The fast moving consumer goods (FMCG) market is known as the wheel of economical growth. This sector helps improve quality of life, reduce unemployment by generating more jobs, prop up penetration of advanced technology and boosts produce of agricultural commodities and exports of a country.
The government's economic reform efforts and changing lifestyle patterns of people demand growth for the FMCG sector. In Pakistan, retail sales in the year 2002 amounted to Rs 2,069 billion. This figure was supported by an average annual increase of 7.2% during 1999 and 2002 and a strong growth was observed in the year 2003.
From then onward retail sales expanded at a higher pace. Due to the developing status of this country, a major portion of consumption is on basic life necessities. Hence, food, beverages and tobacco were as much as 73% of retail sales during the period.
This trend is expected to continue, and even accelerate, as now the growing income level permits the consumers to spend more on other goods also than basic life necessities. The retail sales through supermarkets are still insignificant in comparison to overall retail sales, which make up only 1% of total sales. However, this channel's sale grew about 30% on average per year with sales through supermarkets alone growing by about 50%. As a result, sales almost tripled over the period.
This high rate of growth in sales through modern retail formats is expected to continue during the next few years, with rapid growth in the number of such outlets resulting from consumer preferences and business potential.
However, despite government's open policy, companies preferably tend to enter the market through joint ventures with local firms, rather than entering at their own, as the risks are perceived.
Changing shopping trends in Pakistan and consumer preferences will continue favouring supermarkets over other types of retail outlets. Supermarkets are expected to almost double in number by 2008, with sales nearly tripling as greater efficiency is achieved.
Mixed retailers in cities will also benefit from this trend, albeit at a slower pace. Despite growth in retail sales, certain other sectors are also expected to grow. These include health and beauty, home furniture and durable goods, which are expected to expand.
The largely populated province of Punjab, which makes up 60% of total sales, experienced the highest growth rate over the review period, due to improvements in infrastructure and easy credit terms which help boost investment. Punjab's sales growth during 1999-2002 period averaged 8.5%, whereas the national average for the same period was 7.2%. This trend is also expected to continue due to the life styles and income level differences in this province.
The share of FMCG products in rural/semi-urban markets has crossed 50 percent, durable boasts of 53 percent market share. Therefore it can be assumed that our rural markets are growing faster than urban markets.
Pakistan's semi-urban/rural market with its vast size and demand base offers a huge opportunity to MNCs as well as local companies which they cannot afford to ignore. The rural population is more than two times the urban one. Consequently, a few organisations are creating specific sales team to facilitate different channels of retail trade in these areas. Our youth (aged 15-24) in these areas is playing a far more significant role in influencing the purchases of fast moving and durable consumer goods.
This group constitutes about 19% of the total population which is the highest among all age groups. Penetration levels of all major categories of consumer goods in the semi-urban/rural areas have risen dramatically in the last few years. Today even the women in this segment have been observed exercising their discretion in selecting certain product categories.
In this market, a tendency to follow the trends of the nearest municipality/metro has been observed. Big cities are initiating development in semi-urban/rural areas. This is why rural marketing is now becoming a core marketing activity. Multinational and large local companies are making forays into the said segment.
CHALLENGES IN RURAL MARKETING: The rural market is attractive but this is not without some of its inherent problems: low per capita incomes that are half the urban income; large number of daily wage earners, dependence on weather; seasonal consumption linked to harvests and other special events. Companies going to this market should plan adequately to meet the challenges of availability and affordability.
Marketeers must trade off the distribution cost with incremental market penetration. To service remote villages, the stockists are using rickshaws and traditional carts. Over the years, large companies, especially MNCs, have built strong distribution systems, which help its brands reach the interior of the rural market. These companies are considering rural areas as a future growth driver. Local distributors in concerned areas are supplying, once a week to smaller distributors/retailers in adjoining areas.
One does not have to go the last mile with its product, if distribution reaches even upto the feeder markets, they automatically find their way down the population strata provided their brand communication reaches down the line. Companies should now penetrate the market down the line by focusing on prices.
AFFORDABILITY: The second challenge is to ensure affordability of the product or service in these areas. With low incomes, products need to be affordable to the rural consumers, most of whom are daily-wagers. Some companies have addressed the affordability problem by introducing small unit packs. They have launched a variant of their largest selling chips, drinks, soap, shampoo and cigarette brands in mini packs to address the affordability issue. Global consumption of these products is also going up, millions of units are churned out and prices are coming down.
Due to this, there will be further drop in prices per annum which will fuel the affordability issue. Retail exposure of the products and easy and attractive consumer schemes have also made an impact on the purchase decision of the consumers in these areas.
ACCEPTABILITY: The next challenge in rural marketing is to gain acceptability for the product or service. Therefore, there is a need to offer products that suit the rural market. A Company in the neighbouring country has reaped rich dividends by doing so. It developed a customised TV set for the rural market and christened it locally. It was a runway hit selling 100,000 sets in the very first year.
Because of the lack of electricity and refrigerators in the rural areas, a beverage company provided low-cost iceboxes - a tin box for new outlets and thermocol box for seasonal outlets.
An important tool to reach out to the rural audience is through effective communication. A rural consumer is brand loyal and understands symbols better. This also makes it easy to sell goods. Television has been a major effective communication system for rural mass and, as a result, companies should identify themselves with their advertisements.
Price is a key issue in the rural areas, so retail companies are to address this through customised packs and price offering. There is a need to differentiate the brand according to regional disparities. The differentiation may not necessarily be in terms of product content. It may also be in terms of packaging, communication or some regional association with the brand.
Therefore, the relationship between agricultural income and economic growth is almost direct. An immediate pickup demand of FMCG goods and other durables is significantly observed once the crop is harvested. Though rural markets are growing from a smaller base, the numbers are high. Normally we do not see rural Pakistan dominating all categories," said an FMCG analyst. Successive good monsoon and a corresponding growth in farm income have raised the purchasing power of rural households.
This, in turn, has fuelled FMCG sales growth in rural markets. Products that have seen significant growth in rural markets include cigarette, shampoos, beauty creams, toothpaste, and beverages. As Pakistan is an agricultural country so agricultural supply chain needs to be consolidated.
IMPACT OF GLOBALIZATION: The impact of globalisation will be felt in rural Pakistan as much as in urban. But it will be slow. It will have its impact on target groups like farmers, youth and women. Farmers then have to 'keep in touch' with the latest information. They have to keep their cell phones constantly connected to regional markets. Surely, price movements and products' availability in the international market place seem to drive their local business strategies.
To accelerate growth in these areas, the government or large companies should make arrangement to set up internet booths in villages like that currently running in some other Asian countries. Through this farmers will be able to have access to information in their local language on weather and market prices. They will be able to transmit knowledge on modern farm practices and crop risk management.
In this way the farmers will be capable enough to access to high quality agricultural inputs from well-established and renowned sources at fair prices. Through this they will be connected to local 'mandis' for price discovery, then the farmers can get better price through elimination of certain wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs. The farmers will benefit through enhanced farm productivity and higher farm gate prices.
TACKLING COMPETITIVE CHALLENGES: To facilitate growth in this sector one must take better care of the challenge posed by global competition, especially the low price players. This phenomenon is not new in any of the developed markets where low price local players and trade brands co-exist with large branded players. Our FMCG entrepreneurs to sustain growth in the face of such competition through their internal strengths, reliable brands, latest technology and the lowest cost supply chain. They will succeed in this war by establishing unique combination of local and global scale.