Research on Modern Grocery Market in Pakistan

The Evolution of Modern Grocery Market in Pakistan. A research project to study changing consumer buying patterns and op interfaceunities for new entrants in the systemrn food product empyrean. By Adavanced Research Methods MBA-Evening Program Section E Submitted on November 19, 2012 Table of Contents Titles Page No. Prefatory In workation Abstract Acknowledgements Executive synopsis Introduction Methodology Research Findings Conclusion Recommendations Appendices References 02 03 04 05 06 08 09 13 14 15 22 Page 1Prefatory Information Research Topic The Evolution of Modern Grocery Market in Pakistan. Research Background The traditional solid viands sell sector (sm tout ensemble neighborhood hold ons, street vendors, general trade stores, etc. ) comprise roughly 95% of all food retail stores in Pakistan musical composition the modern retail sector (hyper food markets, supermarkets, discount stores, etc. ) make up the remaining 5%. Over the past few years international retai lers stomach taken advantage of the growing opportunities in this market.Well-known European retail giants Makro, Metro, and Carrefour (Hyperstar) switch opened stores in all major Pakistani metropolitan cities. The port city of Karachi alone has at least five large retail stores that serve much than 19 million hatful. With a growing middle-income class (estimated at near 25% of the total heap), increasing urbanization, increasing popularity of international food products, and a growing number of international restaurants and fast food chains, Pakistan is emerging as an expanding market for U. S. high-value agricultural products.The overall food retail and wholesale line of descent accounts for 17% of Pakistan? s GDP. These large retail stores have been able to tap into the changes in consumer lifestyles and higher disposable income. Emerging technologies have besides impartd to the emergence of the large food retail superstores, which offer a wide range of value added pr oducts and work to price conscious middle income consumers. Convenience stores in Petrol/Gas stations be in any case providing an additional option for consumers and their popularity among Pakistani consumers is rising.To know hardly the ride forces that lead changes in the consumer buying behavior and besidesmore to anticipate the future demand of modernized market stores and hypermarkets which would ultimately guide investors towards an opportunity and would let them know the critical market factors and consumer needs on the basis of which they should design their businesses to gain maximum market constituent in minimum amount of duration and resources. Page 2 Abstract The Evolution of Modern Grocery Market in Pakistan. The core objectives of our research be comprehensively explained and backed by the results and interpretations, with graphic illustrations that clarify the main consumer tastes and preferences that are the agents of changing buying patterns being the re ason behind the increased number of modern grocery stores in major cities of Pakistan which is linked to our second objective that is more towards the investment opportunity for local and foreign venture capitalists in the mentioned sector. Page 3Acknowledgements First and foremost, we would like to thank Almighty Allah for modify us to achieve the completion of our project report effectively, next we would like to thank to our course mentor of Advanced Research Methods-E, Mr. Salman Rabbani for the valuable guidance and advice. He inspired us greatly to work in this project. His willingness to motivate us contributed tremendously to our project. We also would like to thank him for showing us some examples that colligate to the topic of our project.Besides, we would like to thank all those participants, colleagues and class mates for providing us with their valuable insights and responses that enabled us to complete this project. Group Members Sandhya Talreja Talha Abid 1235220 1 235182 Page 4 Executive Summary The increasing number of modern grocery stores are rapidly increasing in Karachi and otherwise cities of Pakistan which accounts for attracting majority of the customers and getting market share more than it was in the past few years.These larger stores make up 5% of all Pakistan? s retail food stores. in that location are two segments of modern food markets. One segment is dominated by the international groups and there are also domestic food retailers that are also utilizing new modern retail formats. For example, large food retail stores (Metro, Makro, and Hyperstar) comprise about 2% of all Pakistani food retail outlets with an estimated one-year turnover of $176 million. The overall share of import food products in the large retail stores is about 5. 