PKR 2 and toffees cost PKR 1.
5
Shoaib, Production Officer, Candyland
26
TRANSPORT INDUSTRY
The transport industry plays a major role in almost every industry to move finished goods from the firm to the
consumers. It includes airlines, railways, roadways, and shipping. The confectionery industry is no exception and
depends on transport industry for its raw material, labor, and finished goods’ transportation. The firm signs
contracts with logistical companies such as TCS and the decision depends on the reach of the hired logistical
company, cost of transportation and the fragility and perishability of the products. In Pakistan, the confectionery
firms mainly depend on roadways for transportation within country. Big players of the industry such as Hilal and
Candyland export their products. Ismail Industries (Candyland) has exporting relations with around 30 countries
whereas Hilal exports confectioneries to around 20 countries including UK, USA, New Zealand, Australia, Fiji,
North America, Middle East, and several other African countries. To export products to the above-mentioned
countries shipping is the major medium, except the neighboring countries like Afghanistan where trade is carried
out by road. Confectioneries are shipped in either cargo storage roll containers or refrigerated ISO containers.6
However, cargo storage roll containers are more commonly used rather than refrigerated ISO containers since
they are relatively cheaper because they are not air-conditioned. The same logistical company plays a major role
for transporting raw materials such as colors, flavors, gum base, egg powder, skim milk powder and gelatin to
the confectionery industry.
Figure 11: Left – Cargo Storage Roll Container and Right – ISO Refrigerated Container
PACKAGING INDUSTRY
Packaging industry is directly linked with the confectionery industry. Two main packaging companies that extend
their services to the confectionery industry are Delta Packaging and Delux Packages. The packaging of
confectionery for exports is different from that of local market. For local market, it is mandatory to mention
Halal certification, basic nutrients contents, manufacturing, and expiry date. Whereas, for international market,
the company must ensure to abide by all packaging laws of the receiving country that includes mentioning the
type of colors used, basic nutrients, allergy warnings in case of specific nutrients, supplier’s information,
manufacturing, and expiry date in both English and native language.7
GOVERNMENT POLICIES
The Confectionery Industry of Pakistan is always under the scrutiny of several federal and provincial bodies since
the wellness of the majority consumers i.e., children, is the main priority.
HSE POLICIES AND PSQCA

Apart from the indirect role of maintaining exchange rate and establishing sugar prices, Government also has to
ensure adherence of the companies to the HSE Policy and maintaining health, safety, and environmental
standards. Many production sites have pictorial charts for inculcating these standards in the minds of unskilled
workforce. To ensure these policies have practical check and balance, Pakistan Standard Quality Control
6
Rohaan Sobani, Assistant Business Development Manager, Ismail Industries Limited
7
27
Authority (PSQCA) was established in 1996 by Act-VI for infrastructural development under Metrology,
Standards, Testing and Quality (MSTQ) (PSQCA, 2018). Any article or product first needs to be registered and
certified by PSQCA before being circulated in the market.
Different confectionery products as listed below, shall confirm to the following PSQCA standards. (Sindh Food
Authority Regulations, 2018)
Table 5: Confectionery Products listed in PSQCA
Food Cat. No. Standard Title Standard No. Annexure No.
5.1.4 Chocolate & Chocolate Products (Halal) PS: 5243 Annexure-108
5.1.5 Composite and Filled Chocolate PS:4557 Annexure-109
5.2 Sugar Confectionery Pectin-based Products PS:4715 Annexure-110
5.2 Sugar Confectionery Gelatin-based Products PS:4716 Annexure-111

(Halal)
5.2 Lozenges PS: 490 Annexure-112
5.2 Hard Boiled Sugar Confectionery PS:1933 Annexure-113
5.2.1 Hard Candy PS:4254 Annexure-114
5..2.2 Toffees PS:971 Annexure-115
5.3 Chewing Gum & Bubble Gum PS:2855 Annexure-116
SINDH FOOD AUTHORITY

Sindh Food Authority was founded to ensure safe food provision under Sindh Food Authority Act, 2016. They lay
down standards and guidelines for procedures and processes for any aspect of food in the food business (Sindh
Food Authority, 2018). They have industry specific SOPs published on their website and it is mandatory for all
the confectionery firms to be licensed with Sindh Food Authority. Some of the main guidelines as per SFA for
confectionery are as follows and any incompliance to them can lead to sealing of the factory.
Guidelines for Employees
1. All employees should have medical fitness certificates.

2. All employees should be wearing masks, headcovers and beard masks in factory.
3. Fumigation records should be present on site.
4. Factory entrance should have air curtains and fly curtains.
5. Factory equipment should be made of stainless steel.
6. Wooden equipment for processing is strictly prohibited.
7. Sieves should be made of stainless steel and food grade nylon.
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8. Broken blades should not be used.
9. Additives used in Confectionery should be food grade and used according to limits.
Guidelines for Cleanliness
1. Handwash should be made available for all workers.

