"A store has to be much more than a place to acquire merchandise. It has to help people enrich their lives. If the store just fulfils a product need, it is not creating new types of value for the consumer. It’s transacting.” Words spoken by former CEO, J.C. Penney, Ron Johnson, which aptly describe the way retail business has traditionally been conducted in Pakistan.

It was a time when every neighbourhood had its own kiryana store (a small, enclosed shop, with rows upon rows of products piled right to the top). Families had fixed monthly grocery lists which were handed over to the shopkeeper who would then get all the items together, bag them, and hand a chit with the billed amount scribbled on it. Apart from the haggling (it was expected), the next customer decision was whether to pay in cash or have the amount put on a monthly tab and whether or not to have the groceries delivered. Product choices were limited and the purpose of the ‘shopping’ was to ensure there was enough rice, flour, sugar, salt, cooking oil, banaspati ghee, masalas and spices to last the month.

Naheed and Imtiaz supermarkets in Bahadurabad, and Agha’s, Motta’s and Paradise in Clifton, were among the few retail outlets where customers had the luxury to browse the shelves that were stocked with limited varieties of imported brands and/or local packaged goods. Other than that, shopping excursions were limited to Juma Bazaars or eagerly anticipated visits to Laloo Khait (now Liaquatabad), Empress Market or Jodia Bazaar – the wholesale hubs of Karachi.

So the story of retail remained until the turn of the Millennium.

Imtiaz Abbasi, MD, Imtiaz Super Market, remarks that it was the noughties that marked a significant shift in lifestyles, consumer preferences and buying patterns.

“Due to increased exposure, Pakistani consumers were more aware of what was happening internationally. Suddenly, even our most loyal customers, who had been coming to Imtiaz for generations, were no longer satisfied.”

Varied product assortments, greater convenience and accessibility, better merchandising, improved service and an enhanced store experience became the new retail rules to live by.

Quick to recognise this shift, local retailers began to invest in improving store layouts and broadening their product mix. There was also a renewed focus on customer service, rather than just relying only on price competitiveness. As a result, this growing, and as yet untapped, retail potential put Pakistan on the radar of global retailers, keen to enter this market.

Before exploring the trends redefining retail in Pakistan, it is important to understand how the retail landscape has evolved.

New dynamics

According to a research study conducted by Standard Chartered Bank last year, between 2011 and 2015, the size of the retail pie in Pakistan jumped from $96 to 133 billion, a 38.5% increase in four years. The current value of Pakistan’s retail sector is estimated to be $152 billion, as per Planet Retail (a global retail consultancy) figures. It is the third largest contributor to the economy (after agriculture and industry), accounts for 18% of the total GDP, and is the second largest employer (after agriculture), providing jobs to more than 16% of the total labour force. (NB: As most of retail in Pakistan is unorganised, and therefore undocumented, industry experts agree that the on-ground figures are much higher).

With an annual growth rate of eight percent, retail sales are expected to cross the $200 million mark by the end of 2018. The main factor fuelling this growth, apart from increasing urbanisation, is an improving employment-to-population ratio, which has led to higher disposable incomes, thereby expanding the middle class, which in turn, has increased consumer spending manifold (estimated at $293 million in 2017 and projected to cross $333 million by 2018). This is mainly because Pakistan has a young population (more than 73% of the 220 million residents are below 35 years of age) that is upwardly mobile, social media savvy, brand aware and on the lookout for quality products – and enjoyable experiences.

This is probably why the (traditionally dominant) number of new kiryana stores that have opened is less compared to the growth in the number of general and department stores, supermarkets and hypermarkets, between 2000 and 2016 (source: Retail Sector Report, Punjab Board of Investment and Trade). One possible reason is that young people are less keen to buy from street merchants, vendors and hawkers, and prefer modern, destination-oriented stores (For more, see box on Kiryana stores: a dying breed?)

The other trend disrupting traditional retail is e-commerce (Read our interview with Zain Suharwardy, MD, Daraz.pk). Although still at a nascent stage, internet retailing is expected to become a significant complement to brick-and-mortar grocery and non-grocery retailing in the coming years.

Given these dynamics, it is hardly surprising that the bulk of recent retail investment (local and international) has been in the development of two categories: shopping malls and department stores, boasting contemporary architecture and expansive multi-level formats.

