Chain of Super Markets in the Country

8/13/2019 Chain of Super Markets in the Country

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DISCLAIMER

The purpose and scope of this Pre Feasibility Study is to introduce the Project and

provide a general idea and information on the said Project including its marketing,

technical, locational and financial aspects. All the information included in this Pre-

Feasibility is based on data/information gathered from various secondary and primary

sources and is based on certain assumptions. Although, due care and diligence have been

taken in compiling this document, the contained information may vary due to any change

in the environment.

The Planning & Development Division, Government of Pakistan, Management Advisory

Center who have prepared this Pre-Feasibility or National Management Consultants

(Pvt.) Ltd. do not assume any liability for any financial or other loss resulting from this

Study.

The prospective user of this document is encouraged to carry out his/her own due

diligence and gather any information he/she considers necessary for making an informed

decision


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TABLE OF CONTENTS

ACRONYMS ................................................................................................................. iiiEXECUTIVE SUMMARY ............................................................................................iv

CHAPTER 1 - INTRODUCTION ...................................................................................1

1.1 OVERVIEW........................................................... ................................................................. .... 1

1.2 OBJECTIVES AND SCOPE OF STUDY..................................................................... .............. 2

1.3 METHODOLOGY ................................................................... ................................................... 2

1.4 STUDY TEAM.............................................. ................................................................... ........... 2

CHAPTER 2 MARKET/ NEED ASSESSMENT.......................................................3

2.1 EVALUATION OF RETAILING............................................................. .................................. 3

2.2 PROFILES OF LEADING CHAIN STORES IN DEVELOPED COUNTRIES........................ 5

2.3 CHAIN STORES IN PAKISTAN.............................................................. ................................. 7

2.4 NEED ASSESSMENT ............................................................... .............................................. 11

2.5 PROSPECTS FOR NEW PROJECTS........................................................................ ............... 13

2.6 SWOT ANALYSIS ............................................................ ....................................................... 14

2.7 PROPOSED LOCATION OF NEW STORES..................................... ..................................... 16

CHAPTER 3 TECHNICAL EVALUATION............................................................19

3.1 LOCATIONAL ANALYSIS.......................................................... .......................................... 19

3.2 SERVICE SECTOR ................................................................ .................................................. 19

3.3 PRODUCT RANGE.................................................................... .............................................. 20

3.4 RETAILING TECHNOLOGY.............. ..................................................................... ............... 20

3.5 REORDERING POLICY .................................................................. ........................................ 22

3.6 CENTRALIZED WAREHOUSING ................................................................ ......................... 22

3.7 COMPUTERIZATION ............................................................. ................................................ 23

3.8 FACILITIES/ UTILITIES REQUIRED.................................................................... ................ 23

3.9 PROJECT IMPLEMENTATION SCHEDULE ................................................................ ........ 24

CHAPTER 4 GOVERNANCE AND MANAGEMENT STRUCTURE.................25

4.1 CORPORATE STATUS OF PROJECT............................... ..................................................... 25

4.2 MANAGEMENT STRUCTURE/ ORGANOGRAM ........................................................... .... 25

4.3 MANPOWER REQUIREMENT............................................................................................. .. 27

4.4 SYSTEMS AND PROCEDURES....................................................................... ...................... 27

4.5 TRAINING................................................................ ............................................................. ... 28

CHAPTER 5 FINANCIAL EVALUATION.............................................................29

5.1 COST OF PROJECT ................................................................. ................................................ 29

5.2 FINANCIAL PLAN .......................................................... ........................................................ 29

5.3 PROFIT AND LOSS ACCOUNT....................................................... ...................................... 30

5.4 RATES OF RETURN................................................................... ............................................. 31

5.5 PAYBACK PERIOD....................................................................... .......................................... 31

5.6 CAPITAL: OUTPUT RATIOS ............................................................. .................................... 32

5.7 CASH FLOW ........................................................... ............................................................... .. 32

5.8 BALANCE SHEET.............................................................. ..................................................... 33

CHAPTER 6 CONCLUSION ....................................................................................35

LIST OF TABLES

TABLE 1 USC'S CATEGORY OF STORES ............................................................................................. 8


