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  1. 1. MCG Sector of PakistanTrends, Issues & OpportunitiConsumer Goods Industry of PakistanProducts which have a quick turnover and relatively low cost are known as Fast Movingconsumer Goods (FMCG). FMCG products are those that get replaced within a year or less andthe purchase cycle is relatively small as compared to other products and consumer durables.Examples of FMCG products include a wide range of frequently purchased products such astoiletries, soaps, cosmetics, tooth cleaning, shaving detergents as well as some non durablessuch as glass ware, bulbs, batteries, paper products and plastic goods. 1In Pakistan the industry has evolved to a great extent even in the face of strict completion bothin terms of generic unbranded products and in terms of acceptance level among consumers.Such examples are widespread and can be seen across different FMCG categories. Loose Teavs. Packaged Tea, unbranded bakery items vs. branded confectionery products e.g. biscuits,chips and other snack foods, local milk vendors vs. tetrapak milk brands are just a fewexamples of categories where FMCG’s have made great in roads in Pakistan. The progress hasbeen slow as compared to regional markets such as India mainly due to macroeconomicenvironment and the fact that India has a growing middle class which accounts for the largeincrease in adoption rates for branded packaged products especially in the FMCG category.However the most successful FMCG category in Pakistan to date has been food and beveragesas the per Capita spending on food in Pakistan and in other South East Asian countries isrelatively higher as compared to other parts of the world. Encouraging demand drivers inPakistan include growing young population, rapid urbanization and increased penetration oforganized retail. The robust profitability of the corporate sector in the year 2010 bears witness tothe fact that demand drivers have in fact acted out as perceived initially._______________________________________________________________________________: Yawar Uz Zaman, Invest Capital Markets Ltd.Highlights• Profitability continue to ride North• FMCGs return at par with KSE-100 on QoQ• Outlook and Recommendations
  2. 2. In today’s Value Seeker, we present a profitability review of the listed FMCGs of Pakistan,which shows a massive growth in 1QCY12 (Jan-Mar12), along with its outlook.FMCG Sector: Profitability continue to ride NorthDespite of certain challenges faced by the country, FMCG sector looks immune to any thingin this regard and profitability of the companies are moving forward with a decent pace. Oursample of the consumer goods companies (Nestle, UniLever Pak, UniLever Foods, EngroFoods, Rafhan Maize and National Foods) continues to shine, posting a healthy revenuegrowth of 21% YoY during 1QCY12. This trickled down to the bottomline which grew withthe same pace . On consolidated basis, bottomline of the companies posted 21% YoY growthin earnings during the same period. On QoQ basis, consumer industry witnessed revenuegrowth of 10% to Rs54bn. However, due to sharp increase in energy cost during the quarter(Gas, electricity, petrol and diesel up on average 9% QoQ) gross margin remain under straindown by 52bps QoQ to 28.1% in 1QCY12. At the same time, aggressive marketing and salesexpenditure by the companies resulted in 28% QoQ increase in distribution and marketingexpense to Rs6.8bn.As far as individual companies are concerned, Engro Foods showed impressive profit aftertax, posting a massive 309% YoY growth in 1QCY12, followed by National foods 180% YoY,Unilever Pakistan foods 26% YoY, Unilever Pakistan 9% YoY and Nestle 8% YoY.FMCGs return at par with KSE-100 on QoQOn the back of improving fundamentals and blessing of solid corporate results, KSE-100index performed well during the 1QCY12. On QoQ basis, our sample companies return andthe benchmark returns progressed in the same direction by posting 21% return during the1QCY12. in our sample, FMCG scrip’s EFOODS leads the ship as the scrip provides solid108%QoQ return, which than followed by National Foods 64% and Nestle 24% QoQ in1QCY12. However on YoY basis, FMCGs outperform the bench mark index by posting 36%YoY return during the first quarter of CY12, as compared to bench-mark returns of only 17%YoY.FMCG Sector:Outlook and RecommendationsRegardless of certain economic, political and external challenges, there are still manyrationalize to stay ‘Optimistic’ on FMCG sector of the country. The increasing urbanization(enhancing demand of packaged products), double digit inflation, (resulting in high pricespass on to the consumer), increased in employed labor force, higher per capita income, andnotably more than 50% of the population lies under 20yrs of age (who are the main targetmarket of these companies) provides a sustainable future growth in volumes. Therefore, wecontinue with our likeness towards FMCG sector. As far as valuations are concerned, we arein the process of making EFOODS financial model, and we will initiate our coverage on thecompany soon, while at current levels we have ‘Sell’ call on ULEVER with Dec-12 TP ofRs4,887/sh._____________________________________________________________
