A hot cup of tea, a few slices of toasted bread and an omelette is a ubiquitous breakfast that graces dining tables across Pakistan’s socio-economic strata. Yet, inflation has pushed up the price of this rather humble fare by 34% and up to Rs 124, this year. This is considering the fact that according to estimates by the Pakistan Bureau of Statistics (PBS), eggs are now purchased for Rs 260 per dozen, although one would be hard pressed to find such reasonable rates in any supermarket or khokha in Karachi. Even using PBS’s conservative estimates, for a family of four, the price of breakfast has been jacked up by roughly Rs 4,000 a month, a substantial amount for people whose family incomes have not increased at the same pace as the rate of inflation. So how has the monthly grocery basket changed for households trying to stretch incomes to meet expenses?
Consuming less for more: “Volumes have dropped across the industry as purchases have declined, yet in terms of value, purchases have increased because inflation has pushed the prices up,” says a contact in the FMCG industry. According to him, in broad terms, the volume has dropped 10% to 20% across categories.
Companies follow one of two strategies. Either they try to keep the volume intact by decreasing weight or keep the value (the revenue earned from the sale of a single product unit) intact, by increasing the price and keeping the weight the same. For example, a premium one kilo pack of washing powder sold for Rs 500 last year can either be sold for Rs 550 for one kilo, in which case the grammage remains the same, or the price stays at Rs 500, but the weight decreases to 900 grams.
Think Cocomo. A mother gives a child Rs 10 to buy a snack from the kiryana store. As the cost of production rises, the number of biscuits in a five rupees Cocomo packet decreases from five to four. If the price were to increase to six rupees for five biscuits, the shopkeeper would then have to return four rupees in coins – never a popular option owing to the awkwardness of the transaction. And the child who could previously buy two packs of goodies for Rs 10, will now have one packet of Cocomo and loose change. But as no self-respecting child would have one of something when he can have two of something else, hence the decrease in the number of biscuits for the previous price of five rupees.
With inflation skyrocketing, companies follow both strategies simultaneously, meaning consumers pay more for less. This dictates consumer behaviour in one of two ways. Either they downsize on consumption by continuing to purchase the 900-gramme pack and making it stretch or they buy a cheaper brand.
In terms of non-essentials, purchases have fallen significantly. “Recently, the price ticket of the biscuit category has increased from five rupees to 10, hitting volumes significantly, especially in smaller towns, particularly in interior Sindh,” says the CEO of Premier Sales, Rafique Jackwani.
Switching brands, not stores: If consumers do not have money in their pockets, sales start to dip. This affects the shopkeeper’s purchasing power and lowers his inventory levels which in turn impacts general trade. So if your neighbourhood shop keeps running out of your favourite chips, it may be because the shopkeeper is purchasing 100 packets of chips rather than the 150 he used to previously. Nevertheless, even if the volume of trade in supermarkets decreases, consumers are not hopping away from their preferred place to buy their monthly groceries; the convenience and comfort of knowing where to park and which aisle to find the shampoo in induces people to stick to the tried and tested, and if a brand or product is missing, they prefer to opt for another SKU or brand rather than change where they shop. However, if a store is consistently running out of favoured brands, customers are likely to start shopping elsewhere. Hence, shopkeepers maintain a minimum inventory of popular brands to prevent losing regular customers.
Supermarkets’ volumes correspond to 15 to 20% of a product’s sales and the rest comes from general trade and includes pharmacies, wholesalers, khokhas, and small mom-and-pop stores. These are the local neighbourhood shops where the husband stops by on his way home to pick up the day’s groceries, as requested by the wife. Furthermore, the small stores are important for the lower end of the socio-economic ladder because they extend credit and facilitate purchases of smaller quantities in loose form, allowing consumers to spend as and when required.
Local or Irani?: According to Irfan Iqbal Sheikh, Chairman, The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) and owner of the supermarket chain Al-Fatah, Iranian goods are being smuggled under the guise of barter trade and flooding the market, although the competition is mostly in confectioneries. Furthermore, the presence of Iranian goods is more marked in Karachi owing to the logistic challenge of transportation that pushes prices up, making them less competitive. Iranian goods are also more readily available in retail trade than in supermarkets.
In Tier II cities, local players have become more active. They are small setups, often operating out of home or tiny workshops and provide cheaper alternatives to name brands by evading taxes and sourcing raw materials locally. The quality difference is offset by price differences. In these cities, bulky products tend to be dominated by localised players as their weight increases transportation costs. Tea is a common example, with many local manufacturers setting up their own blends which they sell within the city and its outskirts. Transporting further afield would be too expensive and would erode the lower price point, their only competitive edge. Counterfeit products are another popular option; for example, there are a lot of fake copies of Sooper, with different spellings and similar packaging.
**Deals and Discounts Online: ** “We buy diapers from Daraz because our card offers us discounts,” says a father from a relatively well-to-do family. Clearly, the ease and savings that come with e-commerce have made many families shop for groceries online, if only partially.
Over the last six months, Daraz’s grocery category has seen a jump of 82% in orders, says Muhammad Ammar Hassan, Chief Marketing Officer, Daraz Pakistan. The e-commerce giant is offering discounts on bank cards in partnership with top banks/wallets, with an additional 10% off. Since free shipping is triggered above a certain order value, bulk orders are made to increase the cart value for discounts, and in March, Daraz recorded its highest average order value, as consumers stocked up pre-Ramzan. Another insight shared by Hassan is that Daraz users are attracted not only to price-offs but also to value in quantity. So, 1+1 or cross-sell bundle offers (tea tagged with tea whiteners) are often in the user cart.
The rise of local brands is also seen on the e-commerce platform. Instead of lavish purchases of imported brands (snacks, pet foods, cosmetics and diapers), consumers are opting for home-grown labels. For example, top-performing local beauty brands on Daraz have seen a six-time increase. Another change is the increase in the purchase of perishables online. The majority of fruit and vegetables sold in the city are sold by middlemen sourcing the items from the Main Sabzi Mandi. Daraz initiated its fresh segment by directly working with suppliers from the mandi, removing margins and reducing costs, which is evident in the strong 50% repurchase rate in the Daraz Fresh segment.
Fatima S. Attarwala heads Dawn’s Business & Finance desk. firstname.lastname@example.org