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TABLE 2 USC'S REGIONWISE LOCATION OF STORES................................................... ..9

TABLE 3 PAKISTAN'S GROSS DOMESTIC PRODUCT .................................................... .12

TABLE 4 ESTIMATED VOLUME/ VALUE OF RETAIL BUSINESS IN PAKISTAN....................... .13

TABLE 5 NUMBER OF STORES PLANNED TO BE SETUP IN MAJOR CITIES.......................... 17

TABLE 6 POPULATION OF MAJOR CITIES.................................18

TABLE 7 PROJECT IMPLEMENTATION SCHEDULE........................................................................ 24

TABLE 8 MANPOWER REQUIREMENTS........................................................................ .................... 27TABLE 9 COST OF PROJECT..........................................................29

TABLE 10 FINANCIAL PLAN........................ ..................................................................... ............... 30

TABLE 11 PROJECTED PROFIT & LOSS ACCOUNTS........................................ ............................... 30

TABLE 12 PROJECTED RATES OF RETURN.......................... .31

TABLE 13 CAPITAL: OUTPUT RATIOS.........................32

TABLE 14 PROJECTED CASH FLOWS... ............... 32

TABLE 15 PROJECTED BALANCE SHEETS..... ...33

ANNEXURE - 1 PAKISTAN - A PROFILE


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ACRONYMS

ASEAN Association of South East Asian Nations

BOO Build Operate Own

BOT Build Operate Transfer

CAA Civil Aviation Authority

CNG Compressed Natural Gas

ECO Economic Cooperation Organisation

EIZ Eastern Industrial Zone

FDI Foreign Direct Investment

GCC Gulf Cooperation Council

GDP Gross Domestic Product

GNP Gross National Product

HDIP Hydrocarbon Development Institute of Pakistan

HR Human Resource

IT Information Technology

km Kilometre

KPT Karachi Port Trust

NHA National Highway Authority

OEM Original Equipment Manufacturer

PIA Pakistan International Airlines

PNSC Pakistan National Shipping CorporationPTA Pakistan Telecommunication Authority

PTCL Pakistan Telecommunication Limited

SAARC South Asian Association for Regional Cooperation

SWOT Strengths, Weaknesses, Opportunities and Threats

UAE United Arab Emirate

UHT Ultra Heat Treated

USC Utility Stores Corporation

WTO World Trade Organization


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EXECUTIVE SUMMARY

INTRODUCTION

Distribution and retailing of goods and commodities has assumed the stature of a majoreconomic activity in developed countries with leading companies listed on the stock

markets.

This pre-feasibility study assesses the viability of setting up a chain of supermarkets

(retail stores) in Pakistan. Project appraisal techniques followed by development

financing institutions have been adopted.

MARKET / NEED ASSESSMENT

Retailing has evolved over the decades to become a specialized business/economic

activity. Main types of distribution and retailing organizations consist of traditional retail

stores, chain stores, supermarkets/hypermarkets, discount houses and mail order houses.

Wal-Mart Stores of USA is the worlds largest retailer with sales of US $ 285.2 billion in

2004 and 1.60 million employees. The company has 3,600 stores in USA and more than

1,570 outlets in Mexico, Canada, Puerto Rico, Argentina, Brazil, China, Korea, Germany

and the United Kingdom. More than 138 million customers visit Wal-Mart stores

worldwide every week.

The Home Depot, Inc. of USA is the worlds largest home improvement retailer with

1,911 stores (one store being added/opened every 2 days). The company employs

325,000 persons and had sales of US $ 73.10 billion in 2004.

Other leading companies operating retail stores consist of Sears, Marks and Spencer, J.C.

Penny, Woolworth, etc. Most retailing companies in developed countries are large

organizations in terms of operations, annual sales and employment level and are listed on

the stock exchanges.


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The Utility Stores Corporation (USC), a wholly owned venture of the Government of

Pakistan, is the only organization which is running a chain of retail stores in Pakistan. At

it peak in the early nineties, it had 975 retail stores all over the country. However,

financial losses compelled it to reduce the number to 363 stores in July 2005.

