Euromonitor report: Tradition still ahead of modern methods

Despite gaining popularity, hypermarkets and superstores lag behind small retailers.

KARACHI:

Modern trade maybe transforming the country’s retail landscape but the traditional grocery stores – small retailers – continue to define Pakistan’s retail sector, according to an international study.

Modern retailing – hypermarkets, supermarkets and large cash and carry stores for example – witnessed healthy growth in 2012 but the country’s retail sector continued to be defined by the hundreds of thousands of independent small grocers, Euromonitor International revealed in an April 2013 study on Pakistan’s retail sector.

Headquartered in London, Euromonitor International is a global firm with specialisation in strategy research for consumer markets.

The concept of hypermarkets and superstores has become increasingly popular among masses over the past decade. Besides a few international players that entered the Pakistani retail market, local retail chains also restructured their business models as per international best practices and expanded rapidly.



The Euromonitor study, however, noted the modern retailing businesses hardly posed a threat to traditional grocers, which provide services in small stores located near customers’ homes.

The strength of traditional grocery stores lies in their deeply rooted social and financial connections to the society they serve and the proximity of their location, which has proved crucial in a time of high fuel prices and fuel shortages, the report said.

“These traditional outlets, despite their old methods, conventional facilities and lack of application of modern retailing methods performed well in 2012, indicating that they are far from being replaced by modern retailers,” the report said.

The economic indicators (energy shortages, inflation and unemployment) hardly saw any change in 2012 compared to the previous year thus higher economic growth allowed consumers to spend more in retailing, the report said – the country’s real GDP grew by 3.4% in 2012 compared with 2.4% of 2011.

Retailing had a prominent year in 2012 with many small entrants and a noteworthy presence of major players on television, radio and billboards, the report said, which indicated a healthy competitive environment.

According to Euromonitor’s study, retail sales through store-based retailing increased by 12% in 2012. “Stronger economic growth allowed consumers to enjoy higher disposable income which in turn helped retailing to grow in the country,” it said.

While the growth was notable, the retail sector remains far from its potential.

“Strikes at retailing outlets due to excessive electricity load shedding in the summer and natural gas load shedding in the winter continued to be a hindrance and curtailed the sector from reaching its true potential,” the report said.

Given the country’s demographics and retail potential, the report concluded the sector will grow further as the country’s economy would recover.

Pakistan has the sixth largest population in the world with approximately 187 million people – comparatively young with a median age of 21.8 years as recorded in 2012 – of which 35% age between 1 and 14 years, the report said. Due to high income disparity and 64% of the population living in rural areas, only a small portion of the population play a significant role in terms of spending power in the context of retailing, it said.

“As the economy recovers from the natural disasters such as floods in 2010 and 2011, the severe energy crisis, a fall in income taxes and growing urbanisation together will push the growth of retailing over the forecast period [2017],” it said.

The general investment climate for domestic and foreign investors is also expected to improve as the inflation levels and the political scenario stabilises, leading to expansion by current players and entry of new local and foreign entities in the future, the report says.

Published in The Express Tribune, April 9^th, 2014.

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