Will Pakistan's grocery sector adapt to changing consumer habits in 2024?
Introduction
Overview of the Food Retail Industry in Pakistan
The retail food sector in Pakistan plays an essential role in the nation's economy, offering consumers vital food products, diverse culinary experiences, and job opportunities. The food retail market encompasses both packaged and unpackaged products, and it is anticipated to achieve a 7.3% growth rate by 2025 while reaching a projected market value of $75.44 billion. Notably, the grocery retail and wholesalers industry is Pakistan's second-largest sector, following textiles. As outlined in the Pakistan Economic Survey, the Wholesale and Retail industry accounts for 30.7% of the services sector and contributes 18% to the overall GDP in 2023. The food segment was the market's most lucrative in 2020, with total revenues reaching USD 42.5 Billion, equivalent to 80.2% of the market's overall value. Furthermore, it contributes to the government's revenue through taxes and supports a range of other related industries, including agriculture, food processing, and logistics.
Pakistani households typically follow a brick-and-mortar shopping approach, wherein groceries are commonly procured from nearby wholesale stores rather than international supermarket chains. Food and beverages hold the most significant share in purchases made through retail and wholesalers.
The Pakistan Bureau of Statistics reports that an average Pakistani household spends 34.58% of their income on purchasing food, beverages, and day-to-day grocery items, suggesting how the demand for retail stores and wholesalers always remains high. Urban areas constitute a greater number of supermarkets and hypermarkets. However, recent trends have showcased an overall increase in more people purchasing groceries online, indicating a shift in how the retail industry operates.
Pakistan's retail landscape undergoes constant transformation fueled by population growth, rural-urban migration, technological shifts, and escalating consumerism.
Market Analysis
Market Segmentation
The industry can be categorized into three main market segments:
Traditional Markets: Traditional markets, such as Kiryana stores and neighborhood bazaars, play a crucial role in both rural and urban retail, attracting diverse demographics, especially cost-conscious consumers.
Modern Retail Chains: Departmental stores, Supermarkets and hypermarkets are gaining prominence in urban centers, with leading players such as Metro, Carrefour, and Imtiaz Super Market.
Online E-Retailers: The rapid growth of Pakistan's e-commerce sector, accelerated by platforms such as Food Panda, HumMart, GrocerApp, TazaMart, etc., has surged further since the 2020 global pandemic, witnessing an increasing trend in online shopping.
Key players and Market Shares
Data released by the State Bank of Pakistan indicates that the retail sector accounts for 30.7% of the services sector and generates 18% of the GDP. Of the approximately 2 million retail outlets in the nation, just 40% are FMCG channels, according to the Federal Board of Revenue (FBR). In addition to supermarkets, these also comprise department stores, local general stores, and similar establishments.
General Stores and small departmental stores are scattered in great numbers in both rural and urban areas. They are most likely to be stationed at a walking distance from any destination, making it convenient for customers to purchase products on a regular basis. They derive a greater market share as compared to bigger retail giants. However, this market share is higher only in terms of numbers and not revenue. It is because most of these retailers are working informally. The Punjab Board of Investments reported that 70% of the total number of outlets of wholesalers and retailers in 2023 were informal, out of which 60% can be categorized under the Food category. This indicates how a big chunk of the revenue is not recorded.
However, in terms of the formal retail and wholesalers, there is a presence of both local and international retail chains. Some examples of these include: Imtiaz Supermarket, Carrefour, ChaseUp, Metro Pakistan, Al-Fatah Stores, Spar Pakistan, CSD, and etc. These stores have more prominence and a larger customer base in urban areas as demand for stores where customers can purchase everything under one roof is higher.
As shown below, Imtiaz Supermarket has the largest share of USD 690 Million in terms of revenue. Imtiaz Supermarket is a local retailer whose demand is higher, as compared to international retailers such as Metro Pakistan, indicating consumer preferences.
Source: Data has been collected from various industry sources, ie. data reports published by retailer companies in 2023.
Market Trends
Changing consumer preferences
The emergence of the middle class, rising number of working women and nuclear family systems has led to an increase in preference for processed food. In terms of market share, international players such as Nestle and Unilever dominate the industry, especially since a large portion of processed food is produced by them. There has been a rapid increase in preference for frozen food too. The CAGR of Pakistan’s Frozen Food Market is expected to grow by 5.81% by 2028.
However, the emergence of online grocery shopping presents both challenges and opportunities for traditional brick-and-mortar stores. For insights on how malls can adapt to this trend and attract grocery stores, check out our post on "Why is it essential for Malls to calculate their Marketing ROI?
Impact of technology and e-commerce
The global pandemic has given rise to more Pakistanis preferring to order groceries online. According to Google, there was a 300% increase in ‘’online grocery delivery’’ searches in 2021 from Pakistan. However, online sales contributed to only 8.2% of the total organized retail in 2023, showcasing how the population is still hesitant in moving towards online shopping.
Despite the less number of online consumers, e-commerce is a growing trend as the number of investments received by Grocery tech startups is greater than any other category. In 2017, the total number of investments received by B2C Grocery Startups amounted to USD 100,000, whereas the amount jumped to USD 11,715,000 in 2020 showcasing an increase in digitalization of grocery shopping.
Source: Sabzi.pk
The presence of easier payment methods has been one of the main reasons for the growth of online retail outlets. Retailers are embracing diverse payment methods to simplify consumer transactions, including paper, electronic, POS, online, and mobile payments. In 2021, the State Bank of Pakistan introduced 'Raast,' the inaugural digital payment system facilitating online transactions. The country's Digital Strategy, along with increased consumer engagement in e-commerce, opens up a new avenue for additional online retail sales.
Health, Wellness and Sustainability Trends
Health-conscious consumers are looking for healthier food options, leading to a surge in demand for organic, gluten-free, and low-sugar products. Retailers are responding by expanding their health and wellness product lines. Apart from this, there is a growing awareness of the ethical implications of the brand consumers purchase. Consumers are not afraid to boycott products of companies which violate certain ethical codes.
Future Outlook
In 2024, the retail industry in Pakistan is poised for significant advancements driven by digitalization and evolving consumer preferences. With the increasing penetration of e-commerce and the adoption of advanced technologies, such as augmented reality and artificial intelligence, retailers are enhancing the overall shopping experience. The omnichannel approach is becoming more prevalent, blurring the lines between online and offline retail. Additionally, the focus on sustainability and ethical practices is expected to shape consumer choices, influencing the types of products and brands that gain prominence. As the industry continues to embrace innovation and adapt to changing dynamics, the future outlook for the retail sector in Pakistan appears promising, offering a dynamic and responsive landscape to the evolving needs of the modern consumer.
Conclusion
The food retail industry in Pakistan is a critical component of the country's economy, offering diverse opportunities and benefits for consumers and stakeholders alike. By staying attuned to evolving consumer preferences, embracing technology, and adapting to market trends, the industry is well-positioned for continued growth and development.
About the Author
With a BSc. in Political Science and International Relations, Abeeha crafts and refines effective marketing strategies while contributing significantly to establishing and enhancing brand identity. 