Unilevers success illustrates the promise that Pakistan holds
Saturday, March 08, 2008
KARACHI: Unilever, Pakistans largest consumer products company, has a problem. It cannot keep up with demand for some of its products. These include laundry powder and the recently launched convenience foods, the soups and Chinese meal-makers. Demand is so strong that, in the case of foods, despite doubling production capacity, Pakistanis cant seem to have enough of them. But this is just the tip of the iceberg, claims Ehsan Malik, the Unilever chairman.
Malik says that things have to be seen in context. Pakistans middle income group comprises about 35 million consumers. They have a combined spending power of Poland. But Unilever is not just targeting the middle income category. With the broadest socio-economic footprint amongst consumer goods competitors, Unilever is also looking at lower income market as well as the higher income bracket with different sets of products.
One of the areas where consumer product companies are increasingly focusing is central and southern Punjab where two factors are driving demand. One, a string of successful harvests has meant rising disposable income for farmers. The second, interestingly, is 40 or so television channels that broadcast to viewers in this area. They are the driving force behind building aspirations, comments Ehsan Malik, adding that this for Unilever is an opportunity for selling its products.
He says that unlike India, where farmers spend a significant portion of the proceeds of harvests on alcohol, in Pakistan the farmer spends his disposable income on little luxuries such as consumer products. In both countries, the saving rate remains low in the rural areas.
Retailing consumer products is Unilevers bread and butter. The company has the biggest retail reach in the country with the company servicing 500,000 outlets, of which 50 per cent are covered direct by the companys distributors and the balance through wholesalers.
This is the companys strength. With rising competition, the company is now focusing on getting the right product at the right shop with the right kind of visibility. For example, Lifebuoy soap is available in almost all retail shops of Pakistan. But with incomes rising, people are now looking at Lux soap as an alternative.
Lux has the distinction of being the most expensive locally produced soap in the country. To make it available to rural customers, Unilever has also made this available in bars of 60 gms as against the standard 130 gms. As a result, Lux sales have nearly doubled in three years.
In the urban areas, with the advent of large supermarkets like Makro, the Unilever chief comments that the company can create excitement in the space that exists there to market its products better.
However, not all Unilever products are facing legitimate competition. Take tea for example. Pakistan is one of the worlds largest importers of tea with a consumption of 150,000 tons annually, which works out to about 1 kg per person per year. Of this, almost 60,000 tons are smuggled into the country under the guise of the Afghan Transit Trade (ATT). With the government unable to check this malpractice, sales volumes for the tax-paying tea producers have declined over the past five years and so has tax collection for the government.
The tea companies have proposed that duties be brought down on imports so that smuggling becomes unviable. The loss in revenue for the government will be compensated with higher incomes after the volumes of these tax-paying companies rise. We have been campaigning with successive governments over this, comments the Unilever head, but so far there has been little response.
Another problem within the tea industry and one that also affects other Unilever products is counterfeiting. One of the tea brands that is most counterfeited is Supreme of Unilever. Three hundred raids have been conducted, but the conviction rate is less than 15. People have gotten away scot-free.
Malik says that the problem here is while the government has worked seriously in areas like software and video piracy, it is unable to give the same attention to consumer products despite the fact that this poses more of a danger to human life. The attitude of the SHO will be to let the person making fake products off with a strict warning. The seriousness of the crime does not dawn on him, comments Malik.
But the implications are serious. Fake tea is made up of coloured saw dust which can cause all sorts of human ailments. Malik says that it is time the government showed its seriousness on fake consumer products. He suggests that they should start with four products in just two areas and give the message. The sectors he suggests are tea, cigarettes, cold drinks (beverages) and soap. The areas where the government can focus include Multan and the central Punjab belt as these are most affected.
Turning to other problems, Ehsan Malik says that Pakistan by and large has a tax-friendly environment comparable to any economy of its size and in a similar stage of development. The problem, says Malik, is when the government uses the regulated sector as tax collectors. The onus is put on the companies to collect withholding tax on behalf of the government, which is a cumbersome procedure. The government finds it easy to tax the already taxed, he says. It needs to broaden its tax base.
Another irritant, says Malik, is the turnover tax. One per cent tax on turnover sounds low, but with about 10pc pre-tax profit margin, it can amount to a 10pc reduction in net of tax income. Also 1pc turnover tax cannot be passed on easily to the consumer as often smaller packs cost Rs2-10 where coinage prevents charging 1pc extra.
Then there is the new Competition Law which has a number of grey areas, says Malik. First of all, he says, how can one define a market when in some cases, like tea, a sizeable chunk of the market is in the informal sector and in which counterfeiting is rife.
-Another question is how can one determines market dominance, as a company can dominate with 30 per cent share but cannot in other instances even with a 50 per cent share of the market. We are fearful that the first targets of the law would be those who are compliant with both the spirit and letter of the law and those who pay little regard to either, will go scot-free.
In spite of all these worries, Unilever remains on top of the market and is also seen as most of the most sought after employer in Pakistan. MBAs from nine leading business schools rated Unilever as employer of choice in a survey conducted by the Pakistan Society of Human Resource Management.
One of the factors that young talent take note of is the opportunity to move globally, we have 35 people working with Unilever abroad. Also three of the seven people in the global leadership team of Unilever are from the emerging markets, all incidentally with experience of working in South Asia. Nearly 50pc of Unilevers turnover is derived from the emerging markets. So in time, we could find people from Pakistan at the helm of Unilevers global leadership, remarked Malik.
We pay people competitively but that is not the main reason why they work for us. It is the culture and personal development potential that motivates them, he said.
Ehsan Malik was appointed Chairman of Unilever Pakistan Limited and Rafhan Best Foods Limited with effect from 1st September 2006. For five years to August 2006, Ehsan was Chairman and CEO, Unilever Sri Lanka Limited, during which period the business doubled in size.
His earlier international appointments covered Unilevers regional business in Egypt, Lebanon, Jordan, Syria and Sudan as well as the head office in London. These preceded senior commercial and financial roles at Unilever Pakistan. Prior to joining Unilever mid-career, he held a senior position in media.
Looking ahead, Ehsan Malik says that Pakistan holds immense opportunities. When we look closer, there is a lot to be done. We are now digging deeper and sharpening focus. We need to know better who shops, where they shop, why, when and for what.
Malik says that the possibilities are endless. For example, shampoo penetration is one of the lowest in Asia. Fifty per cent of the population still uses laundry soap to wash their clothes. Unilever has 40pc of the market for detergent powder. A switch from laundry soap to detergent powder will be hugely beneficial to Unilever.
The food sector is what Malik calls a blue sky opportunity. He says nobody has really accurately measured what opportunity exists. Noodles as well as packaged convenience foods are doing a roaring business. The same potential exists in ice cream. Currently per capita consumption of ice cream is 0.4 litres annually, which was what Turkeys 15 years ago. Today Turkey has a per capita consumption of 2.5 litres and this is the opportunity that Unilever wants to address.
The rise in spending power of Pakistanis is offering Unilever an opportunity to grow. For example, Clear shampoo launched recently in Pakistan enjoyed the highest growth amongst the select number of countries that it was simultaneously launched in. These are the positive factors that make Unilever continue to invest in products and people in Pakistan. For this company, Pakistan is not just a success story, it is one the company wants to keep telling again and again.
Unilevers success illustrates the promise that Pakistan holds
