Engro Foods believes in innovation, says CEO

BR research: Dairy being your core segment - how do you see its potential in Pakistan?
Afnan Ahsan: The milk industry has great prospects for growth. Packaged milk only has around 10 percent market share. There are logical expansions in the raw-material source, but collection of those raw materials is very difficult in Pakistan because the agriculture sector is disorganised.
BRR: How large is your dairy collection chain and where it s it located?
AA: We are situated in central and southern Punjab primarily and in some areas of Sindh as well. We have a dairy farm which has around 2300 cattle and is one of the largest in Pakistan. The farm has been there around for 2-3 years and accounts for 4 percent of our milk produce.
BRR: How do you manage these farms?
AA: We have a total of 35,000 farmers who are directly linked to and bring milk to our collection centers. Our village milk collectors have direct access to all these farmers - we call them strategic dairy farmers. This is a backyard industry. A large number of these farmers are very small; possessing just two to three cows.
We did not need to reinvent the wheel as Nestle has been in the business for 32 years. Any successful dairy industry relies on co-operatives as a basic infrastructure, but in Pakistan we are very far on that.
BRR: Your recent quarterly financial results depict a sizeable increase in cost of sales. What is the chief reason behind it?
AA: The primary reason was the ice-cream segment as we recently launched in Karachi, roughly 9,000 freezers were injected in the Karachi market alone and the wholesale infra-structure was built from scratch.
Even though our expenses are growing we are still making investments. If we compare our sales to Nestle, their expenses last year were around 7.2 percent, Engro's are 3.1 percent. It's a pure distribution and infrastructure business.
Our penetration is in 120 towns. We are still at a very basic stage relying primarily on a wholesale network for a deeper penetration in the rural market. It's not by accident that this company has, in five years, gone from zero to Rs30 billion. It's an aggressive company and one of the most successful corporate entities in Pakistan.
BRR: How are your different brands performing in the market?
AA: Tarang is our largest brand, in revenue and distribution terms. This has allowed us to make it the most deeply penetrated and widely distributed brand. It's the largest revenue contributor to the overall portfolio.
But we have made Olpers available at a very affordable price, and we have tried to bring innovation in the industry through this. Olpers obviously is placed in higher socio-economic strata and hence probably a fairly high price point.
Omore ice-cream is just in the beginning stage. We currently have 24 percent of the ice-cream market share. But that is in a monopoly market which is commendable.
BRR: Are you un-tapping the ice-cream market or just breaking into your competitors share?
AA: At this point in time we've just broken into the market. The entire sector has faced slow growth due to losses incurred by load-shedding, but that's a sectoral thing. We still need to work more on the infrastructure.
BRR: What are the prospects for Safa Foods which the company acquired recently?
AA: The prospects look promising; it is a huge industry in North America which is close to a billion dollar. My aim would be to make Pakistan a major supply-line. For a Middle Eastern producer, "Made in Pakistan" is a taboo, and we need to break through the taboo, and I personally believe Engro is the right platform to do so.
BRR: What is the room for packaged ice cream market in Pakistan?
AA: Incidence of packaged ice-cream in Pakistan is almost negligible. The packaged industry needs to consider localising ice-cream as what we are currently selling is very western.
BRR: What is the company doing to take on competitors?
AA: One of the things which we have brought is organising the sector much faster than our competition. We have home deployed initiatives like EMAN (Engro Milk Automation Network). Every collection center that we have has POS device and every single farmer has an EMAN card.
We are also looking at livestock management where we bring women from rural areas in Sindh and train them in livestock management. We put them in contact with fertilisers, as well as with veterinarians. These women are supporting cattle farmers and us. Our plan has been to be more productive with our current base.