Profit E-Magazine Issue 28

WelCoMe

OF A LACK OF IMAGINATION & UNSOLD SHIRTS akistan’s retail market. Sound out anyone, not just within the country, but also abroad, you’ll hear the same optimism about it. “135 Million Millennials Drive World’s Fastest Retail Market,” read Bloomberg’s headline about the market.

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the economic activity statistics of this year, could be that the customers actually are there; it’s just that there aren’t as many customers per outlet. There are so many new brands and new outlets of older brands but - huge millennial population notwithstanding - there is still a finite number of customers to go around.

Though there are many sub sectors within retail, the apparel market in particular seemed to have become the poster child for this growth. After seeing one brand after the other being launched, with their respective string of glitzy stores dotting even the third-tier urban areas of the country, one could broadly surmise one simple truth: there’s a lot of money in selling Pakistanis’ clothes.

This state of affairs underlies both the serious lack of imagination on part of our entrepreneurial class and also its laziness. They’ll just look at businesses that seem to be doing well and want to jump on that bandwagon, without even doing the research on the sector and its upcoming threats. Nothing appears sexier to our businessmen than the prospect of owning a fourth tyre shop next to three existing ones. If there’s room for three, then there’s room for another one, right?

Well, those good times seem to be slowing down. From retailers in plush, swanky malls staging protests against the latter, asking them to lower their rents as they are not seeing anywhere near the sales that they thought they would, to informal chats with senior apparel sector executives, we are now finding out that the sector is losing its edge, fast.

Why? Well, for starters, consumer sentiment, that unactionable entity, is going down. This is not a treatise on behavioral economics, and we really don’t know why, exactly, consumer sentiment is going down, but here we are. Those viral videos of women physically fighting each other at clothing stores that you remember your cousin WhatsApping you are not showing a scramble over regular pricing, but over sales. The sort of sales that are not sustainable for these brands anymore. Barring those sales, the customers are just not there anymore.

But perhaps the real explanation, one that will be confirmed after the government gets around to compiling

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Well, this Fallacy of Composition seems to have ruined the apparel sector. The newer entrants into the market, whose brands are nascent and whose supply chains aren’t yet too efficient, will take the biggest hit. The heavy hitters, the ones that have significant brand equity and whose supply chain mechanisms are lean machines without an ounce of fat on them, are the ones that will weather the storm by price gouging.

The problem: once this market correction takes place and the newer entrants are weeded out, and things are back to being good again, it will only be a countdown till that first businessman looking for opportunities, says, “Hmm...there seems to be a lot of money in selling clothes to Pakistanis…..”

Babar Nizami

FROM THE MANAGING EDITOR

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8

8 Weekly Roundup 12 Should traditional travel agents be scared of Checkin.pk?

16 Retail boom goes bust?

24 24 Value for money 28 Dehydrating, to optimize advantage 32 Selling is easy, recovery a huge challenge

12

32

36

36 Powerful smog KK Shahid 38 A shopping spree that beats all binges 40 Kuch meetha ho jaye!

Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Business Editor: Agha Akbar Editor Reporting: Farooq Baloch l Reporters Aisha Arshad l Arshad Hussain l Usman Hanif l Syeda Masooma l Ahmed Ahmedani Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l ZulďŹ qar Butt (Lhr) l Mudassir Iqbal (Isl) Design & Layout: Rizwan Ahmad l Illustrator: ZEB Photographers: Zubair Mehfooz & Imran Gillani Publishing Editor: Arif Nizami Contact: proďŹ t@pakistantoday.com.pk

CONTENTS

“Global laws are skewed in favour of the rich and powerful, resulting in dangerously rising inequality” PTI Member of National Assembly Asad Umar

QUOTE

BRIEFING

“Ongoing development schemes in Karachi will contribute towards supplementing CPEC” Sindh Governor Muhammad Zubair

increase in food imports was registered during first four months of current financial year compared to corresponding period of last financial year. According to Pakistan Bureau of Statistics (PBS), the food imports during July-October (2017-18) were recorded at $2.198 billion against imports of $1.828 billion during July-October (2016-17), showing an increase of 20.21 percent. The food commodities that witnessed increase in imports included milk, cream and milk food for infants, the imports of which grew by 1.5 percent by growing from $80.126 million last year to $81.328 during the ongoing year.

There has been increase of 18.88 percent in the imports of dry fruits and nuts as these mounted up from $54.467 million last year to $64.750 million.

20.21pc

surge was recorded in production of jeeps and cars during the first quarter of the current fiscal year against output in corresponding period of last year. As many as 57,642 jeeps and cars were manufactured during July-September (2017-18) against the output of 43,878 units during July-September (2016-17), according to Pakistan Bureau of Statistics (PBS). The production of light commercial vehicles (LCVs) also increased by 2.28 percent by growing from the output of 7,018 units last year to 7,178 units during the current fiscal year while the output of motorcycles surged by 24.78 percent by growing from 555,952 motorcycle units last year to 693,709 units in the ongoing year.

31.37pc

per unit reduction has been approved by National Electric Power and Regulatory Authority (NEPRA) in the power price under the head monthly fuel price adjustment of October 2017. NEPRA took this decision of relief for electricity consumers while hearing a tariff petition of Central Power Purchasing Agency (CPPA) under which CPPA solicited Rs2.23/unit cut in power price for the month of October 2017 due to variation in fuel charges. And, with effect to NEPRA’s decision, electricity consumers will find an estimated total relief of Rs 22 billion due to variation in the fuel charges that resulted in the decrease of electricity prices.

Rs2.23

8

125 Indian IT sector outsourcing jobs have been transferred to Pakistan as their dominance wanes. According to the report, rumours of layoffs had been humming over the last few months and the company was opening offices in a neighbouring country.

The Indian IT sector known for its dominance has been plagued by job cuts for two years and have exacerbated to serious levels since start of 2017. The tide of IT jobs shifting to Pakistan is an emerging trend.

China is doing the same to Pakistan’s IT industry to what US did to India’s IT sector two decades ago and significant investment under China-Pakistan Economic Corridor (CPEC) seems to be doing precisely that.

BRIEFING

“Gwadar Port will emerge on the world map as a major trade hub” Prime Minister Shahid Khaqan Abbasi

QUOTE

9.85pc

rise in food exports was witnessed during the first four months of the current fiscal year against exports of corresponding period of last year. Food exports from the country were recorded at $1072.895 million during July-October (2017-18) against exports of $976.719 million during JulyOctober (2016-17), according to the latest data available from Pakistan Bureau of Statistics (PBS).

The food commodities that contributed in growth of trade included rice, whose exports grew by 16.87 percent, from $391.595 million last year to $457.663 million during the current fiscal year.

of loans were obtained by the government during the first four months of current financial year 2017-18 to shore up foreign exchange reserves. The major contribution came from funds acquired from commercial banks that were recorded at $1.02 billion during four months (July-October) of the current fiscal year. $253 million was acquired in the form of commercial loans from Citibank and another $269 million from Credit Suisse-led consortium of banks for budgetary support. Moreover, Pakistan resorted to foreign commercial borrowing of $500 million from the Industrial and Commercial Bank of China (ICBC). The government had estimated $1 billion borrowing from the commercial banks during the entire ongoing financial year. The government borrowing exceeded the limit within a few months to support foreign exchange reserves, which are under immense pressure as a result of widening of current account deficit.

$2.5b

will be invested in K-Electric by Shanghai Electric Power Company till 2030. Senior representatives of Abraj Group and Karachi Electric along with their respective delegations were also present on the occasion. Matters concerning the transition of Karachi Electric to the new prospective company came under discussion specifically the processing of NOC for the transaction. On the occasion, the SEPC delegation briefed the minister about their investment plan to revitalise Karachi Electric. Yundan Wang hoped that their plan would change the prospects and perspectives of KE as a service provider in the power sector. Chairman Yundan told that SEPC is responsible for generating one-third of world’s power and they intend to replicate their successful experiences in Karachi as well. The minister also appreciated KE’s performance in the previous years that could bring apparent changes in the system and hoped that collaboration with SEPC will help in improving the KE system.

$9b

10pc

foreign commercial loan has been obtained by Pakistan from Industrial and Commercial Bank of China (ICBC) in October. During July-October of current financial year 2017-18, Pakistan has obtained over $1 billion of loans said sources in Ministry of Finance. This is in stark comparison to claims made by finance ministry it would get $1 billion of loans during current FY 2017-18, the loans contracted during first four months crossed the barrier set. Pakistan has obtained foreign commercial loans from various banks during current financial year. Citibank has provided $267 million and Credit Suisse released $255 million. Also, a short-term loan agreement of $450 million was also signed with a Credit Suisse led syndicate to address decline in foreign exchange reserves and to pay off a previous loan obtained from this bank.

increase in profits were recorded by Atlas Honda touching Rs1.62 billion for the second quarter ended September 30th, 2017. During July-September 2017 quarter, Atlas Honda’s net sales surged by 48pc year-on-year courtesy stronger volumetric growth in sales volume. Honda City’s sales constituted a major part of sales mix during 2nd quarter of FY 201718. Total sales of cars for Atlas Honda stood at 12,604 units registering increase of 56pc year-on-year and it sold 2,070 BRV units during the reported quarter.

Gross profits rose by only 9pc due to gross margins shrinking by 4.3 percentage points to 11.8pc against 16.2pc in same period last year (SPLY). And other operating income surged by a massive 116pc year-on-year in Jul-Sep FY 18 because of rising customer advances for bookings of City of BRV model of cars.

$500m

BRIEFING

BRIEFING

“Pakistan needs a quantum leap forward in productivity and safety standards” Australian High Commissioner to Pakistan Leonie Muldoon

QUOTE

$1.2b

was the figure of Pakistan’s exports to Afghanistan during financial year 2016-17. It has fallen by over $1.5 billion over the course of last six years Pakistan exports to the neighbouring country are decreasing day by day due to frequent closure of the border, on the other hand, Iranian exports to Afghanistan has increased to $ 2.5 billion in 2016 which were $ 170 million in 201011. Both the countries have direct air and land connectivity, however, bilateral trade between the two countries declined due to bad law and order situation in Afghanistan and issues being faced by the business community of both countries, sources added.

revenues will be received by China from Gwadar Port for a period of 40 years and 9pc will go to Gwadar Port Authority (GPA). The details were shared by Federal Minister for Ports and Shipping Mir Hasil Bizenjo with senators after they showed their worries over concealment over China-Pakistan Economic Corridor (CPEC) longterm agreement. Bizenjo said the agreement was reached on buildoperate and transfer model negotiated for a period of 40 years.

PML-N’s Senator Kalsoom Parveen of PML-N said agreement had not been inked on basis of parity as had been done with India, she said. Parveen asked Chairman Senate Raza Rabbani to call for a meeting in which all related departments which signed the agreement should be present. On this request, Rabbani highlighted about the presence of two committees in relation to CPEC, a parliamentary panel and senate committee.

91pc

Rs1.040b 121pc joint-venture has been formed between Amreli Steels Limited (ASL) and Chinese firm Qinddao Huijintong Power Equipment Company Limited (QHPCT) for engaging in production and sale of electrical transmission towers and metal structural towers.

ASL will take majority stake of 65pc and 35pc stake will be held by QHPCT. Transaction is contingent on necessary corporate and regulatory approvals. QHPCT is listed on Shanghai Stock Exchange and registered office is located at Ducon Industrial Park, Jiaozhu, Qingdao, Shandong. It is engaged in design, research, manufacturing, distribution of transmission line towers within and outside China. Amreli Steels Limited manufactures and sells steel reinforcement bars in Pakistan. It offers steel billets and deformed bars. The company was founded in 1972 and is headquartered in Karachi, Pakistan.

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rise in current account deficit was registered during July-October 2017 to touch $5.013 billion which is almost double compared to $ 2.259 billion in the same period last year (SPLY). Despite all week indicators, the SBP figures show that the country’s Gross Domestic Product (GDP) surged by 10.69 per cent to $ 113.554 billion in last four months compared to $ 101.405 billion in the same period last fiscal year. According to the SBP’s projection, full-year GDP would remain around 6 per cent in 2017-18. Despite rising CAD, the foreign exchange (FX) reserves of the State Bank have been under pressure and were slightly improved in October 2017 to $ 13.677 billion, which covers only 3-months of imports bills. The analyst forecasts the CAD during 2017-18 to be in the range of $ 16.0-16.5 billion (5.0 per cent -5.5 per cent of GDP), up from $ 4.9 billion in 2015-16 and $ 12.1 billion in 2016-17.

