Stretching the Basket

A hot cup of tea, a fewslices of toasted breadand an omelette is aubiquitous breakfastthat graces dining tables acrossPakistan’s socio-economic strata.Yet, inflation has pushed up theprice of this rather humble fareby 34% and up to Rs 124, thisyear. This is considering the factthat according to estimates bythe Pakistan Bureau of Statistics(PBS), eggs are now purchasedfor Rs 260 per dozen, althoughone would be hard pressed tofind such reasonable rates in anysupermarket or khokha in Karachi.Even using PBS’s conservativeestimates, for a family of four,the price of breakfast has beenjacked up by roughly Rs 4,000a month, a substantial amountfor people whose family incomeshave not increased at the samepace as the rate of inflation. Sohow has the monthly grocerybasket changed for householdstrying to stretch incomes tomeet expenses?

Consuming less for more:“Volumes have dropped acrossthe industry as purchases havedeclined, yet in terms of value,purchases have increasedbecause inflation has pushedthe prices up,” says a contact inthe FMCG industry. Accordingto him, in broad terms, thevolume has dropped 10% to20% across categories.

Companies follow one of twostrategies. Either they try to keepthe volume intact by decreasingweight or keep the value (therevenue earned from the saleof a single product unit) intact,by increasing the price andkeeping the weight the same.For example, a premium one kilopack of washing powder soldfor Rs 500 last year can eitherbe sold for Rs 550 for one kilo,in which case the grammageremains the same, or the pricestays at Rs 500, but the weightdecreases to 900 grams.

Think Cocomo. A mother givesa child Rs 10 to buy a snack fromthe kiryana store. As the cost ofproduction rises, the number ofbiscuits in a five rupees Cocomopacket decreases from five tofour. If the price were to increaseto six rupees for five biscuits, theshopkeeper would then have toreturn four rupees in coins – nevera popular option owing to theawkwardness of the transaction.And the child who could previouslybuy two packs of goodies for Rs10, will now have one packet ofCocomo and loose change. Butas no self-respecting child wouldhave one of something when hecan have two of something else,hence the decrease in the numberof biscuits for the previous price offive rupees.

With inflation skyrocketing,companies follow both strategiessimultaneously, meaningconsumers pay more forless. This dictates consumerbehaviour in one of two ways.Either they downsize onconsumption by continuing topurchase the 900-gramme packand making it stretch or they buya cheaper brand.

In terms of non-essentials,purchases have fallensignificantly. “Recently, the priceticket of the biscuit category hasincreased from five rupees to10, hitting volumes significantly,especially in smaller towns,particularly in interior Sindh,”says the CEO of Premier Sales,Rafique Jackwani.

Switching brands, notstores: If consumers do nothave money in their pockets,sales start to dip. This affects theshopkeeper’s purchasing powerand lowers his inventory levelswhich in turn impacts generaltrade. So if your neighbourhoodshop keeps running out ofyour favourite chips, it may bebecause the shopkeeper ispurchasing 100 packets of chipsrather than the 150 he usedto previously. Nevertheless,even if the volume of tradein supermarkets decreases,consumers are not hoppingaway from their preferred placeto buy their monthly groceries;the convenience and comfortof knowing where to park andwhich aisle to find the shampooin induces people to stick tothe tried and tested, and if abrand or product is missing, theyprefer to opt for another SKUor brand rather than changewhere they shop. However, if astore is consistently running outof favoured brands, customersare likely to start shoppingelsewhere. Hence, shopkeepersmaintain a minimum inventory ofpopular brands to prevent losingregular customers.

Supermarkets’ volumescorrespond to 15 to 20% of aproduct’s sales and the restcomes from general tradeand includes pharmacies,wholesalers, khokhas, and smallmom-and-pop stores. These arethe local neighbourhood shopswhere the husband stops byon his way home to pick up theday’s groceries, as requested bythe wife. Furthermore, the smallstores are important for the lowerend of the socio-economic ladderbecause they extend credit andfacilitate purchases of smallerquantities in loose form, allowingconsumers to spend as andwhen required.

Local or Irani?: According toIrfan Iqbal Sheikh, Chairman,The Federation of PakistanChambers of Commerce &Industry (FPCCI) and ownerof the supermarket chainAl-Fatah, Iranian goods arebeing smuggled under theguise of barter trade andflooding the market, althoughthe competition is mostly inconfectioneries. Furthermore,the presence of Iranian goodsis more marked in Karachiowing to the logistic challengeof transportation that pushesprices up, making them lesscompetitive. Iranian goods arealso more readily available inretail trade than in supermarkets.

In Tier II cities, local playershave become more active.They are small setups, oftenoperating out of home ortiny workshops and providecheaper alternatives to namebrands by evading taxes andsourcing raw materials locally.The quality difference is offsetby price differences. In thesecities, bulky products tend tobe dominated by localisedplayers as their weight increasestransportation costs. Tea is acommon example, with manylocal manufacturers setting uptheir own blends which they sellwithin the city and its outskirts.Transporting further afieldwould be too expensive andwould erode the lower pricepoint, their only competitiveedge. Counterfeit productsare another popular option; forexample, there are a lot of fakecopies of Sooper, with differentspellings and similar packaging.

**Deals and Discounts Online: **“We buy diapers from Darazbecause our card offers usdiscounts,” says a father froma relatively well-to-do family.Clearly, the ease and savingsthat come with e-commerce havemade many families shop forgroceries online, if only partially.

Over the last six months,Daraz’s grocery category hasseen a jump of 82% in orders,says Muhammad AmmarHassan, Chief Marketing Officer,Daraz Pakistan. The e-commercegiant is offering discounts onbank cards in partnership with topbanks/wallets, with an additional10% off. Since free shipping istriggered above a certain ordervalue, bulk orders are madeto increase the cart value fordiscounts, and in March, Darazrecorded its highest averageorder value, as consumersstocked up pre-Ramzan. Anotherinsight shared by Hassan is thatDaraz users are attracted notonly to price-offs but also tovalue in quantity. So, 1+1 orcross-sell bundle offers (teatagged with tea whiteners) areoften in the user cart.

The rise of local brands isalso seen on the e-commerceplatform. Instead of lavishpurchases of imported brands(snacks, pet foods, cosmeticsand diapers), consumers areopting for home-grown labels.For example, top-performinglocal beauty brands on Darazhave seen a six-time increase.Another change is the increasein the purchase of perishablesonline. The majority of fruit andvegetables sold in the city aresold by middlemen sourcingthe items from the Main SabziMandi. Daraz initiated its freshsegment by directly workingwith suppliers from the mandi,removing margins and reducingcosts, which is evident in thestrong 50% repurchase rate inthe Daraz Fresh segment.

Fatima S. Attarwala headsDawn’s Business & Finance desk.fatima.attarwala@dawn.com