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Pakistan Food and Drink Report Q1 2011
Business Monitor International, Dec 2010, Pages: 60
The Pakistan Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Pakistan's food and drink industry.
While nobody can deny the raw potential of its consumer sector, Pakistan continues to struggle to get into its stride. It remains beset by challenges such as a destabilising insurgency and chronic deficiency of electricity generation capacity, both of which are likely to prove medium-term hurdles to sustained economic development. This will in turn affect the development of the consumer sector.
Unlike neighbouring India, Pakistan simply has not developed anywhere near the same level of private sector DNA. In India, empowered domestic companies are driven by a bourgeoning entrepreneurial culture and an increasingly more open stance towards international consumer-facing companies. Pakistan comes away particularly poorly in a comparison between the two countries in these aspects over the past decade.
What cannot be taken away from Pakistan and what will continue to be its major selling point to consumer-facing investors, is its huge young population (see later chart). With incomes still so low, there are potentially dynamic opportunities on offer for low-cost goods targeting the mass market in particular.
Headline Industry Data:
2010 food consumption = +44.97%; forecast to 2015 = +52.41%
2010 mass grocery retail sales = +10.4%; forecast to 2015 = +377.89%
Key Company Trends
Possible Acquisitions in the Dairy Sector – In late May, it was reported that one of the Middle East region's largest dairy firms, Almarai, is believed to be lining up an acquisitional entry into Pakistan, with reports linking it to Haleeb Foods. Any deal would likely be overseen by Almarai and PepsiCo's International Dairy and Juice Limited (IDJ) joint venture. Although Pakistan remains distinctly unappealing from a regulatory point of view, it still carries significant long-term promise. With organised competition lacking (generally good for price margins), Pakistan can potentially offer suitable companies rapid returns on their investment. Almarai is reportedly looking to invest as much as US$500mn in Pakistan.
Tea Sector Set for Growth – Tata Global Beverages, the drinks subsidiary of the diversified Indian conglomerate announced in June its intentions to increase its share of the packaged tea market in Pakistan to 10% from 7%. Tata is relatively new to the market and its small footprint gives it considerable room for growth, particularly as Kenyan imports currently dominate the sector, giving Tata valuable competitive differentiation. However, the undeveloped distribution infrastructure and a fragmented retail industry complicate supply chain management and make brand building and product penetration a challenge.
Risks To Outlook
Security The Omnipresent Risk – Unless Pakistan's security and core infrastructure situation dramatically improves, it is difficult to envisage a big pick up in international interest over the near term. While they will recognise the country's potential, companies will likely devote their capital to less risky economies. The emergence of a dynamic Pakistani private sector will require the business environment to improve dramatically. Only then can there be better foundations for economic development - and subsequently better credit facilities - for more firms to emerge and existing companies to take on more risk. To this end, it cannot be denied that Pakistan still has enormous untapped potential.
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