Rs750b is the figure of circular debt in power sector out of which Rs421 billion in ambit of governments definition of circular debt and Rs327b is held in books of Power Holding (Private) Limited (PHPL). Percentage of circular debt is 20pc higher than the stipulated Rs350b agreed with International Monetary Fund. Sources revealed that power division had requested finance ministry to release Rs22b on account of subsidy which was refused due to prolonged absence of Finance Minister Ishaq Dar. Audited amounts revealed Rs195b is owed to 20 IPPs of 5,910MW which excludes overdue amount for others IPPs generating 2,366MW. Overdue amounts of PSO owed are Rs181b, totalling Rs376b. PSO contest these claims and says the actual amount receivable from the government stands at Rs267b as of November 15th.

BRIEFING

Pakistan’s first indigenous online portal offering across-the-board options – from flights to hotels, at no additional cost By: Syeda Masooma

DISRUPTION

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lanning a trip to Copenhagen, visa stamped and itinerary ready? Kids excited to see Kastellet & The Little Mermaid, wife with a shopping list for Strøget Shopping Mile and yourself eagerly anticipating a visit to Tivoli Gardens? You also hope to find a flight that takes you to Copenhagen via Dubai so you can attend the upcoming International Autumn Trade Fair. There is a catch: which airline, with minimum stopovers, to board? On top of it, you do not have the foggiest idea about where to stay without paying an arm and a leg. It requires hours of browsing to work through comparing prices and layovers. You have two options, ring up your travel agent and let him do all the work possibly at a premium charge, or go to a website offering all these services and spend the additional cost only in terms of time?

Yousaf Rizvi believes that people would invariably prefer the latter option.

Running the family conglomerate’s (RizviCo Pakistan) travel business as well as his first initiative, Premier International Travel and Tours, prepared him to design and run an online company offering a whole range of services for everyone wishing to book a flight and a hotel – regardless of destination. Thus born Checkin.pk as Pakistan's first online travel company – with a patent for that. There are a few other similar initiatives in Pakistan including Sastaticket.pk providing the whole array of services as Checkin.pk - flights, hotels, packages, and deals.

However, with his initiative, Rizvi hopes to disrupt the travel market in Pakistan taking away most of the business from the traditional brick and mortar model of travel agents, as well as a chunk of customers making purchases from the airlines’ own websites. In his words, “If you want to put it in exact words we are digitizing travel we are completely revolutionizing and mod-

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‘EVERY YEAR A NEW GENERATION OF YOUNG ADULTS BECOMES FINANCIALLY WELL-OFF AND ENTERS OUR CUSTOMER BASE, WHILE THE PREVIOUS ONES STAY. THAT ENSURES STEADY GROWTH FOR US YEAR ON YEAR’ Yousaf Rizvi, CEO, Checkin.pk Pakistan’s first travel portal ernizing travel for the modern consumer.”

Having remodeled his venture after taking three partners on-board, Yousaf is not worried about competition either. “The germination took place in 2012, but back then it was just an idea. The official launch of the website was in 2014 and people started coming online and the whole process began.

But later, I relaunched the website model when partners came along.” Now Naseeb Network CEO Monis Rehman, Pir Saad Ahsanuddin from RHT Partners, and Cinepax CEO Arif Baigmohamed are co-founders and partners in Checkin.pk. According to Rizvi, Monis invested Rs12 million to Rs 15 million in this initiative when Rizvi took his startup to a televised incubation center, Idea Croron Ka. Rizvi said that Monis had already taken notice of his business and was already in the process of investing. However, the partnership became official after Monis got Checkin.pk evaluated on ICK. Apart from this Checkin.pk has not entered any incubator or accelerator, and has neither received substantial funding from a venture capitalist. Monis’s investment comes as a co-founder, which seems inade-

‘UNLESS CHECKIN.PK IS PREPARED TO GO ALL OUT ON CHANGING CUSTOMER PERCEPTIONS ABOUT ONLINE TICKET BUYING, AND OFFERING SUBSTANTIAL PRICE DISCOUNTS ON TICKET PRICES, LITTLE CHANGE SHOULD BE EXPECTED FROM THE MARKET’ 12

quate when one sees the task at hand.

Rizvi’s travel business is not yet breaking even either, but he is not worried.

To him, the only way forward is bringing people on his platform and then think about making money. “We are making money, our revenue is in millions as of now, but it is nothing as compared to where we want to go. But we need a big enough base of users for that first. Currently, we are just bringing people online. Our basic model is that of a service provider. We are like Expedia – an intermediary between party A and party B. The situation from one airline to another is different. The higher the number of tickets people buy from us for a particular airline, the more leverage we will have in negotiating better rates with those airlines. The bigger the website gets the more negotiating power we will have. That's why we want people to buy from us; we are a completely Pakistani company and the more they buy from us the more we will grow. It is a completely B2C product.”

He continued, “Now we have substantial operations and even though we crossed a milestone last year we expect to do it again this year.” He did not share exact figures for his business, but when probed, he said, “In the last one year, from the third quarter in the previous year to the third quarter, in percentage terms number of transactions have grown by 58%, and value by 17%.” And that it was achieved without spending next to nothing on marketing makes him prouder still. “Neither do we spend on television or digital advertising nor on marketing. Earlier we did some mar-

“THE ONLY FACTOR THAT MIGHT PULL THE CUSTOMERS TO ONLINE TRAVEL SERVICE IS LOWER PRICES, BUT EVEN WHEN THE WEBSITES OF INDIVIDUAL AIRLINES DO OFFER LOWER PRICES, AND AT OCCASIONS, TRAVEL AGENTS DO THE SAME, PEOPLE WOULD STILL PREFER THE LATTER” Muhammad Ali, CEO Sakuf Travels (travel agency) keting, but no longer. It's just the word of mouth from our patrons that does it for us.

We also enhance our site with Search Engine Optimisation.”

Not resorting to marketing, to Rizvi, is a matter of pride. However, his financials and the market dynamics point to a different direction. Profit’s inquiries from a group of travelers and travel agents showed that many of them were not even aware of any service like Checkin.pk. Furthermore, there haven’t been any newspaper advertisements, billboards, or TV ads for the business either. Not doing marketing could very well be a major reason for the company still not breaking even. Perhaps it is because of budget constraints.

Travel business works on smaller margins and higher volumes. Without marketing and in the absence of financial incentives, it seems a long shot for Checkin.pk to start making profits anytime soon. While disrupting the travel agents market is already a bear, without extensive marketing and substantial expenditures into incentives to changing the attitude of the customers, Checkin.pk or any other online travel business cannot harbor much of a hope to disrupt the market, irrespective of what Rizvi anticipates.

“As people become more and more

digitized and are using credit cards, receptivity for online solutions to their travel needs is on the rise. Getting people online is the key here,” said Rizvi. To Rizvi increased penetration of credit cards is a good sign for his business. But looking at the Pakistan’s market, credit cards usage alone might not be the answer. For instance, even a Gold Credit card has the credit limit of Rs 100,000, while a return ticket to New York costs at least Rs 130,000. Even Platinum card holders, with say half a million credit limit, cannot buy tickets for more than three people at a time, not to mention that the segment of the society with the capability to own such a credit card is extremely small.

Bringing together the costs of hotels and tickets together makes online payments more of a hassle than an ease, with the only remaining option multiple payments from different credit cards, further narrowing the potential customers. The conventional way of making cash payments to travel agents thus appears easier, despite the additional effort of visiting the travel agents’ offices.

Travel agents operating in the market take online travel operations with a pinch of salt as well. Muhammad Ali from Sakuf Travels said, the only factor that might pull the customers to online travel service is lower prices, but even when the websites of individual airlines do offer lower prices, and at occasions, travel agents do the same, people would still prefer the latter.

“Then the price is not the only factor while making travel arrangements. Many customers need to change their travel timings, require refunds, or plan beyond

just the ticket. For them it is much easier to have someone else to do their work, that is a bigger convenience for them than having an online option at home.”

He is also of the opinion that since all payments through credit cards are accounted for, many affluent people also prefer dealing with cash instead of documenting every purchase they make.

According to him, the Pakistani customers will not be comfortable abandoning travel agents. “Booking.com sells hotels on the best prices, and if that were a model that could disrupt the market, then travel agents would have stopped selling hotels by now.

But the target market is entirely different, that is not going to be impacted anyway.”

Another travel agent, Mansoor Mir from Global Travels concurred. “To the bunch of travelers it doesn’t matter what the online channels say. They require trust and personal communication with the travel agents.”

He said that the only challenge to conventional travel agents comes from the websites of different airlines. “When they entered the market, 20 to 30 percent market share was taken by the websites. The upper segment of the society prefers direct purchases from the airlines, so unless there is some additional price incentive, it is unlikely that even they would move to an intermediary channel between them and the airline.”

There is another interesting aspect to all of this from the customers. Many potential travelers prefer the existence of such an online channel as Checkin.pk, but only to be

DISRUPTION

able to compare rates of different airlines and to bargain with their travel agents.

Talking to Profit, one such patron said, “There are things beyond the low-priced tickets. My travel agent extends me credit at the time of booking and I pay him by cash or cheque later. I use platforms like Checkin.pk and Sastaticket.pk to compare prices, screenshot the comparisons and send that to my travel agent, only to bargain on the price.”

Owing to the relationship he has built with the travel agent over the years, sometimes he also gets discounted prices on tickets. “Perhaps to counter the competition or to keep his customers, these travel agents sometimes also cut their own margins to the bone and offer lower prices as compared to the airline’s prices.”

Another customer who makes ticket purchases in bulk, for corporate tours of his employers noted, “You can’t rely on websites to do the booking for 20,30 people. My travel agent from Global Express does it for several companies in Pakistan, and also extends credit for a month or six weeks. He does it to counter the effect that online booking has had on walk-in ticket sales from travel agents. He charges a premium for that but it still is more convenient and reliable than going to a website and doing it one by one.”

To Rizvi, ticket buying is not a purchase, rather it is an experience.

“Checkin.pk is also a better digital experience,” he claims. “Monis has a lot of technical experience that I don't have. Consumers views were my guiding light. The digital experience was added by Monis. I knew what the customer was looking for and I made the first version of the product and if that was S1, now we have S8.” In addition to information about different airlines prices and a range of hotels around the world. “If you have to book flights for any of your family members, you just need to enter information once in our system. After that every time

you wish to make a booking, our system will allow you to choose the name from the drop-down menu and all details will be entered automatically.” He is also in the process of launching a mobile app for Checkin.pk. “It was a made in Pakistan site, and once my partners came on board, we decided that the only way forward would be to make everything inside the country.”

While this may be an added comfort for solo travelers, for customers needing to make ticket purchases for a bunch of people, for instance, a corporate or educational trip, this is only an added hassle. On an online platform, you cannot just click and buy a ticket. A lot of information needs to be entered first, not just for the record of the company but also to ensure that the payments and traveling are legitimate. As explained earlier, conventional travel agents serve better in this case. A corporation executive for instance only needs to submit photocopies of his traveling team’s passports to book tickets through a travel agent instead of entering individual information of every employee. Also, if someone has purchased a ticket from a travel agent once, the record of information serves the same purpose there.

A repeat traveler doesn’t have to provide all his or her information to the travel agent for every trip. The agent does it on his own.

To accommodate the attitude of Pakistani customers of relying on others to do their booking, Checkin.pk also serves as a telephone travel agent. “To make sure people don’t miss the guidance about travel

‘THERE IS ANOTHER INTERESTING ASPECT TO ALL OF THIS FROM THE CUSTOMERS. MANY POTENTIAL TRAVELERS PREFER THE EXISTENCE OF SUCH AN ONLINE CHANNEL AS CHECKIN.PK, BUT ONLY TO BE ABLE TO COMPARE RATES OF DIFFERENT AIRLINES AND TO BARGAIN WITH THEIR TRAVEL AGENTS’ 14

they can get at a regular ticket booking office, Checkin.pk’s call center also provides consultancy service. Sometimes people do not want to do it for themselves, so we do it for them. We also guide them on what sort of documentation and the processes they might have to go through. So far this service is available only in Lahore but we are expanding to other cities too.” He added that other than customers now travel agents also use the website to provide flight and other details to their patrons. “If someone tries to compare prices manually, it would take him at least three hours to do that, while we do it in a couple of seconds. For now, my main aim is to convince people that they can do their own booking themselves. And on our website, it’s neither complicated nor risky.”