6%.To analyze and figure out factors that have changed the buying patterns crossways the urban areas of Pakistan across all major population segments based on the demographical characteristics. The later part of the research comfortably describes investment opportunity and growth indicators with rising purchasing world-beater of people and increasing consumption patterns principal to impulse buying behavior. Appendices and annexes contain some useful facts that determine the future trends of retailing in Pakistan that how changes are anticipated in the years to come with regard to structure, marketing, supply chain management and customer servicesPage 5 Introduction Consumer Food Purchasing Behavior The average Pakistani consumer spends 42% of his income on food. Consumption of imported processed and ready-to-eat food is great in urban areas because of higher disposable incomes and access to modern style of food. A common Pakistani household makes regular purchases of staple foods (i. e. , wheat flour, pulses, edible oils, fruits, vegetables, milk, meat, etc. ) several times per month from neighborhood stores due to public convenience, perceived freshness, and limi ted terminus space at home.A growing number of young Pakistani professionals (male/female) generally prefer making monthly food purchases from modern retail stores due to greater variety of products, satellite stores, and to enjoy food services all beneath one roof, thus providing the opportunity of combining one stop shop? with a family outing. Affluent Pakistani families are attracted towards modern retail stores due to their affordability, strategic locations, access to the imported processed food, and available choices for multiple product range.In comparison the plain consumer prefers homemade products, organic fruits & vegetables, and has limited access to processed food. The demand for imported food such(prenominal) as dates, cereals, beverages, chocolates, almonds, cakes, fruits and fruit juices reaches its peak during the festive season, especially at Eid and Ramadan. Moreover Pakistan has a large and growing middle-income class (estimated at about 25% of the total popul ation).It also has a large and growing young population and over 55 percent Pakistani? s are in the 10-40 years age bracket. The upper middle-income class is currently estimated at 17 million, with relatively high per capita income which favors consumer spending. Since 2000 demand for specialized products targeted at the middle-income consumers have increased significantly. The upcoming changes in the Pakistani consumer demographic will create opportunities and challenges for companies doing business in Pakistan.Keeping in view the preceding(prenominal) stated scenario and these facts the well described the consumer demographics in Pakistan, we decided to brook a quantitative research to know the factors of changing buying patterns and also to gauge the magnitude of opportunity for the new entrants in the huge retail grocery market that estimates about US$ 42 meg per annum. Page 6 Research Objectives ? ? To study the changes in buying patterns of consumers in metropolitan citie s of Pakistan, later the advent of modern grocery stores.To what extent these retail chains have been thriving and to analyze if there is an opportunity for new entrants in the current scenario. Research Question ? ? What factors are responsible for changing buying behavior of people belong to urban areas of Pakistan? What is the size of opportunity that exists for new entrants in the current market? Page 7 Methodology The research methodology comprised of an online survey and inquirynaire that was conducted by means ofout the city of Karachi, Hyderabad, Lahore and Islamabad. There were 10 option-based question that were designed to get the responses covering the two basic research objectives.Respondents were randomly selected and were asked to fill out a questionnaire which contained predetermined options and with other open-ended options as well, most of the participants were belonged to Karachi along with a significant number of online respondents from Hyderabad, Lahore and Islamabad adding a variety of responses from urban areas of Pakistan. Respondents were divided into four main categories on the basis of their Gender, Age, Marital Status and Income to have a fair understanding of different types of needs and preferences of different consumer segments.Quantitative Research There was a need to measure out the number of consumer that opt or prefer a certain attribute, products or services at these different stores so in terms of percentages it was easy to defer and interpret information that was collected as a result of survey- questionnaire. First of all there was a pre-test conducted to know the validity and effectiveness of the questionnaire and methodology and after that actual survey was launched online and respondents were asked to fill the survey.Online survey reduced the time and other costs associated to our research and proved to be a cost-effective tool to conduct our survey. Page 8 Research Findings On the basis of two distinct objecti ves the research findings are included in this report, the initial objective to determine factors that run consumer buying behavior are