USCs total sales in 2004-2005 was Rs. 6.00 billion (from 363 outlets). These outlets are

supervised by 15 regional/zonal offices which provide supplies from warehouses under

its management.

Some smaller companies are running limited number of stores, usually in one city and do

not qualify to be categorized as chain stores.

Two new ventures have been announced recently (July-August 2005) which plan to set

up chain stores in Pakistan. One is Makro-Habib Limited which intends to set up 30 high

volume outlets (each having 100,000 square feet of area, 200 employees and parking for

300 cars/vehicles). Makro Asia is wholly owned by SHV Holdings of Netherlands.

The second is Metro Group of Germany (the worlds fifth largest retailer) which is also

planning to establish 30 department stores in Pakistan at an investment of US $ 400

million. It operates more than 2,300 retail stores in 28 countries including supermarkets,

hypermarkets, departmental stores, home improvement stores and consumer electronic

stores.

Wholesale and retail trade is scattered all over the country and comprises mostly of small

businesses, outlets. The National Income Accounts estimates value added from this

sector, but combines both activities together under one heading. Wholesale and retail

business together ranks as the largest contributor to the countrys GDP with shares of

18.5 % in 2003-2004 and 19.1% in 2004-2005. Second largest contributor is large scale

manufacturing which had shares of 11.9 % and 12.7 % in the same period.


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Value of wholesale and retail business was Rs. 856,531 million (constant factor cost) in

2004-2005 (share of retail sector estimated at Rs. 556,745 million). With Utility Stores

Corporation achieving sales of Rs. 6,000 million and other retailers (conducting retail

business in a relatively modern manner) achieving combined sales of about Rs. 100,000

million. This still leaves a very large deficit (about Rs. 450,745 million) of retailing

which needs upgrading and qualitative improvement.

TECHNICAL EVALUATION

This project falls in the services sector which is growing in size and significance both in

the developed and the developing countries. In Paksitans GDP of US $ 103 billion in

2004-2005 the service sector had a share of 52.2 % (US $ 53.77 billion) whilst the US

economy valued at US $10,600 billion in 2004 had a 65 % contribution from services

(US $ 6,890 billion).

Retailing covers a very wide range of products, commodities and services with large

companies offering upto 40,000-50,000 items at one store. Important aspects in retailing

business consist of merchandizing, quality control, systems, brand management and

operations. These need to be addressed suitably in order to operate the business

efficiently and profitably.

Organizational policies concerning product reordering, store site selection, centralized

warehousing, computerization, management of sales staff, customer handling and

satisfaction are of crucial importance in managing the company successfully.

The project plans to set up three categories of retail outlets (9 large, 25 medium and 36

small that is a total of 70 stores in 20 cities/towns) of the country. These will be

supervised by five regional offices with warehouses supplying needed goods to the

outlets in its area.

Overall management of the companys operations will be centred at the head office

where the Managing Director, Directors of Operations, Marketing, Finance and


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CHAPTER 1

INTRODUCTION

1.1 OVERVIEW

Distribution and retailing of goods and commodities has assumed the stature of a

major economic activity in developed countries with leading companies listed on

the stock markets. An integral part of the supply chain, it ensures efficient

distribution of goods to consumers keeping their requirements and convenience as

the cornerstone of the distribution, retailing policy.

Wal-Mart, USA (the worlds largest chain of retail stores) had annual sales of US

$ 282.2 billion in 2004 which is almost three times larger than Pakistans GDP of

about US $ 103 billion in 2004-2005. The management of such large corporate

organizations requires a high degree of management skills and professionalism.

Pakistans sole chain of retail stores, the Utility Stores Corporation (USC)

commenced operations in the seventies and at its peak had 975 retail stores /

outlets all over the country in the 1990s. Owing to management problems andfinancial losses, it was compelled to curtail operations reducing countrywide

number of outlets to 363 in July 2005. The organization seems to have weathered

the difficult times and is in the process of consolidating its position. A gradual

increase in the number of outlets is now being witnessed, both in Karachi and

other urban centers which indicates that the organization has achieved a

turnaround and is now a profitable company.