Perhaps instead of disrupting the business of conventional travel agents, Checkin.pk is helping them in remaining relevant and fast.

It is interesting to note here that many travelers only use Checkin.pk to compare flights but stop short of buying a ticket from the platform, rather they share the ticket price information with the conventional travel agents to bargain the rates. After all, it may appear that the personal communication with the travel agents allows customers a higher level of trust and confidence, leaving price comparisons being the only major advantage from Checkin.pk.

Despite all this, Rizvi feels that his reach has extended in the market. “Initially the people who bought tickets from us thought that it was more expensive but now people have gotten used to the site after comparing our prices to the prices offered by airlines on their own platforms.” He added, “We also have customers buying tickets to travel within Pakistan.” The online ticket booking process has already become the norm in many parts of the world, he said. To match with international websites, Rizvi has also enabled online payments on his platform. “We also have digital

payments on our platform while no other platform in Pakistan provides that. We also have FINJA and EasyPaisa on board and people can use their wallets to buy tickets even when they are waiting on the counter to check in the flight. We are also expanding into lots of digital payment solutions.”

Checkin.pk also has payment gateways through Habib Bank Limited. There is also a helpline to guide people into booking a flight for them – in real time. “Now people know that they can pay online and also use our website in the evening when the conventional ticket booking offices are closed.”

The last part is obviously an improvement on the traditional travel agencies constrained by working hours, but then again, there are only so many instances where customers are on a clock themselves. Unless it’s a business tour, Pakistani customers are known to start planning their trips well in advance, which makes it less of a worry for travel agents to start operating 24 hours.

Furthermore, the point about online payments is as relevant as the argument about credit cards. It might make sense for the affluent, for whom the choice is between airline websites and Checkin.pk. But for the majority of population it might not be disruptive enough. As far as mobile wallets are concerned, there are about 20,000 users on FINJA, and perhaps lower on other similar wallets, and most likely a majority of this segment is not among the frequent users of airlines. Even in toto, this makes up for a meager proportion compared to the whole market, not to mention that most of these users do not have hundreds of thousands in these wallets that might be necessary for buying airline tickets.

Rizvi said, “It is a continuous process; we needed to start small and then grow.

Now it is a respectable brand in online travel and you can trust that it's a credible and reliable entity.” Talking about his plans to run operations, he said, “We are focusing on increasing our base and increasing volumes online. We want people to start buying online and move online. Our process is to

‘TO MAKE SURE PEOPLE DON’T MISS THE GUIDANCE ABOUT TRAVEL THEY CAN GET AT A REGULAR TICKET BOOKING OFFICE, CHECKIN.PK’S CALL CENTER ALSO PROVIDES CONSULTANCY SERVICE’ convince customers to buy from us first.

After bringing people on board the next step would be to offer them other products, such as we have started Umrah packages. You can book a hotel with us and our packages that we are offering and we intend to offer will be destination based.”

“There are multiple ways for us to earn. One way is based on volume. As higher volumes come, you can negotiate better prices for your customers and for yourself. Currently, we are charging no service fees and whatever price you get on the Emirates site, it is the same at our website. Right now, in fact, we are adding incentives.” However, it is worthwhile to mention that these incentives mostly include packages with ease of everything already aggregated from tickets to hotels, rather than any lower price offers on tickets. While the platform’s primary service remains tickets, perhaps a discount on the ticket prices would have been better to generate new trials and bring in more customers instead of packages like Umrah service targeting a very small segment of the customers.

Keeping in sight his ambitions to move ahead, Rizvi’s biggest expense remains the innovation and constant updating of the product. “We always strive to produce a product which is best in the market and so we are continuously innovating and improving. For us, the biggest cost is incurred on the development. We are expanding into other markets now. The brand will remain checkin with the country’s initials after the dot.”

To him, his platform is not catering to any particular socio-economic segment, as Rizvi has plans to include his clientele’s buying power when it comes to offering

‘THE TICKET SELLING IS NOT CATERED TO ANY PARTICULAR SOCIO-ECONOMIC SEGMENT, AS RIZVI HAS PLANS TO INCLUDE HIS CLIENTELE’S BUYING POWER WHEN IT COMES TO OFFERING OTHER PRODUCTS’

other products. “Currently, we are looking at people who would like to know the different rates. So, yes, there is a target group that includes those who travel, or those interested in travel, or travel agents, but we also offer local airlines so everyone can use our platform. People in smaller towns do not have to do ticket booking courses to enter business. I know many who use our platform to book tickets for their customers and transfer money to other account. Every year a new generation of young adults becomes financially well-off and enters our customer base, while the previous ones stay. That ensures steady growth for us year on year.”

In a nutshell, while Checkin.pk has brought in an innovation when it comes to comparing ticket prices, it has done next to nothing to change the buying attitude of customers. While traditional travel agents sometimes cut down their own margins to keep customers, Checkin.pk has also failed to utilize this basic inclination of customers by offering prices lower than listed on airlines’ websites. If it is a restriction from the airlines themselves, even then Checkin.pk needs to come up with lower prices in some services to generate first trials. Online payments and increasing credit card usage have little to do with the majority of travelers from Pakistan, who prefer convenience and trust of a human face on the possibility of lower costs on an online channel.

On its own, one can safely say, Checkin.pk has failed to create any ripples in the market, primarily by holding back on marketing itself or perhaps being unable to advertise as much as it should because of financial constraints. Whatever the reason may be, unless Checkin.pk is prepared to go all out on changing customer perceptions about online ticket buying, and offering substantial price discounts on ticket prices, little change should be expected from the market.

And as long as that doesn’t happen, travel agents can continue to shut their shop at 6 p.m., go home and sleep in peace knowing that their customers will still be there when they get back the next morning.

DISRUPTION

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By: Farooq Baloch, Aisha Arshad, Syeda Masooma he glitzy new mall at Lahore, Packages Mall opened its gates earlier this year and all roads led to it. With all the renowned brands strutting their presence, always fond of lights and a bit of a tamasha, the Lahorites continue to frequent the place in numbers large enough for the Walton Road artery to the Defence to choke on the weekends.

Behind all the shine and the spangle though, the business is not sparkling enough.

And, with their bottom lines flashing red, the big brands, in all 60 to 70 of them literally

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ganged up in October to take on the Mall management to reduce rent and other expenses. The ever-increasing competition has led brands to resort to frequent sales and discount offers on one pretext or the other. Some brands have gone so far as to permanently reduce their regular prices. All this while costs have hit the ceiling, squeezing margins to well below profitability levels.

Though retailers usually brag about how bad the business is to dodge the taxman, but this incident at Packages Mall was confirmed to Profit by multiple sources and a detailed feedback from the industry suggests the apparel retail sector (read: large brands with high operational costs) is struggling.

Ms Naz Mansha, head of highbrow Nishat Linen – amongst the Top 5 in apparel brands, confirmed to Profit: "The mall man-

agement has agreed to consider our request and come up with a viable solution for all, but the final outcome is still pending."

So we know, the huge stores in the malls are bleeding, but they’re not the only ones.

Flagship stores outside of the Malls are having an equally frightful time. The latest casualty was the flagship store of Crescent Lawn in Lahore, bringing the shutters down on the outlet despite having strong financial backing of the Crescent group, owners of Crescent Bahuman and Stoneage brands. Sapphire, another big shot brand by one of Pakistan’s largest textile conglomerate, the Sapphire Group – is said to be losing tens of millions every month, only to inspire an industrialist to shoot one across the bow: “The cone ice cream-wallah at the Main Market corner is doing much better than Sapphire. At least he is making profits compared to the Sapphire Group’s loss making apparel shops.”

‘THE “MILLENNIAL SHOPPER” IS NOT BUYING CLOTHES AT FULL PRICE AND SEEMS TO HAVE RESTRICTED Apprehensive, SPENDING AT SALES ONLY. THEY SEEM TO BUY IN really apprehensive nd this bolt has come when the big BULK DURING SALES BUT CURTAIL SPENDING DURING brands were rubbing their hands in THE REMAINDER OF THE YEAR. THIS, BY MOST anticipation of huge sales, windfall profits and generally rolling in ACCOUNTS, HAS BEEN THE TREND SINCE MID-2016’

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money post the forecast made by the prestigious Bloomberg and Euromonitor. Instead 10-15 percent decline in profitability is staring them in the face! The stagnation has for the moment perhaps set in a bout of jitters, if not a sort of panic, clouding the judgement of the brands painstakingly built over the years.

Khaadi, the market leader by a distance, has remained on the forefront of retail growth for years but is now apprehensive. Really apprehensive. And so are others. Not long ago, Profit featured the owners of Khaadi as favorites to become the first fashion billionaires of Pakistan because of a booming business, but sources say that its profits have dropped 15% and sales revenues have tapered off. Almost all the other brands find themselves in a similar dilemma and some even report closing of stores and delays in vendor payments.

In this report, Profit spoke to various stakeholders – the focus being on the non-grocery segment: the millennial shoppers, the movers and shakers of the retail sector, market analysts, and the management of a mall to explore whether the retail sector’s heyday is already over, whether the spending has really slowed down and, if so, why. We’ll come to the retail slump later, let’s first understand what brought these otherwise booming brands to the mess they find themselves in today.

The big fat sale! hen the clock hit nine on Saturday morning, Nov 11, Aruba Shoaib, a 27-year-old teacher in Beaconhouse School System

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‘INCREASED OPERATIONAL COSTS AND CUT-THROAT COMPETITION ARE THE PRIME REASONS FOR THIS [LOWER SALES]’ Naz Mansha, CEO, Nishat Linen was still lingering on a jampacked Rashid Minhas Road just opposite Lucky One Mall, where Khaadi was about to start a flat 40% sale as part of a promotion for its newly opened outlet – as is the wont with the country’s largest apparel brand.

It took her another hour to pass two cordons of security, one at the entrance, the other inside, to finally get to the Khaadi’s brandnew outlet, ‘a huge crowd’ was inside already.

A Malir Cantt resident, Shoaib thought she was an early bird. But others apparently had already made a beeline to the outlet early – some thronging it as early as dawn.

What she witnessed gave her a sense of deja vu: pushing and shoving, display tables getting dragged, fights over stock and suffocation – the considerate staff distributing packaged water by way of relief from the mayhem.

After waiting for what seemed an eternity, she made it inside – not by her own volition but pushed in by someone taller and heftier – only to find empty racks. Moving

further inside, she found a wall displaying her size and that was it. Shoaib and her sister sat at a corner and shared whatever they got, and then waited another two hours in the queue to settle the bill, Rs25,000 (approximately $250).

Eleven days later a 23-year-old business graduate who requested not to be identified, bought 13 articles from Ayesha-Somaya, a luxury women’s wear brand that went on a 50% flash sale the next day. Unlike Shoaib, she faced less of a hassle because the brand allows its loyal patrons to shop at the discounted price a day before the actual sale begins. She spent Rs80,000 or $800 (approx.), which is almost what an unskilled worker earns in a month in the US (assuming a 30hour work week with $7.25 per hour being the minimum wage).

Both the school teacher and the business grad belong to a particular class of Pakistanis who are said to be driving the country’s retail boom of late. Both working women are part of a growing middle-class, under-30 (commonly referred to as the millennials), and with higher disposable incomes.

A recent Bloomberg report identified this group as millennial shoppers, who are two-thirds or 135 million of the country’s burgeoning population that is keen to live in style without bothering too much about the price tag – the exact opposite of the ‘Baby Boomers’ generation whose hallmark was its inclination to save.

Based on a research by Euromonitor, the report also identified Pakistan as the world’s fastest growing retail market, predicting an annual expansion of 8.2% throughout the period ending 2021 with the retail stores to increase by a half to one million during the

Views of the recently closed flagship store of Crescent Lawn in Lahore

period.

The personal accounts of those who endured the pain to part with $200 or more during the 40-hour bonanza tell a different story than what Euromonitor’s research unveiled in September. The “millennial shopper” is not buying clothes at full price and seems to have restricted spending at sales only. They seem to buy in bulk during sales but curtail spending during the remainder of the year. This, by most accounts, has been the trend since mid2016. And that has been a cause for concern to almost all the retailers surveyed for this report.

The overhyped millennial t's not at all wise to shop at full price when the same stuff is available online as well as during sales,” Shoaib, the BSS teacher said. “We do buy things on regular price from outlets which hardly go on sale, but buying from Khaadi, Outfitters, J. and Gul Ahmed on face value is not sensible since sales are offered often,” she said.