the overall services offered, fictitious character and branded products, convenience of getting all items at a single point, no grocery items including fashion apparel, cosmetics, medicine, home decor and so on remained the key choices of the respondents.Regarding the second objective that was to know the size of opportunity for new entrants that was asked in a question to know precise demand of the modern grocery outlets in Karachi and other urban cities, the findings exhibit that a clear majority of the respondents want to have more modern grocery stores in their locality, exact figures are mentioned in the graphical representation section later in this report. Other quantitative results include the relative frequency of purchases, expenditure and preferable store type that are also useful to calculate the size of the opportunity in this secto r.Moreover participants also provided very insightful responses in open-ended options that highlighted many other things that they prefer at these modern stores. Including improvement suggestions regarding, customer support and billing, loyalty and discount programs were dominant responses of the survey discussed in the decimal point in graphical representation section. Page 9 Graphical Representation and Analysis 1. Grocery Store Type It? quite clear from the market share that supermarkets and hypermarkets have acquired during past couple of years is significantly improved up to 30% for each category. Grocery Store Type General stores 30% 30% 18% 22% Dept. Stores Super Markets Hypermarkets 2. Grocery Frequency Frequency as compared to past trend of weekly or daily grocery purchases has been shifted to monthly purchases leading towards impulse buying behavior after the advent of the modern hypermarkets and superstores 60% 40% 20% 0% Grocery Frequency Weekly Fortnightly periodic others 3.Grocery Market Share Modernized supermarkets lead the market with 48% share of the grocery sector these markets are convenience to people living in essential areas of Karachi catering their grocery needs effectively. Grocery Market Share Hyperstar 14% 18% 20% 48% Metro/Makro Naheed/Chaseup /Aghaz/Imtiaz others 4. Grocery Spending Most of the people that opted for modern grocery stores belong to higher income segment and majority spends more than Rs. 7000 on their grocery needs. This indicates a higher tendency of the people to consume in the society. 0% 30% 20% 10% 0% Grocery Spending (PKR) 26% 6% 32% 36% Page 10 5. Appealing Factors The factors that were dominant among the responses were convenience of getting all items at a single stop and economical purchases thus lowering grocery budgets, this is the core reason that has changed buying patterns of consumers in the recent years. other factors Appealing Factors Economical secure and Convenience Adequate Economical 0% 2 0% 40% Adequate Parking Convenience Safe and Secure other factors Non grocery items 6.Non-grocery items Out of the non-grocery items most people preferred cosmetics reason being the majority of female respondents in our sample. Rest of the people preferred medicines and ready to wear apparels. 0% 50% 46% 20% 16% 8% 10% 7. Additional Food Items Other than usual grocery items as food staples there was a significant rise in the demand and preference to ready-to-eat/ cold-food, reason being the most of the married females are opting for careers and employments therefore frozen foods provides them convenience and quick food solutions. 70% 60% 50% 40% 30% 20% 10% 0% Additional Food Items 2% lively fruits and vegetables meat/chicken/p oultry Frozen food others 16% 16% 6% 8. Improvement Suggestions Discount cards were the most opted option by the respondents as people tend to buy in larger quantities they expect a significant amount off as a discount as well as the loyalty or privilege ca rds were also and added suggestion along with the speedy billing process due to the shortage of time in the busy schedule of people living in the large cities. 60% 50% 40% 30% 20% 10% 0% Improvement Suggestions 48% 28% 12% 12% Loyalty cards Discount cards Speedy billing process others Page 11 9.More Grocery Stores So about 90% of the people responded in positive when they were asked about more grocery stores in their city mainly because the convenience these stores offer, slice the remaining 10% who opted for No, come along explained there are enough no of stores in their vicinity only need is to improve their service quality. 