MARYLOU ANDREW: Can you tell me a bit about Engro Agriproducts?
EQAN ALI KHAN: Engro Agriproducts (EAP) used to be a subsidiary of Engro Eximp which was Engro’s trading company. Eximp used to trade in fertiliser and later set up a rice processing facility for B2B exports. Then came a realignment in Engro’s overall strategy in December 2014, as a result of which we defined three strategic pillars for growth. The first is fertiliser and agri inputs (our core as a company but now we are not just looking at fertiliser but at other agri inputs); the second is energy and the third is consumer foods (Engro Foods). In March, there was a financial transaction whereby Eximp is now a subsidiary of Engro Fertiliser, while Engro Agriproducts was bought by Engro Corp. So we are a 100% owned subsidiary of Engro Corp, like Engro Fertiliser and Engro Foods.
MLA: If you started life as a rice processing company, why is whole wheat flour your first branded product?
EAK: When EAP started off, the thinking was that rice is a very large export from Pakistan (approximately in the magnitude of an average of three billion dollars) and we thought there were margins to be made as well as value added possibilities. Over the years our thinking has evolved and we now believe the bigger opportunity is in the consumer market rather than in the B2B market. Consumer staples are the game, whether it is rice or flour, but we wanted to capitalise on the largest chunk of the pie, which is flour. Dairy is almost a one trillion market in Pakistan while flour is the second largest and worth about Rs 700 billion. We intend to do the conversion play the same way we did it in dairy.
MLA: What are the dynamics of the wheat flour category?
EAK: As I mentioned, flour is an approximately Rs 700 billion category. This includes the whole wheat (chakki flour or atta) that we consume for roti, as well as maida (or white flour) which is used in biscuits, bread and noodles. Our focus is on the flour consumers use for their roti, which is what Onaaj is. There is roughly a 50-50 split between whole wheat chakki atta and white flour. The flour market is very regionalised and different players operate in specific cities or areas. So far no one has been able to build a national brand and we believe we have a strength in this regard. Our brand and our name have standing and we want to capitalise on them. Furthermore, to build a brand you have to build up a certain equity which requires investment and there are not many people who can do that. In the true sense this is the first national flour brand that has been launched.
MLA: What is the ratio of branded to unbranded flour?
EAK: If I look at it in terms of conversion play, branded atta is currently less than 10%. Our estimates say it is eight to nine percent. When we say branded we are not talking about brands that are producing communication. Anything which is in a bag and has a name on it is a brand. So 10% includes all these small brands as well as whole wheat and white flour. Ashrafi is a very strong player in white flour so a big chunk of this branded market belongs to white flour.
Ashrafi is a very strong player in white flour so a big chunk of this branded market belongs to white flour.
MLA: Why is Onaaj better than whole wheat chakki flour?
EAK: Onaaj is a natural product, we do not add anything and we do not remove anything from it. What is our strength? It starts from sourcing; we have been here for the last five decades and we have a connection with farmers that no one else does and this allows us to source the best quality grain in the country. In Pakistan, the big problem with wheat is that the storage conditions are very unhygienic. So if the input is not good, how can the output be good? We have pre defined specifications and those specs ensure that we get the most nutritious, most hygienic product. Customers expect their roti to be soft, fluffy, golden in colour and taste good. The specs we have defined for wheat allow us to deliver on that. We are the only company in the market which will reject wheat if it is not up to our standards. The second stage is grain processing and there too we realised that what we are currently consuming has a lot of issues. When we get chakki flour at home, everyone is happy because they think it is healthy and nutritious but the fact is that cleaning mechanisms are not available at chakkis. The mills will usually extract something from the flour so it is never 100% what it is supposed to be. Then if you look at our packaging, the material we use is a combination of two materials; usually when you buy atta, there is a spillover, but our bag prevents this and allows for a shelf life of three months.
If you look at our packaging, the material we use is a combination of two materials; usually when you buy atta, there is a spillover, but our bag prevents this and allows for a shelf life of three months.
MLA: You still have to overcome the challenge of people buying from the chakki where the flour is probably less expensive than Onaaj.
EAK: Our costs are certainly higher but as we want to do the conversion play, we don’t want to charge very hefty premiums and we are working with something we call best in class premiums. Our pricing versus chakki is not significantly different – chakki atta is available at between Rs 47 and 52 and we are positioned at the higher end of the range. So a 10 kilo bag would be Rs 520. In terms of achieving a substantive conversion, we are focussing on consistent quality, a good distribution network and a trusted brand name. We have done category studies on a very large scale trying to understand what drives consumers, what their issues are and how we can come in as solution providers. If people can get quality from someone that they trust they will go for it.
MLA: Are there any challenges in making whole wheat flour acceptable to consumers?
EAK: The biggest challenge that we came across in our focus groups is that a lot of people want to eat whole wheat because they realise that it is better for their health, yet they don’t like the darker coloured roti that whole wheat flour produces. Therefore in association with global consultants we have produced a lighter coloured flour while delivering 100% whole wheat goodness.
MLA: Which class of consumers are you targeting?
EAK: Atta is not something you can classify as being particular to a SEC. When we started working on this, we also thought that only SEC A consumers would buy this product and the others would just go for white flour. But this is not the case; in every class from SEC A to D, the incidence of using chakki atta [as opposed to fine flour] is almost the same and people will pay a premium for whole wheat flour. So our target market is across SECs.
MLA: Despite not being an Engro Foods brand, you have a brand name that starts with an O.
EAK: Our O is not by design. Onaaj is a coined word, it comes from all anaaj. All anaaj is Onaaj. There are benefits of coined words when you go for trademark registration and this was one reason for it. Additionally this is not just a flour brand; it is a consumer staples brand. We believe that consumer staples are the single largest opportunity in Pakistan today as far as consumers are concerned. Onaaj is an umbrella consumer staples brand and it allows us to venture into different areas. We have started with flour and we are evaluating other things as well.
MLA: Rice, perhaps?
EAK: Rice would be the next logical step after flour but let’s see.
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