  3. 3. The typical chain for a grocer store FMCG product will be:Manufacturing plant -> Company Ware House -> Regional Ware House -> Regional Stockist -> SuperStockist -> Stockist -> Distributor -> RetailerMain Godown -> C&F Agents/Super Stockists -> Distributors as per the territories ->Wholesalers/RetailersSo, the retailers either buy from the distributor or they buy from the local wholesaler. Each has itsown advantages and disadvantages. Distributor provides you with better servicing, replacement ofspoilt products, credit facility of 2 weeks, etc. On the other hand, the wholesaler will give you moremargins, but no credit facilities, and you don’t have compulsion of storing a set of SKUs, etc.The inventory is under the ownership of the company only until it reaches the distributors by the C&Fagents. The stockists are responsible to distribute to the retailers. Each stockist may serve around500-1000 retailers in a proximity. Also, all the stockists are not the same in their storage. Everystockist may have his own set of categories which he can store the best, like a stockist can store rice,sugar, teapowder, biscuits, and snacks. Some may be specialists in handling premium products, andsome in frozen foods. The company generally categorizes the stockists based on their specialty andallocates different super-stockists. For example, HUL categorizes them as U1 and U2 stockists, whereU1 is general products and U2 stockists handle only premium products. The distribution network forpremium products is different from that of discount and popular as they require much deeperdistribution penetration unlike the premium products. Company categorizes based on their storagecapacities where company has some standards that every stockist and distributor should have 2months and 3 weeks of stock.
  4. 4. The stockists appoint salesman who take the orders from the retailers, and the delivery is made on avan. Each stockist may have 6-10 vans, and 10-12 people for the delivery process. The link betweenthe manufacturer and the stockist is maintained by the manufacturer’s employees Area SalesManager, Territory Sales Manager, Activation Manager, and the Re-Stockist Salesman (RSSM)manages all the distribution, purchases, labor management, and supervises the delivery process.Everymonth the sales targets are set by the company to all its salesforce – TSM, ASM, Sales InCharge, etc.and they handle all the relations with the distributor and sometimes push the stock onto thedistributor to meet their sales targets.Companies try to motivate the channel partners with workshops about business & marketing, goodwarehouse practices, and a lot of other incentives. They follow a strict rating mechanism with all itschannel partners and evaluate them continuously on a set of parameters.Though each company has its own distribution strategy and flow, most of the companies follow theabove distribution framework.FMCGG is involved in trading (wholesale and retail) merchandising and redistribution of products using our vast network ofover 17 branches spread across 21 states of Nigeria and still expanding.We are strategically located in all major commercial cities and towns in Nigeria to help our partners achieve even distributionof products to deliver quality services to our clients.Improving the quality of social and community life is an integral part of our corporate mission. We are actively involved inimproving the larger society in which we operate. We are supporting the community by promoting cultural activities andsupporting peaceful and safe co-existence, as well as strengthen national unity and community bond.Report and Updates FMCG distribution places an enphasis on training and more centres are being set up for all full and part time staff.________________________________________________________________________________________Manish Sethi runs the Kanshi Ram Group, a sales distributor in Delhi forleading fastmoving consumer goods (FMCG) companies, which his family started in
  5. 5. 1961. As a teenager, Sethi learned the ropes by spending time with his father. He formallyjoined the business in 1992. By 1993, it was one of the largest distributors in the region,working with companies such as Hindustan Unilever (then Hindustan Lever), Gillette India,Dabur, and Johnson & Johnson. In 2000, Sethi decided to widen his distribution portfolio,but the rising cost of operations and the surge of modern trade - the growing trend ofwholesalers buying from cash-and-carry stores - began to hurt growth. By 2008, he had tolet go of some accounts, as low margins made business unviable.Today, Sethi has had to go beyond FMCGs. For the last two years, his distribution portfoliohas included mobile phones and batteries. He is now the distributor for Sonys