2. Eating and smoking is strictly prohibited during work.
3. Dryer and sanitizers should be available at the handwashing station.
4. All the drains should be covered.
5. Washrooms should be away from the processing areas.
6. Machines should be cleaned on a daily basis.
7. Ventilation equipment should be clean.
8. Moisture, worn out paint or dirt traces should not be found on walls.
Guidelines for Raw Materials
1. All raw materials should be stored on their suitable temperatures.

2. Complete input and output should be recorded for the raw materials.
3. Procurement Areas should be airy and free from bacteria.
4. Factory should be located in an area free of air pollution, factory waste, water sewage, burnt trash or
dump yards.
5. The factory flooring should be clean, smooth, and free form germs.
6. Raw materials should be immediately rejected if any form of pungent smell or bacteria is found.
7. Packing material should be food grade and all of its records should be available.
8. Storage of raw materials should be above the floor level and away from the walls.
9. Electric lights and wires should be covered.
10. Raw materials and chemicals should not be stored in one place.
11. Raw materials should be labelled properly.
12. The manufactured final product should be according to the Sindh food authority regulation 2018.
Guidelines for Transportation
1. Transportation containers should be hygienic, oil-free, and antibacterial.

2. All the loaders should be trained.
3. All confectionery items should be transported on their suitable temperatures.
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Figure 12: Sindh Food Authority Guidelines for Confectionery Firms
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KEY ISSUES
BARRIERS TO ENTRY AND FIXED PRICE POINT

Confectionery Industry in Pakistan has 9 major players out of which Ismail Industries, Hilal Foods and Volka Foods
have captured 78% of the market. In other industries of the economy, new entrants are more likely to appear
which results in greater competition in terms of price, quality, and innovation, but this trend is not very evident
in the confectionery industry due to certain barriers.
There exist certain barriers to entry in the confectionery industry which overall restricts the growth of this sector
including high establishing and operating cost, requirement of large pool of skilled and unskilled labor and the
need to achieve economies of scale. To set up any confectionery firm, high influx of capital investment is required
since majority of machinery has to be imported from abroad which is quite expensive. A production line for one
type of confectionery requires a set of machineries which includes churner, cooking units, cooling tunnels,
hoppers, starch-bed impression plant and bagging machines. Although, these machineries can be procured from
different sources according to production requirements, but they need to be set up together in order to make
one production line. Big players like Candyland and Hilal Foods procure their machineries from Germany,
Malaysia, and Italy. Even Haitel’s (Chinese manufacturer) complete production line for production of chocolate
bar costs $255,000 (Source: Alibaba).
Haitel’s Production Line ($255,000)
1) The mixture for the base is added here which

falls into the churner and is rolled into sheets.
2) Another mixture for the filling is added into
this churner which is also rolled into sheets.
3) Both sheets are entered into multi-level
cooling tunnel.
4) The sheet 2) slides onto sheet 1) at the end of
the cooling tunnel. (The bed between 4) and 5)
has blades installed in them which cuts the
sheet horizontally)
5) The slicer cuts the sheet vertically.
6) The enrobing machine covers the sheet with
liquid chocolate.
7) To make the chocolate firm, it passes through
another cooling tunnel.
8) The firm chocolate is ready to be packaged
manually by the labor.
Figure 13: Haitel’s Production Line
Expensive machinery coupled with fluctuating exchange rates depreciated currency makes it even more difficult
to enter the industry. Furthermore, every confectionery ranging from hard boiled candies to soft boiled candies
have different requirements in terms of temperature of cooking units and cooling tunnels and therefore requires
different set of machineries which constitutes their production line. For instance, enrobing machine needed for
production of chocolate is not needed for production of candies and jellies. Therefore, to widen the product
portfolio, more than one production line needs to be imported. Additionally, local confectionery industry is still
a labor-intensive industry where packaging and assorting of final product is done mainly by unskilled or semi-
skilled labor. This further adds to the overall fixed cost of operating a factory.
Pakistan Confectionery Industry’s target market comprises of SEC B and SEC C and considering the fact that our
market is extremely elastic, most candies and chewing gums lie in the price range of PKR 1-3, whereas jellies
range from PKR 5-10. This pattern of price is followed by all market players ranging from Hilal to Giggly to BP
Sweets. Minute changes in retail price leads to a huge decline in the demand of the product, thereby affecting
the profitability of company. When Hilal Foods increased the price of Fresh-Up from PKR 1/unit to PKR 2/unit, it
led to a decrease in sales by 25-30%. Therefore, our confectionery market has a very stringent fixed price point
and deviating from it can take away a major market share from the firm. This is a huge barrier to entry as such
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a low price can only be achieved by obtaining economies of scale so that the fixed price spreads over the huge
volume and reduces average unit cost. Bulk production is the only way to sustain and grow in this industry.
The above-mentioned scenario creates a conflicting situation for the new entrants. If an entrant wants to start
small scale production, it will be forced to expand or move out of the sector due to rising fixed costs. In contrast,
if it wants to achieve economies of scale, it will need a huge capital investment to purchase multiple production
lines, establish a nationwide supply chain by collaborating with different distributors to supply every niche of
the market and still have cashflow left for the payroll of skilled and unskilled labor. All these requirements act
as a barrier for the entrants to secure their position among other big players.
PRESENCE OF REPLICAS IN THE MARKET