The retail sector in Pakistan is now attracting the attention of both foreign and

Pakistani investors since atleast two foreign and a few local companies are

reported to be actively engaged in setting up chain stores in the country.


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1.2 OBJECTIVES AND SCOPE OF STUDY

The objective of this pre-feasibility study is to assess the operational, market and

financial viability of setting up a chain of supermarkets (retail stores) in the

country. Retail outlets in selected cities will be established in the first phase,followed by addition of more stores as necessitated by consumer demand.

1.3 METHODOLOGY

Data collection methodology adopted for this study is described below:

Data from secondary sources was collected and analyzed. Governmentpublications were consulted and relevant data compiled.

Primary sources of data were identified and contacted for collection ofunpublished information.

Data was collected on costing inputs, selling prices, tariffs, etc. to computecost of goods sold and evaluate financial viability of the project.

PROJECT APPRAISAL TECHNIQUES

The consultants have adopted project appraisal techniques followed by thedevelopment financing institutions (DFIs) in the country which will facilitate

procurement of financial assistance.

1.4 STUDY TEAM

The study team consisted of a market analyst, technical expert and financial

analyst who contributed their inputs, coordinated by the team leader. Support staff

consisted of field surveyors, data tabulator and computer operator.


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CHAPTER 2

MARKET/ NEED ASSESSMENT

2.1 EVOLUTION OF RETAILINGDistribution and retailing is an integral part of the supply chain which makes mass

produced goods and commodities available to the consumer, literally at his

doorstep. Major impetus to this business was provided by the industrial revolution

in developed countries when manufacturers concentrated on improvements in

large scale (mass) production of goods and commodities, but did not have the

time or resources to undertake nationwide distribution and retailing which was

necessary to consume the mass produced goods. This gave rise to specialized

distribution and retailing operations.

Specialization in this field, as in most other commercial and economic activities,

has created various forms of distribution and retail stores. Over the decades

improvements have been witnessed in the retailing business and specialized forms

of distribution and retailing organizations have evolved. Main types of

organizations are described below.

The traditional version of retail stores, generally owner-managed, where the

store owner stocks a selected range of goods for consumers mainly residing in the

immediate neighborhood. These types of stores still exist in small towns and

suburban areas and are affectionately termed as mom and dad stores in view of

the fact that such shops are generally owned and managed by the elderly.

However, chain stores have largely replaced the traditional retail shop in urban

centers where small traditional stores find it difficult to compete and where

investment levels have risen astronomically.

The overwhelming share in retailing is held by chain stores which cultivate

consumer allegiance/loyalty by promoting their own brands. Consumers develop

store/brand loyalty to such an extent that often they avoid going to competing


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stores. Store/brand loyalty in retailing is similar to brand loyalty of smokers who

prefer to stick to one brand of cigarette.

In developed countries the category of stores known as supermarkets and

hypermarkets refers to very large sized units, generally with floor space of

100,000 square feet or more, and offering over 40,000-50,000 items to the

customer. It thrives on very large sales volumes and its clients generally include

both professionals (businesses such as restaurants, cafes, caterers, food

processors, etc) and individuals/families.

Supermarkets and Hypermarketsoperate on the principle of high volume-low

margins and are becoming increasingly popular with the public. A leading

business house of Pakistan in joint venture with an established company from the

Netherlands is setting up a chain of such stores in Pakistan (expected to become

operational by end-2006).

Discount Houses are normally large warehouses (no frills environment) are

usually located on the outskirts of the city where rents are comparatively much

lower and overall organizational overhead expenses are also very low. Their main

advantage is low product prices. Customers are willing to travel considerable

distances to reach these stores which offer very competitive prices.

Mail Order Houses operate through catalogue marketing. The office and

warehouse can be located anywhere in the country (usually where overhead

expenses are very low) and they print very attractive catalogues which are sent to

prospective customers addresses. Each product is illustrated, coded and described

in terms of operational performance features. Price of each product is given

alongwith additional expense for sending by mail / postage. Terms of payment are

also specified (usually payable on delivery, by credit cards, etc.). These stores

have introduced on-line order placement for customers convenience. In this type


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of retail business the customer does not visit the business place, nor meets any of

the organizations staff.

