Published in Jul-Aug 2021
MARIAM ALI BAIG: Could we begin with a brief background about Premium Sales?
RAFIQUE JACKWANI: We entered the distribution business in 1971 and this is our 50th year. Our first account was EBM and we are still distributing their brands in Karachi. Since 1975, we have been distributing products for FMCG as well as pharmaceutical products in Pakistan. We started with two vans and now have over 800 vans all over Pakistan and a branch network across 47 cities, selling products through our network of 55 branches. Until 2000, we had a presence in Karachi and then expanded to other cities. Premier have diversified into different business lines. We are into pharmaceutical manufacturing under the name of PharmEvo and have our own brand in the oral care category, called Shield Corporation. We are into textiles, with Zaman Textile Mills. In 2016, we entered last line deliveries with Q&E. The purpose behind establishing these companies was simple. We call it reaching out and reaching lives. We want to reach out to our customers and make their lives easier.
MAB: What proportion does the distribution side of your business contribute to your overall business?
RJ: Premier is the parent company and the turnover is much higher than any of the other group companies.
MAB: Do you deal directly with retail or with the manufacturer, or is it a question of hybrid models?
RJ: We act as an extended arm of the manufacturing companies. They appoint us to specific territories with the rights to distribute their brands there, and in that capacity we deal directly with retailers, sub-distributors and wholesalers as well as e-commerce customers. In territories where we do not have our own setup – usually small towns – we appoint sub-distributors. However, in the majority of cases, our revenue comes from directly servicing the trade. If we categorise Pakistan’s retail landscape, it can be divided into modern trade and general trade outlets, which include kiryana and pan shops.
MAB: Is there a difference in how you service modern trade as opposed to general neighbourhood and kiryana stores?
RJ: Modern trade has different discounts and service models, because they cater to a larger customer base and their turnover is higher than general stores. We reach out to kiryanas once a week, with modern trade, two to three times a week – because their turnover is faster and because they buy in bulk and their discounts are different. The major differences are pricing and the fact that modern trade benefits from better credit terms from all the distributing partners; they are larger and have the capability to pay. Their prices are more competitive; they buy in bulk so they get lucrative discounts, which they pass on to their customers.
MAB: What is the contribution of modern trade versus traditional stores?
RJ: Five to 10 years ago, the contribution of modern trade was insignificant, but today some modern trade stores can account for 30 to 40% of the volumes. It depends on the profile of the products. Biscuits for example, are a product that is present in every nook and corner of the retail landscape; as a result the contribution of biscuits by local modern trade is significantly lower compared to general stores – about 10% of total sales. However, with cosmetic products, modern trade has the edge, because they have the environment to offer good placement options for brands and as a result, their contribution in this category could be as high as 40% of total sales. Overall, the contribution of modern trade is about 12 to 15% and the rest comes from the general and kiryana stores. The retail landscape in Pakistan is very spread out and you cannot always rely on modern trade because the purchasing power parity of customers has to be taken into account. Some customers prefer topping up their groceries on a daily basis and in this respect, the neighbourhood stores are able to service them very well, compared to the modern stores. Of course, the capacity of local modern trade is huge and you can find all kinds of products there, whereas choices are limited at the level of the general stores. However, considering the demographics of the Pakistani market, most of the population still relies on their neighbourhood stores because they offer credit to their customers.
MAB: Retail largely operates as part of the undocumented economy. What are the challenges there?
RJ: We strictly comply with all documentation requirements across all the companies we work with. Two years ago, the government made it mandatory for retailers to provide their CNIC details. In the initial phase, we faced a hard time because they were reluctant to give these details. However, given the kind of brands we handle, if they do not get them from us, they have to go to the wholesalers and this is a very costly affair because they have to go there, buy the product and transport it back to their shop, which is time consuming. So they have to rely on the distributor. They also know that the distributor will give them authentic products and there is no cheating. We were able to get the CNIC details from most of our trade customers. We have been in the industry for 50 years and they know we do very clean-chit work. Some customers are still not providing us with their CNIC details and we are not doing business with them.
MAB: What role is technology playing in transforming the distribution process?
RJ: Technology is playing a very important role. Thirty years ago, we would simply put the products in a van and our salespeople would go the outlets and sell them instantly. Then came the pre-order booking system. It started in the late 90s and, to a large extent, it is the model we use now. Last year because of the pandemic, it was difficult for the sales team to go directly to modern trade, so we developed an app and our pre-bookings can be made on the phone or through an app. We are planning to digitise our deliveries as well; this will optimise our routes and by geo-tagging outlets, we can monitor them in the best possible way to ensure maximum productivity.
MAB: How difficult has it been to implement digitisation at the level of your own in-house staff and that of the retailer?
RJ: Nobody likes change and initially we faced hurdles from our team. However, we trained and motivated them to use technology; it is good for the company as well as for them because it speeds up their work. With retail, until about five years ago they were not tech-savvy but there has been a transformation and even kiryanas are thinking about going digital. It is relatively easy to achieve; if someone can use Foodpanda or Careem or WhatsApp, they can easily use our simple app. Everyone has a smartphone and penetration is increasing. The issue is that there is a degree of fear in their minds that if they go digital, their transactions will be audited and they will come under the tax net.
MAB: Do you work with brands to incentivise the trade and the consumer?
RJ: In most cases, both are done by the manufacturing companies, although in certain cases, we do it jointly in terms of negotiating with the trade about different offers. The manufacturing companies don’t work in isolation and they keep interacting with us. Our job is to provide quality in servicing; we reach out to customers in a timely way and ensure the availability of the brand in that particular product category. Cosmetics do not require penetration in pan khokhas, but biscuits do. It depends on the profile of the brand and the portfolio; it is on this basis that terms, conditions and margins are negotiated. In case of high turnover, the margins are less and vice versa.
Some manufacturing companies contribute to the distribution costs – as in sharing the cost of the vans or the sales team. It all depends on the margins. A two to 2.5% return on sales (ROS) is considered a good margin. It varies from portfolio to portfolio depending on the size of the brand and the volumes involved.
MAB: Is distribution a good business to be involved in?
RJ: This is a business that requires mettle. I would not encourage anyone to come into this business, without the right mindset in terms of providing top service to the trade. This is a very disciplined business. Operations start early in the morning and end late at night. Distribution is a high turnover and low profit margin business and is dominated and driven by the manufacturing companies. This is also a business with high overheads and these days, operational costs have gone up and margins are tight.
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