Multinational grocery retail didn’t work out as expected

LAHORE: The modern multinational grocery retail that threatened small retailers when it was launched in Pakistan a decade back, has not lived up to its promise and is restricted to few localities in three or four big cities.
Experts point out that when foreign grocery giants entered the Pakistani market, the expectation was that the entry of these retailers would be a death knell for family owned grocery chains, small independent stores, and informal grocery vendors. They said the promise that multinational grocery chains would lead to super markets, convenience stores or discounters did not materialise.
Senior market analyst Dr Shahid Zia said that small time retailers have proved remarkably resilient. “The multinational stores failed to realise that market and channel structures in Pakistan are different not only from developed economies but also from emerging economies in Latin America or Far East,” he said.
Retail outlets in Pakistan were first established just outside the two big cities of Karachi and Lahore. They offered thousands of items on large floors and operated at a level of productivity that they thought would be difficult to match by other grocery formats. The efficiency gains were passed on to the consumers by lowering prices, and many retailers relied heavily on hypermarkets as they provided one stop shop to them. However, he added the less affluent consumers having no transport and lesser capacity to stock grocery stayed away from these hypermarkets as the discounts were offered on minimum purchase of more than one piece per item.
Dr Zia said the multinationals then tried to confine themselves in affluent localities and established outlets in rich localities. Again they encountered a different culture than in developed economies where families prefer ready to cook food.
The food shopping habits in Pakistan are largely localised and well entrenched. In Pakistani culture, families tend to prepare their own meals.

Moreover, he added they are accustomed to shopping at open-air market stands that offer a familiar selection of fresh food. They usually do not differentiate between the quality service provided by modern retailers and that of the traditional trade.
He said another problem encountered by the multinational stores is the informality of traditional trade.
Their service costs are also higher as in most retail stores the labour comes from the family or the wages they pay informally are very low.
Moreover, most neighbourhood stores are established in an outer portion of residence and pay no rent. They do not pay any taxes as well, he added. He said it is extremely difficult for formal retailers to compete in such informality of trade.
Market analyst Beenish Toor said that the retail sector is poised to grow robustly in the emerging economies in the next two decades.
She said some creditable global institutions expect the retail trade to cross $30 trillion in emerging economies by 2035. She said according to Euro monitor report, retailing witnessed strong current value growth in 2014 as the economy strengthened.
Despite continued energy crises and inflation, hopes are there of an improved economic situation, as new entrants, mostly from domestic sector, have entered retailing.
This, she added has created a more competitive environment, with companies investing heavily in marketing.
Beenish said the largest retail channels still are the traditional grocery retailers.
Super markets established by local businessmen on the pattern of multinational grocery stores have dented the growth of small retail sector.
A trend has emerged even among semi-rural consumers preferring a 1-stop solution for their shopping needs. “A surprising development in the retail sector is the fast emergence of non-grocery outlets, which points towards increasing income levels, allowing consumers to spend more on non-essential items.
Despite inflation, consumers continue to spend an increasing amount on non-grocery products compared with grocery products,” she added.
Competitions in retailing constantly on the rise as new players are entering the market regularly. She said the retail chains of fabrics and clothing were not heard of a decade back.
Now, she added Nishat, Gul Ahmad, Breeze have outlets exceeding 100 each, spread throughout the country.
She said in footwear, Bata and Service still dominate, but more than two dozen footwear chains are spreading around the country.
Social media marketing has made consumers conscious of these non-grocery brands, she added. —Mansoor Ahmad