RecordingMedia and Energy Division for North India, and for Nokia in West Delhi. Not only doelectronics offer higher returns on investment than FMCGs, but they also require less labourand space. "The cost of operations, which primarily includes labour and logistics, risesaround 10 per cent every year," he says. About 60 per cent of his total revenues of Rs 210crore still comes from FMCG distribution for companies such as Dabur, SC Johnson, andReebok Personal Care.Specialisation has increased sales volume, store shelf space, and product availability:Jai Prakash TallamSethis story reflects changes in the distribution business. AsFMCG companies get more directly involved at the front end of thevalue chain, the role of distributors is shifting from selling goods in aparticular territory to being mere financial investors. In India,companies have long relied on distributors because they understandthe local market. But with improved data availability, companies aregetting closer to customers. They have started to reduce the numberof small distributors in favour of big ones to cut costs. FMCGcompanies typically give distributors a margin of four to six per centof secondary sales, and reducing the number of distributors helps cutcosts. "Large distributors are well equipped to handle some keyfunctions of small ones - lending to retailers, environmentmanagement and demand management," says Vikash Agarwalla,Engagement Manager, Booz & Co. He notes that in some areas, companies have taken ona greater role. "Earlier, distributors appointed salesmen directly, and the companies hadlittle or no say. Increasingly, companies are outsourcing this entire process to temp staffingoutfits."Agarwalla says that in western countries, there is no concept of distributor, and thatcompanies go directly to the consumer. "In the next 15 years in India, this entity calleddistributor may disappear," he says.Whether or not that comes to pass, it is true that change has been happening quietly forsome time, as demand grows and product portfolios become more complex.mosimageConsider the example of Italian candy maker Perfetti Van Melle, which enteredthe Indian market in 1994. As Perfetti Van Melle India (PVMI) launched brands and variants,
  6. 6. it found that distributors did not give each one equal attention. In 2004, it divided its eightbrands across three sets of distributors so that, in a particular region, for example, eachflavour of a chewing gum brand was sold by a different distributor."This results in better concentration on all brands," says Chironmoy Chatterjee, Director(Sales), PVMI. Rising aspiration levels and spending power in rural areas have spurredFMCG companies to widen their reach in villages. According to a December 2011 Nielsenreport titled Managing the Middle India Gold Rush, growth in demand in small towns isoutpacing the national average. Demand for FMCGs in 400 towns with a population of up toa million is projected at $20 billion by 2018 and $80 billion by 2026, up from $6 billion in2010. Some companies, such as Emami Ltd, are adjustingWHATS CHANGING their strategies to meet rural demand. Two years ago,Increasing vertical specialisation the Kolkata-based cosmetics manufacturer adopted a hub-andspoke distribution model, with super-stockiststo ensure equal emphasis to all in towns with a population of up to 50,000, and severalproducts, and to plan focused subdistributors under them.activation and promotionsReluctance of younger generation "That saves time for retailers and wholesalers in smallto join family-owned distribution towns, who previously had to travel to a nearby city tobusinesses, especially in big buy goods," says CEO Krishna Mohan. Today, Emamicities, leading to lack of long-term covers almost 50,000 villages directly and indirectly,thinking by promoters up from some 30,000 villages two years ago.Emergence of hub-and-spokemodel to expand reach of fast- Specialisation is keymoving consumer goods in As product portfolios become more complex, Georgevillages Angelo, Executive Director (Sales) at Dabur India,Large-scale use of technology by says channel specialisation is increasingly importantmanufacturers to analyse to service customers effectively. The nature ofconsumption patterns, and react engagement with wholesalers and retailers for each ofaccordingly Daburs nine verticals varies. The verticals broadly fallTalent crunch, rising costs and under health care, personal care and foods. When aevolution of modern retail company ties up with a distributor for modern retailprompting distributors to rework chains such as Big Bazaar or Spencers, it preferstheir business models specialised distributors who can make large investments and handle big volumes. "The frequency and size of purchases made by modern retail aretypically larger than traditional retail, so we require distributors with large set-ups," he says.Dabur, which bought Fem Care Pharma in 2009, has inducted stockists who cater only tosalons to distribute its personal care products.Dabur also uses technology to improve sales. Half of its 2,000-strong sales team has