The modern grocery retail market represents a key area of expansion, which is likely to attract more foreign retailers to Pakistan. The increased competition will boost the sector further and the entry of foreign players will force local retail giants to rethink, revamp and remodel their businesses.

Rise of the 'mall' culture

Dolmen Centre in Tariq Road (established in the 90s) was the first vertical shopping complex in Pakistan, built on a multiple floor layout.

“The concept of indoor, covered, air-conditioned shopping areas was alien in Pakistan. If you wanted branded products, Zainab Market or Panorama and Rex Centres were considered the

go-to places,” explains Jabir Hussain Dada, SEVP & Head of Business Unit, Dolmen Real Estate Management. This was the first time that organised retail started in Pakistan, with well-known local brands, such as Saeed Ghani and Liberty Books, opening there, along with several fashion brands.

However, the Centre did not turn out the way the Dolmen Group had envisioned it. Dada recalls that there were not enough local brands and those that were there, did not want to assume the risk of paying the high rentals that large retail spaces within Dolmen Centre demanded. “Perhaps the market was just not ready at the time and there wasn’t enough customer footfall to justify the high costs of operating within the Centre.”

It was not until almost a decade later that Pakistan had its first shopping mall, when Park Towers opened in Karachi, with McDonald’s being one of the first and most prominent brands to take retail space there. The mall quickly morphed into a social venue, where people went to be seen and enjoy the amenities (a glass capsule lift and escalators were a novelty), rather than to purchase items they needed.

The opening of Dolmen Mall Tariq Road in 2000, proved to be a game changer. Dolmen Group’s prior experience had made it clear that the only way to convince the big names to come on board as tenants was to ensure enough customer traffic. The two strategic decisions that paid off were the establishment of Sindbad’s Wonderland (rides for children) and a food court. Positioned as a family recreational spot, games and other activities were organised for children, while the food court offered family meal deals. Seeing that the mall was suddenly bustling with activity, even on weekdays, is what convinced retailers to invest in retail space there and in a matter of months, all available space had been rented out. The same business model was replicated for Dolmen Mall Hyderi, with food and children’s activities used to draw in crowds.

Over the next 15 years, a series of malls, mostly in Karachi, including The Forum, Millennium Mall, Atrium Mall, The Ocean Mall and Tower and The Place came up, completely redefining the shopping experience.

At this point, the entry of Hyperstar in 2011 (operated by the Carrefour retail chain) as an anchor tenant at Dolmen Mall Clifton proved to be a masterstroke. By offering everything under the sun, from home solutions, personal care products, electronic appliances, clothing, grocery items and even fresh produce at wholesale rates, Hyperstar became a retail hotspot. People preferred shopping in the pleasant, comfortable and secure environment that the hypermarket offered, not to mention being spoilt for choice in terms of the products, brands and categories, all available under one roof.

The formula worked, and seeing its success prompted other mall operators to adopt the idea of having department stores as anchor tenants; Ocean Mall is home to the Alpha Supermarket, for instance.

According to Muhammad Adnan Hamid, CEO, Alpha Supermarket, “when deciding to set up Alpha, we didn’t want to start with a standalone concept. If you go in as an anchor tenant, the per square feet charges are considerably less compared to what ancillary tenants pay. In addition, facilities, maintenance, security and electricity are managed by the mall operator, which allows us to focus on our core business operations. Of course, the benefits go both ways; the expectation from anchor tenants is that they will attract more shoppers to the mall.”

Today, malls have become the battlegrounds where brands, small, medium and big, the known and the obscure, are fighting it out for consumer attention. And consumers are loving every bit of it – and asking for more. According to retail experts, northern Pakistan is currently leading the retail race and several multipurpose malls are under construction in Bahawalpur, Faisalabad, Gujranwala, Islamabad, Lahore, Multan and Rawalpindi. The LuckyOne Mall in Karachi, touted as Pakistan’s largest mall yet, and the Packages Mall in Lahore are recent additions to the landscape.

Dada attributes this trend to the realisation on the part of the business community that the Pakistani consumer has matured. “People do not come to Dolmen just because of the products available or the ongoing sales promotions. They come because they enjoy the ambience, the sense of luxury and security, the value added services, and yes, also because they can browse through extensive category assortments with ease and convenience. It is all about the retail experience.”

