Away from the violence and the troubles of the big cities, the economy of rural Pakistan is booming. Flush with cash from bumper crops at record commodity prices, the farmers are spending on tractors, cars, motorcycles, mobile phones, personal grooming items, packaged foods and beverages and other consumer products like never before.
Higher crop prices have increased farmers incomes in Pakistan by Rs. 342 billion in the 12 months through June, according to a government economic survey. That was higher than the gain of Rs. 329 billion in the preceding eight years, according to a report by Bloomberg News. Companies like Millat tractors, Honda Atlas Motorcycles, Pak Suzuki Motors, Engro Foods, Telnor, Nestle, Colgate-Palmolive, and Unilever have been big beneficiaries of the current rural consumption boom.
Nestle Pakistan's chief Ian Donald has summed up the rising demand for his company's products as follows: Its a common perception that China and India are much bigger in terms of growth than Pakistan. But for Nestle, the per capita consumption of our products in Pakistan is twice as much as we have in China and India. It should be noted that Nestle is the world's largest packaged food company, and Pakistanis' per capita consumption of milk and dairy products is about 2.5 times higher than in India. According to the FAO, the average dairy consumption of the developing countries is still very low (45 kg of all dairy products in liquid milk equivalent), compared with the average of 220 kg in the industrial countries. Few developing countries have per capita consumption exceeding 150 kg (Argentina, Uruguay and some pastoral countries in the Sudano-Sahelian zone of Africa). Among the most populous countries, only Pakistan, at 153 kg per capita, has such a level. In South Asia, where milk and dairy products are preferred foods, India has only 64 kg and Bangladesh 14 kg. East Asia has only 10 kg.
Here are a few key points excerpted from a recent Businessweek story on rise of the rural consumer in Pakistan:
1. Unilever and Colgate-Palmolive Co. are sending salespeople into rural areas of the worlds sixth most-populous nation, where demand for consumer goods such as Sunsilk shampoo, Ponds moisturizers and Colgate toothpaste has boosted local units revenue at least 15 percent.
2. The rural push is aimed at the boisterous youth in these areas, who have bountiful cash and resources to increase purchases, Shazia Syed, vice president for customer development at Unilever Pakistan Ltd., said in an interview. Rural growth is more than double that of national sales.
3. Consumer-goods companies forecast growth in Pakistan even as an increase in ethnic violence in Karachi has made 2011 the deadliest in 16 years for the countrys biggest city and financial center.
4. Nestle Pakistan Ltd. is spending 300 million Swiss francs ($326 million) to double dairy output in four years, boosted sales 29 percent to 33 billion rupees ($378 million) in the six months through June. We have been focusing on rural areas very strongly, Ian Donald, managing director of Nestles Pakistan unit, said in an interview in Lahore. Our observation is that Pakistans rural economy is doing better than urban areas.
5. Haji Mirbar, who grows cotton on a 5-acre farm with his four brothers, said his familys income grew fivefold in the year through June, allowing him to buy branded products. He uses Unilevers Lifebuoy for his open-air baths under a hand pump, instead of the handmade soap he used before. We had a great year because of cotton prices, said Mirbar, 28, who lives in a village outside south Pakistans Matiari town. As our income has risen, we want to buy nice things and live like kings.
6. Sales for the Pakistan unit of Unilever rose 15 percent to 24.8 billion rupees in the first half. Colgate-Palmolive Pakistan Ltd.s sales increased 29 percent in the six months through June to 7.6 billion rupees, according to data compiled by Bloomberg. In a generally faltering economy, the double-digit growth in revenue for companies servicing the consumer sector has come almost entirely from the rural areas, said Sakib Sherani, chief executive officer at Macroeconomic Insights Pvt. in Islamabad and a former economic adviser to Pakistans finance ministry.
7. Unilever is pushing beauty products in the countryside through a program called Guddi Baji, an Urdu phrase that literally means doll sister. It employs beauty specialists who understand rural women, providing them with vans filled with samples and equipment, Syed said. Women in villages are also employed as sales representatives, because rural is the growth engine for Unilever in Pakistan, she said in an interview in Karachi. While the bulk of spending for rural families goes to food, about 20 percent is spent on looking beautiful and buying expensive clothes, Syed said.
8. Colgate-Palmolive, the worlds largest toothpaste maker, aims to address a huge gap in sales outside Pakistans cities by more than tripling the number of villages where its products, such as Palmolive soap, are sold, from the current 5,000, said Syed Wasif Ali, rural operations manager at the local unit.
9. Its detergents Bonus Tristar and Brite are packed in sachets of 20 grams or less and priced as low as five rupees (6 cents), to boost sales among low-income consumers hurt by the fastest pace of inflation in Asia after Vietnam. Unilever plans to increase the number of villages where its products are sold to almost half of the total 34,000 within three years. Its merchandise, including Dove shampoo, Surf detergent and Brooke Bond Supreme tea, is available in about 11,000 villages now.