There are numerous cottage industries which operate to create replicas of the products which are manufactured
by the big players in the industry like Hilal, Candyland and Giggly (Volka Foods). According to a research, the
cottage industries in Pakistan have a production capacity of 12,000 metric tonnes and back in 2014,
approximately 5000 metric tonnes was being produced by the unbranded sector (Zia, Ajaz, Tauseef, Tarique, &
Munir, 2014) . However, in the past seven years, the production of replicas has grown manifolds due to its
widespread acceptance in localities of lower income groups (SEC C) as the market there is extremely price
sensitive.
On one hand, the structured sector consisting of major players like Hilal and Candyland had to face rising costs,
particularly in procurement of imported raw materials due to intensive depreciation of Rupees in the last five
years. A depreciation of 57.5% was observed from July 2016, when 1 USD was PKR 104.68 to September 2020,
when 1 USD was PKR 164.84 (Javed, 2020). Therefore, their costs also soared at the same rate, but they could
not resort to substandard raw materials as these major players are under constant scrutiny of regulatory bodies
like Pakistan Standard Quality Control Authority and Sindh Food Authority. As a result, alongside other cost-
cutting techniques, an increase in price of confectioneries were also observed. For instance, Hilal’s Fresh-Up
increased from PKR 1/unit to PKR 2/unit.
In contrast, the unbranded sector did not have to face the brunt of depreciating exchange rates. However, high
annual inflation rate of approximately 5.6% in the last five years did increase the cost of local raw materials like
sugar. Despite this, due to negligence of regulatory bodies, unbranded sector was able to keep its fixed cost
lower than structured sector by indulging in illegal and unhygienic practices. For instance, in structured sector,
starch is used as a dusting agent for hard-boiled and soft-boiled candies or any other sticky confectionery to
prevent the item from sticking to the equipment or its packaging. The starch used is corn starch which is dried
to have a moisture content of 3% to 9% (Deis, 1997). However, in our cottage industries, industrial grade
soapstone powder is used (Bhatti, 2021).
Soapstone is a metamorphic rock predominantly comprising of talc, which is mainly used for making talcum
powder. The United States Food and Drug Administration considers talc safe to be used as anticaking agents
(absorption of excess moisture to allow easy packaging and used as alternative to corn starch) when its
concentration is less than 2% (FDA, 2020). Most of the industrial grade soapstone (talc) used in cottage industries
is actually made for plastic, ceramic, paint, and paper industries operating nearby these cottage industries. This
is a potential health hazard as talc is often mined in close proximity to asbestos which is a known carcinogen and
consumption can lead to convulsions, low blood pressure and even permanent lung damage if high quantity is
ingested (Farah, 2016).
Another notorious cost-cutting technique of cottage industries which gives them an edge in pricing compared
to the structured sector is the use of industrial non-food colors to dye the confectioneries. Many non-food colors
banned in Western countries but openly used by our cottage industries include coal tar dyes, which is a by-
product of hydrocarbon solvents. They contain small amounts of heavy metals such as aluminum and some of
them are even carcinogenic such as Blue 1 and Green 3 (News Desk, 2008).
Both of these malpractices enable the unbranded sector to price these goods lower or equal to the
confectioneries of the branded sector. Moreover, since these goods are replicas, majority of the population of
SEC C would prefer lower priced good that is lookalike to the branded product in terms of size, packaging, color
of the confectionery and even taste to a great extent (Figure 14). As a result, they collectively eat the market
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share of the structured sector as Hilal, Candyland and seven other players are able to reach less customers and
thus miss out on providing goods and services to a potentially profitable and lucrative consumer segment.
Figure 14: Left – Replica Of Chili Mili, Right – Candyland’s Chili Mili
Lastly, apart from eating the share directly, they also indirectly decrease their share by affecting their goodwill
and reputation. For instance, a layman whose children faces medical complications after eating a replica jelly of
Candyland will blame Candyland for the suffering of his children. As a result, he will spread the word to his
friends and family which will negatively affect the goodwill of Candyland. Such news spreads like wildfire in this
digitalized world and as a result customer might become cautious and move to other competitor’s product which
will reduce Candyland’s sales.
SMUGGLED IRANIAN CONFECTIONERY