  7. 7. Samsung handsets with a built-in app that facilitates daily reports that help gauge spendingpatterns and plan product-focused schemes. Marico Ltd also finds specialisation effective.Until a few years ago, a single distributor managed its entire product range for all channels -wholesale, retail and chemists. "Companies are moving away from a one-size-fits-allapproach," says B. Sridhar, Executive Vice President, Sales & Supply Chain, Marico. "AtMarico, the profile of a distributor handling chemists would vary significantly from that of aperson handling wholesalers. In the chemist channel, the person should understand theproducts relevance and concept selling, while the wholesale channel is about managingrelationships and making deals."Specialisation has helped distributors, too. Jai Prakash Tallam is Daburs South Bangaloredistributor for kirana, wholesale and some modern retail channels. Until recently, Tallamhad 13 salespeople, who booked orders for all products. In September 2011, he decided toexpand and restructure the team so he could give equal emphasis to the entire productrange. "I cover nearly 2,600 outlets and sell some 400 SKUs," he says. SKU stands forstockkeeping unit, the trade term for a product - whether single or bulk - identified by aparticular code. "It was not possible for a salesperson to remember all SKUs." But becauseof specialised verticals, he says, sales jumped from Rs 80 lakh a month in September 2011to Rs 1.05 crore a month in December 2011 - the highest growth in his 25 years of tradeexperience. "Specialisation has also resulted in more store shelf space and higher productavailability," says Tallam. "Earlier, we could concentrate on just 100-odd SKUs, but thatnumber has increased."All in the familyEmamis Mohan says that a recent addition to the many challenges distributors face issuccession planning. "Distribution is not a glamorous business," he says. "Every year, wehear of cases, especially from large cities, where the next generation is not interested injoining the family business."This is not always the case, of course. After getting his MBA from Delhi, Amit Gupta workedfor three and a half years with Religare Enterprises, and Puma India beforemoving back to his hometown, Kanpur, in late 2009. He sees great potential to expand hisfamilys distribution business, and is planning to add big accounts such as Reckitt Benckiserand Procter & Gamble to the existing portfolio of Emami, ayurvedic oil manufacturerHimgange, and beauty and personal care products maker VI-John. "I always wanted to jointhe family business," he says. "The reason I took up jobs earlier was to learn managementand communication skills." He says he hopes to raise the turnover to Rs 60 crore a year by2012/13, from Rs 48 crore in 2010/11.FMCG Companies Profit From Rural Consumption Boom in Pakistan
  8. 8. Away from the violence and the troubles of the big cities, the economy of rural Pakistan isbooming. Flush with cash from bumper crops at record commodity prices, the farmers arespending on tractors, cars, motorcycles, mobile phones, personal grooming items,packaged foods and beverages and other consumer products like never before.Higher crop prices have increased farmers’ incomes in Pakistan by Rs. 342 billion in the 12months through June, according to a government economic survey. That was higher thanthe gain of Rs. 329 billion in the preceding eight years, according to a report by BloombergNews. Companies like Millat tractors, Honda Atlas Motorcycles, Pak Suzuki Motors, EngroFoods, Telnor, Nestle, Colgate-Palmolive, Proctor and Gamble and Unilever have been bigbeneficiaries of the current rural consumption boom.Nestle Pakistans chief Ian Donald has summed up the rising demand for his companysproducts as follows: “It’s a common perception that China and India are much bigger interms of growth than Pakistan. But for Nestle, the per capita consumption of our products inPakistan is twice as much as we have in China and India.” It should be noted that Nestle isthe worlds largest packaged food company, and Pakistanis per capita consumption of milkand dairy products is about 2.5 times higher than in India. According to the FAO, theaverage dairy consumption of the developing countries is still very low (45 kg of all dairyproducts in liquid milk equivalent), compared with the average of 220 kg in the industrialcountries. Few developing countries have per capita consumption exceeding 150 kg(Argentina, Uruguay and some pastoral countries in the Sudano-Sahelian zone of Africa).Among the most populous countries, only Pakistan, at 153 kg per capita, has such a level.In South Asia, where milk and dairy products are preferred foods, India has only 64 kg andBangladesh 14 kg. East Asia has only 10 kg.Here are a few key points excerpted from a recent Businessweek story on rise of the rural