Grocery shopping gets a facelift

It is interesting that this shift in consumer shopping preferences, from a ‘product-price focus’ to an ‘assortment-experience’ focus, was not only noticed by investors who began to channel funds into the mall business, but also by local grocery retailers. Cases in point are Naheed and Imtiaz supermarkets, both of which underwent a 360 degree remodelling and transformation after 2008.

Both had humble beginnings as small, standalone kiryana shops in Bahadurabad. While Imtiaz’s strength remained budget grocery offerings, such as flour and masalas (a USP the store maintains), Naheed differentiated itself by introducing imported brands of biscuits, cereals, chocolates, chips, coffee and other beverages, as well as ice-creams.

Munsub Abrar, the person at the helm of affairs at Naheed Supermarket, points out that “at the time, Agha’s was the only other store where people could buy international brands; my father saw a gap in the market on this side of the bridge and took the risk of stocking premium products, which paid off.”

Makro and Metro Cash & Carry had just entered Pakistan and gave people the first glimpse of what organised retail looked like. However, the business model did not work and once the initial hype of seeing endless rows of packaged goods and walking across spacious aisles fizzled out, so did the customers.

Dada is of the view that Metro and Makro made the strategic mistake of replicating their international model without understanding the dynamics of the local market.

“Both were targeting wholesalers, but in Pakistan, shopkeepers are used to going to Jodia Bazaar, Empress Market and Bohri Bazaar to buy their stock. The setup offered by Metro and Makro did not resonate with the audiences they were targeting. Shop owners wouldn’t buy from them, and families couldn’t because there was a bulk purchase limitation; you couldn’t go in, buy a pack of biscuits and walk out.”

Naheed and Imtiaz benefited from this tremendously. There was an instant realisation that there was a huge market potential, completely untapped as yet, that they could cash in by remodelling their stores and adopting a multi-level, department store format.

Abrar explains that “we saw that grocery shopping was moving away from being a necessity and was becoming a family activity. Urban consumers were looking for a shopping venue that was aesthetically pleasing, well-stocked, and not too heavy on the pocket.” And so, Naheed expanded its footprint from the original 1,100 square feet of retail space to a 32,000 square feet, four-level departmental setup.

Imtiaz was quick to follow and established new outlets in DHA, Gulshan-e-Iqbal and Nazimabad, three of the most densely populated neighbourhoods in Karachi. As an Imtiaz loyalist said: “I would have continued buying from Imtiaz, despite the fact that the store is so crowded that you have to fight your way through the crowds. However, since the Gulshan store has opened, I take my family along because there is no jostling and we can shop, or just look around without being disturbed.”

Naheed expanded its footprint from the original 1,100 square feet of retail space to a 32,000 square feet, four-level departmental setup.

Taking timely risks by expanding and improving the face of their retail setup, Naheed and Imtiaz have redefined grocery shopping for the Pakistani market, particularly the discerning, and expanding, middle-income segment.

Abrar identifies three key success factors that will be the key to sustained success: product assortment and quality, exceptional customer service and well-designed in-store layouts. While it is easier to control the first, the other two pose a challenge, mainly because of the dearth of trained retail professionals.

Abbasi seconds this view and cites the lack of retail training institutions, as well as specialised retail courses in universities, as one of the most critical issues that need to be tackled.

Hamid also attests to this vacuum of skilled human resource and recounts the challenges the Limestone Group (owners of Alpha Supermarket) faced when planning the supermarket’s launch. “Retail design is a science but unfortunately in Pakistan, there are hardly any specialists in this field. Every retailer is left to their own devices when developing the store planograms.”

In the case of Naheed and Imtiaz, it was the decades of retail insights of the individuals who started both chains that helped in design planning, and for Alpha Supermarket, it was Hamid’s international retail experience.

No surprises then that most retailers on Tariq Road, Bahadurabad and KDA Market were completely unaware of terms such as compression and decompression zones or about how product and shelf placement should be organised. The only point of agreement was that ‘aisle space’ was an important consideration.

In Hamid’s view, the lack of layout and design awareness is what is harming smaller retailers as an increasing number of consumers are opting for larger, and better organised department stores (For more, see box on The devil is in the design).