A key issue that has weakened the domestic confectionery industry is the prevalent selling of Iranian
confectioneries. This is an issue that hurts both, the industry, and the economy because the entirety of the
Iranian confectioneries is smuggled inside Pakistan through grey channels via Taftan border. The smuggled
confectioneries become part of the undocumented economy and hence remain tax-free. As a result, they are
available at prices equivalent to or below locally produced confectioneries. Hence, the smuggled items become
a major competitor to the products of the local industry but on an uneven level since local confectionery firms
face a corporate tax rate of 29%.
The Iranian confectioneries are sold in bulk quantities, primarily in Sindh and Balochistan. The point of sales of
these items in Karachi is Jodia Bazaar, one of the oldest and largest market in the city, and Hub, with the latter
being larger in scale of operations than the former. The wholesalers are very keen on selling these smuggled
items because they are bought on very economical rates due to their nature of legality unlike local products of
the branded sector which have a fixed retail and wholesale price8. As a result, wholesalers can stretch their profit
margin by buying cheap Iranian confectionery instead of local confectionery. Therefore, these smuggled
confectioneries are readily available in Jodia Bazar compared to Candyland and Hilal’s products.
Moreover, the industry takes a nasty hit from the smuggled confectionaries because they are largely demanded
by the domestic consumers. The reason behind the soaring demand is its competitive price as most Iranian
chocolates ranges from PKR 10-15 which is the same as most local chocolates like Candyland’s ‘Now’. However,
Iranian items stand out because of its value-addition in terms of packaging (bright colors and matte packaging)
and this makes our local good look inferior. Moreover, the color of packaging of Iranian products resembles that
of high-quality confectioneries of Mondolez International, which makes it even more appealing.
Figure 15: Iranian Confectionery (left) versus Mondolez’s Confectionery (right)
8
Wholesaler of Iranian Confectionery at Jodia Bazar, Karachi
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Additionally, the taste of Irani confectionery is very unique and different from local confectionery which
incentivizes domestic consumers to at least try it once. The main reason behind the high quality of packaging
and taste of Iranian products is that the Confectionery Industry of Iran is one of the oldest and the second largest
exporting industry of the country whose exports to 66 countries were worth $550-$600 million in 2020 (Abdi,
2020). On the other hand, Pakistan’s value of exported confectionery was $63 million in 2020. Iran’s
Confectionery Industry is globally competitive industry of Iran since the investment is hundred percent from the
private sector and majority of the raw materials are locally available at very low prices which reduces their cost
of procurement of imported goods. A 25kg pack of Iranian powdered milk is PKR 9000 while powdered milk from
USA is PKR 18000 (Khan, 2021). Moreover, Iranian chemicals and dried fruits are also 15-20% cheaper than those
from other countries which reduces their cost of production significantly and allows them to sell value-added
confectioneries at the same price as our local items. Hence, the products of the key industry of Iran are
competing with the products of local confectionery industry with the added advantage of tax evasion.
FLUCTUATION IN EXCHANGE RATE, OIL PRICES AND RAW MATERIALS