The school teacher cum home-based

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entrepreneur says she visits malls to select the articles she wants and when the particular brand goes on a big sale either physical or online, she buys her selection.

The business graduate quoted above seems to have a similar habit. “I buy an ensemble on full price only if I need it,” the 23-year-old told Profit. In fact, it is not just millennials who have restricted their ‘big spending’ to fat sales. Ambreen Khalid, a 45-year-old resident of Gulshan e Iqbal, for instance, waits for sales because that’s when “I pick up the high-end brands stuff, otherwise too overpriced and unaffordable’. She treated herself to goodies worth Rs29,000 ($290) during the Lucky-One-Mall Khaadi sale.

Shehzad Elahi, the CEO of Lahorebased Kids and Ladies wear brand Mushrooms, attributes this particular attitude to the seasonal discounts offered by brands. “If a brand puts up a discount offer for winter season, customers buy more than they would buy at a normal price, but then next year they will already have enough stock of clothes so they won’t buy more,” he says.

Though largely observed in the apparel

‘AND THIS BOLT HAS COME WHEN THE BIG BRANDS WERE RUBBING THEIR HANDS IN ANTICIPATION OF HUGE SALES, WINDFALL PROFITS AND GENERALLY ROLLING IN MONEY POST THE FORECAST MADE BY THE PRESTIGIOUS BLOOMBERG. INSTEAD, 10-15 PERCENT DECLINE IN PROFITABILITY IS STARING THEM IN THE FACE!’

sector, for the footwear this trend may also hold, and the premise is endorsed by one of the largest footwear brands in the country.

“Customer’s attitude towards purchasing is largely dependent on pricing attributes,” says Javed Iqbal Siddiqui, the CEO of Lahore-based Stylo Group, a popular footwear brand that caters to a wide range of customers mainly from the middle-income segment. “As seasonal offers and discounts are very common, it restricts people to make purchases during non-sale days.

That is why the customers always wait until sale starts,” Siddiqi says – and that is exactly what we find in case of recent sales at Karachi’s Lucky One Mall.

The Khaadi sale brought customers out in droves to an otherwise deserted mall. The mall’s admin claims more than 300,000 people visited them during 40 hours the sale was on – if correct, this translates to 125 visitors per minute. However, it also endorsed the feedback Profit received from the market. That is how a big sale by one known brand triggers a frenzy as others follow, resulting in a sales war.

For example, Shoaib, the teacher, recalls when she entered the mall no other brand offered any promotion, but later in the day almost everyone followed suit and these also include the likes of J., and Gul Ahmed.

“Every other person was roaming around with Gul Ahmed’s pillows in their hands,” she said – according to the mall’s admin more than 90% of the brands went on sale during that period.

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‘THE PEOPLE HERE ARE ACCUSTOMED TO RUN AFTER ANYTHING NEW THAT HITS THE MARKET AND THE SAME HAPPENED WITH MALLS…. THEY BRING THEIR GUESTS ALONG TO JUST LOUNGE IN THE MALL. THEY DON’T BUY ANYTHING, DON’T SPEND ON FOOD, BUT JUST TREAT THE MALL AS THEIR DRAWING ROOM’ Ahmed Muzzamil, CEO, Footmetrics “The traffic on Saturday was massive and in no way comparable to what I witnessed here on the eve of Eid ul Fitr,” said Shoaib who also visited the same mall on the eve of the annual Islamic festival and by far the biggest shopping occasion – she didn’t buy any suit on Eid-ul-Fitr, but spent Rs38,000 on the Black Friday sale just last week. Even the food outlets offered several discounts to cash in on the huge footfall, something that this less-than-a-year-old mall is not used to, she recalls.

And the sales frenzy didn’t stop there.

The following week Agha Noor and Sana Safinaz, both high-end brands, also offered 50% and 70% flat sale for Saturday, Nov 18 – that, too, in Lucky One Mall, which again attracted big crowds.

The big Malls ucky One Mall’s CEO, Sohail Tabba recently told Business Recorder, that Karachi needs at least 30 malls. However, Lucky One Mall, one of the biggest in the country, has not been able to pull the crowd it was anticipating – similar to what happened at Packages in Lahore but contrary to the norm where a new mall enjoys an early honeymoon period.

The back-to-back weekend sales (not counting the Black Friday weekend) offered

by Khaadi, Sana Safinaz, Agha Noor and

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later by Gul Ahmed ensured higher footfall in the mall but at the same time challenged the notion that it's the malls that attract large crowds and as a result tenants (retailers) benefit in terms of higher sales.

Though business tycoons like Tabba are optimistic about the future of malls, as evident from his statement, market experts seem to have a different take on that notion.

“Our research has shown that the number of people visiting Packages Mall is very low and not comparable to any other big mall like Emporium or The Centaurus Mall,” says Ahmed Muzzamil, CEO of Footmetrics.

Footmetrics is a data analytics company that installs technological equipment inside shops to gather data on customers visiting a particular shop. It includes demography, age group, time spent inside a shop, number of items bought, specific items bought and time of day with the highest number of visitors.

“The people here are accustomed to run after anything new that hits the market and the same happened with malls… They bring their guests along to just lounge in the mall.

They don’t buy anything, don’t spend on food, but just treat the mall as their drawing room”, Muzzamil says, adding, he has personal accounts of tenants from Lucky One Mall that suggest the mall is situated in an area where people don’t have facilities like electricity, air conditioning or WiFi. Muzzamil further said, the retailers are

‘A LOT OF THIS BOOM AND GROWTH WAS TIED TO REAL ESTATE SECTOR BUT THE GOVERNMENT HAS TIGHTENED ITS POLICIES ON THAT FRONT. THIS IS WHERE A LOT OF CASH WAS COMING FROM BUT THAT’S NOT THE CASE ANYMORE’ Muhammad Usman, Head of Marketing and E-Commerce, Khaadi

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worried, but it is happening because the location wasn’t taken into account for its impacts on business later – Ammar Motan of Lucky One Mall disagrees.

“About 10 million people live within the 10-kilometer radius of the mall,” Motan said – that would mean about half of Karachi’s population lives in that vicinity.

People of these areas have higher purchasing power, he said in an apparent reference to the localities of Nazimabad, Gulshan-e-Iqbal, and Gulistan-e-Jauhar that are inhabited by the growing middle-class families.

“A new mall has about 6 to 8 months honeymoon period; after that, traffic invariably slows down. A new mall takes time to evolve,” he said but, he quickly added a rider, a 70% plus retention rate means majority of their customers were ‘repeat’ visitors.

Asked if their tenants have raised concerns similar to the complaints of those operating at the Packages Mall, Motan referred us

to the Mall’s executive director, who did not respond to our queries in time.

Both Packages and Lucky One are two of the latest entrants in the country’s highend malls segment and commenced operations amid reports of a retail boom, but majority of the retailers we spoke to complain about their high operational costs, which are difficult to meet, especially amid cut-throat competition and a sales war that has already squeezed their margins.

The whys of the retail slump hile most retailers, especially the big brands that have a nationwide presence, concede that their turnover has stagnated and profits declined, more than one theory has emerged to explain these phenomena.

“People mostly come to enjoy the movies and food in addition to the comfort of a fully air-conditioned environment.

They are mostly window shoppers, not the actual customers,” Siddiqui of Stylo says.

The chief of Stylo, which has presence in every major mall, notes that sales can’t increase in a similar scale as expenses do.

The sector-wise data is not available, but Khaadi estimates the cost of operating an outlet in a mall is 40% higher than that of a standalone store. “Increased operational costs and cut-throat competition are the prime reasons for this [lower sales],” says Naz Mansha, Owner of Nishat Linen,

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‘THE SIZE OF THE PIE HAS INCREASED IN RECENT YEARS, BUT THE INDIVIDUAL SHARE SIZE OF BRANDS HAS SHRUNK’ Schalim Reuben, CEO, EGO leading women wear brand and a subsidiary of Nishat Textile Mills. “And the customers who buy ready-to-wear ranges are now opting for western rather than eastern designs”, she explained.

“Rentals, overheads, labor and other costs have increased remarkably in the last few years. Malls’ rents have gone up and the bigger the shop the higher the price,” says Schalim Reuben, CEO of EGO, a stitched clothing brand for women that has nation-wide presence in the retail sector. “ SEFAM, a manufacturing and retailing brand for embroidered and designer fabrics that has now grown to a family of 12 brands including Bareeze, Leisure Club, Minnie Minors, and Kayseria to name a few, identifies rising competition as the main reason. “Almost everyone in Pakistan wants to make a name for themselves and many try to do that through launching their clothing brand. So the competition is the primary reason for many brands experiencing a downfall,” says Omer Chaudhary,

General Manager at SEFAM. Some retailers also argue that the overall market is not shrinking. For example, Reuben of EGO says, “the size of the pie has increased in recent years, but the individual share size of brands has shrunk,” – though all retailers are relying on anecdotal evidence as no data is available to find out accurate picture.

In its first six years, EGO doubled its business every year, but that’s not the case any more, Reuben noted adding, “The industry has grown so big with new brands opening up every day, customers have a lot more options now.”

EGO’s CEO says the industry is somehow booming and there is potential and people want to do business. “If that was not the case you wouldn’t see all those brands that opened up last year or those opening soon,” he adds, but noted only certain markets` or locations would businesses to be profitable.

Otherwise, he said one would keep paying overheads and costs, but not receive the same business.

Mushrooms, a clothing brand for kids, has a similar view. Shehzad Elahi, its CEO says there are no figures available for industry wide comparisons, it’s all just personal judgment. “If someone says that the retail sector is going down, it is proba-

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‘WE HAVE BEEN FOCUSING ON OUR EFFICIENCY AND CONSOLIDATION FOR ALMOST THE ENTIRE PAST YEAR. WE HAVE BEEN EVALUATING CLOSELY WHERE OUR STRENGTHS LIE, WHERE AND WHEN WE CAN PUSH AND HOW WE CAN ACHIEVE SUSTAINABLE GROWTH, AND ADD MORE TOP-UPS IN TERMS OF EXPERIENCES FOR CUSTOMERS’ Omer Chaudhary, General Manager SEFAM bly only because their brand is experiencing negative growth,” he said.

Elahi said when one brand puts up a discount sale offer to take share from another brand, the latter also drops prices in a bid to recover the lost share so the end effect is that the sales volume remains the same but the value drops. “If you look at the apparel industry, prices today are considerably lower than what they used to be a few years ago,” he said.

Amid reports of a retail boom, more players are setting up business or expanding their store network, but not everyone has fat margins like in the past. While the most common explanation is the increased competition and a sales war but there are a few other very plausible theories as well. For example, Gul Ahmed attributes the recent decline in consumer spending to the political uncertainty in the country, which has caused consumers to switch to savings mode, but Muhammad Usman of Khaadi while agreeing with the political uncertainty theory, blames mostly a year-round

sales culture for causing a slowdown in spending.

“Other than Khaadi, retail industry is getting into a vicious cycle of discounting which is hurting brand equities and structural economics of most of the brands. With this kind of discount selling only brands with efficient supply chains will survive.

On the positive side I see size of the branded market increasing as more and more customers will switch to brands because of affordability. Fashion products are becoming generic and moving towards commoditization. More and more millennials are entering their independent shopping age and loyalty is diminishing which is making the job tougher for brands to differentiate on the basis of just fashion.

Successful brands need to invest in understanding buying behaviors of these millennials and GenZs as without understanding every touch point of their lives it will be difficult for brands to survive,” says Usman, the Khaadi’s marketing head.

Usman, however, was quick to add: there are other factors at play that may be

‘KHAADI, THE MARKET LEADER BY A DISTANCE, HAS REMAINED AT THE FOREFRONT OF RETAIL GROWTH FOR YEARS IS NOW APPREHENSIVE. REALLY APPREHENSIVE. AND SO ARE OTHERS’

‘THOUGH RETAILERS USUALLY BRAG ABOUT HOW BAD THE BUSINESS IS TO DODGE THE TAXMAN, THIS INCIDENT AT PACKAGES MALL WAS CONFIRMED TO PROFIT BY MULTIPLE SOURCES AND A DETAILED FEEDBACK FROM THE INDUSTRY SUGGESTS THE RETAIL SECTOR IS STRUGGLING’ 22

linked to the recent slowdown in spending.

For example, he said a lot of this boom and growth was tied to real estate sector but the government has tightened its policies on that front. This is where a lot of cash was coming from but that’s not the case anymore.