2.2 PROFILES OF LEADING CHAIN STORES IN DEVELOPEDCOUNTRIES

Chain stores/supermarkets to be established in Pakistan would follow the model

of similar organizations now operating in USA, UK and other developed

countries. In order to provide a perspective of the leading companies engaged in

this activity, profiles of selected chain stores are given below.

Wal-Mart Stores, Inc. is the worlds largest retailer with sales of US $ 285.2billion for the fiscal year ended 31stJanuary 2005. The company has 3,600 stores

in USA, and more than 1,570 outlets in Mexico, Canada, Puerto Rico, Argentina,

Brazil, China, Korea, Germany and the United Kingdom. More than 138 million

customers per week visit Wal-Mart stores worldwide. The company has four retail

divisions:- Wal-Mart Supercenters, Discount Stores, Neighbourhood Markets, and

SAMs Club warehouses

The Companys first store opened in 1962 at Rogers, Arkansas and since then in a

period of 42 years it has experienced phenomenal growth. Its shares were listed

on the New York Stock Exchange in 1970 and sales crossed the US $ 1.00 billion

mark for the first time in 1979.

As part of the Companys management policy to train and promote from within

the existing employees, 76 percent of store management positions are held by

persons who started their career at Wal-Mart in jobs which were paid by the hour

(i.e. the lowest rung of employment level). The Company employs 1.60 million

people worldwide, out of which 1.20 million are employed in USA. The

Companys first international store opened in 1991, and now i.e. in 14 years it has

1,570 stores operating in nine countries employing about 330,000 persons.


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Wal-Marts sourcing of goods and services exceeded US $ 150.00 billion from

more than 61,000 suppliers in 2004 from within USA. In addition over US $

18.00 billion worth of goods and services were procured from China.

Founded in 1978 in Atlanta, Georgia, Home Depot Inc. USA, is the worldslargest home improvement retailer currently operating 1,911 stores in USA,

Canada, Mexico and Puerto Rico (with one store opening every 48 hours i.e.

every 2 days). The Company employs 325,000 persons and had sales of US $

73.10 billion in 2004. It is the second largest retailer in USA, and is ranked as the

third largest retailer globally.

Sears Roebuck and Company,popularly known as Sears, is a leading broadlineretailer providing merchandise and related services. With sales of US $ 36.1

billion in 2004, Sears offers a wide range of home merchandise, apparel and

automotive products and services through more than 2,400 Sears-branded and

affiliated stores in the US and Canada. Sears is the largest provider of product

repair services in the US, and perhaps also in the world, with more than 14

million calls made annually by prospective clients.

One of Britains leading retailers is Marks and Spencerwith the internationallyrenowned brand of St. Michaels. The Company operates over 400 stores in UK

and 150 stores in 30 foreign countries including over 130 franchise businesses. Its

sales topped US $ 14 billion in 2004 and it employs more than 60,000 people

worldwide.

J.C. Penny Company, Inc. USA, is one of Americas largest departmentalstores, catalogue and e-commerce retailers employing about 150,000 persons.

Sales in 2004 were US $ 17.04 billion coming from 1,017 department stores

throughout USA and Puerto Rico and 62 Renner department stores in Brazil.

Woolworth Ltd. Australia, its first store opened in 1924 in Sydney which has,over a period of 80 years, increased to more than 1,600 stores in Australia, plus an


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additional 33 Dick Smith Electronics stores in New Zealand. The company

employs about 145,000 persons and had sales of US $ 20.3 billion in 2004.

2.3

CHAIN STORES IN PAKISTANThis service sector is in its nascent stage in Pakistan, with only one organisation

which can justifiably claim to be operating a chain of retail stores in the country

the Utility Stores Corporation (USC). Some smaller retail groups are also

operating limited number of retail stores, but these are generally confined to

single city operations.

A number of new ventures have recently been announced which, when

implemented, will mark the commencement of modern day retailing business in

Pakistan. Reviews of USCs business and of the new ventures is given hereunder.

