Rafiq Rangoonwala is the President of Pakistan Food Association and CEO Quick Food Industries, and has contributed over 39 years leading different food brands in Pakistan and abroad. BR Research sat down with him to talk about MonSalwa, the brand behind the company, how it is faring in the frozen food industry, how competitive the market is and what is the future of the brand. Here are edited excerpts of the discussion:

BR Research: How did you get into frozen foods, and why do you think the demand for frozen foods has picked up over the past decade in Pakistan.

Rafiq Rangoonwala: Quick foods are the oldest brand in frozen foods in Pakistan. It was a family owned business when it started. At the time, they were importing frozen food into Pakistan and testing the receptiveness and responsive to the market. If you all remember, frozen food was not considered fresh food so in the beginning, market reception was low. But gradually, with women entering the workforce and getting busier than ever before, they are spending less amount of time in the kitchen. And for generations to come, this time will be reduced further.

The family who owned this business decided to divest due to other business interests. Ijara Capital came into the picture and bought this business a year and a half ago. Since then, we have been running this business with our head office in Karachi and factory in Lahore supplying frozen foods across Pakistan. You would be surprised to know that our demand comes not only from large cities but even smaller small towns and villages which have responded positively towards this type of food. There are multiple reasons for that as well, but a dominant reason is the access to electricity and household appliances like deep freezers and refrigerators which have become more affordable and are now found at most homes, even in these smaller towns. Moreover, in Punjab, small towns are more connected because the road infrastructure is available. This allows them to be closer to urban centers, and commute more easily which allows for free movement of consumers from small towns to big cities.

Broadly I believe, access to internet is another strong reason. More consumers are online looking at products they can buy as well as following what is happening around the world. It is not only changing needs and eating habits but also changing mindsets- whether the consumer believes this food is worth eating or not. And we have seen this shift toward acceptability quite visibly over the past few years.

BRR: What is the market size? How is the market structure? It seems pretty crowded right now.

RR: A lot of new players have entered over the past five years, given changing consumption patterns and trends. This is good, competition is always healthy and it keeps us on our toes. Some businesses do go belly-up, unfortunately when there are too many players competing for the market share. But there are reasons for that as well- they either get too excited, spending far more than they should, or race to market without perfecting their product. Most of these businesses in the frozen food segment are family-owned so numbers such as total market size or market shares are not available. We only have guesstimates. My guess is that this market is somewhere between Rs35-50 billion every year which includes retail of raw chicken. In my opinion, this is growing by at least 5 percent annually. Estimating market share is difficult because there are many different segments within frozen foods and not all brands are operating in all segments.

BRR: Tells us about these different frozen food segments.

RR: One major segment is meat which includes chicken and beef. Then wheat which includes value-added products such as paratha or rotis. The third segment is snacks which include samosas and roll, and then there is seafood. But within the meat segment, in chicken for instance, we have raw as well as value-added chicken. Our brand is not into raw chicken and we mostly operate in the value-added chicken segment, which remains our biggest business.

BRR: Why are you not in the raw-chicken segment? There is a lot of potential in exports.

RR: Locally, it is a very competitive, low-margin business. Exporting, on the other hand, is not easy. Right now, our share in poultry exports is very small even though we are producing chicken. In Pakistan, export is an ongoing struggle. Most poultry exporting countries such as Brazil and Denmark continue to support their poultry industries-providing them with tax breaks and incentives to increase exports. They are able to export to markets abroad and be competitive. We don't have a lot of support or facilitation from the government.

In ethnic food segments, Pakistan faces so much competition from neighbours like Bangladesh and India who are selling at prices which do not even match our costs. Our labour costs are high, utility costs are exorbitant and the transportation costs also increase when fuel prices go up. On the other hand, their costs of doing business are too low compared to us which puts us at a clear disadvantage in the global markets. Why is it that one of the biggest halal food exporters are developed countries like Australia and United States?

When rupee was depreciating, we thought our exports would grow but at the same time, prices for inputs and utilities rose so much that it neutralized everything. I'm not saying that there are not opportunities or potential for exports. I just feel that we are unable to capitalize on these opportunities due to the challenges businesses face every day. We are currently exporting to Europe, Canada, Australia and Hong Kong but our market share is paltry whereas the potential is huge.

BRR: What is the share of exports in total volumes?

RR: Exports is currently about 10-15 percent of our sales. We can go up to 30-40 percent if we get support from the government.

BRR: How do you price your products? Is price a USP for you?

RR: No, that is never a USP. Cheap product is not a good product-with the growing burden of cost of business, we cannot be cheap either. We cannot charge an extraordinary premium but we do charge it to the extent that we know the consumer would be able to absorb. Since we procure chicken and do not grow our own, we are at a certain cost disadvantage, but there are buying seasons where we do bulk buying through different poultry contractors and try to average out our costs. The premium is also based on products. For instance, wheat products and chicken nuggets tend to be very competitive so they have smaller margins.

BRR: Recent slowdown has seen demand for many consumer goods gone down. Has it affected your business?

RR: Honestly, no. Even though there has been a slowdown, consumers cannot stop consuming. Their needs have not changed. Perhaps they would reduce their consumption a little based on their disposable incomes but the needs remain the same. I think businesses need to be careful when the economy is facing tough economic conditions. Often, in order to sell more, they start compromising on quality. When that happens, they lose customers. We need to keep the quality and service consistent and customers will continue to buy. Prices are secondary. As a business, we never compromise on the product taste and quality, no matter the circumstances. We are still using the best quality inputs we can find in the market.

BRR: Do you import any inputs or final goods for onward sales? What is your view of the current import policy in the country?

RR: Most of our inputs are locally sourced. We imports some items such as bread crumbs which are a certain texture, taste and color. It is a completely unique product in itself. Imported content should not be more than 1-2 percent of total.

We got affected during the rupee depreciation phase recently because we are the sole distributor of McCain Fries. But aside from rupee devaluation, we also saw tariffs and taxes go up. This made our product in the market far too expensive, even though there are no local alternatives of comparable quality available in Pakistan right now. Volumes fell.

I think we have a very short term vision on imports. We believe that we can decrease the deficit by cutting down imports. Volumetric decline in imports is a cost to the Exchequer` because imports are a huge source of revenue. The government will have to make up for this loss in revenue. In addition, businesses that are supplying these imported products are also paying taxes- these taxes are also lost.

The alternative here is to raise exports but evidently, exports are not competitive in the international markets. If the government wants to cut down imports, it should first develop local industries which would help generate them the required revenue. In addition, when state protection kicks in, local businesses stop being competitive and become complacent.