Real estate accounts for two-thirds of the world’s total wealth, and when it booms, it moves the entire economy but Pakistan’s real estate sector got a major hit earlier this year when the government increased property valuation rates in all major cities to collect higher taxes from the sector.

That said, not all retailers agree on this theory. For example, Siddiqui of Stylo says, real estate sector doesn’t directly affect the retail customers because the former represents investors and the latter are people with relatively low disposable income.

What Next? xperts believe this is a cycle, which the industry has put itself into and will pull itself out of too, and no external working is required for that - some retailers agree with this view, others opine a government intervention or collaboration among retailers could save the day.

“The brands need to form forces and assemble at a joint forum to improve this situation. A joint effort can go a long way for the industry,” says Naz Mansha of Nishat Linen and she is seconded by SEFAM’s Omer Chaudhary.

The good thing that came out of the protest at Packages Mall was that retailers came together as a united body, Chaudhary said. “Some malls only look to make quick

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gains, but by coming together retailers at least formed a united front that allowed them to communicate their concerns in a better way. The protest didn’t result in reduction of rents, but the management extended some slack on the top up expenses and resolved the issues,” he said.

However, he noted, it will take more than collaboration to deal with the situation. For example, he said, that focus needs to shift to building brands instead of more shops. “Values and philosophy have to be added to provide consumers an emotional and physical experience.

“If it is only lower prices attracting customers than any other brand with even lower prices will take those customers away. But if there are more than just products and prices, and there is an emotional connection for the customers, they will remain loyal.

“We have been focusing on our efficiency and consolidation for almost the entire past year. We have been evaluating closely where our strengths lie, where and when we can push and how we can achieve sustainable growth, and add more top ups in terms of experiences for customers.” said Chaudhary Others believe government intervention can be useful. Among them is CEO of Stylo who says the government should put a slab on rentals in malls and standalone places, give rebate in taxes and duties, reverse the recent increase of 35% in duties, and ease the process of importing raw material and finished goods to support retail, which is the second largest industry.

A few retailers say the apparel segment of the retail sector is in transitory stage, but not all of them see the government’s role in healing the self-inflicted wounds of the sector.

Retail market has six stages of lifecycle, mom and pop stores, standalone outlets, shopping centers, malls, online stores and Omni retailing (Bricks & Mortar + Online). Pakistan is currently in the transitory

A view of the Khaadi’s sale on their store launch at LuckyOne Mall. Source: facebook page

stage of Malls and Online, according to Usman of Khaadi.

Retail costs have significantly gone up due to customer’s transition to Malls where operating costs are almost 40% higher than a standalone store. Looking at the Malls lifecycle in any retail market it takes approximately a year to a year and a half for a Mall to drive healthy revenues for 70 to 80% of its occupants. All these new malls including Packages, Emporium, WTC, and Lucky will follow the same trajectory, he said.

However, things seem to be dismal in the foreseeable future if the current practice of year-round sales doesn’t stop. For all brands, the next two to three years will remain quite critical, said the operations manager of an apparel brand, requesting we don’t identify him because he is not authorized to comment. And those who flocked to set up shop to ride the ‘boom’,

‘THINGS SEEM TO BE DISMAL IN THE FORESEEABLE FUTURE IF THE CURRENT PRACTICE OF YEAR-ROUND SALES DIDN’T STOP. IN OTHER WORDS, THE SECTOR MAY EVEN FALL SHORT OF EUROMONITOR’S 8.2% ANNUAL EXPANSION PREDICTION FOR YEARS THROUGH 2021’

‘IF A BRAND PUTS UP A DISCOUNT OFFER FOR THE WINTER SEASON, CUSTOMERS BUY MORE THAN THEY WOULD BUY AT A NORMAL PRICE, BUT THEN NEXT YEAR THEY WILL ALREADY HAVE ENOUGH STOCK OF CLOTHES SO THEY WON’T BUY MORE’ Shehzad Elahi CEO, Mushrooms

he predicts, wouldn’t get the anticipated result due to saturation in the market. Especially, smaller brands would not be able to sustain the competition this industry is offering at the moment and will shut down in the next few years, he said.

“So when all these ‘shoqia’ brands wrap up, only then, one can comment on the actual situation of the retail sector,” he said. n

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Starved for latest quality features, general public luxuriates while tooling around in imported four-wheelers, the expense to the exchequer is a whopping Rs20 billion – it has contributed to our massive external trade deficit. Thus, the question: Is it worth it?

By: Bilal Hussain eported at upwards of $35 billion, the external account deficit for the fiscal 2016-17 was the highest in the history of the nation. A not-too-small chunk of it – in specific terms Rs20 billion or $200 million – was consumed by the imported, mostly Japanese, small to medium-sized cars.

Apart from splashing red over our external balance sheet, it is making the local assemblers see nothing but crimson.

At the same time, it is providing value for money to buyers, which is generally not the case with locally assembled cars. Another aside, black money has also found an avenue through it.

For its part, Profit has tried to evaluate from all angles whether the mind-blowing loss to the exchequer worth the ‘value for money’ the

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general public gets on the imported secondhand vehicles.

And, made for the Japanese roads, these cars are not without their downsides. The worst nightmare for a motorist driving a Daihatsu Mira or Honda’s N-One or some similar low-height car in Karachi is they would often have the underbelly of their cars violently scratched with improvised, unmarked speedbreakers popping out of nowhere.

At the top of it, spare parts are a tad difficult to find, and, when one does locate them, these are super expensive. Costing an arm and a leg to replace, side-mirrors meanwhile are the most prized picks by thieves around the metropolis.

Some months ago, Tariq Hussain, a businessman, lost side-mirrors of his Toyota Vitz and later of Honda N-One right under the nose of his apartment building’s watchman in the wee

hours on both occasions, in PECHS Block 2.

Toyota Vitz side mirrors cost him Rs 10,000 while N-One side mirrors were selling at whopping Rs 44,000 then but he went for cheaper, Rs 4000, improvised side-mirrors, for fear of losing them again.

But that hasn’t kept him from retaining N-One and later he also bought Daihatsu Mira. “N-One is small, yet the interior feels like a newly bought sedan. It’s spacious. The same goes for Mira and obviously also for Vitz,” Hussain said. “In the past, I also had locally assembled Suzuki Alto, 1,000 CC, but there’s no comparison between the performances of Japanese and locally assembled cars.”

Cars made in Japan and landing in Pakistan are replete with different functions.

The drive is simply

luxurious. Safety features like air-bags are there even in 660CC cars. Those who have driven locally assembled vehicles and have now switched to Japanese cars are all united in their opinion – they would rather prefer the imported variety and quality.

Manipulation of law t least quite a few, if not all, the importers of these cars have a rather murky background! A passport of a person who has lived abroad for a couple of years is abused to import secondhand cars either through the transfer of residence, baggage or gift scheme for commercial purposes. This particular relaxation in the law was provided to benefit expatriate Pakistanis and their families and friends back home.

But a massive 65,000 used units were imported in fiscal 2017, mostly for commercial purposes, and taken from the wharf straight to the showroom!

Moreover, for above1,800CC there is only a fixed duty for all used Japanese cars, the sales tax being zero. Legally, a car must be registered prior to hitting the roads. Postimport on an external passport, these vehicles are not registered for months, and can be spotted with Test Drive (TD) number plates.

If imports are through proper channel, then varying duties for all derivatives shall apply as vehicles are evaluated on true value before duties apply. Duties increase with the increase of the rates of cars, giving a bigger sway to the taxman. On top of various duties, 17% sales tax has to be paid.

According to insider information,

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A PASSPORT OF A PERSON WHO HAS LIVED ABROAD FOR A COUPLE OF YEARS IS ABUSED TO IMPORT SECOND-HAND CARS EITHER THROUGH THE TRANSFER OF RESIDENCE, BAGGAGE OR GIFT SCHEME FOR COMMERCIAL PURPOSES. THIS PARTICULAR RELAXATION IN THE LAW WAS PROVIDED TO BENEFIT EXPATRIATE PAKISTANIS AND THEIR FAMILIES AND FRIENDS BACK HOME the sales tax is seldom paid.

It is also not legally binding as these imports are on the basis of Transfer of Residence, Baggage or Gift scheme. But this facility was not meant to be commercially exploited – something now actually happening. The government is now tightening its policy, making the transfer of residence (TR) mandatory for such imports.

Local automakers’ lack of sensitivity rom a general perspective, this massive import of Japanese units was inevitable as the automakers having captured the market were neither willing to upgrade nor innovate. The most glaring flaws were in safety features, which were not in line with contemporary international benchmarks. There’s a classic example of Suzuki Mehran, which has seen no change at all, apart from a slight facelift and a bit of upgradation in the engine after 2013 – 24 years after it was last done in 1989!

Pakistan is not alone in importing second-hand cars, the UK and other developed nations do that too – but the latter do it after stringent evaluation about their roadworthiness.

Despite windfall prof-

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its over 30 years of total protection, in urban centers, the local automakers seem to have lost the psychological battle to the secondhand Japanese offerings – quite apparent from the overwhelming buyer preference.

A manager at Sasoli Motors, Syed Anjum said that people coming from interior Sindh and remote areas prefer locally assembled cars. “It suits them because compared to the Japanese locally assembled cars have their underbelly well above the ground. But the urban patrons are sold on Japanese cars despite the low underside issue hurting them owing to speed-breakers.

“It could only be because even a 660CC Japanese car has several features –like power windows, power steering, and extreme fuel efficiency of eco-idle. The one-third difference in consumption between lowest denominators – 660CC Japanese giving a 20 kilometer run per liter while 800CC Mehran only averages around 13 kilometers,” said Anjum.

“Loathing for automatic cars has shifted to manual, owing to high-density traffic. Now someone with a low budget of Rs0.6 million would inquire about an automatic car,” he said. Automatic cars are all the rage for Uber and Careem captains, for they have to stay long hours on the wheel and managing automatic cars in the bumper-to-bumper mad-rush in Karachi and La-

PUBLIC POLICY

hore is far less cumbersome than driving a manual. And fuel economy shaves costs, thus increasing profitability.

The cat amongst the pigeons he government’s plans to slash the import bill has set the proverbial cat amongst the pigeons – the reports an anathema to the ears of those now weaned to windfalls from import. No wonder the latter is critical, attaching motives to the move – like blaming it on local assemblers – whom they dub as ‘a cartel’ – on pressurizing the government for a fillip.

The Pakistan-based automakers seem to have made the most of government’s restrictions car imports, as seen in the 25.4% increase in the sales for the July-October 2017 quarter compared to the last year’s figures. Last year, the industry sold 55,889 units during the July-October 2016 quarter while the first three months of the ongoing fiscal 70,040-mark was hit.

“Since the main source of their income comes from used-car business, 90% Pakistanis in Japan will have to return,” said CEO Shah Global Motors, Shah Muhammad Shah.

“The government pushed us towards illegal means, send dollars to Japan using hawala and pay government duty from there,” he said. If the government goes ahead with its plans, Shahji maintains, then it would only raise the cost of imports.

The importers/dealers are also of the view that if the government wants to maintain or increase foreign exchange reserves then it should do it the appropriate way, by raising exports.

“The government ought to let the business

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A DIRECT CONSEQUENCE OF THE SHIFT FROM PERSONAL BAGGAGE TO TRANSFER OF RESIDENCE SCHEME WOULD BE A STEEP UPWARD REVISION IN PRICES. UNDER PERSONAL BAGGAGE SCHEME, THE PASSPORT OF A PERSON LIVING ABROAD FOR SIX MONTHS COULD BE USED FOR IMPORT OF A CAR. BUT IN TRANSFER OF RESIDENCE, THE EXPAT MUST HAVE LIVED ABROAD FOR TWO YEARS, AND HAVE A VALID LICENSE flourish. If it was not illegal then, how is it illegal now?”, said he.

The chairman of All-Pakistan Motor Dealers Association (APMDA) HM Shahzad has been in contact with government officials and, he says, he has bought some time – to be precise till Dec. 31 so that the consignments in the pipeline reach the Pakistani shores. Shahzad’s suggestion: The federal ministries of Commerce and Finance, the State Bank and the FBR should together and devise a suitable mechanism for payment of duty in dollars.