100% 80% 60% 40% 20% 0% More Grocery Stores 90% 10% Yes No Yes No 10. Most preferred attribute calibre is the most opted attribute and mostly the quality products and services available at modern grocery store provide an added benefit to the customers and delight them in many ways. 0% 60% 40% 20% 0% Most preferred attribute Quality Pricing Brand Other Page 12 Conclusions After studying the brief results and graphical illustrations we herewith conclude that major causes of change in consumer purchase patterns are superior quality of products and services offered to customers at economical prices, thus elevating the overall value for customers when it comes to convenience shopping, hassle-free parking, pleasant environment, serene ambiance, safety and security which previously was not offered by any of the conventional grocery stores of their localities.Now majority of the consumers prefer going to modern supermarkets and hypermarkets quite than the wholesale markets, to avoid the long tiring grocery shopping which included stressful parking, lack of security and safety. Moreover people on weekends go for grocery shopping with their families which allows them to spend quality time with their family as an outing or entertainment and enjoy shopping with all the modern state-of-the-art facilities offered by malls and shopping centers.Fur thermore, along with the basic grocery items people tend to shop additional items including garments, cosmetics, fashion products, frozen foods, medicines and so on that is again an appealing factor that tell majority of the customers towards these modernized grocery store thus offering more and more benefits and ease to customers.As it has been witnessed that in the past few years the retail market dynamics have changed dramatically with modern grocery stores capturing the 40% share in the sector it is therefore a lucrative sector for foreign investors in the sectors and source of high FDI (Foreign Direct Investment) that would increase employment opportunities for our population and also would add up to fiscal revenues for the government. Page 13 RecommendationsAfter the completion of this research that was in response to previous researches on Emergence of Modern retail in Pakistan and Market Transformation Due To Current Economic Turmoil (USA and European Retail Sectors) we su ggest a comprehensive and more sophisticated research should be carried out on a commercial level to have an in-depth knowledge and insights about the market. Many of the indicators suggest the modern society in Pakistan are moving towards mass consumption and retail sector particular has been the key performer accounts for an annual turnover of about US$ 42 billion(estimated).So in response to it another research should carried out on Factors of Impulse Buying Behavior of consumer segments in Pakistan with respect to the modern grocery markets rapidly increasing and expanding the retail sector in Pakistan. The background of our research was limited to few major cities of Pakistan i. e. Karachi Lahore Islamabad and Hyderabad, so its scope should be increased for future research also incorporating the useful insights of the key industry players of the modern grocery markets. Page 14 Appendices Appendix-1 (Survey Questionnaire) ARM-Questionnaire Demographics Age ? 7-28 ? 29-40 ? 41 & above Gender ? M ? F Marital Status ? Single ? Married Average Household Income (PKR) ? 10,000-20,000 ? 20,001-50,000 ? 50,001 & above Area of Residence ________________________________________________________ 1. What type of grocery store do you prefer for your grocery shopping? ? General stores ? Departmental stores ? Super market ? Hyper-markets 2. 3. 4. 5. How often you go for grocery shopping? ?Weekly ? fortnightly (every 15 days) ? Monthly ? others please specify_____ Which store do you often prefer for your grocery needs? ?Hyperstar ? Metro/Makro ?Naheed/Chase-up/Imtiaz/Aghas ? Others___ On average how much amount you spend on your grocery? (PKR) ? 1000-3000 ? 4000-7000 ? 7000-10000 ? Above 10000 Based on the prior selected store which factor makes you buy from that store? ?Economical ? Adequate Parking ? Convenience (all items under one-roof) ? Safe and secure environment ? Others please specify___________________ What type of items do you prefer to shop along-with grocery ? ?Cosmetics ? Garments ? Medicines ? Electronic Appliances ? Others_____ What additional foods items do you like to buy form the grocery stores? Fresh Fruits and Vegetable ? Meat/Chicken/Fish ? Frozen Foods ? Others__________ What improvements you like see as far as services are touch? ?Loyalty cards ? Discount coupons ? Speedy billing process ? Others _______ Would like to have more stores and hyper markets? ?Yes ? No What do you prefer the most for your grocery items? ?Quality ? Pricing ? Brand ? Others please specify___________ 6. 7. 8. 9. 10. Thank you for your time and attention. Page 15 Appendix-2 FMCG Companies Profit From Rural Consumption Boom in Pakistan By Riaz Haq Higher play prices have increased farmers? ncomes in Pakistan by Rs. 342 billion in the 12 months through June, according to a government economic survey. That was higher than the gain of Rs. 329 billion in the preceding eight years, according to a report by Bloomberg News. Companies like Millat tractors, H onda Atlas Motorcycles, Pak Suzuki Motors, Engro Foods, Telnor, nose, Colgate-Palmolive, Proctor and Gamble and Unilever have been big beneficiaries of the current country-style consumption boom. Nestle Pakistans chief Ian Donald has summed up the rising demand for his companys products as follows It? a common perception that China and India are much bigger in terms of growth than Pakistan. But for Nestle, the per capita consumption of our products in Pakistan is twice as much as we have in China and India. It should be noted that Nestle is the worlds largest packaged food company, and Pakistanis per capita consumption of milk and dairy products is about 2. 