Tuesday, March 27, 2018

Fast Moving Consumer Goods (FMCG) Boom in Pakistan's $152 Billion Retail Market

Surging demand for fast moving consumer goods (FMCG) in Pakistan is attracting hundreds of millions of dollars of new investments. Expanding middle class, particularly millennials with rising disposable incomes, is demanding branded and packaged consumer goods ranging from personal and baby care items to food and beverage products.  Rapid growth in sales of consumer products and services is driving other sectors, including retail, e-commerce, paper and packaging, advertising, media, sports and entertainment. Planet Retail estimates Pakistan's current retail market size at $152 billion. It is forecast to expand 8.2% a year through 2016-2021 as average disposable income has doubled since 2010, according to research group Euromonitor International as reported by Bloomberg News.

New FMCG Investments:

Dutch consumer giant Unilever has announced plans to invest $120 million to expand its operations in Pakistan. Turkish multinational Hayat Kimya has said it will invest $150 million to manufacture consumer products in the country. Earlier in 2016, Dutch dairy giant FrieslandCampina acquired 51 % of Karachi-based Engro Foods Limited for $220 million.

Rapid growth in sales of consumer products and services is driving other sectors, including retail, e-commerce, paper and packaging, advertising, media, sports and entertainment.

Retail Sales:

Rising incomes of Pakistanis are reflected in the retail sales growth which is ranked the fastest in the world.  Planet Retail estimates Pakistan's current retail market size at $152 billion. It is forecast to expand 8.2% a year through 2016-2021 as disposable income has doubled since 2010, according to research group Euromonitor International as reported by Bloomberg News. The size of the middle class is expected to surpass that of the U.K. and Italy in the forecast period, it said.

Retail Sales Growth. Source: Bloomberg


E-Commerce:


Online sales are growing much faster than the brick-and-mortar retail sales. Adam Dawood of Yayvo online portal estimates that e-tail sales are doubling every year. He expects them to pass $1 billion in the current fiscal year (2017-18), two years earlier than the previous forecast. This is being enabled by increasing broadband penetration and new online payment options. Ant Financial, an Alibaba subsidiary, has just announced the purchase of 45% stake in Pakistan-based Telenor Microfinance Bank. Bloomberg is reporting that Alibaba is in serious talks to buy Daraz.pk, an online retailer in Pakistan.

Advertising Revenue:

Growing buying power of rapidly expanding middle class in Pakistan drove the nation's media advertising revenue up 14% to a record Rs. 76.2 billion ($727 million), making the country's media market among the world's fastest growing for FY 2015-16, according to Magna Research.  Half of this ad spending (Rs. 38 billion or $362 million) went to television channels while the rest was divided among print, outdoor, radio and digital media. `

Global Advertising Growth 2016. Source: Magna

Digital media spending rose 27% in 2015-16 over prior year, the fastest of all the media platforms. It was followed by 20% increase in radio, 13% in television, 12% in print and 6% in outdoor advertising, according to data published by Aurora media market research

Mass Media Growth:

Advertising revenue has fueled media boom in Pakistan since early 2000s when Pakistan had just one television channel, according to the UK's Prospect Magazine. Today it has over 100. This boom has transformed the nation. The birth of privately owned commercial media has been enabled by the Musharraf-era deregulation, and funded by the tremendous growth in revenue from advertising targeted at the burgeoning urban middle class consumers.

Sports and Entertainment:

Sports and entertainment sectors are major beneficiaries of increasing advertising budgets. Commercial television channels' shows and serials are supported by advertisers. A quick look at Pakistan Super League 2018 matches reveals that all major consumer brand names are either directly sponsoring or buying advertising from broadcasters.  These ads and sponsorship have turned PSL into a major business producing tens of millions of dollars in revenue to support cricket in Pakistan.  Last year, Pakistan Cricket Board's budget was over $40 million and a big chunk of it came from PSL. This year, the PSL chairman Najam Sethi estimates the PSL franchise valuation is approaching half a billion US dollars with potentially significant revenue upside.

Downsides of Consumer Boom:

There are a couple of downsides of the consumer boom. First,  a dramatic increase in solid waste. Second, rising consumption could further depress Pakistan's already low private savings rate.

FMCG products come with a significant amount of plastic and paper packaging that contribute to larger volume of trash. This will necessitate a more modern approach to solid waste disposal and recycling in Pakistani towns and cities. An absence of these systems will make the garbage situation much worse. It will pose increased environmental hazards.