  9. 9. consumer in Pakistan:1. Unilever and Colgate-Palmolive Co. are sending salespeople into rural areas of theworld’s sixth most-populous nation, where demand for consumer goods such as Sunsilkshampoo, Pond’s moisturizers and Colgate toothpaste has boosted local units’ revenue atleast 15 percent.2. “The rural push is aimed at the boisterous youth in these areas, who have bountiful cashand resources to increase purchases,” Shazia Syed, vice president for customerdevelopment at Unilever Pakistan Ltd., said in an interview. “Rural growth is more thandouble that of national sales.”3. Consumer-goods companies forecast growth in Pakistan even as an increase in ethnicviolence in Karachi has made 2011 the deadliest in 16 years for the country’s biggest cityand financial center.4. Nestle Pakistan Ltd. is spending 300 million Swiss francs ($326 million) to double dairyoutput in four years, boosted sales 29 percent to 33 billion rupees ($378 million) in the sixmonths through June. “We have been focusing on rural areas very strongly,” Ian Donald,managing director of Nestle’s Pakistan unit, said in an interview in Lahore. “Our observationis that Pakistan’s rural economy is doing better than urban areas.”5. Haji Mirbar, who grows cotton on a 5-acre farm with his four brothers, said his family’sincome grew fivefold in the year through June, allowing him to buy branded products. Heuses Unilever’s Lifebuoy for his open-air baths under a hand pump, instead of thehandmade soap he used before. “We had a great year because of cotton prices,” saidMirbar, 28, who lives in a village outside south Pakistan’s Matiari town. “As our income hasrisen, we want to buy nice things and live like kings.”6. Sales for the Pakistan unit of Unilever rose 15 percent to 24.8 billion rupees in the firsthalf. Colgate-Palmolive Pakistan Ltd.’s sales increased 29 percent in the six monthsthrough June to 7.6 billion rupees, according to data compiled by Bloomberg. “In a generallyfaltering economy, the double-digit growth in revenue for companies servicing the consumersector has come almost entirely from the rural areas,” said Sakib Sherani, chief executiveofficer at Macroeconomic Insights Pvt. in Islamabad and a former economic adviser toPakistan’s finance ministry.7. Unilever is pushing beauty products in the countryside through a program called “GuddiBaji,” an Urdu phrase that literally means “doll sister.” It employs “beauty specialists whounderstand rural women,” providing them with vans filled with samples and equipment,Syed said. Women in villages are also employed as sales representatives, because “rural isthe growth engine” for Unilever in Pakistan, she said in an interview in Karachi. While the
  10. 10. bulk of spending for rural families goes to food, about 20 percent “is spent on lookingbeautiful and buying expensive clothes,” Syed said.8. Colgate-Palmolive, the world’s largest toothpaste maker, aims to address a “huge gap” insales outside Pakistan’s cities by more than tripling the number of villages where itsproducts, such as Palmolive soap, are sold, from the current 5,000, said Syed Wasif Ali,rural operations manager at the local unit.9. Its detergents Bonus Tristar and Brite are packed in sachets of 20 grams or less andpriced as low as five rupees (6 cents), to boost sales among low-income consumers hurt bythe fastest pace of inflation in Asia after Vietnam. Unilever plans to increase the number ofvillages where its products are sold to almost half of the total 34,000 within three years. Itsmerchandise, including Dove shampoo, Surf detergent and Brooke Bond Supreme tea, isavailable in about 11,000 villages now.10. Pakistan, Asia’s third-largest wheat grower, in 2008 increased wheat prices by morethan 50 percent as Prime Minister Yousuf Raza Gilani sought to boost production of thestaple.“The injection of purchasing power in the rural sector has been unprecedented,” saidSherani, who added that local prices for rice and sugarcane have also risen.11. Telenor Pakistan Pvt. is also expanding in Pakistan’s rural areas, which alreadycontribute 60 percent of sales, said Anjum Nida Rahman, corporate communicationsdirector for the local unit of the Nordic region’s largest phone company.While the presence of multinational consumer product giants like Nestle and Unileverreceive more coverage in the western media, the Euromonitor report finds that PakistaniFMGC companies like Engro Foods, Haleeb Foods, Shezan, Tapal, Shan and othersdominate the packaged food business in Pakistan. Heres an excerpt from arecentEuromonitor report on Pakistan:Although multinationals are paving the way for innovations and taking into accountconsumers’ demands by launching new products and advertising them heavily, it is usuallythe domestic companies which win the competitive battle in volume terms as they focus lesson expensive and more conventional items which already have a consumer base.Nevertheless, multinationals carry strong brand names and target the higher class withpremium products, thus taking their reasonable share in value terms.