The Utility Stores Corporation (USC) is a wholly owned venture of theGovernment of Pakistan which was set up in the seventies to serve the masses

especially by ensuring the availability of those essential items which were prone

to shortages, and therefore to price fluctuations i.e. abnormal price rises. The

organization was also mandated to provide a socio-economic service to the people

and was not primarily a profit making, growth oriented venture.

USCexperienced sustained expansion till the early nineties when at its peak the

Company had 975 retail stores all over the country. Thereafter management

problems resulted in heavy financial losses forcing the Government to sharply

reduce the number of outlets bringing it down to 363 stores in July 2005.

USChas developed three categories of stores based on market experience. These

categories of stores have been developed to cater to diverse segments of the

countrys population.


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TABLE - 1

USCs CATEGORY OF STORES

Store Category Store AreaAnnual Sales

(Rs. million)

Convenience Stores 500 - 800 sq. ft. Below 12

Mini-markets 800 1200 sq. ft. Between 12 to 15

Supermarkets 1,200 - 5,000 sq. ft. Over 25.00

The stores timings are from 10 am to 10 pm except for specially located stores

such as the one located in the State Life Insurance Office, Karachi which closes at

5.00 pm (alongwith the closure of the State Life Office).

Karachi Region of USC city has 35 full time stores (15 convenience stores, 15

mini-markets and 5 supermarkets) which accounted for combined sales of Rs. 127

million in 2002-2003 and Rs. 249 million in 2004-2005 (96 % increase in two

years). Prior to 1998 Karachi had 100 retail stores but (as stated earlier) due to

financial losses the number was reduced to 25 in 2001-2002. Total number of

outlets are once again increasing (35 at present and 10 more to be added soon)

indicating growth based on profitable operations.

As stated earlier the USC is operating 363 retail stores in 15 regions which gave

countrywide sales of Rs. 6.00 billion in 2004-2005. The regions and number of

stores in each are summarized below.


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TABLE 2

USCs REGIONWISE LOCATION OF STORES

Number of StoresS. No. Region

Urban Rural Total

1. Abbottabad 22 15 37

2. Chakwal 1 12 13

3. Dera Ismail Khan 9 2 11

4. Faisalabad 16 9 25

5. Gujrat 10 5 15

6. Hyderabad 15 1 16

7. Islamabad 23 17 40

8. Karachi 33 0 33

9. Lahore 27 0 27

10. Multan 17 4 21

11. Peshawar 28 9 37

12. Quetta 17 2 19

13. Rawalpindi 29 9 38

14. Sargodha 13 11 24

15. Sukkur 5 2 7

TOTAL 265 98 363

Source: Utility Stores Corporation, Islamabad

Rajanis is running 9-10 retail outlets in Karachi city which has reduced fromabout 15 stores at one time, due perhaps to management problems and losses. It is

privately owned and seems to be on the decline, as evidenced by the reduction in

number of outlets and also from the less than pristine looks it once had. During

its better times Rajanis stores were preferred by a large number of customers for

their ambience, good variety and selection of items it carried.

Makro-Habib Pakistan Ltd. has recently announced (in July 2005) theformation of a joint venture between Makro Asia (a wholly owned subsidiary of

SHV Holdings of Netherlands) and House of Habib, a leading business and

industrial group of Pakistan. The joint venture intends to set up a chain of high

volume stores in the country (more than 30 outlets) with the first scheduled to

open its doors at the end of 2006.


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SHV Holdings through Makro Asia is doing business in 5 Asian countries with

a total of 69 stores in Thailand (29 stores), Indonesia (15 stores), Malaysia (8

stores), Philippines (12 stores) and China (5 stores). The Company is a modern

cash and carry wholesaler targeting a specific customer group small retailers,

hotels, restaurants, caterers and professionals.

In Pakistan the Makro-Habib joint venture plans to establish 30 outlets (in the

first phase), each store having approximately 100,000 square feet of space with

parking facilities for 300 cars. Each outlet will have about 200 employees and will

sell fresh produce (fruits, vegetables, meat and packaged food items) alongwith

other products such as electronics, pharmaceutical products, household consumer

goods, etc.