Pakistan's savings rate is already in teens, making it among the lowest in the world. Further decline could hurt investments necessary for faster economic growth.

Summary: 

Pakistan's $152 billion retail market is the fastest growing in the world, according to Euromonitor.  Expanding middle class, particularly millennials with rising disposable incomes, is demanding branded and packaged consumer goods ranging from personal and baby care items to food and beverage products. Strong demand for fast moving consumer goods is drawing large new investments of hundreds of millions of dollars.  Rapid growth in sales of consumer products and services is driving other sectors, including retail, e-commerce, paper and packaging, advertising, media, sports and entertainment. Potential downsides of soaring consumption include increased amount of  solid waste and decline in domestic savings and investment rates.

Related Links:

Haq's Musings

Pakistan Retail Sales Growth

Advertising Revenue in Pakistan

Pakistan FMCG Market

The Other 99% of Pakistan Story

PSL Cricket League Revenue

E-Commerce in Pakistan

Fintech Revolution in Pakistan

Mobile Broadband Speed in Pakistan

7 comments:

waqar khan said...

Great to see positive projection of Pakistan based on solid data

Monis R. said...

I believe that soaring consumption and decline in domestic savings rate will increase demand of loan products. What are your views on this?

Riaz Haq said...

Monis: "I believe that soaring consumption and decline in domestic savings rate will increase demand of loan products. What are your views on this?"

Consumer debt in Pakistan is among the lowest in the world. There's a lot of room for consumer debt growth through mortgages, car loans, credit cards etc. But it requires greater financial inclusion. Hopefully fintech will help here.

http://www.riazhaq.com/2017/11/pakistans-fintech-revolution-to-promote.html

Riaz Haq said...

Pakistan economy accomplished a decent growth rate of 5.79% April 16 2018 09:07 PM

http://www.gulf-times.com/story/589222/Pakistan-economy-accomplished-a-decent-growth-rate

Maintaining a steady path and supported by an overall performance by key sectors, Pakistan’s economy has accomplished a decent growth rate of 5.79%, highest in 13 years since 2004-05 when it grew by 7.52%.
With the rate of inflation still below 4% in the first nine months of the current fiscal year, this high-growth-low-inflation scene can be compared to a text book description of an economy at the take-off stage unless rising external vulnerabilities revert back to a crash landing and need for stabilisation during the upcoming political transition.
Some critics may still like to highlight slippages on some targets including the GDP growth target itself 5.79% growth instead of the 6% target – and a particularly lower than anticipated output by the industrial sector.
Yet it is heartening that the agriculture and services sectors performed better than targeted. This in fact partly compensated for the industrial sector’s growth.
Most of the numbers approved by the National Accounts Committee for GDP performance are subject to the usual revision based on availability of actual numbers for the entire fiscal year.

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The rise in production of three important crops namely rice, sugarcane and cotton was estimated at 8.7%, 7.4%, and 11.8% respectively. On the contrary, decline in production, although provisional, was estimated at 4.4% for wheat crop and 7.1% for maize.
Together, important crops posted a healthy growth rate of 3.57% against 2% target while other crops increased by 3.33% against 3.2% target. Cotton ginning also contributed significantly with a 8.72% growth rate compared to 6.5% target and last year’s growth of 5.6%. With 3.76% growth, livestock was close to 3.8% while forestry sub-sector stayed far behind the 10% target at 7.17% – almost half the 14.5% growth delivered last year.
On the whole, the industry is estimated to have grown 5.8% against a target of 7.3% and revised growth of 5% last year. Here the manufacturing showed a 6.24% growth instead of the targeted 6.4% and 5.3% growth last year.
Large scale manufacturing posted a 6.13% growth, slightly below its 6.3% target but much better than last year’s 5% increase. Major contributors to this growth were cement (12%), tractors (44.7%), trucks (24.41%) and petroleum products (10.26%).
Construction, another priority sector of the current government, also increased by 9.13%, against 9% increase last year, and missed by a wide margin the target of 12.1%.
The major contribution to 5.79% GDP growth rate came from 3.85% share from the services sector. The remaining 1.94% share to GDP came from industrial sector (1.21%) and agriculture (0.73%). The services sector has achieved 6.43% growth during current fiscal year second year in a row to have achieved above 6% growth but was primarily driven by general government services aka salary increases, inflation and other public sector expenditures.

Riaz Haq said...

