Catering to the middle class: For one retailer, it’s all about the supply chain
The company – that exclusively targets the middleclass – is planning on expanding their own supply chain as well as a nationwide expansion of their stores.
“We should have at least eight stores in Karachi alone,” ISM’s 56-year-old owner, Imtiaz Hussain said. Admitting the company remained slow in terms of opening more stores, Hussain said they want to open at least three more stores in Karachi during next five years.
Pakistan’s retail sector has become more vibrant recently, thanks to the growing middle class – one-third of the country’s population – and the entry of international players into the Pakistani market, such as France’s Carrefour and Germany’s Metro Cash and Carry.
ISM, too, is preparing for what is turning out to be a corporate war in the retail business – the company wants to re-introduce local and imported goods at large scale, according to Hussain.
The company is renovating its Bahadurabad store and also looking to buy more space around that building. “Once we meet our Karachi target, we will go to Hyderabad, Faisalabad, Lahore and Rawalpindi,” chief executive Arif Naqi said. Yet first it must overcome some logistical problems. Many of its branches do not have separate parking or offer fresh grocery (fruits and vegetables).
“We will introduce fresh grocery within three months,” Hussain said, adding, “We are also working to set up valet parking to facilitate our customers.”
ISM should have over a dozen stores across the country, observers believe, they are too slow to expand into this growing market. The company had to open a store in Clifton last year (2010). According to Hussain, they will not be able to open it until next year.
The renovation of Bahadurabad branch – a priority for the business – Hussain said is one of the main reasons for the delay. ISM does not want to depend on outside funding, Naqi said – another possible reason for the company’s slow expansion.
Despite having only three stores, investors are showing interest in the business. There has been talk among retailers and investors that the company is making more money on a per-square-foot basis than other supermarkets.
“ISM is catering to a large and growing market segment – the middle class – and investors will most likely be happy to bet their money on ISM,” said Isfandiyar Shaheen, Head of Growth Equity at Cyan Limited, a private equity firm owned by the Dawoon Group, a conglomerate.
If one looks at the geography of ISM stores, it is quite understandable as to why the supermarket has been able to penetrate the city’s middle class. ISM has its presence in key locations of Bahadurabad, Awami Markaz (Shahrea Faisal) and Nazimabad while they are targeting Clifton, Gulistan-e-Jauhar and Gulshan-e-Maymar for more stores.
Besides growing demand, Hussain’s business strategy, too, has played a significant role in increasing the supermarket’s clientele. By buying in bulk, Imtiaz offers markedly lower prices to its customers. The company now wants to take one step further.
ISM wants to set up its own supply chain by cutting the middle man out, Naqi said. Imtiaz Rice, a brainchild of Hussain, is an example how the business benefitted from setting up their own rice processing unit – they have their own brand of rice.
Hussain’s ability to deeply understand the need and behavior of local consumers is another factor that helped the business to grow – Imtiaz Rice, one of the highest selling grocery items for the business – is an example of that.
Due to hot climate conditions, Naqi said, women tend to avoid spending too much time baking bread. He added the alternative for bread is rice for most women. Hussain had a clear understanding of this trend, Naqi said, so he opened a rice processing (husking) unit in Korangi.
This move helped ISM to prevent the business from supply shortfall, control and reduce price by cutting the middle man and yet make profit, Naqi said.
Published in The Express Tribune, November 21st, 2011.
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