The retail roadmap

All macroeconomic indicators point to a sustained boom in Pakistan’s retail industry. The modern grocery retail market represents a key area of expansion, which is likely to attract more foreign retailers to Pakistan.

Abrar believes increased competition will boost the sector and the entry of foreign players will force local retail giants to rethink, revamp and remodel their businesses.

A second area of opportunity is projected to be in the ‘mall culture’, particularly in the northern part of the country, as well as in second-tier cities where there is a demand-supply gap.

“Pakistan has been identified as one of the top 10 emerging retail destinations,” says Abrar. However, he is also quick to point out that unreliable power supply and lack of developed retail space are two key constraining factors. “Retailers are forced to assume all the risk as well as the costs of infrastructural development, such as parking space, with almost no governmental support.”

Another policy reform that is increasingly being demanded by the main stakeholders is the establishment of a national retail association that can represent the sector’s interests, negotiate with the government over tax reform and introduce consumer protection laws.

Most important perhaps is the lack of online services offered to customers by well-established names in the business.

Abbasi succinctly sums up the future of retail in Pakistan: “One thing that will not change is that people will continue to shop; what will change is what, where and how they shop. For retailers who are able to read the market pulse and predict future buying trends, the sky is the limit.”

Kiryana stores: a dying breed?

Has the rise of modern grocery retailing made the age-old kiryana stores a dying breed?

In fact, The Path to 2020: Taking the Long View of Retail Market Entry, a research report compiled by Deloitte and Planet Retail, suggests otherwise. Of the total grocery retail sales in 2015, modern grocery outlets accounted for only 8.59% and projections for 2020 place this figure at a mere 8.98%, implying that the bulk of grocery purchasing (91.02%) will still be done at traditional retail outlets.

Interestingly, most kiryana store owners appeared confident that their business volumes and customer base will remain unaffected, and therefore, they saw no reason to change a business model that has worked for decades. Akram Sethi, a grocery shop owner in Gulshan-e-Iqbal, highlighted two key factors that will keep kiryana stores relevant in local retail. The first is that in terms of volume, the low-income segment constitutes the majority of the population in Pakistan. “This section of society prefers to go to the corner shop to buy daily consumption items such as fruit, vegetables, milk and tea. Most are daily wage earners with limited budgets and when they don’t have cash, they buy on credit. No department store is going to offer them this facility.” Second is the home delivery that the smaller shops offer, free of any charge, simply because they ‘know’ most of their customers. While several online grocery services are offering home delivery (For more, read Groceries online on page 18), the audience they are targeting is not the average kiryana store customer.

Finally, with population growth expected to continue in the region of two percent per year (according to United Nations estimates) and increasing rural-urban migration, the customer base for kiryana stores does not seem to be under any threat.

The devil is in the design

Following international retail SOPs, several local retailers are using their store layout to maximise revenues. Impulse buys, such as candies, are placed at the decompression points – the first 15 feet or so inside the store entrance. Customer behaviour studies reveal that this area should be open and inviting, and free of overpowering displays and signage clutter because this is where customers form a subconscious brand image of the store.

The area beyond the decompression zone is considered the most valuable space, often referred to as waterfront property. This is where the best product displays, sales and signage should be displayed, along with the retailer’s core product lines. This is why bakery goods, meat, vegetables and grocery items are usually placed at a corner of these stores because they are strategic buys for customers. If these product categories are placed near the entrance, people will enter, buy and leave, without taking stock of the other product offerings. Therefore, the key is to plan layouts in such a way that by the time customers reach strategic buys, they have already been exposed to the maximum number of impulse buys.

The second important factor is to ensure synergy in product placement. This means positioning baby products, such as diapers, baby milk and accessories close to cosmetics, fashion products and perfumes as mothers are the primary decision-makers in the purchase of these items.

Next is the question of visual merchandising and shelf placement, both of which play a key role in influencing buying patterns. Well-known brands, such as Dalda, Head & Shoulders, Lux and Rooh Afza, are placed at the lowest or the topmost shelves because customers will spend extra time and effort looking for them. New brands, on which retailers charge higher margins from manufacturers, are placed at eye-level to ensure greater visibility and ease of access to induce trial purchasing.

For feedback, email aurora@dawn.com

All illustrations by Creative Unit.