FMCG Industry in Pakistan: The consumer market especially FMCG is one of the fastest growing industry in in Pakistan and there are many players of global fame like Uniliver, estle Pakistan, Colgate Pamolive, P!P"# C$, %raft Foods and well established local contributors for instance, Tapal Tea Pakistan Pvt &td, !ngro Foods, "easons Canola Pakistan' (ali $il Mills)* Food products and personal care together make up two+third of the sectors revenues as can be seen from the market break+up by revenue statistics* #n -.//, -.//, rural+urban market breakup was 00*12 and 33*12* ow, rural and urban markets account for 1.2+1.2 of the FMCG market, signalling a shift towards rural markets* (hile online sales channels are available, grocers still are the most preferred sales channel for FMCG* Porter’s Five forces Model: Porter five forces analysis is a framework that attempts to analy4e the level of competition within an industry and business strategy development* #t draws upon industrial organi4ation '#$) economics to derive five forces that determine the competitive intensity and therefore attractiveness of an #ndustry* 5ttractiveness 5ttractiveness in this conte6t refers to the overall industry profitability* 5n 5n 7unattractive7 industry is one in which the combination of these five fi ve forces acts to drive down overall profitability* 5 very unattractive industry would be one approaching 7pure competition7, in which available profits for all firms are driven to normal profit* Michel Porters five forces include8 /* Threat of new entrants -* 9argaining power of customers 'buyers) 0* 9argaining power of suppliers :* #ntensity of competitive rivalry 1* Threat of substitute products or services
Five forces analysis of Pakistan FMCG industry: Threat of new entrants. 9ecause of the large si4e of the Pakistani market and the high level of growth, Pakistan should be considered attractive for most ma;or international FMCG producers* "uch firms not yet in the country should thus be considered potential entrants* #n addition to the ma;or international players on the FMCG market, Pakistan has a large number of regional producers serving narrow geographical markets due to the poor infrastructure in rural areas* These regional firms have adapted to the specific demands of consumers and the difficult conditions for efficient distribution in less developed areas* 5s the infrastructure in rural areas is unlikely to be improved significantly in the foreseeable future due to investments being concentrated on highway construction and urban areas, such producers can continue to emerge and offer considerable competition locally* (hile Pakistan s poor infrastructure leads to an increased threat of domestic ‟
entrants to the FMCG market in the country, it is on the other hand also likely to dampen the eagerness of foreign companies who are considering a market entry* 5t the same time, the lack of an organi4ed retail sector is also likely to keep possible international entrants out since this can make i t necessary to deal with a very large number of small retailers* These problems as well as the problems with poor infrastructure can be amended by entering ma;or metropolitan areas in the country< the so+called market hotspots* Rivalry amon e!istin com"etitors. The Pakistani government has attempted to deny entry for foreign retail giants like (al+Mart and Carrefour by e6cluding multi+brand retailers* (ith regard to producers on the other hand, Pakistan is more open to F=#* Therefore, a considerable number of large well+known M!s are active in the country including Procter and Gamble, estl>, Cadbury, Unilever as well as PepsiCo and Coca+Cola*
Pakistan also has a large number of regional FMCG producers in addition to the multinational producers* These serve narrow geographical markets, predominantly in rural areas, and as they are adapted to the characteristic of their local markets they will often have a competitive advantage* This advantage is likely to be based on a well+established and intensive distribution system thus reaching a large number of consumers in their region* For others, the competitive advantage is not so much in distribution but instead in their ability to skilfully copy the brands of the well known M!s* The presence of a number of large multinational producers in combination with a large number of regional producers should lead to a relatively low industry concentration in a nationwide sense* ?owever, the focus on hotspots for multinationals may lead to high industry concentration in the ma;or metropolitan areas while di versified regional producers can result in high industry concentration in rural areas* This means that while the industry concentration may be low in a national sense signifying a very competitive market, the competitiveness of the market is in fact likely to be somewhat lower due to the difficulties of reaching the final customer for M!s in less accessible areas* #arainin "ower of su""liers. Pakistan produces a wide range of agricultural products due to the countrys si4e and its diverse agro+climatic conditions, and is r anked 0rd or fourth in the world when it comes to the production of livestock, milk, sugarcane, rice, wheat, fruits and vegetables* 5dditionally, the country has an abundant supply of the raw materials in the production of soaps and detergents* Conse@uently such products, which are used e6tensively in the production of many forms of FMCG, are widely available in the country and potentially at low prices due to low wages , although agricultural productivity is low in comparison to neighbouring countries* "uppliers of FMCG firms are also likely to be unorgani4ed, as it is the fact among retailers, resulting in low concentration and thus limited supplier power* This is certainly the fact among producers of food products* (hile the ma;ority of raw materials should be available internally in Pakistan, some products may need to be sourced from abroad or may be available at a lower cost elsewhere*
#n order to protect local businesses however, Pakistan has maintained tariffs on a number of imports, especially on agricultural products where tariffs a verage 0.+:.2* evertheless, Pakistan has reduced controls on foreign trade and investment in recent years and if this development continues, sourcing from abroad should become easier in the coming years* #arainin "ower of $uyers. 5s mentioned previously, the neighbourhood karyana stores and street vendors are the dominant retailers in Pakistan* They have very limited buyer power due to their small si4e and because they are unorgani4ed* #f these retailers were to organi4e ;oint buying they would be able to increase their buyer power and achieve @uantity bonuses as well as better terms* "uch initiatives could also help in the competition against organi4ed retail chains which are e6pected to show considerable growth in the coming years* #n any case, the level of organi4ation of the Pakistani retail sector will rise in the coming years* This rising share of organi4ed retail will increase average buyer power in the future as order si4es increase and suppliers become increasingly dependent on a number of large retailers* The move from independent stores to chains can be speeded considerably if global retail giants such as (al+Mart and Carrefour are allowed to enter* Currently only single brand retailers are allowed to conduct foreign direct investment in the country which has kept out the likes of (alMart and Carrefour, as they offer a large number of different brands * #t remains to be seen whether the legislation limiting F=# will persist or will be softened with time* Threat of su$stitute "roducts. The presence of substitute products in FMCG lowers i ndustry attractiveness and profitability because they limit price levels* The threat of substitute products depends on8 •
9uyers willingness to substitute
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The relative price and performance of substitutes
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The costs of switching to substitutes
9eing an essential commodity the demand for consumer products is elastic* "everal brands are positioned with narrow product differentiation* Companies entering a category Atrying to gain market share compete on pricing which increases products substitution* ?ence, threat of substitute is high in the FMCG industry in Pakistan* #llegal copying of products and fake brands is not only a problem in fashion, electronics and music in Pakistan but also within FMCG, especially in rural areas with a low education level* The loss of revenue caused by copy producers is not the only problem for original manufacturers as such copy products will often be of inferior @uality compared to the original products* This is l ikely to give consumers negative e6periences which could transfer to the original product by reducing brand image and customer loyalty*