Wasif Safdar, an importer, said that imposing the duty in dollars was not pragmatic and that the government was only beating about the bush. “Mark my words, no one would trust sending dollars abroad into someone’s account, expecting he would then pay it back to Pakistan government from there as the duty. This act could easily be challenged and won in the Supreme Court,” said Safdar. He said, even if it could devise such a plan, for the government it would be a lose-lose situation.

“Around 6,000 cars dock in Karachi every month and on average each of them

pays around Rs600,000 cumulative duty.

Multiply 6,000 by 600,000 and multiply the figure again with 12 and you would arrive at government’s average annual earnings from the imported used cars,” he said.

New rules to push prices up, steeply direct consequence of the shift from personal baggage to Transfer of Residence scheme would be a steep upward revision in prices.

Under personal baggage scheme, the passport of a person living abroad for six months could be used for import of a car.

But in Transfer of Residence, the expat must have lived abroad for two years, and have a valid license. “We were dishing out Rs8,000-Rs10,000 a pop to the expatriate.

But someone qualifying for TR (Transfer of Residence), would have to be paid a whole lot more,” shared an importer on condition of anonymity.

In the changed milieu, with the new rules coming into force, it could be 10-15 times higher, meaning thereby that the importers would have to

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Environment risk Porsche Pakistan CEO Abuzar Bokhari told Profit that most used cars coming from Japan are the ones that failed emission test there. “A new car has to go through ‘health test’ in Japan after three years. And when they flunk it, the owners prefer buying a new car rather than spending on the overhaul to clear the test.

When these cars land here, we end up polluting our environment across the country. Such vehicles may have contributed to the smog in Lahore,” said Bokhari. cough up Rs100,000 to Rs150,000 to the expat for using his passport. Not allowing any cut in their profits, this cost shall definitely be transferred to the buyer – pushing the price of each imported second-hand vehicle by around 15 percent.

Black money ccording to an insider, the ones sitting on a pile of cash either through tax evasion or some shady business, buying high-expense big-brand secondhand car is a piece of cake compared to buying one with similar features but new.

Secondhand does not raise the hackles of tax authorities, keeping the ones with black money off the radar.

“When a brand-new car imported the legal way, it warrants sales tax. For instance, when a car worth Rs20 million is bought, the government officials instantly

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get activated and question the person to disclose his means of purchasing such a car after the transaction. But if the same person opts for an identical imported secondhand car offering the same features, he would be avoiding government’s attention and pay a lesser price to boot.”

Why does it happen? It is because lots of duties are not imposed on secondhand vehicles. And the dealers don’t even have to pay sales tax since it was imported on either personal baggage, gift or Transfer of Residence scheme,” an importer told Profit on the condition that he remains incognito.

He also disclosed that the Land Cruisers and Prados one sees higher echelons of bureaucracy and politicians driving around around may have been bought through black money.

“Almost new two years old vehicles are imported to benefit from duty exemptions on the basis of depreciation. And the fixed duty remains the same, whether the luxury jeep is worth $55,000 or $95,000. The worst thing is that the government looks the other way.

“All in all, it is a massive scam, cost-

ing the exchequer Rs20 billion – which is at best a conservative estimate.It could actually be much more than that.” n

When buying secondhand Japanese cars

WHAT TO LOOK FOR A common buyer measuring up an imported Japanese car, howsoever shiny it looks, it is indeed difficult to ascertain its whether it has been through a major accident or not. That’s a huge issue, as it renders the car unreliable. There are plenty of mechanics around who could completely makeover a major accidented car into an apparently new one. To allay the importers/buyers concerns, the used car auction house in Japan produces auction sheet independently for every vehicle meant for export.

The vehicle’s numerically-rated exterior at 5 is deemed as good as new, followed by 4.5, 4, with the low at 3 considered acceptable condition. The interior is rated alphabetically. For instance, 5A category is as good as new with both exterior and interior. The interior quality downward is B, C and D. “If a car’s fender is hit and Grade ‘R’ signifies highly modified or accidented – minor or major. its safety bags open, it will be ‘R’ rated, and if a car goes through a major accident, it would still be the same. Here the shrewdness of car dealers comes into play, in expertly getting a major-accidented car overhauled and convince the buyer it was only a minor scrape. “A buyer offered an ‘R’ graded piece should ask the dealer to show the pictures that he received during auctioning of the car,” Tariq Hussain said. Another measure could be calling in an expert to assess it.

PUBLIC POLICY

The wide range and quality of Pakistan’s vegetables and fruits has the potential to fetch export dollars

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By: Aisha Arshad echnavio’s market research analyst predicts the global dehydrated food market to grow at a compound annual growth rate (CAGR) of more than 6% during 2016-2020.

With only three organized companies in the business, in Pakistan, the growth apparently seems too slow to be noticed.

Ironically it is the very country where agriculture accounts for a 32% percent of the total gross national product, and where vegetables and fruits – the basic raw material for the dehydrated food industry – are grown in an abundant quantity.

As many as 40 different kinds of vegetables and 21 different kinds of fruits are locally grown due to the feasible climatic conditions of Pakistan.

Every year, tons of produce goes waste due to various factors that collide with the perishable nature of this resource. And this has driven the dehydration as a

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practical solution worldwide, thus preserving fruits and vegetables for far longer without affecting its freshness or nutritional value.

“Dehydrating food is the oldest method of preserving foods; at home, we do it all the time,” explained Tehmina Asad Chaudhry, Managing Director Insta Foods Industries – the second largest Pakistani company in dehydrating business.

"The process of extracting all the moisture out is basically the dehydrating food process and it increases the shelf life of any product,” Chaudhry added.

Traditional system diminishes quality and quantity he traditional drying systems have not been able to maintain the quality, and the techniques used are unhygienic,

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unsafe, and nonproductive”, said Chaudhry. “Open drying process incurs more wastage, rewetting, and loss of quality and quantity,” said she, dilating upon the difference between traditional and modern mechanism.

Fruits and vegetables in its dehydrated form are widely used by consumer brands, frozen foods companies, spice and pickle/sauce makers etc. – all adding the dried fruits and vegetables in value-added products.

It was 2011 when Tehmina and her entrepreneur husband Asad Chaudhry – after spending a decade in the Middle East – decided to come back to Pakistan and start a business of their own.

An entrepreneur through sheer luck, looking for a livelihood, Asad had moved to the Middle East. After a humbling beginning, Asad was able to venture into multiple businesses there – from the hotel industry to insurance and real estate, learn-

‘EVERY YEAR, TONS OF PRODUCE GOES WASTE DUE TO VARIOUS FACTORS THAT COLLIDE WITH THE PERISHABLE NATURE OF THIS RESOURCE. AND THIS HAS DRIVEN THE DEHYDRATION AS A PRACTICAL SOLUTION WORLDWIDE, THUS PRESERVING FRUITS AND VEGETABLES FOR FAR LONGER WITHOUT AFFECTING ITS FRESHNESS OR NUTRITIONAL VALUE’

‘FRUITS AND VEGETABLES IN ITS DEHYDRATED FORM ARE WIDELY USED BY CONSUMER BRANDS, FROZEN FOODS COMPANIES, SPICE AND PICKLE/SAUCE MAKERS ETC. – ALL ADDING THE DRIED FRUITS AND VEGETABLES IN VALUE-ADDED PRODUCTS’ ing on the job as he went along.

Then he retraced his steps towards back home with the intent to initiate a venture which could be a business and social enterprise at the same time.

Among the many options the couple entertained, the food sector seemed the most promising. After spending a few months trying to find a potential partner and experiencing a fraud in the name of good faith, the couple ended up in dehydrated food industry which was a large yet untapped market.

“We saw an ad in a newspaper where a businessman was looking for a partnership for the dried processed food industry and we latched onto it”, said Tehmina.

FOOD PROCESSING

The persuasion works s the partner took off with the couple’s investment, the partnership fell apart. That turned to be a blessing in disguise for Mr and Mrs Chaudhry who by now had the hang of the business.

The couple then did research on the feasibility of the plan for a business in the dehydrated food market and with Asad’s knack for business and Tehmina’s educational background in food and nutrition, the husband/wife team set up Insta Foods Industries.

Soon after the company was set up in Lahore in a rental space, Tehmina who was responsible for the marketing of the company approached large national and multinational companies – also potentially largest consumer of dehydrated food products. Among them were the likes of Unilever, Nestle and Shan Foods, to name but a few.

After an initial persuasion process, Tehmina was able to bring most of the leading companies onboard and Insta Foods began its operations with a relatively small team and minimal investment.

Soon the company was able to set its foot in the local food market and giants such as MonSalwa, National Foods, K&N’s, Shangrila Foods etc. became the company’s patrons.

“Our major dehydrated products are onions, garlic, potatoes and green chilies – the stuff used most by the food sector,” said Tehmina, while talking of the large production facility that produces a minimum of one ton of dehydrated food every day in multiple categories.

According to Tehmina, due to the industry’s inherent potential, any company that provides quality assurance and sustainability to its clients would do well in this particular niche as the clients’ needs are way higher than what suppliers can pro-

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‘THE PROCESS OF EXTRACTING ALL THE MOISTURE OUT IS BASICALLY THE DEHYDRATING FOOD PROCESS AND IT INCREASES THE SHELF LIFE OF ANY PRODUCT’ Tehmina Asad Chaudhry, Managing Director, Insta Foods Industries vide. “This is such a big market, agriculture itself, and then the process of dehydration,” stated Tehmina. “At this stage, I can tell you, we have fewer suppliers and more procurers of dehydrated foods. Sometimes we have to turn down clients due to our limited resources and capacity,” said she.

Already contributing more than 50% to foreign exchange earnings, the agricultural sector can be further strengthened if only the local producers meet the rising export demand of processed and dehydrated fruits and vegetables. As of now, export of raw processed fruits and vegetables stands at zero; the finished (valueadded products) however are exported in a sizable quantity.

Tehmina believes that due to the quality of Pakistan’s produce, the export can grow exponentially – the only requirement being suppliers who can meet the stringent international food standards.

Aiming to enter the export market

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nsta Foods is aiming to expand its export operations as well, though it’s too soon to venture into the huge global market – growing rapidly with Pak-

‘AS OF NOW, EXPORT OF RAW PROCESSED FRUITS AND VEGETABLES STANDS AT ZERO; THE FINISHED (VALUE-ADDED PRODUCTS) HOWEVER ARE EXPORTED IN A SIZABLE QUANTITY. TEHMINA BELIEVES THAT DUE TO THE QUALITY OF PAKISTAN’S PRODUCE, THE EXPORT CAN GROW EXPONENTIALLY’ 30

istan’s ubiquitously absent.

With an employee headcount of 50 and a newly constructed one-acre production facility on the outskirts of Lahore, where they moved only last year, Insta Foods has now become the second largest dehydrated food supplier in a short span of time with companies such as MonSalwa, National Foods, and Unilever still on their portfolio. The partnership with the rest has come to an end since Mr and Mrs Chaudhry are now working on a line of their own.

Under the name of Insta Foods, Tehmina and her better half have now initiated a line of green chili-based spices mix.

“Red chili is the main ingredient in most of the readymade spice mixtures, we are substituting it with green chili which is a healthier and longer lasting option,” said Tehmina of her newest venture.

As per the company’s research, red chili and its bi-products are one of the main causes of ulcer and other diseases. Believers in ‘healthwise secure food’, Asad and Tehmina initiated green chili spices earlier this year to provide an alternative to everyday cooking.

“We have one of the best produce of green chilies locally; red chilies are not even our local produce. We thought let’s utilize our own locally-grown stuff and introduce a whole new concept,” Tehmina told of the idea behind.

Although Insta Foods green chili range is only available in Lahore stores at the moment, the company has already started delivery nationwide. The ‘premium product’ as Tehmina puts it is going to target a health conscious and aware consumers. n

FOOD PROCESSING

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by: syeda masooma onstruction is a vast sector and in terms of products produce and segments that we operate in, we are the leaders in terms of technology, know-how, R&D as well as the services we provide, we’re the topmost”, so claims Sika Pakistan CEO Ahmed Naveed Chaudhary. Sika Pakistan is a 100 percent owned subsidiary of the Swiss group Sika AG. Since the Pakistani part is almost an exact replica of the main company, even in terms of its operational ratios in different sectors; so to comprehend how it goes about its business, it will be appropriate to understand how it operates globally.

The company globally and in Pakistan is structured around seven target markets with 80% of its business emanating from the construction industry and the rest 20% divided amongst industrial activities – including automobiles, solar power, electrical appliances, and lamination etc.