The economic policy trilemma faced by Pakistan has the government to bear the trade-off of managing fixed
exchange rates while maintaining the other two components, namely capital and monetary policy. It has a capital
control where there is a free movement of capital and autonomous monetary policy, therefore it cannot keep
the exchange rates fixed. The fluctuation in exchange rates directly affects the prices of commodities and
products in the foreign trade market i.e. imports and exports.
Confectionery Industry of Pakistan recruits most of its profits by exporting to 40+ countries in Middle East, Africa,
and Europe. A minute change in the exchange rate is greatly reflected in the profit margins of the local exporters.
The appreciated local currency maybe a good indicator for the overall economy of the country, but it leads to a
decrease in revenues earned from the foreign market for local industries when Dollar is converted to Rupee.
The deals between confectionery firms and foreign retailers are set on pre-decided prices and do not adjust
according to the current exchange rate. Therefore, a post deal fluctuation can affect their profits heavily.
Pakistan witnessed intensive currency depreciation in repercussions of pandemic and Dollar soared to reach PKR
168 in March and August 2020 (Currency Charts: USD to PKR, 2021).
Figure 16: Exchange Rate USD to PKR (2019-2021)
However, during the FY 2020, the local confectionery industry witnessed increased sales. Candyland’s parent
company, Ismail Industries’ sales increased from PKR 37 billion in 2019 to PKR 41 billion in 2020 (Ismail Industries
Limited, 2020). It can be attributed to the fact that the depreciating Rupee was translating into their welfare in
terms of export revenue. However, in the past few months there have been excessive inflows which have
strengthened our currency to the point that it got labeled as the ‘Best Performing Currency against US Dollar’
34
from January 1, 2021 to March 31, 2021 (Siddiqui, 2021). This will have an impact on the profitability of our
confectionery industry as the export revenue, when converted into Rupee, will decrease.
Our local confectionery industry imports most of its raw materials like gelatin, fresh cream, gum base, food
coloring, and flavors. The prices of all these raw materials are also affected by the exchange rate fluctuations
and it becomes difficult for the manufacturers to procure them from Indonesia and Malaysia when the currency
depreciates as the cost rises. The main raw material which is used in the confectionery industry is sugar. Sugar
is one of those exploited commodity products in our country which has suffered a lot regardless of its potential.
It has always been affected by political interventions, price fluctuations, untimely exports/imports, artificial
shortages, and increased demands. Over the past few years, there have been a steep upward trend in the prices
of sugar. In just two years, from December 2018 to February 2020, the ex-mill price has increased by PKR 20
(Durrani, 2020). As sugar is the main raw material which works as the first and foremost driver of this industry,
the price hikes cause a major cost problem.
Figure 17: Upward Trend of Price of Sugar (Source: The

News)
79.99
Retail Price
55.99
71.64
Ex-Mill Price
51.64
0 10 20 30 40 50 60 70 80 90
Ex-Mill Price Retail Price
2020 71.64 79.99
2018 51.64 55.99
Another raw material used in the packaging process of confectionery items is plastic. The low-density
formulations are especially used in the packaging industry, which is an essential for the confectionery industry
to produce finished goods. The price of plastic suffers a great deal of volatility too as it is directly related to the
cost of oil since it constitutes of petrochemicals. These petrochemicals which serve as a basic building block are
obtained from refined crude oil. Therefore, any changes in the price of oil directly affects the price of plastic
which in turn affects the cost of packaging in the production process. The confectionery industry is heavily reliant
on the packaging industry due to the perishable nature of their products. There was a demand shock faced by
the oil industry in 2020 due to Covid-19 which plummeted the oil prices (Blessing, 2021). It was in the favor of
the industry, but they couldn’t benefit from this since they cannot abnormally hoard packaging material due to
storage capacity limitations and the fact that plastic is obtained in the refining process of crude oil and not
directly. Recently the oil prices have been rising as per their expected patterns, which has translated into higher
price of plastic and thus will reduce the profit margins of the confectionery industry.
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Figure 18: Crude Oil Prices 10 Years (2011-2021)
From a holistic point of view, the fluctuating exchange rates coupled by uncertainty in the local and international
market of raw materials due to Covid-19 has forced the structured sector to reduce their reserves of raw material
to just three months as they are in continuous search of a cheaper supplier. On the other end of the double-
edged sword is a highly elastic market which will not allow the confectionery firm to increase their prices. The
increment in price of confectioneries is very rare as the first unanimous price increase of majority of
confectioneries took place mid 1980s from 25 Paisa to 50 Paisa, followed by another increase in mid 1990s from
50 Paisa to PKR 1 and last price increase to date, from PKR 1 to PKR 2 in 2008 (Dewan, 2009).
Therefore, the only way out for them to maintain profit margins is by weight reductions or alternative raw
materials which reduces the overall quality and value of the product. They still manage to somehow encapsulate
profits through the immense sales volume as the demand for sugar confectionery products will not decline as
population continues to grow, which can be stated why the confectionery industry is still thriving today.
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RECOMMENDATIONS
CREATING AWARENESS ABOUT REPLICAS

