Shakeel Butt
May 5, 2011

PAKISTAN FOCUS: Navigating a burgeoning consumer landscape

Following the Top 10 brands in the market report published on Tuesday, Nielsen Pakistan managing director Shakeel Butt takes a look at what it takes to win in Pakistan's diverse, burgeoning consumer landscape, currently the sixth largest in the world.

Shakeel Butt, Nielsen Pakistan MD
Shakeel Butt, Nielsen Pakistan MD

Pakistan is a country full of interesting contrasts. The country’s terrain blends the world’s second highest mountain peak in the north with some of the most fertile plains in the subcontinent and a coastline that stretches along the Arabian Sea. This diversity is also manifested in the country’s sizeable consumer base of around 180 million spread across 400 cities and towns.

As a group, consumers in Pakistan represent the sixth largest in the world. The population is expected to grow to 300 million by 2050 at rates higher than the global average. This would make the country the fourth most populated in the world. Nielsen’s analysis also shows that while the upper and middle classes are growing, the lower class is shrinking – a positive sign for businesses including FMCG companies. Winning in the market, however, requires one to be on top of the sea of change taking place.

Amidst ups and downs, consumers remain resilient and continue to spend

In the past 40 years, the country witnessed economic growth at a rate higher than the global average. However, the economy has been struggling recently as GDP growth declined from about eight per cent in 2005 to nearly two per cent in 2011. Improvements in Pakistan’s per capita income have been offset by the negative impacts of currency depreciation, while the economy is battling skyrocketing inflation which currently hovers above 13 per cent. 

While the continuous rise of prices for essential consumer goods is creating pressure on sales volume growth across various categories, brands and manufacturers are still performing well in value terms by the same token of inflation. 

Pakistan’s geographic adjacency to volatile ‘hotspots’ and its ongoing war against terrorism have also added to the nation’s concerns. Growth from the agricultural sector, traditionally the saving grace for the semi-industrialised economy, was impacted by a spate of flash floods in late 2010.  Not surprisingly, the cumulating effect has taken its toll on Pakistani consumer sentiments over the past few years.

Despite these factors, consumers are seeing lights shimmering at the end of the tunnel. 
The Nielsen Consumer Confidence Index for Pakistan at the end of Q3’ 2010 stood at 89 points, indicating consumers were more optimistic than their counterparts in larger and more developed economies like the USA and the UK, with indices of 81 and 75 points respectively. The same survey revealed that a fourth of the Pakistani consumers were optimistic about the country’s economic recovery within 12 months. In addition, the majority of consumers had spare cash which they were likely to put (in order of preference) into savings, new clothes and new technology products.  

  • Time is ripe to target the growing upper and middle classes. Multinational and local businesses are looking at the enormous opportunities in Pakistan presented by the vast base of consumers.  Indeed, the signs are flashing green, as seen by the significant shift in socio-economic classes in the past few years. Nielsen’s research reveals that, for the period of 1998 to 2005, the upper class in Pakistan grew by around 40 per cent, though from a smaller base, whereas the significantly larger middle class grew by around 14 per cent. In what has traditionally been a male dominant society, we are also seeing a gradual shift in Pakistan as the female contribution to the workforce has almost increased 1.5 times over the past years, paving the way for more spending power. These shifts point to a potentially growing demand for consumer goods and services and bode well for business expansion now and well into the future.
  • 'Nuclear' upside? We also see a shift away from the traditional extended family construct, towards a nuclear family construct. This new dynamic is creating more independent households, which is one of the important factors driving growth in the local real estate market. Another implication of the move towards nuclear family units is the potential increase in the number of shoppers (consumers who make buying decisions) for products and services.
  • The rural population is a force to contend with. Consumers in rural areas of Pakistan are also evolving and maturing in their needs.  There is a noticeable rise in brand recognition as more rural consumers make the switch from unbranded to branded products.  Based on Nielsen’s analysis, growth in FMCG sales in the rural market almost doubled compared to growth in urban areas over the past year. Rural areas also saw a wave of bumper crops in the past couple of years which have produced a more affluent, and discerning, rural consumer and ushered improvements to their overall quality of life. This is evident in the rising ownership of durables across rural areas as measured by Nielsen. Today, there are more TVs, washing machines, irons and fridges than there were five years ago in rural Pakistan – and the pace of growth is showing no signs of slowing down. Interestingly, Pakistan’s rural areas also appear to be more resilient to recessionary pressures. While urban industrial growth was severely affected by the last global recession, the rural consumer market continued growing both in volume and value. 
  • Young, aspirational population driving consumption and change. The nation is sitting on a depository of another key resource – its youth.  Compared to a world median age of 28 years, the median age in Pakistan is 21.2 years. The age bracket of 15 to 44 constitutes 41 per cent of the total population. Today’s Pakistani youth are highly aspirational, aiming for better career and employment opportunities and higher education degrees. They have deeply cultivated family values and look to their parents as role models. They are also increasingly independent consumers who decide on what they wish to buy, spending a major portion of disposable income on clothes and mobile communications. The preferences of this segment are also driving shifts in the retail landscape as they prefer shopping in malls and supermarkets over traditional retail formats.  This is causing an upsurge in the shoppertainment culture driven by aspirations to modernise and prove their self-worth - also linked to emergence of nuclear family units. 