Sika Pakistan was established completely by foreign direct investment (FDI), and even the day-to-day operations are funded by the parent company. “We have no local investor in Pakistan or anywhere in the world, as it is 100% SIKA global owned. We’re a cashrich company, and don’t require input or equity from local investors anywhere.”The leading brand in its niche in Pakistan, Sika construction chemical company has presence in 99 countries, with over 160 factories.

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bringing in cu‫מּ‬ing-edge technology ccording to Ahmed, Sika AG is now touching revenue of Swiss Francs 6 million. “I’m not at liberty to disclose the specific figures but we

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have excellent growth year-on-year, and doubling it every three years. The boom in the construction industry, primarily in the China Pakistan Economic Corridor (CPEC), has afforded everyone additional fillip that we are also benefiting from. But the added benefit is that we are bringing the cutting-edge technology to Pakistan.”

Elaborating on the CPEC and Sika Pakistan’s plans, he said, “It's a bit early to say how we have played our cards as a nation but for Pakistan it is THE project. It is good for business and industrialization. We work as a private company and we will work with private investors for the CPEC projects as well.

We don't work with the government and we haven't gone to the government particularly for any CPEC project.”

Their best selling product in the country is admixtures because “Pakistani industry is it a stage where infrastructure projects are growing – including bridges, dams and other large-scale projects that require concrete. Admixture is an essential ingredient of concrete and I can safely say that in Pakistan we are one of the largest suppliers of admixtures. We are mostly getting repeat business, such is the quality and satisfaction that our customers are gaining from that quality.”

The company operates in both B2B and B2C markets, but owing to the higher volumes and sales of B2B market, the company leaves most of its B2C sales to retail. “We

‘We have 20 technological centers Where r&D teams Work on Different proDucts anD try to proDuce better , anD improve upon, proDucts’ have a retail network of 150 shops in 12 cities that we plan to expand.”

Since is operating in specialty markets, and offering several varieties of the same product, Sika Pakistan has also taken upon itself the responsibility to educate individual customers, like homeowners in terms of qualities and properties of products under use.

“In the west, general public understand the attributes of a product since they are accustomed to a DIY culture, and so they choose whatever suits their needs the best. In Pakistan, people leave it to the contractor, who have their knowledge-base but their focus is primarily on making the most. So they choose low quality and low price products which lead homeowners to suffer the same problem over and over again.

“When we started in Pakistan we were working with the B2B, so that was easy. But since we have started selling direct to consumers and the retail market, we have seen that there is a big knowledge gap. Right now we're also doing applicators’ trainings, so that not only will they be able to understand the product better but shall also to improve their work.”

construction

“IN PAKISTAN, PEOPLE LEAVE IT TO THE CONTRACTOR, WHO HAVE THEIR KNOWLEDGE-BASE BUT THEIR FOCUS IS PRIMARILY ON MAKING THE MOST FOR THEMSELVES. SO THEY CHOOSE LOW QUALITY AND LOW PRICE PRODUCTS WHICH LEAD HOMEOWNERS TO SUFFER THE SAME PROBLEM OVER AND OVER AGAIN” Ahmed Naveed Chaudhary, CEO, Sika Pakistan As far as their involvement in the retail sector goes, Ahmed said, “We don't have any particular say in how the retailers do their businesses. We only have a standard retail price for the B2C segment, and retailers then have the independence of selling, however, they want to the consumers. This is according to the Pakistani law that you cannot force a retailer to sell a product at a particular price.

So, one can only have a suggested price and that we do.”

With the Punjab Board of Investment and Trade facilitating the land purchase with support from Punjab Industrial Estate Development and Management Company, Sika Pakistan has set up its new manufacturing facility in the Sundar Industrial Estate. According to the head of Sika Group, this facility shall create 100 direct jobs and provide business opportunities to approximately 2,000 families through retailer, applicator and distribution networks. This decision came in the wake of Punjab government’s Annual Development Plan that allocated Rs1,656 billion for 2015 to 2018 out of which 40% is to be spent on infrastructure development, including roads, irrigation, energy, and public buildings.

According to the CEO, this factory in Sundar is Pakistan's first elite technological company certified by United States Green Business Council. “We were able to achieve goal certification for the same. As a whole, it is the first company in Pakistan that has been

awarded the LEED certification as a chemical company.” Approximately 60 to 65% of the products for the Pakistani market were being produced locally, and the rest are being imported.

Exporting multiple products ur major threshold for growth is coming from the local factory. There are more than 500 products in our portfolio so we cannot produce everything in Pakistan. But the bulk, as well as the major products ,are manufactured here and that is the why we established the factory. That said, a proportion of the production from the Pakistani manufacturing unit is also being exported to its other regional operations. “We are also exporting multiple products. And we are very hopeful that once the conditions in Afghanistan stabilize, it will become a major export market for us.”

He isn’t worried about his competitors either. “Some brands maybe more renowned but on quality or technology it is very difficult to beat us, as well as on the technical aspects.

So I don’t consider as of now anyone our competitor in Pakistan.”

To him, recovering money from the Pakistani market remains the biggest challenge.

“Selling is easy but people don't pay or they

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‘HE INSISTS THAT THE WORD ‘HIGHER QUALITY’ COMES WITH AN IMPRESSION OF HIGHER COST, BUT MANY PEOPLE FAIL TO UNDERSTAND THAT EVEN IF THE INITIAL COSTS APPEAR HIGH, THEIR LIFE CYCLE PROVES THEM TO BE FAR LOWER THAN THEIR ALTERNATIVES WITH LOWER INITIAL COSTS BUT MUCH SHORTER LIFE CYCLES’ 34

don't pay on time. Companies like us believe in the customer’s word. For instance, if someone says, they will pay in 60 days we tend to trust them. But those 60 days never come, particularly in the construction industry. This is one area where the government has to be serious in order to ensure that more foreign companies can come to Pakistan.”

About Sika AG’s research and development functions, Ahmed shared, “We have 20 technological centers where R&D teams work on producing better and improving upon various products. Once finished, they send it to different areas and countries, with instructions on what sort of innovations to aim for according to the market trends.”

Sika is a 100-year-old construction chemical company and has already almost every product for every industry. “The innovation improves upon those products in terms of cost and efficiency. Our factories also have better operational efficiency than any other building in Pakistan. We have mechanisms for water consumption, air quality, electrical efficiency, and other such sustainability factors.”

He insists that the word ‘higher quality’ comes with an impression of higher cost, but many people fail to understand that even if the initial costs appear high, their life cycle proves them to be far lower than their alternatives with lower initial costs but much shorter life cycles. “Construction projects consist of both capital expenditure and life cycle. As a nation, we usually concern ourselves only with the former but if the life cycle is taken into account people will understand that it is always better to choose higher quality products for their homes or commercial buildings.” n

CONSTRUCTION

OPINION

KK Shahid Crude AwAkening

Powerful smog Rooting for coal-fired plants is going to hit the people’s pocketbook and the lungs big time – simultaneously arlier this month the PM2.5 levels in Lahore went beyond 1,000 micrograms per cubic meter, which is 30 times more than the safe limit. PM2.5 are the atmospheric particulate matter with a diameter of less than 2.5 micrometers and used to measure the air quality of a given area.

Since smog dominated many areas of Punjab, Lahore’s Air Quality Index plummeted below that of New Delhi. It is said, breathing in New Delhi air over the past few weeks is akin to smoking 50 cigarettes a day – one can only imagine the number of cigarettes everyone based in Lahore had been smoking till Tuesday’s rain gave everyone respite.

The carbon dioxide emission in Pakistan was 140 metric tons of CO2 (MTCO2) equivalent. It reached 347 MTCO2 in 2011 and 405 MTCO2 in 2015. It is projected to go beyond 550 MTCO2 within the next 24 months. At the same rate it could touch 4,621 MTCO2 by 2050 – a 10-time hike in the ‘number of cigarettes’ then.

However, almost simultaneously, the twin cooling towers of the 1,320 megawatt Sahiwal power plant have come into the smoglight.

Until recently, coal only had a 1% share in power generation in the country at a time when it was over two-thirds in India and China. And it

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KK Shahid is Energy Correspondent, Profit

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‘SINCE SMOG DOMINATED MANY AREAS OF PUNJAB, LAHORE’S AIR QUALITY INDEX PLUMMETED BELOW THAT OF NEW DELHI. IT IS SAID, BREATHING IN NEW DELHI AIR OVER THE PAST FEW WEEKS IS AKIN TO SMOKING 50 CIGARETTES A DAY’ seems that to make up for lost time Pakistan is going back in time.

More than half of China’s $62 billion CPEC investment is in energy projects, which includes coalfired. Over the next decade and a half, $15 billion is supposed to go into building a dozen coal plants in Pakistan.

This means that by election time next year, the Sino-Pak energy collaboration – spearheaded by the Sahiwal power plant – could add another 6,000 megawatts to the national grid.

With an average energy demand of 19,000 MW, against 15,000 MW generation – meaning a shortfall of 4,000 MW – this figure obviously is massive.

While the demand touches 20,000 MW in summer it could touch 50,000 MW by 2025, as the population – only two-thirds of which have access to electricity as things stand – increases with time.

When the world is shunning coal…

Hence, the Water and Power Ministry has reiterated that at least 12 coal power projects have been planned for the next 15 years, which means that around 75% of Pakistan’s planned power hike will come from its coal reserves, of which it has 175 billion metric tons.

Last month, Hubco Coal Power Plant signed a $1.5 billion loan contract with a consortium led by the China Development Bank. The construction of the project, that has a 1.32-gigawatt capacity divided between two coal-based power plants, has begun in March.

Similarly, half of the work on Thar Coal Block-II project has been completed

and it is expected to start functioning by August 2019. Thar Coal Block-II too will have a capacity of 1.32 gigawatts but will be divided into four mine-mouth power plants of 330 megawatts each, mining 7.6 million tonnes of coal per year.

Pakistan currently produces 3.5 million tonnes of coal, importing another 4.5 million tonnes. 61,444 metric tonnes of these come from China, wherein 2015-16, bituminous coal – which exacerbates pollution – replacing non-agglomerated coal.

And so while the rest of the world is either shunning coal or at the very least incorporating latest technology to curtail pollution, Pakistan in the year 2017 is mulling to counter its energy crises through bituminous.

The least the powers-that-be can do While Pakistan’s renewable potential has

‘UNTIL RECENTLY, COAL ONLY HAD A 1% SHARE IN POWER GENERATION IN THE COUNTRY AT A TIME WHEN IT WAS OVER TWO-THIRDS IN INDIA AND CHINA. AND IT SEEMS THAT TO MAKE UP FOR LOST TIME PAKISTAN IS GOING BACK IN TIME’ been discussed in this space, upping the ante on coal has more than ‘just’ environmental ramifications. The dependence on coal, which produces power at a higher cost has meant that average tariff for the industry is $0.13 per kilowatt-hour, a cent higher than India and four more than Bangladesh.

Furthermore, with the multi-pronged crises in the Middle East set to push oil price further upwards, the tariff would further increase in synchrony.

If Pakistan can’t afford to say no to coal – which it can’t – it can at the very least incorporate the environmental checks

that are now commonly practiced around the world. Furthermore, there should be a focus on local coal – the cost for power generation from Sahiwal power plant, for instance, is spiked by the coal that has to be transported from hundreds of kilometers away. In this regard, the 7.6 million tonnes being dug every year for Thar Coal BlockII, would make it more feasible.

If Pakistan has to pay a cost in the shape of smog for our coal ventures, the least that the powers-that-be can do is make it affordable – both in terms of money and health. n

ENERGY

By: Aisha Arshad pon hearing her friends’ last year’s experience of Black Friday sales in which they availed great discounts, the 21-year-old pharmacy student from Karachi University, Maleeha Rasheed was looking forward to this year’s biggest discount event. Ultimately when all the e-commerce stores started offering sales in November under the name of Black, White and Big Friday, Maleeha was waiting to make the most of it. An avid cosmetics buyer with serious pocketbook limitations, it goes without saying that Maleeha has no choice but to look for sales to indulge her. “I spent somewhere around Rs15,000-Rs20,000, mainly on cosmetics and some clothing,” said Maleeha, who had blown the money she had scrimped on for the last few months to have some cash at hand to grab the fortuitous opportunity. “Though I was expecting better deals online, as my friends had wizened me up, instead of going for bundle deals where some items had haphazardly been lumped together, I preferred opting for stand-alone deals, picking from the brands that I liked,” said Maleeha after having spent a major portion on cosmetics sold by Daraz.pk – the pioneers of Black Friday trend in this country.