The biggest issue which significantly hinders expansion in the market of SEC C is the strong presence of replicas.
Since a layman cannot distinguish between an authentic product and a fake product of a confectionery firm
which directly reduces the market share of the structured sector, therefore it is the responsibility of the major
players to take a proactive approach in creating awareness about replicas and its potential harm.
The best way to raise awareness about the replicas and their drawbacks is by efficient usage of mass media.
Social media should also be incorporated into the marketing strategy, but the main focus should still remain on
mass media such as televisions and radio shows. The reason behind this is that for SEC C, their main source of
entertainment is televisions and listening to the radio. Brands can work on creating commercials which highlight
the negative health impacts of consuming replicas by emphasizing on the lower quality of the product and raw
material used. Moreover, focus should also be placed on the industrial colors which the makers of replicas use
and the health complications that they can lead to should also be shown. The best way to get the message across
is by visually showing the health complications within the commercial and this can be done by reaching out to
the customers of SEC C who faced medical complication by excessive consumption of these replicas. The usage
of this strategy will allow the viewers to make an association of better quality with the branded products and
hence would lead an increase in the sales of those products. Moreover, the brands should come up with a
distinguishing feature in their packaging which differentiates them from the replicas.
A feature that is widely used by many firms in Pakistan is a scratch sticker pasted on the packaging of the product.
The customer can scratch the sticker to find a code and message that code to the toll-free number of the
company. If the product is authentic, an automated message is generated with the verification that mentions
the batch number, manufacturing date and expiry date. This low-cost feature will be highly penetrable in the
market of SEC C since it does not even require a smartphone to function and according to Pakistan
Telecommunication Authority, there are 180 million cellular subscribers which reflects a tele-density of 85%
The second feature is a QR code and with an influx of smartphone priced as low as PKR 6000 (Source:
WhatMobile), this feature can be very useful as it can fulfill two purposes. Firstly, it can be used to ensure the
authenticity of the product. Many international confectionery firms like Hershey’s initiated ‘QR Code Smart
Packaging’ for fighting counterfeit products and providing relevant information like potential ingredients which
can cause allergy to develop product transparency (Hedge, 2021). Secondly, QR codes can also be used for
customer engagement as a QR Code can open up a link to an advertisement which raises awareness regarding
replicas or even provide them with a sales discount on their next purchase from the same IMT, LMT or GT. In
this way, customers will be attracted to buy products from the same store which keeps authentic confectionery
only.
Figure 19: Self-Generated QR Code (Please Scan), This idea can be used by confectionery firms to ensure
authenticity of the product as the customer will be redirected to a page which shows the batch number,
manufacturing date and expiry date of the product that can be tallied with that on the box
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STRENGTHENING SUPPLY CHAIN AND PRESENCE OF LOCAL
CONFECTIONERY PRODUCTS
Smuggled confectioneries from Iran have gained a significant market share within the previous years. To reduce
the effects of these items, the root of the problem needs to be traced down and dealt with. The two main
markets for smuggled confectioneries have been identified as Hub and Jodia Bazar in Karachi which are both
closer to the audience of SEC B and SEC C. Most of these informal trading takes place at Taftan border and on
cash after which the confectioneries are supplied to different markets of Balochistan and Sindh. The main reason
behind their widespread presence is the benefit to wholesalers that they provide which allows them to stretch
their profit margins.
To counter the increasing availability of smuggled Irani confectioneries, our local firms need to strengthen the
presence of their confectioneries at every location where Irani confectioneries are available. This can only be
achieved by strengthening supply chain of local products to cater to every niche of the Pakistani market. The
confectionery firms need to understand the importance of ‘kiryana store’ and wholesalers who are in direct link
with the customers as they are on the other end of the spectrum of supply chain. The Regional and Area Sales
Manager of these confectionery firms need to collaborate with their distributors to devise a strategy which
would incentivize the shopkeepers and wholesalers present in the vicinity of Jodia Bazar or Hub to keep local
branded products instead of smuggled Iranian confectioneries.
Many other local firms from different industries follow this strategy like Engro Foods which provides trade
discount on the wholesale price if the shopkeeper/wholesalers agree to place their products like Olper’s at eye-
level shelf to indicate the presence of brand to the customers. Moreover, other non-monetary benefits to the
shopkeeper like a refrigerator with the merchandising content of confectionery firms can serve a dual purpose.
Firstly, it will encourage the shopkeeper to prefer keeping local products instead of smuggled products as future
monetary and non-monetary benefits will be ensured once he signs a deal with the confectionery firm. Secondly,
merchandising content will act as in-store marketing for customers which they will notice either consciously or
subconsciously.
Hence, when the acceptance of Iranian smuggled confectionery decreases from the wholesalers and
shopkeepers, the informal trading at Taftan border will reduce and the only way left for these confectioneries
to gain acceptance in the country would be to enter Pakistan through a legal channel which can then even be
sold at large IMTs and LMTs. In this way, they will enter the documented economy, not only benefiting the
country through taxes and duties but will also provide competition to local confectionery firms on an equal
ground where rules and regulations are for both the parties.
TAPPING INTO THE MARKET OF SEC A