Urbanisation and media development provides stimulus for consumption

Increased urbanisation and an explosion in media outlets are also leaving their mark, stimulating new purchasing needs for this segment and contributing to higher consumption. Consumers' exposure to digital media is on the rise with access to internet growing by approximately 70 per cent in the past five years. The added choices offered by satellite and cable channels (86 government licensed TV channels on last count) have also bolstered the local media industry, creating a range of new opportunities and spurring innovative approaches for FMCG players as they look to market themselves across a growing three-screen (television, internet, mobile) paradigm. Consequently, more branding activities are currently underway across all platforms including TV, theater, online, mobile, malls and supermarkets.

The level of urbanisation in Pakistan is now the highest in South Asia, with Pakistan’s urban population estimated to equal its rural population by 2030. This rapid rate of urbanisation no doubt will bring about higher incomes, more sophisticated consumers, improved health, higher literacy, and an improved quality of life. 

The 'outside' in effect

Approximately seven million Pakistanis living abroad remit around US$8 billion annually through formal channels back to families in Pakistan. These remittances reached new records when the monthly remittances crossed the US$1 billion mark in March 2011. This year has also seen an all time high of cumulative remittances amounting to US$8 billion in past nine months of current fiscal year. The immediate family members who receive these remittances spend and invest the amount locally and the benefit spreads broadly into local economies, helping to boost the economy.

An increasingly modernised retail trade

The retail scene is also becoming more diverse, with a more pronounced development of the modern trade in both urban and rural areas.  While traditional stores have shown a decline of about 6 per cent over the last year, modern general stores have grown by 4 per cent. 

Large chains like Metro and Makro have already entered the market and are competing with traditional wholesalers for a slice of shoppers’ wallets. Hyperstar and other large departmental stores and hyper markets have also successfully penetrated the market and are showing strong growth. This channel has increased by 18 per cent over the last year, challenging 'legacy' shopping behaviours. Shopping habits are changing and moving away from high-frequency, low-quantity and need-based trips to local convenience stores which offer primarily unpacked and unbranded goods. These trips are considered routine 'chores'. Instead, consumers are now increasingly opting for more engaging weekly shopping experiences that larger retail outlets present - bigger quantities are purchased amidst an atmosphere of convenience, interactive brand choices and promotional incentives.

Last words

While there may be economic challenges, there are numerous indicators that the country is turning the corner as businesses formulate pioneering and novel approaches to capture the huge potential in the market.  Those able to cater to changing needs, understand the mindset, and address the aspirations of the core base of the consumer population, focusing on youth and rural areas, will be rewarded with the ultimate prize - growth in this relatively untapped market.  

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