“Most of my friends have the Daraz app downloaded on their phone, and also of other brands; the advice was to wait for Black Friday and then pull out all the stops,” the 21-

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year old The driving force behind, by her standards, ‘huge’ expenditure this time around was the goodies on offer with prices that were a steal on Black Friday.

Ginormous, unbelievable araz.pk alone had made history by going past the Rs1 billion high-water mark last year. This year other e-commerce giants, like the TCS-affiliated Yayvo.com, also jumped into the fray to partake of the spoils. According to Adam Dawood, head of Yayvo.com, the turnout on online site was “ginormous – quite unbelievable”.“I can tell you already that we have surpassed our last year’s turnover and the number of orders has been way higher than the previous year’s,” said Dawood whose store commenced sales under the name of White Friday from first Friday of the month and added various sales categories on all subsequent Fridays. To Dawood, huge turnover and better than last year’s performance came on the back of two things. First, internet penetration has now brought as many as 45 million smartphone users in the country. Second, the word-of-mouth impact that gave awareness and inspiration to Maleeha and many others to become a part of the Black Friday trend in Pakistan. Presumably, the same reasons drove what Daraz.pk has been calling ‘record-breaking sales’ of the year in which Daraz.pk reported Rs3 billion sales for its four-days long Black

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Friday event of 2017. “Two years ago we brought Black Friday to Pakistan; then last year everyone one saw how it became a retail trend with conventional retail also joining the bandwagon. This shows that Black Friday is not a niche trend anymore, e-commerce is not a niche anymore,” said Hammad Ravda, Chief Marketing Officer, Daraz.pk.

The unparalleled enthusiasm ndoubtedly, the trend did gain popularity among the public and what started as Black Friday a couple of years back was re-christened ‘Big Friday’ this year by the prime mover, Daraz.pk. Not only Daraz.pk but its competitor and a massive beneficiary, Yayvo.com hitched its wagon to the Black Friday. It’s behemoth of an offline campaign for marketing the event was setup by the TCS e-commerce store. It was an attempt, divulged Dawood, to further attract the large user-base of internet consumers in the country who are rapidly gaining awareness through both online and offline mediums. The result was clearly seen by the e-commerce site as it broke last year’s sales record. The general public as well as shopaholics had marked their calendars for the last weekend of the month as all major retail brands, online stores, food chains and homebased small startups were offering substantive sales on their products spread over the span of three days. All major retail brands – including Khaadi, Gul Ahmed, Sana Safinaz, Sapphire, to name a few – went up on sale between Nov 24-26 and malls throughout the country witnessed huge turnover of customers. “I went to a Sapphire store early and the stocks were gone within minutes; it was like a football match going on in the shop,” said a customer who visited the Dolmen Mall Clifton outlet on Friday afternoon. Another Dolmen visitor the same day told Profit that upon reaching there at 3:15 pm [the Mall had opened at three in the afternoon], the parking space could only be found at the farthest corner of second basement. Such was the enthusiasm customers displayed on Black Friday event in the conventional retail.

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Breach of trust? his huge turnover can also be attributed to the trust and comfort level Pakistani people have developed for online shopping against conventional retail. Though the reported Rs3 billion sales of Daraz.pk signifies the ever-growing popularity of ecommerce platforms, customers still prefer to check the product first-hand and compare price tags before buying. Unfortunately, of the many buyers and avid online shoppers, keeping a watchful eye on their desired products throughout the year, on social media platforms, quite a few were seen complaining about regard-

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‘ON SOCIAL MEDIA PLATFORMS, QUITE A FEW WERE SEEN COMPLAINING ABOUT REGARDING THE FIRST INCREASED AND ONLY LATER DISCOUNTED PRICES OF VARIOUS PRODUCTS ON VARIOUS E-COMMERCE STORES. IF TRUE, THIS IS KIND OF COMPLAINT THAT HAS THE POTENTIAL TO MALIGN THE ESSENCE OF THE GLOBALLY RENOWNED BLACK FRIDAY EVENT’ ing the first increased and only later discounted prices of various products on various e-commerce stores. If true, this is kind of complaint that has the potential to malign the essence of the globally renowned Black Friday event. were seen complaining on social media platforms regarding the first increased and only later discounted prices of various products on various e-commerce stores. If true, this is kind of complaint that has the potential to malign the essence of the globally renowned Black Friday event. “Last year I spent around Rs25,000 on Black Friday, buying some gadgets as well,” said Nida Fatima, a 25years old marketing professional. “This year I had planned to buy some stuff for my nephews but when I checked the prices online, the discount prices were ironically the same as before, so I dropped the idea of buying anything from Daraz.pk and only got stuff directly from online stores of clothing brands,” she summed up her not-somemorable experience. Nonetheless, Daraz.pk still succeeded in attaining four times more orders than last year’s half a million and three times more visitors’ sessions on its website portal. A huge turnover of its sales also came on the back of 76% of mobile users and 55% orders which were placed via the e-commerce site’s mobile application. However, in order for this trend to continue in the coming years and to ensure that Pakistan’s e-commerce industry hits $1 billion predicted benchmark in 2020, online stores need to ensure quality of the products and legitimacy of Black and White Friday sales.

As L’Oreal Pakistan’s Marketing Director, Uneeb Akram said of his company’s policy, “Internally we say that e-commerce is not just the cherry, it’s the cake.” This indeed is the kind of import and respect that e-commerce needs to be afforded. And behind L’Oreal Pakistan securing millions of rupees in sales and emerging as one of the highest selling brands in 2017 was perhaps this attitude.

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By: Aisha Arshad or some weeks now, Cadbury Dairy Milk is splurging its marketing rupees on a commercial featuring the fetching Mawra Hocane and the seasoned maestro Javed Sheikh, and the clip is dominating the waves on all news and entertainment channels. With the copy centering on the daughter’s wedding and her last moments together

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spent in accompaniment with his father along with Cadbury indeed touched many a chord with the audiences.

The proof positive is the manner the commercial was lapped up on the social media: 16,000-plus shares and 16 million and still counting Pakistani followers pressing the Like button on the Facebook.

This sensational success of the advert on social media can arguably be attributed to the proactiveness of its target audience, the

teenage and slighter older lot – not just the largest consumer segment of Cadbury but also around two thirds of the Facebook users from the country.

This very consumer segment has perhaps motivated the makers of Cadbury Dairy Milk, Mondelez Pakistan to expand their footprint in these parts – more than 120 million under-25 that are behind the changing trends of Pakistan’s snacking industry.

In an interview with Profit, Usman Muneer, CEO Mondelez Pakistan, shed light on the progress of Mondelez Pakistan – a subsidiary of Mondelez International previously known as Kraft Foods, sharing the roadmap through which Cadbury Chocolates and Tang wants to further extend its over $30 million investment here.

“Previously specialising in candies, our chocolate portfolio came to Pakistan in the late 1990s,” said Muneer.

Until then candies were all the rage.

It was with the advent of brands like Cadbury and others in the late 1990s that Pakistani consumers started evolving the taste for chocolates.

Though Cadbury holds the most powerful position today among the chocolate producers in the country, Mondelez’s also produces Bubbly, Marvelous Creations, Perk, 5 Star and Trident Gums indicate that the company has expanded its portfolio to cater to all pocket books just as the demand picked pace.

“The Pakistani market has evolved; it was primarily a candy market with chocolates not having a sizable footprint here. Growing up as chocolate producers in the late 1980s, our chocolates were indeed basic,” said Muneer.

“Salty snacks have always had a large presence but amongst the sweet snacks, candies were the main thing. Now it’s more chocolates and biscuits – the latter have always been there though,” said Muneer. In a nutshell, Muneer’s estimates

aptly describe Pakistan’s $1.2 billion snacking industry, neatly shared 65-35 by salty and sweet respectively.

But, on the back of shift from candies to chocolates, has the market really evolved? Muneer doesn’t think so.

Ever-evolving market he market has evolved on taste [too] but people are now spending a lot more on snacks than they used to,” said Muneer, portraying the changing market dynamics.

The logical follow-up question is: Why are the consumers spending more on snacks now?

The answer though was staring one in the face – the 60% youth.

“The younger people have a whole lot

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THE PRODUCTS THAT MONDELEZ PAKISTAN RECKONS TO BE TANG’S COMPETITORS ARE ALL SYRUPS AND SQUASHES’

more disposable cash that is going into treating themselves with gums and snacks etc. From our vantage point, we have seen that the younger lot do not spend more now just on snacks but everything,” explained the Mondelez CEO. “This is called ‘fun money’ or impulse purchase,” he added.

Chocolate is not the only Mondelez Pakistan product category firmly on the growth track. Changing patterns in consumer spending have also meant that its pungent powdered drink, Tang, has more or less equally gained popularity since its launch here 10 years ago.

“Tang has a heritage here,” said Muneer, adding, “People used to bring big tubs of Tang from the Gulf but our business exploded when we launched sachets and single servings in the country.” With the product now available to downscale market, the demand propelled overnight.

The initiative is paying dividend to the company till now, with sachets remaining one of the largest selling among the Tang category.

Another unique selling point for Tang was its being the pioneer of powdered drinks in Pakistan, previously squashes or liquid syrups holding sway amongst the

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SECONDLY, THE AFFLUENT MIDDLE CLASS IS GROWING RAPIDLY; THIRDLY, THERE’S GREATER AWARENESS ABOUT [GLOBAL] BRANDS NOW BECAUSE OF SOCIAL MEDIA’ Usman Muneer, CEO, Mondelez Pakistan non-carbonated drinks.

So what segment has driven Tang’s popularity in a nation that imbibes carbonated drinks with such relish that 75% root for these among beverages? Quite unlike chocolates, above-25 women are driving Tang sales. No wonder, the campaigns focus on mother and child bonding through the easily-mixed rich-in-taste concoction.

There’s yet another distinction between the two customer bases that Mondelez Pakistan has identified: the economic groups of A, B and C are all Tang patrons while its chocolate portfolio draws sales from amongst the high-income upscale bracket.

Non-carbonated drinks have a mere 25% toehold in the beverage market, and here Tang predominates. The products that Mondelez Pakistan reckons to be Tang’s competitors are all syrups and squashes.

But as a suave businessman, Muneer appreciates that Tang cannot grow without eating into the market share of carbonated drinks. So, that is slated as broad competition.

In wanting more people to consume the powder drinks category, Muneer said that Mondelez Pakistan does not mind new entrants and more competition, as long as it expands the market against major players in the liquid or carbonated drinks segment.

10 times in 20 years onetheless Tang and Cadbury – the two entirely different products – have provided a spur to the company, enlarging its business size by 10 times since its launch some 20 years ago, in the process each registering 5-10% growth year-on-year.

Yet Muneer believes the growth can be much more. But how?

‘We see Pakistan as an opportunity because of three reasons... Firstly, brands do not have as much penetration as the population so there’s an opportunity for further penetration; secondly, the affluent middle class is growing rapidly; thirdly, there’s greater awareness about [global] brands now because of social media.’, young people are catching up all the trends from social media and we believe whatever has already happened globally is going to happen here now,” said Muneer, talking about the ever-changing dynamics.

“Affluent class knew about brands before too but now middle and lower middle class know all global brands because of their mobile phones,” he said.

For this very reason, Mondelez Pakistan’s objective is to double the business penetration of both its confectionery and powdered drinks in the next three to five

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years. According to the CEO, this is quite bold for an aim, given that internationally businesses only grow at one-two percent every year but considering the potential of growth in Pakistan, the company aims high.

“These factors demonstrate that a company should invest in a growing market,” said Muneer.

If what Usman Muneer and the international parent company pull off their growth plans, it will not only benefit the company but also make the Pakistan government richer, for it realised $16.5 million in taxes from Mondelez Pakistan in the previous fiscal.

And it would also translate into sizable new investment in its two plants at Hub for both Tang and confectionery category. The company’s recent investment in tripling the number of chillers countrywide added 700-plus direct employees in plants and head offices.

The only concern Muneer and Mondelez Pakistan has is the lack of intellectual property safety due to which the business suffers against counterfeit products locally.

“Pakistan is a great place to do business. The scope of doing business in Pakistan cannot be found anywhere else but implementation of laws is very important,” said Muneer. “‘There should be one federal food standard which everybody must follow.

And if sense of security is given to foreign investors, it will be an incentive for investors as people actually want to invest in Pakistan,” said the CEO. n

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