The confectionery market of India is very similar to ours in terms of price elasticity. Up till 2004, the market
leader was Cadbury which was selling its flagship product for INR 5 and there was hardly any demand for
premium chocolates above INR 25. In 2004, the confectionery giant Ferrero stepped in the Indian market and
within a decade, it captured a 6% share in the Indian chocolate market, that too with a premium price for its
product. Ferrero launched its box of Ferrero Rocher for INR 300 and its only competitor was Cadbury
Celebrations for INR 175. It capitalized on the set of audience who were ready to pay INR 300 in a market full of
price-sensitive customers. It launched an extensive marketing campaign by producing Kinder Joy for INR 30, but
it also had a toy in it which highly attracted the younger audience. Moreover, Ferrero sensed the tradition of
exchanging premium chocolates during different festivals and used this opportunity to introduce boxes of
Ferrero Rocher. By 2014, it captured 14% of the box chocolate category (Shashidhar, 2014).
38
Figure 20: Ferrero promoting its products during Diwali in India
The Pakistani market has also seen similar trends (read Seasonal and Traditional Demand) in the past few years
but their choice has been restricted to imported chocolates like Lindt and Guylian as no local confectionery firm
has identified this demand yet. The emergence of local designer confectioneries like Lal’s Chocolate in the past
few years is evident of the fact that SEC A is willing to pay as high as PKR 1650 for a box of Lal’s Chocolate.
(Source: Lals) Currently, in the structured sector, only Candyland produces Crown Premium Chocolate Truffles
for PKR 290 but compared to other premium chocolates, the quality and packaging is very inferior.
Figure 21: Lal’s Classic Chocolate Box for PKR 1650
By introducing a higher priced premium chocolate like dark chocolate or mint chocolate, not only the structured
sector will witness increasing profits but will also be able to provide SEC A with greater options to choose from.
Moreover, higher profit margins from these chocolates would allow the firm to balance their shrinking profit
margins from the lower priced confectioneries which are subject to stringent price points. Additionally, by
producing overall a greater number of confectioneries, average cost per unit will reduce and this will help in
giving greater trade discounts to wholesalers and shopkeepers to display their product. As a result, this
recommendation will indirectly help in decreasing the acceptance of smuggled Iranian confectionery in Sindh
and Balochistan. Lastly, premium chocolates also have a greater probability of meeting export quality and
therefore can be exported to different countries of Middle East, Europe and Africa to earn greater profits by
charging a higher price.
INCREASING COLLABORATION WITH THE SUPPORTING INDUSTRIES

One significant aspect of our local confectionery industry is our heavy reliance on imported raw materials which
are subjected to unpredictable fluctuations and a rising trend of prices. This causes hindrance in forecasting the
firm’s budget for the future and requires the company to often spend more capital investment than they initially
planned due to increase in prices. Moreover, since plastic is an essential component of the packaging process,
it takes up a substantial chunk of the production cost per unit. The cost of plastic is mainly driven from the cost
of oil within the market. Hence an increased price of oil means an increased cost of production for the firm. The
situation worsens in the presence of the varying exchange rates as an appreciating exchange rate makes it
cheaper to import raw materials but at the same time it also means that the company will earn less on the
exports which they deliver to foreign markets.
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The best way to deal with this rising issue is by reducing the reliance of confectionery industry on imported raw
materials The main reason behind sourcing raw materials like egg powder, gelatin, fresh butter, and cream from
foreign countries is that the locally produced raw materials do not match the quality of imported raw materials.
However, the confectionery industry needs to look for local high-quality alternatives from the related and
supporting industries. For instance, the food colors which is added to candies and the jellies is imported from
Indonesia and Malaysia due to the fear of low quality locally produced food colors. However, it needs to be
considered that local related industries do not improve because changes in machinery and production process
would be costly for them and they would be forced to charge a higher price for their products i.e. food color in
this scenario. Since the increased price would possibly reduce the demand for their product, they prefer not to
take any decisions which would lead to a change in price.
However, if the confectionery firm signs a contract with the local food color firms which would ensure the related
industry that the confectionery firm would buy their product even if it is slightly higher priced, it would incline
them to improve their quality and produce the desired product. Not only would this lead to ‘cluster
development’ as highlighted by Porter’s Model but it will also eliminate the uncertainty in forecasting budget
since the issue of fluctuation of exchange rate would be completely eliminated. Moreover, the probability of
decreased cost of production would further increase as local raw material would not be subject to heavy custom
duties unlike imported raw materials and it would lead to a higher profit margin for the confectionery firms.
Similar contracts can be signed with dairy giants like Engro Foods for fresh cream and butter and local gelatin
producers like NTP Gelatine (Pvt.) Ltd.
40
CONCLUSION
Although the Sugar Confectionery Industry of Pakistan has been successful in keeping its price constant so far
during turbulent times of the worldwide pandemic coupled with fluctuating exchange rates and uncertainty in
the international market for raw materials, however, the methods used by the firms are not sustainable in long
term as weight and quantity reduction will slowly but surely harm the goodwill of these firms. In order to achieve
sustainable long-term growth, the foremost priority of the firms must be to carry out an extensive research and
development program and penetrate into untapped local and global markets. Firms which will shift from ‘red
ocean’ of SEC B and SEC C in the local market to ‘blue ocean’ of SEC A market will surely have an advantage of
being the first mover. Secondly, to become self-sufficient and decrease reliance on imported raw materials, it
must enable related and supporting industries like dairy, gelatin, and chemical industry to develop and grow
alongside the confectionery industry. The cluster development would not only eliminate issues regarding
uncertainty in international market but will also allow confectionery industry to identify trends in demand and
produce accordingly in a shorter period of time as both, transportation time and cost are reduced.
Thirdly, to ensure its nationwide presence and reduce Iranian confectionery from the market, it must take the
distributors, wholesalers and shopkeepers into confidence and establish a fortified supply chain. The upper
management of the firm must realize the dire need of incentivizing these stakeholders as they are on the other
end of the supply chain and in direct contact with the customers. Lastly, although many of these firms have
existed in the market for more than a decade, it must maintain the goodwill it has garnered over all these years.
In order to do this, it must take a proactive approach against the replicas that are easily available in the markets.
It needs to inform its loyal customers about the differences between an authentic and a forged product and this
would require intensive marketing campaign and smart packaging as done by Hershey’s abroad.
41
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SUGAR

