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June 14, 2008

Spicing up Seth’s business: future of business is in brands

Peshawar

June 14, 2008

KARACHI: When Abrar Hasan joined his family business, National Foods Limited, a brand leader in packaged spices, in 1993 he realised that the company could realise its full potential only through effective human resource management. Armed with a degree from the US, Abrar Hasan threw himself into the business and has not looked back since.

Two years after joining the company, he felt that it was time to strengthen the management cadre at National Foods. He gave an advertisement for hiring a human resource manager. Hundreds of applications poured in and all but two were from retired army officers.

“Apart from multinational people, who were mostly over age, all others thought the job pertained to personnel management,” Hasan, now Chief Executive of National Foods, Pakistan’s largest food company, recalled in an interview with The News. “Quality human resource didn’t want to work for a local company back then,” he added.

The image of a Pakistani company, he said, was that the owner does things his own way without taking feedback from subordinates, leaving little motivation for workers to strive for collective gains. “My biggest challenge was to overcome that stigma.”

He recalled the time when he was director operations, but was assigned the responsibility of looking after the business. “It was generally believed that the seth (owner) does not invest money in his organisation and that they were using the company only to fund their lifestyles.”

The business model he envisaged was that of complete decentralisation. “In a centralised structure, the leadership is not very skilled so they want to keep everything to themselves,” he said, adding it was necessary to break away from that system.

National Foods was founded by his father, Waqar Hasan and a partner Abdul Majeed in 1970, when they took over National Laboratories, a food testing facility. Until the 1990s, the company had already won the hard part of

its battle with the unbranded product segment of the market.

“Acceptability of the brand by consumers was never an issue for the second generation,” added Abrar Hasan, who is 41 years old. He said that the problem was the small size of the business and the lines on which it was being run.

For a businessman, he says, it is important to realise that everything is related. “One department’s output is another’s input. The old way of doing business was the authoritarian style, and decision-making was not given to key people who worked in the production lines.”

The reward, he says, for introducing a modern management system has been encouraging. It was April 13, 1993, when Hasan took up the new job at his father’s company for a salary of Rs5,000 a month. At the close of the financial books that year, it made a profit of Rs3 million, with sales worth Rs180m. This month when National Foods closes its accounts, the company is expecting to post a profit of Rs200m on sales of Rs4 billion, he said with a triumphant smile.

To continue with this phenomenal growth projectile, the company has once again adapted to changing trends. Now instead of targeting the mass market, it has adopted a targeted approach, making products for each segment according to its requirement and needs.

“The era of mass marketing does not exist now because there are too many products and too much competition,” he said, referring to the launch of National’s ready-to-cook meals, a new highly value-added addition to the line of more than 300 items the company makes for local and export markets.

These ready-meals, which are as good as new, even after spending 18 months in a cupboard, were launched just a few weeks back keeping in mind the concept of convenience. “and convenience is directly proportional to how many women are working,” he added.

Hasan said the introduction of such a product does not mean that traditional style of cooking has come to an end. “It is a lifestyle based product. It will be used whenever you want to spare time for leisure. Importantly, women have become busier, they don’t want to stay home and just cook.”

With a line of products ranging from Chinese chili sauce to synthetic vinegar and ketchups to pickles, National Foods has come a long way in championing Pakistan’s food market. The highest market share of any of its products is 85 per cent and the lowest market share more than 52 per cent.

Unlike many other homegrown companies, National Foods is listed on all the stock exchanges, something which helps it maintain a good corporate outlook. The company has placed marketing high on its priority list and spends Rs350 million annually under this head.

According to Hasan, the company has always relied on research data to determine future projections and understand new trends. “One thing we miss in Pakistan is that companies don’t rely on data,” he said and added that such exercises are costly, but the outcome is always rewarding.

However, despite all the right ingredients, the company is still gearing up for the challenges ahead, he maintains. “Our competition has always been the unbranded segment.” He explained the difficulties the company has to face when it comes to competing with spices sold in the open market.

“It is very difficult to compete with the unbranded segment, because of price sensitivity,” he said, adding that people involved with this unregulated business have a lot of room to manipulate prices. However, he says ultimately consumers respond to a brand identity, which ensures quality and standard.

There has been a major shift in consumer interest towards branded products during the past eight years, he said. “The economy has done well in the last eight years and so has the consumer segment. When this happens, there is migration from unbranded products to branded products.”

The agriculture sector has, however, lacked behind, something that Hasan says must be addressed immediately in the larger interest of the nation. “There has been an increase by ten folds in prices of spices mainly because of inconsistent yields.”

He attributed the poor state of agriculture to outdated farming techniques, which result in a lot of wastage. “Certain crops have done very well like sugarcane. It shows that where the government puts its mind, the country can do very well. But introduction of modern farming is a prerequisite for progress.”

National Foods does not have its own farms, but the CEO says the company has been trying to engage farmers directly under its corporate social responsibility programme, by guaranteeing purchase of their entire yield. He stressed on the importance of the farmer receiving the right price for his labour. “Globally there is a community called Fair Trade. Companies associated with this organisation print the Fair Trade logo on their products, which is a message for consumers that they pay a high price for the product because the farmer is getting the right price.”

When asked where he sees the opportunity for value addition in food products, Hasan does not talk about just packaging and branding. “Internationally, research is underway on nanotechnology. In fact people are now talking about fortifying food with this technology, so when people eat, they will be able to get micronutrients delivered exactly to the part of the body where they are needed.”

Ambitious as it may seem, Hasan has calculated all his plans on facts and figures. He intends to increase sales of National Foods to Rs50 billion by the year 2020. “From 1971 to up till now, our average growth rate has been 22-23 per cent year-on-year. Even if I fix this rate, we cross Rs50bn by the target year.”