5 times higher than in India. According to the FAO, the average dairy consumption of the evolution countries is still very low (45 kg of all dairy products in liquid milk equivalent), compared with the average of 220 kg in the industrial countries.Few developing countries have per capita consumption exceeding 150 kg (Argentin a, Uruguay and some pastoral countries in the Sudano-Sahelian zone of Africa). Among the most populous countries, only Pakistan, at 153 kg per capita, has such a level. In South Asia, where milk and dairy products are preferred foods, India has only 64 kg and Bangladesh 14 kg. East Asia has only 10 kg. Here are a few key points excerpted from a recent Businessweek story on rise of the rude consumer in Pakistan 1. Unilever and Colgate-Palmolive Co. re sending salespeople into rural areas of the world? s sixth most-populous nation, where demand for consumer goods such as Sunsilk shampoo, Pond? s moisturizers and Colgate toothpaste has boosted local units? revenue at least 15 percent. Page 16 2. The rural have-to doe with is aimed at the boisterous youth in these areas, who have bountiful cash and resources to increase purchases, Shazia Syed, vice president for customer development at Unilever Pakistan Ltd. , give tongue to in an interview. Rural growth is more than double that of national sales. 3.Consumer-goods companies forecast growth in Pakistan even as an increase in ethnic violence in Karachi has made 2011 the deadliest in 16 years for the country? s biggest city and financial center. 4. Nestle Pakistan Ltd. is spending 300 million Swiss francs ($326 million) to double dairy output in four years, boosted sales 29 percent to 33 billion rupees ($378 million) in the six months through June. We have been focusing on rural areas very strongly, Ian Donald, managing director of Nestle? s Pakistan unit, state in an interview in Lahore. Our observation is that Pakistan? rural economy is doing better than urban areas. 5. Haji Mirbar, who grows cotton plant on a 5-acre farm with his four brothers, said his family? s income grew fivefold in the year through June, allowing him to buy branded products. He uses Unilever? s Lifebuoy for his out-of-door baths under a hand pump, instead of the handmade soap he used before. We had a great year because of cotton price s, said Mirbar, 28, who lives in a village outside south Pakistan? s Matiari town. As our income has risen, we want to buy nice things and live like kings. 6.Sales for the Pakistan unit of Unilever rose 15 percent to 24. 8 billion rupees in the first half. Colgate-Palmolive Pakistan Ltd.? s sales increased 29 percent in the six months through June to 7. 6 billion rupees, according to data compiled by Bloomberg. In a generally faltering economy, the double-digit growth in revenue for companies servicing the consumer sector has come about entirely from the rural areas, said Sakib Sherani, chief executive officer at Macroeconomic Insights Pvt. in Islamabad and a former economic adviser to Pakistan? s finance ministry. 7.Unilever is pushing looker products in the countryside through a program called Guddi Baji, an Urdu phrase that literally means doll sister. It employs beauty specialists who understand rural women, providing them with vans filled with samples and equipment, Syed sa id. Women in villages are also employed as sales representatives, because rural is the Page 17 growth engine for Unilever in Pakistan, she said in an interview in Karachi. While the the great unwashed of spending for rural families goes to food, about 20 percent is spent on looking beautiful and buying expensive clothes, Syed said. . Colgate-Palmolive, the world? s largest toothpaste maker, aims to address a huge gap in sales outside Pakistan? s cities by more than tripling the number of villages where its products, such as Palmolive soap, are sold, from the current 5,000, said Syed Wasif Ali, rural operations manager at the local unit. 9. Its detergents Bonus Tristar and Brite are packed in sachets of 20 grams or less and priced as low as five rupees (6 cents), to boost sales among low-income consumers hurt by the fastest pace of inflation in Asia after Vietnam.Unilever plans to increase the number of villages where its products are sold to almost half of the total 34,000 within three years. Its merchandise, including Dove shampoo, Surf detergent and Brooke Bond Supreme tea, is available in about 11,000 villages now. 10. Pakistan, Asia? s third-largest wheat grower, in 2008 increased wheat prices by more than 50 percent as Prime Minister Yousuf Raza Gilani sought to boost production of the staple. The injection of purchasing power in the rural sector has been unprecedented, said Sherani, who added that local prices for rice and sugarcane have also risen. 