Economic History of Pakistan .................................................................................................................. 8

Branded Versus Unbranded Sugar Confectionery Industry ................................................................... 10

International versus National Comparison ............................................................................................ 10

Contribution of Confectionery Industry to Pakistan .............................................................................. 11

Product Analysis .................................................................................................................................... 11

Product Categories and Market Leaders ............................................................................................... 11

Market Analysis & Major Players/Brands .............................................................................................. 12

Market Drivers ....................................................................................................................................... 12

Young Population .................................................................................................................... 12

Sweet Toothed Nation ............................................................................................................ 13

Festive Consumption ............................................................................................................... 13

Widespread Retail Sector ........................................................................................................ 13

Key Trends ............................................................................................................................................. 13

Healthy Lifestyle ...................................................................................................................... 13

Love Mark Brands .................................................................................................................... 13

Environment Friendly Lifestyle ................................................................................................ 13

Firm Strategy, Structure and Rivalry ...................................................................................................... 15

Demand Conditions ............................................................................................................................... 15

Related and Supporting Industries ........................................................................................................ 16

Firm Strategy, Structure and Rivalry ...................................................................................................... 21

Demand Conditions ............................................................................................................................... 23

Specifics about Local and International Demand .................................................................... 23

Order-Based Operations ......................................................................................................... 24

Price Elastic Market ................................................................................................................. 24

Seasonal and Traditional Demand........................................................................................... 25

Correlation between Local Demand and Foreign Demand ..................................................... 25

Related and Supporting Industries ........................................................................................................ 26

Sugar Industry ......................................................................................................................... 26

Retail Industry ......................................................................................................................... 26

Transport Industry ................................................................................................................... 27

Packaging Industry .................................................................................................................. 27

HSE Policies and PSQCA........................................................................................................... 27

Sindh Food Authority .............................................................................................................. 28

Key Issues .............................................................................................................................................. 31

Barriers to Entry and Fixed Price Point .................................................................................... 31

Presence of Replicas in the Market ......................................................................................... 32

Smuggled Iranian Confectionery ............................................................................................. 33

Fluctuation in Exchange Rate, Oil Prices and Raw Materials................................................... 34

Strengthening Supply Chain and Presence of Local Confectionery Products ........................................ 38

Tapping into the Market of SEC A.......................................................................................................... 38

Increasing Collaboration with the Supporting Industries ...................................................................... 39

API Research Group 7

Date: 2nd May 2021

ECONOMIC HISTORY OF PAKISTAN

Figure 1: Breakdown of Total Production

INTERNATIONAL VERSUS NATIONAL COMPARISON

Table 1: International vs National Comparison of the Confectionery Industry

Revenue (USD) ~35 billion (Global)

~0.44 billion (Pakistan)

Average Price per Unit (USD) ~6.8 (Global)

Compound Annual Growth Rate (2020-2025) ~4.9% (Global)

CONTRIBUTION OF CONFECTIONERY INDUSTRY TO PAKISTAN

Figure 2: Product Share-Confectionery Industry

PRODUCT CATEGORIES AND MARKET LEADERS

Figure 3: Company Shares

Ismail Industries Ltd.

19% Asian Food Industries (Pvt)

WIDESPREAD RETAIL SECTOR

LOVE MARK BRANDS

ENVIRONMENT FRIENDLY LIFESTYLE

RELATED AND SUPPORTING INDUSTRIES

1. If the gelatin uses pig bones, then it is automatically Haram.