  11. 11. Supermarkets/hypermarkets is the most steadily growing distribution channel with a newplayer Hyperstar. As urbanization is increasing, people tend to leave their families and liveseparately and therefore there is sometimes no housewife at home to be responsible for thepurchase of fresh items close to home. Supermarkets/hypermarkets became more popularover the review period, being gradually considered more convenient as this channel canoffer a wide selection of products in one place. Pakistanis are becoming more used toplanning their meals for several days and supermarkets/hypermarkets work on offering aswide an assortment as possible. Nevertheless, traditional retail outlets such as independentand small grocery retailers continue to have a good name not just because of the lower unitprices offered but also because of their selection as most of them are specialized.Pakistan continues to face major problems as it deals with the violent Taliban insurgencyand multiple internal and external threats and crises of stagnant economy, scarcity ofenergy and the lack of sense of security. However, it is clear from the consumer spendingdata that Pakistanis are a resilient people, and they continue to defy the persistentprophecies of doom and gloom.Pakistan is just too big to fail. I fully expect Pakistan to survive the current crises, and thenbegin to thrive again in the near future.FMCG sector registers handsome profits in 2011Staff ReportKARACHI: The fast moving consumer goods companies (FMCG), listed on the Karachi Stock Exchangemade handsome profits during 2011. FMCG’s profitability was well supported by the two conventional
  12. 12. giants, Nestle and Unilever Pakistan, who shared 71 percent combined growth in the earnings.Engro Foods emerged as the supercharged FMCG as it grew over 400 percent in bottom line in thesector, remarkably grabbing the fourth position after Nestle, Unilever and Rafhan, outpacing UnileverFoods National Foods.Engro Foods’ contribution to the overall sector’s profitability took a quantum leap of 6 percent from 1percent in 2011Despite massive growth in profitability, escalating financial cost of Nestle was up by 105 percent onyearly basis to Rs 1.1 billion and Engro Foods’ was up by 59 percent to Rs 1.04 billion.Analysts said that the sector’s profits would have expanded to 35 percent had financial charges beenat normal levels.As far as individual companies’ profitability are concerned, Nestle’s profit after tax stood at Rs 4.67billion, up 14 percent; Unilever Pakistan posted Rs 4.1 billon, up 25 percent, Rafhan Maize earned Rs2.03 billion, up 11 percent, while Engro Foods, Unilever Foods and National Foods (in 1HFY12) madeRs 891 million, up 407 percent, Rs 617 million, up 41 percent and Rs 290 million, up 145 percent in2011.As far as market returns are concerned, following such healthy growth in profits, our FMCG’s samplecompanies provided a solid return of 49 percent during 2011 as compared to the KSE 100-shareindex’s return of minus 6 percent.The tough economic conditions and instability on political front along with acute energy shortageswould continue to cascade their impacts on business activities in the country. On the other hand, highinflation may keep FMCG revenues at elevated levels during 2012, said analyst Yawaruz Zaman.Textile sector: Nishat Mills Limited (NML) posted profit of Rs 1.9 billion, a decline of 8 percent onyearly basis.The net sales of the company rose by 1 percent to Rs 21.6 billion as the gross margins came down by110 basis points due to increased cost of sales on account of disposing off the expensive carry forwardinventory from last year.Moreover, the administration and distribution expenses witnessed an increase of 17 percent to Rs 1.5billion. However, other operating income surged by 34 percent thanks to dividend received from MCBand its power subsidiaries.Cement sector: DGK Cement posted a massive growth of 566 percent in earnings on the back ofhigher average retention prices and a lower effective tax rate.The soaring net retention prices that surged up 37 percent countered the lacklustre volumes as thecompany’s top line grew by 31 percent.Although higher energy and fuel cost led to cost of sales increasing by 11 percent, rise in cementprices defied the cost rise as gross margins improved to 32 percent from 21 percent last year.Moreover, increased contribution of export sales in the overall sales mix contributed to 61 percent risein distribution costs because of higher freight charges. Home | Business__________________________________________________________________________________________FMCG industry, alternatively called as CPG (Consumer packaged goods)industry primarily deals with the production, distribution and marketing ofconsumer packaged goods. The Fast Moving Consumer Goods (FMCG) arethose consumables which are normally consumed by the consumers at aregular interval. Some of the prime activities of FMCG industry are selling,marketing, financing, purchasing, etc. The industry also engaged inoperations, supply chain, production and general management.FMCG industry economy