1. Telenor Pakistan Pvt. is also expanding in Pakistan? s rural areas, which already contribute 60 percent of sales, said Anjum Nida Rahman, corporate communications director for the local unit of the Nordic region? s largest phone company. While the presence of multinational consumer product giants like Nestle and Unilever receive more coverage in the western media, the Euromonitor report finds that Pakistani FMGC companies like Engro Foods, Haleeb Foods, Shezan, Tapal, Shan and others dominate the packag ed food business in Pakistan. Heres an excerpt from a recent Euromonitor report on Pakistan.Page 18 Appendix- 3 Study of the International Retail Markets Drivers of Retail Change Internationally There are significant changes underway in the international retail sector. Some are already evident in the Irish retail market while others are now beginning to show an impact. The key drivers of change in the retail sector are Consumer shopping habits and meal preparation habits are changing. This is driving the food retail structure to one of large stores for once-weekly shopping trips and smaller convenience stores for top-up purchases. Relatively low growth in retail spending across Europe, particularly in the food sector, which is generating substantial competition between retailers. A shift in the determinant of consumer demand from price consciousness to value for money. A stronger preference for service and convenience, both in retail service and also in product choice. The deve lopment of a more international outlook and a greater awareness of international brands. More focused marketing methods, referred to as mass customization? and competition for consumer loyalty. The retail sector is still relatively highly regulate in many countries, specifically in the areas of training regulations in respect of new store development and working hours. Developments in information and communications technologies (ICTs) are enabling improvements in market research and analysis, and supply chain management. This is driving significant change in international retail supply chains as retailers seek out increasing efficiencies and seek to reduce inventories. Page 19 Appendix-4Future of Retail Sector in Pakistan The expected future trends in the retail sector in Pakistan are that The retail sector can be expected to cover up to grow in line with the overall growth of the economy, thereby providing further employment and an increasing contribution to economic activit y. The level of concentration, i. e. , the market share held by major retailers, in both the food and clothing sectors, is expected to continue to increase. Further consolidation in the market can be expected through mergers and acquisitions of national retailers and foreign retailers in the current market.Acquisition is likely to be the mode of market entry for large scale foreign retailers into the future. Size & Structure The strucuture of the retail sector is changing as Retailers are growing larger through mergers and acquisitions both in domestic and international markets The number of large sized stores is increasing significantly Levels of concentration in retail markets are increasing recite sizes and deliveries from suppliers are growing and Suppliers are increasing in scale. Customer Service Customer service is developing rapidly through Home hopping and delivery network shopping Longer opening hours Loyalty card schemes Better in-store service Micro-market ing to individual customers and Improved mail order. Page 20 Diversification Retailers are pursue growth through diversification into New product areas, by food retailers into non-food goods, and into new markets such as apparel and music New business sectors such as banking and insurance and New geographic markets, nationally and internationally, mail order, teleshopping and ecommerce.Supply-Chain Management Retailers are increasing their control over the whole supply chain by implementing Centralized distribution Efficient consumer response (ECR) Increased traceability of goods Increased investment in Information Technology Supplier rationalization programs Greater involvement in supplier operations. Page 21 References Retail Sector Dynamics in Ireland-www. forfas. ie. European Journal of Scientific Research Euro Journals Publishing, Inc. 2009 http//www. eurojournals. com/ejsr. htm http//www. iazhaq. com/2011/10/fmcg-companies-profit-from-rural. html Retail markets pl anning guide-FAO Bulletin http//www. fao. org/docrep/v8390e/V8390E00. HTM New generation of retail markets By Ashfak Bokhari From InpaperMagzine 23rd July, 2012 http//dawn. com/2012/07/23/new-generation-of-retail-markets/ Retails Hottest Emerging Markets, 2012 http//www. cnbc. com/id/47782726/Retail_s_Hottest_Emerging_Markets_2012 Economic Impact of Retailing in Pakistan transactions of 2nd International Conference on Business Management Page 22