The ever-changing food consumer

https://www.dawn.com/news/1390287

THE way we eat is under constant evolution. Food is no longer the tedious, labour-intensive affair of yesteryear in urban households. Ready-to-cook, store-bought items are steadily making their way onto our plates.

The rising Pakistani urban middle-class and growing disposable incomes are accountable for this shift in dietary patterns.

The Household Integrated Survey for 2015-16, conducted by the Pakistan Bureau of Statistics, reveals that the average monthly income of urban households rose from Rs38,923 previously to Rs45,283. It also shows that an average urban family spends around Rs15,000 monthly on food, of which readymade food contributes nearly five per cent.

The lure of convenience when it comes to food is hard to resist for consumers as cityscapes in the country become increasingly peppered with supermarkets. “More and more middle-, upper-middle and upper-class consumers in urban areas are choosing to visit modern retailers, in particular for a new experience and for the bulk shopping of packaged food products,” according to Euromonitor International, a market research firm.

Unsurprisingly, middle-class consumers “tend to consume far more meat, fish and dairy products”, according to a Deloitte report on the food value chain. With the surge of the processed food industry, small- and medium-sized companies such as K&N’s, Dawn, Menu, PK Livestock, and Big Bird have now become household names.

Riaz Haq said...

Report finds sharp decline in Pakistan’s pulse consumption

https://www.dawn.com/news/1400488

The consumption of pulses in Pakistan has sharply declined from about 15kg per person a year to about 7kg per person a year, found a new report of the Food and Agriculture Organisation (FAO) of the United Nations.

The report titled ‘State of Food and Agriculture in Asia and the Pacific Region’, reviewed pulse consumption in Pakistan, India, Sri Lanka and Bangladesh over the period from 1961 to 2013. It has been prepared for the FAO regional conference for Asia and the Pacific being held in Fiji on April 9-13.

The report found that as countries became richer, populations were shifting from vegetable proteins — such as those found in pulses and beans — to more expensive animal source proteins such as those found in dairy products and meat.

In India, during this period, the consumption of pulse declined from about 22kg per person in a year to about 15kg per person per year. The decline was consistent with trends elsewhere in the world. In Sri Lanka, however, pulse consumption seemed to have fluctuated between 5kg and 10kg per person per year since 1960, except for a sharp drop from 1970 to 1985, the report said.

Pointing out challenges, it emphasised that the relative neglect of pulses, beans and other crops in agricultural policies in the region should be reversed so that the poor had relatively low-cost sources of protein and other micronutrients.

The report pointed out that although overall cereal consumption per capita either declined or remained constant, within the cereal group itself there were important changes. Utilisation of rice and wheat for food increased — in some cases sharply — while total food utilisation of coarse cereals, which had been relatively important in the 1960s, either declined or remained steady, implying a fall in per capita consumption since the population was increasing.

Citing example, the report said in East Asia rice and wheat utilisation for food was about 220 million tonnes per year in 2015, versus 20m tonnes per year for coarse cereals.

Total utilisation of ‘superior’ cereals was still rising in 2013 mainly because of continuing population growth, even though per capita utilisation had started declining from the mid-1990s onwards, it added.

The report put four South Asian countries — Bangladesh, India, Pakistan and Sri Lanka — below the red line, indicating that their calorie consumption was below the level that would be expected given their per capita household expenditure.

Riaz Haq said...

FAO Report for Asia Pacific Region 2017:

Asia and
the Pacific
REGIONAL
OVERVIEW OF
FOOD SECURITY
AND NUTRITION

In 2011-2013, only two (Mongolia and Pakistan) of the 26 countries had average intake of milk of 370 g/day or over.

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In Pakistan,
the Credit Guarantee Scheme for Small and Marginalized
Farmers became operational in 2016, encouraging banks
to grant credit to small-scale farmers who previously lacked
access. Under the scheme, the government guarantees up
to 50 percent of loans to small farmers (i.e. those with less
than 5 acres of irrigated and 10 acres of non-irrigated land).

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In South Asia, production outcomes improved for some
countries. Pakistan had a bumper wheat harvest in 2016
and other crops also performed well due to favourable
weather. In India as well, cereal production recovered
markedly after two consecutive bad seasons. In some other
cases in South Asia – e.g. Sri Lanka – governments managed
to maintain aggregate food supply either through imports
or by drawing down stocks where available despite declines
in cereal production.

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http://www.fao.org/3/a-i7930e.pdf