  13. 13. FMCG industry provides a wide range of consumables and accordingly the amount of moneycirculated against FMCG products is also very high. The competition among FMCG manufacturers isalso growing and as a result of this, investment in FMCG industry is also increasing, specifically inIndia, where FMCG industry is regarded as the fourth largest sector with total market size of US$13.1billion. FMCG Sector in India is estimated to grow 60% by 2010. FMCG industry is regarded as thelargest sector in New Zealand which accounts for 5% of Gross Domestic Product (GDP).Common FMCG productsSome common FMCG product categories include food and dairy products, glassware, paper products,pharmaceuticals, consumer electronics, packaged food products, plastic goods, printing andstationery, household products, photography, drinks etc. and some of the examples of FMCG productsare coffee, tea, dry cells, greeting cards, gifts, detergents, tobacco and cigarettes, watches, soaps etc.Market potentiality of FMCG industrySome of the merits of FMCG industry, which made this industry as a potential one are low operationalcost, strong distribution networks, presence of renowned FMCG companies. Population growth isanother factor which is responsible behind the success of this industry.Leading FMCG companiesSome of the well known FMCG companies are Sara Lee, Nestlé, Reckitt Benckiser, Unilever, Procter &Gamble, Coca-Cola, Carlsberg, Kleenex, General Mills, Pepsi and Mars etc.Job opportunities in FMCG industryFMCG industry creates a wide range of job opportunities. This industry is a stable, diverse,challenging and high profile industry providing a wide range of job categories like sales, supply chain,finance, marketing, operations, purchasing, human resources, product development, generalmanagement.Though KSE 100 has showed an impressive return of 36% since the start of the year, consumer stockshave outshined the benchmark by 12%. Limited float is often cited, but we believe consumer stock outperformance is also on account of phenomenal earning growth of the last few years. Our sample thatconsists of 23 companies (as illustrated by accompanying table) has depicted a strong sales andearning growth of 20% and 19% in last 4-years (2009-2012). Further, extrapolating 2012 earningsare expected to grow by 35%, which we believe have culminated into recent upsurge in stock prices.Evidence from the strong consumer dynamics also comes from performance of wholesale and retailsector. Where Pakistan went through one of the lowest growth periods in last 5-years (FY08-09), thesector has grown by an average 3.1%.Consumerism: behind consumer stocks jubileeThe growth story comes from increased consumerism that stems from i) demographic changes, ii)growing middle class and iii) rising health awareness. With above regional average population growthof 2%, and sixth largest population (179mn), increasing urbanization and improving
  14. 14. communication/distribution means, Pakistan is always been a heaven for consumer goods.Further, decreasing family size, improving literacy rate and women inclination to work are furtheraugmenting households to shop more and increasing middle class base. Hygiene awareness due toincreasing literacy is bringing food sector turn over as people are shifting from unregulated unpackedfood products.Mid-cap lifted consumers to 48% returnContrary to the general perception of large cap stock driving the sector, analysis revealed that midand small cap stocks are major gainers. During the period, Mitchell led the way by 331% returnfollowed by National Food (269%), Noon Pakistan (228%) and EFOODS (221%). Our analysis revealsthat in variant order these are the same companies that have depicted highest 4 year earning CAGR.Therefore, we believe that though these companies are marked by low free float (12% against KSEaverage of 25%) profitability growth was also the major factor.picture hosting__________________________________________________________________________________