10. Pakistan, Asias third-largest wheat grower, in 2008 increased wheat prices by more than 50 percent as Prime Minister Yousuf Raza Gilani sought to boost production of the staple.The injection of purchasing power in the rural sector has been unprecedented, said Sherani, who added that local prices for rice and sugarcane have also risen.
11. Telenor Pakistan Pvt. is also expanding in Pakistans rural areas, which already contribute 60 percent of sales, said Anjum Nida Rahman, corporate communications director for the local unit of the Nordic regions largest phone company.
While the presence of multinational consumer product giants like Nestle and Unilever receive more coverage in the western media, the Euromonitor report finds that Pakistani FMGC companies like Engro Foods, Haleeb Foods, Shezan, Tapal, Shan and others dominate the packaged food business in Pakistan. Here's an excerpt from a recent Euromonitor report on Pakistan:
Although multinationals are paving the way for innovations and taking into account consumers demands by launching new products and advertising them heavily, it is usually the domestic companies which win the competitive battle in volume terms as they focus less on expensive and more conventional items which already have a consumer base. Nevertheless, multinationals carry strong brand names and target the higher class with premium products, thus taking their reasonable share in value terms.
Supermarkets/hypermarkets is the most steadily growing distribution channel with a new player Hyperstar. As urbanization is increasing, people tend to leave their families and live separately and therefore there is sometimes no housewife at home to be responsible for the purchase of fresh items close to home. Supermarkets/hypermarkets became more popular over the review period, being gradually considered more convenient as this channel can offer a wide selection of products in one place. Pakistanis are becoming more used to planning their meals for several days and supermarkets/hypermarkets work on offering as wide an assortment as possible. Nevertheless, traditional retail outlets such as independent and small grocery retailers continue to have a good name not just because of the lower unit prices offered but also because of their selection as most of them are specialized.
Pakistan continues to face major problems as it deals with the violent Taliban insurgency and multiple internal and external threats and crises of stagnant economy, scarcity of energy and the lack of sense of security. However, it is clear from the consumer spending data that Pakistanis are a resilient people, and they continue to defy the persistent prophecies of doom and gloom.
Pakistan is just too big to fail. I fully expect Pakistan to survive the current crises, and then begin to thrive again in the near future.
Haq's Musings: FMCG Companies Profit From Rural Consumption Boom in Pakistan
Haq's Musings: Pakistan's Rural Economy Showing Strength
Higher crop prices have increased farmers incomes in Pakistan by Rs. 342 billion in the 12 months through June, according to a government economic survey. That was higher than the gain of Rs. 329 billion in the preceding eight years, according to a report by Bloomberg News. Companies like Millat tractors, Honda Atlas Motorcycles, Pak Suzuki Motors, Engro Foods, Telnor, Nestle, Colgate-Palmolive, and Unilever have been big beneficiaries of the current rural consumption boom.
Nestle Pakistan's chief Ian Donald has summed up the rising demand for his company's products as follows: Its a common perception that China and India are much bigger in terms of growth than Pakistan. But for Nestle, the per capita consumption of our products in Pakistan is twice as much as we have in China and India. It should be noted that Nestle is the world's largest packaged food company, and Pakistanis' per capita consumption of milk and dairy products is about 2.5 times higher than in India. According to the FAO, the average dairy consumption of the developing countries is still very low (45 kg of all dairy products in liquid milk equivalent), compared with the average of 220 kg in the industrial countries. Few developing countries have per capita consumption exceeding 150 kg (Argentina, Uruguay and some pastoral countries in the Sudano-Sahelian zone of Africa). Among the most populous countries, only Pakistan, at 153 kg per capita, has such a level. In South Asia, where milk and dairy products are preferred foods, India has only 64 kg and Bangladesh 14 kg. East Asia has only 10 kg.
Here are a few key points excerpted from a recent Businessweek story on rise of the rural consumer in Pakistan:
1. Unilever and Colgate-Palmolive Co. are sending salespeople into rural areas of the worlds sixth most-populous nation, where demand for consumer goods such as Sunsilk shampoo, Ponds moisturizers and Colgate toothpaste has boosted local units revenue at least 15 percent.
2. The rural push is aimed at the boisterous youth in these areas, who have bountiful cash and resources to increase purchases, Shazia Syed, vice president for customer development at Unilever Pakistan Ltd., said in an interview. Rural growth is more than double that of national sales.
3. Consumer-goods companies forecast growth in Pakistan even as an increase in ethnic violence in Karachi has made 2011 the deadliest in 16 years for the countrys biggest city and financial center.
