Far from protesting, local retailers welcome foreign competitors

Better supply chains, increasing consumer sophistication seen helping businesses.

LAHORE:

In sharp contrast to their Indian counterparts, it appears that Pakistani retailers have been largely welcoming of foreign investment in the country’s retail sector, seeing the foreign firms as not directly in competition with themselves and helping improve the quality of the overall market.

“We are not in competition with the multinationals, since their business model is completely different from ours,” said Atif Chaudhry, general manager at HKB Stores, a retail chain that operates five supermarkets in Lahore in addition to several other retail outlets across the country.

Chaudhry is referring to the fact that most foreign firms that have invested in Pakistan’s retail market have decided to build hypermarkets – the sprawling retail outlets first invented to serve the spread out population of American suburbia.

France’s Carrefour operates two hypermarkets in Pakistan – one in Lahore and one in Karachi – and is planning on opening up seven more. Germany’s Metro Cash and Carry, meanwhile, now operates ten stores in Karachi, Lahore and Islamabad after it acquired Makro, another hypermarket chain. Metro’s revenues in Pakistan are estimated to have reached $350 million, according to sources familiar with the matter.

Yet despite their business model that relies on larger, fewer stores, the foreign chains have begun to have an effect on Pakistani consumer behaviour. And the principal beneficiary appears to be local retail chains.

“Pakistanis now know how to shop,” said Chaudhry. “People from the middle and lower income groups used to think that supermarkets were meant for the upper middle class and the wealthy. Now they know better and prefer to shop with us, which has helped increase business at local supermarkets.”

Chaudhry admits that when foreign chains first started operations in Pakistan in the middle of the last decade, there was a negative impact on HKB’s sales. However, he said that the effect was temporary and that revenues soon bounced back and then continued to grow.

Sales at local retailers have increased rapidly over the last few years, though almost none of the stores that spoke to The Express Tribune were willing to provide numbers. The rising sales have caused many to begin opening up more retail outlets in their cities of origin and even spreading out to other parts of the country.

“We now don’t have to go to different markets to purchase different products as these stores offer a wide variety and range of products under one roof and at affordable prices,” said Ayesha Azhar a house wife in Lahore.

It is to cater to that better buying experience that many Pakistani entrepreneurs have begun opening new chains that charge a small premium in exchange for a more pleasant retail outlet. MeatOne in Karachi and Zenith in Lahore are two meat store chains that operate based on this business model.

According to the latest available statistics from the ministry of finance, the retail and wholesale sector in Pakistan is worth about $42 billion a year. Most of it, however, is dominated by small corner stores, of which there are more than 50,000 all across the country, according to estimates compiled by the Small and Medium Enterprise Development Authority.

The welcoming attitude of Pakistani retailers is very different from that of their Indian counterparts, who have vehemently protested against the Indian government’s recent decision to allow limited foreign direct investment in India’s retail sector. Pakistan has no restrictions on foreign investment in most sectors, including retail.

Published in The Express Tribune, February 26^th, 2012.