  15. 15. Wednesday, August 3, 2011 Message from CEO of FMCG Distributors in Pakistan In retrospect, I am overwhelmed to have inherited a fine business entity. Very few people are provided with such opportunities, and for this I am eternally indebted to my elders. In our organization, we have managed to cultivate a cordial relationship with our clients and business associates, their good opinion about us for the services we provide, are a priceless asset. Our company has withstood the vagaries of time for exactly 110 years. This is not a small achievement for a company that did not enter politics yet remained close to the general public by participating in their social welfare and religious wellbeing. The last 110 years were eventful, and will go down in history as such. SMI / AML got into distribution business by early 20th century. With SMI therefore there have been many firsts. Some of these were that it was the first distribution setup in this part of the world! The first Private Limited Company to be registered with the Joint Stock Company after partition! The distinction of being Pakistan’s first income tax assessee. Yesterday, it was a family business. Today, it is the family in business. Tomorrow, it will be the business of the family to ensure that there is a future for both the business and the family. We are proud of our institution. For us, it symbolizes courage, common sense, energy, enterprise, aspiration and hope. An important finding through research conducted in the US by the Life Insurance Company Mass Mutual has thrown light on the longevity of entrepreneurial organizations. This has shown that 67% of family business houses fail to survive after the second generation takes over, with the odds rising to 90% by the 3rd generation. By the Grace of Allah we are the fourth generation. At Allied Marketing (Pvt) Ltd. we are committed to providing brands and services of outstanding quality and value that improve the lives of the region’s consumers.
  16. 16. The Company stood by the principle – of meeting its professional obligations and establish a sustainablelinkage between its principals and its clients. This conviction has won us the appreciation of our principalsand respect and confidence of our clients.We serve more than 15,000 customers ranging from hypermarkets, wholesalers, departmental stores,hotel chains and restaurants, as well as the thousands of convenience and grocery stores. Each isregarded as a valued customer and 24 hours delivery is guaranteed for the majority of our customers.These 110 years gave us different challenges. We are no more competing with few companies rather, weare up against global competition. We will have to create opportunities for this business. The number ofour principals and our clients are on increase. Business conditions are becoming more stringent with ISO– 9000 (Quality Consistence) and ISO – 14000 (Environmental compliance).Our outstanding success in the recent past has been a result of our strong talent base and leading edgeprocesses.I would like to share my future vision with you. This company will be the leading supply chainmanagement company in Pakistan and a leading example of a high performance organization, role modelfor other corporate ventures in the region.I commend the untiring efforts of my colleagues who worked throughout the year with absolutecommitment and diligence. They are the main drivers behind our success. All of us are proud to be part ofthe “AML family” and resolve to take the company to ever-greater heights in the years to come.Despite a challenging global economic and local environment, AML has applied the same standards ofquality, attention to service and detail and a singular focus on delivering to our customers – corporate orconsumer.It is this focus, combined with prudent financial management, transparency and our knowledge of marketdynamics that continues to drive the company forward.People are not made of numbers. They are made of hopes and dreams, passions and partnerships, talentand tenacity. We strive to see beyond the numbers and understand what success means to our clients, todeliver what really matters.
  17. 17. The year 2009 was a real testing ground for business all over the world. Recessions in many key globaleconomics had far reaching effects on our deeply inter-connected world. Along with financial models,business models; the human spirit took a real test of resilience.Our business results are a testament to the combined decisions, attitudes and determination of ourpeople. We have a commitment to the company which is absolute. This commitment ensured that even inadverse times, we have been able to deliver results that exceed expectations.The pride we carry in our results is because of the teams. Their efforts, collective and individual, allow usto enter 2010 with a confidence that we will continue to face challenges with the best of our best.May God bless you!