4. Nestle Pakistan Ltd. is spending 300 million Swiss francs ($326 million) to double dairy output in four years, boosted sales 29 percent to 33 billion rupees ($378 million) in the six months through June. We have been focusing on rural areas very strongly, Ian Donald, managing director of Nestles Pakistan unit, said in an interview in Lahore. Our observation is that Pakistans rural economy is doing better than urban areas.
5. Haji Mirbar, who grows cotton on a 5-acre farm with his four brothers, said his familys income grew fivefold in the year through June, allowing him to buy branded products. He uses Unilevers Lifebuoy for his open-air baths under a hand pump, instead of the handmade soap he used before. We had a great year because of cotton prices, said Mirbar, 28, who lives in a village outside south Pakistans Matiari town. As our income has risen, we want to buy nice things and live like kings.
6. Sales for the Pakistan unit of Unilever rose 15 percent to 24.8 billion rupees in the first half. Colgate-Palmolive Pakistan Ltd.s sales increased 29 percent in the six months through June to 7.6 billion rupees, according to data compiled by Bloomberg. In a generally faltering economy, the double-digit growth in revenue for companies servicing the consumer sector has come almost entirely from the rural areas, said Sakib Sherani, chief executive officer at Macroeconomic Insights Pvt. in Islamabad and a former economic adviser to Pakistans finance ministry.
7. Unilever is pushing beauty products in the countryside through a program called Guddi Baji, an Urdu phrase that literally means doll sister. It employs beauty specialists who understand rural women, providing them with vans filled with samples and equipment, Syed said. Women in villages are also employed as sales representatives, because rural is the growth engine for Unilever in Pakistan, she said in an interview in Karachi. While the bulk of spending for rural families goes to food, about 20 percent is spent on looking beautiful and buying expensive clothes, Syed said.
8. Colgate-Palmolive, the worlds largest toothpaste maker, aims to address a huge gap in sales outside Pakistans cities by more than tripling the number of villages where its products, such as Palmolive soap, are sold, from the current 5,000, said Syed Wasif Ali, rural operations manager at the local unit.
9. Its detergents Bonus Tristar and Brite are packed in sachets of 20 grams or less and priced as low as five rupees (6 cents), to boost sales among low-income consumers hurt by the fastest pace of inflation in Asia after Vietnam. Unilever plans to increase the number of villages where its products are sold to almost half of the total 34,000 within three years. Its merchandise, including Dove shampoo, Surf detergent and Brooke Bond Supreme tea, is available in about 11,000 villages now.
10. Pakistan, Asias third-largest wheat grower, in 2008 increased wheat prices by more than 50 percent as Prime Minister Yousuf Raza Gilani sought to boost production of the staple.The injection of purchasing power in the rural sector has been unprecedented, said Sherani, who added that local prices for rice and sugarcane have also risen.
11. Telenor Pakistan Pvt. is also expanding in Pakistans rural areas, which already contribute 60 percent of sales, said Anjum Nida Rahman, corporate communications director for the local unit of the Nordic regions largest phone company.
While the presence of multinational consumer product giants like Nestle and Unilever receive more coverage in the western media, the Euromonitor report finds that Pakistani FMGC companies like Engro Foods, Haleeb Foods, Shezan, Tapal, Shan and others dominate the packaged food business in Pakistan. Here's an excerpt from a recent Euromonitor report on Pakistan:
Although multinationals are paving the way for innovations and taking into account consumers demands by launching new products and advertising them heavily, it is usually the domestic companies which win the competitive battle in volume terms as they focus less on expensive and more conventional items which already have a consumer base. Nevertheless, multinationals carry strong brand names and target the higher class with premium products, thus taking their reasonable share in value terms.
Supermarkets/hypermarkets is the most steadily growing distribution channel with a new player Hyperstar. As urbanization is increasing, people tend to leave their families and live separately and therefore there is sometimes no housewife at home to be responsible for the purchase of fresh items close to home. Supermarkets/hypermarkets became more popular over the review period, being gradually considered more convenient as this channel can offer a wide selection of products in one place. Pakistanis are becoming more used to planning their meals for several days and supermarkets/hypermarkets work on offering as wide an assortment as possible. Nevertheless, traditional retail outlets such as independent and small grocery retailers continue to have a good name not just because of the lower unit prices offered but also because of their selection as most of them are specialized.
Pakistan continues to face major problems as it deals with the violent Taliban insurgency and multiple internal and external threats and crises of stagnant economy, scarcity of energy and the lack of sense of security. However, it is clear from the consumer spending data that Pakistanis are a resilient people, and they continue to defy the persistent prophecies of doom and gloom.
Pakistan is just too big to fail. I fully expect Pakistan to survive the current crises, and then begin to thrive again in the near future.
Haq's Musings: FMCG Companies Profit From Rural Consumption Boom in Pakistan
Haq's Musings: Pakistan's Rural Economy Showing Strength