The Companys avowed concept is to sell large volumes at low margins to

customers. This would put it into the category of supermarkets / hypermarkets as

discussed in the foregoing section on retailing in developed countries.

The Economic Advisor to the Ministry of Finance, Government of Pakistanannounced in August 2005 that the Metro Group of Germany,the worlds fifth

largest retailing company will set up 30 department stores in major cities of

Pakistan by investing US $ 400 million. There was no mention of any local

partner (Pakistani investor).

Metro operates more than 2,300 retail stores in 28 countries including

supermarkets, hypermarkets, department stores, home improvement stores andconsumer electronics stores under the Cash & Carry, Real, Extra, Media Market,

Praktiker and Galleria Kauthof banners. The company will bring in substantial

investment alongwith technical expertise in modern retailing business into

Pakistan.


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2.4 NEED ASSESSMENTAssessing current levels of demand for retailing business, or ascertaining past

trends would be difficult inasmuch as this activity is service oriented and spread

over the entire country. Small retail shops, outlets make up a large number ofcontributors to this value added activity and evaluating their turnover will be

extremely difficult.

The wholesale and retail sector is one of the headings in National Income

Accounts as reported by the Federal Bureau of Statistics, Government of Pakistan.

The share of this sector i.e. both wholesale and retail activities is stated under one

heading. It is the largest single contributor to the countrys Gross Domestic

Product with shares of 18.5% in 2003-2004 and 19.1% in 2004-2005. This was

followed by large scale manufacturing which had shares of 11.9 % and 12.7 % in

the two corresponding years.

The National Income Accounts of 2001-2002 defines wholesale and retail trade to

include the following activities:-

Wholesale and retail trade of domestically purchased and imported goods Purchase and sales agents and brokers AuctioneeringThe only nationwide statistics on wholesale and retail trade sector comes from the

National Income Accounts in the form of GDP data which has been analyzed

below.


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TABLE - 3

PAKISTANS GROSS DOMESTIC PRODUCT

(At Constant Factor Cost)

Wholesale and Retail Trade SectorYear Value

(Rs. million)Sectors Share

in GDP (%)Annual

Growth (%)

2001-2002 667,615 18.0 2.3

2002-2003 707,665 18.2 5.9

2003-2004 764,688 18.5 8.1

2004-2005 856,531 19.1 12.0

Source: Federal Bureau of Statistics Government of Pakistan

Assuming that the same quantity/value of goods sold by wholesalers to retailers is

further sold in retail to consumers, the subsequent sale would be at a higher price

i.e. with more value added to it. Furthermore, retailers oftentimes acquire supplies

by by-passing the wholesaler. Considering these factors it is estimated that the

retail sector alone accounts for about 65 percent of the combined GDP share

shown above (for both wholesale and retail sector). On this basis the retail trades

share is estimated below.

Average annual growth rate of both sectors during the last three years was 8.67 %

which has been applied to project volume/value of retail business for the coming

five years.


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TABLE - 4

ESTIMATED VOLUME / VALUE OF RETAIL

BUSINESS IN PAKISTAN

(Rs. million)

Year

Volume / Value of

Retail Business

PAST TREND

2001-2002 433,950

2002-2003 459,982

2003-2004 497,047

2004-2005 556,745

PROJECTED VALUE

2005-2006 605,015

2006-2007 657,470

2007-2008 714,472

2008-2009 776,417

2009-2010 843,732

Source: (1) Federal Bureau of Statistics, Government of Pakistan for the years from2001-2002 upto 2004-2005.

(2) Survey Estimates for years from 2005-2006 upto 2009-2010

2.5 PROSPECTS FOR NEW PROJECTSIn view of annual sales of Rs. 6.00 billion by Utility Stores Corporation and an

approximate estimate of about Rs. 100.00 billion by other retailers in different

fields, such as garments, fabrics, food items, electronics, etc. who are doing retail

business in a relatively better and more modern manner, this still leaves about Rs.

736 billion of wholesaling and retailing business is still be met. This could be

better performed by chain stores, supermarkets / hypermarkets, etc.

The project of Chain of Supermarkets in the country is not meant to create only

new demand in the Retailing Trade, it is also meant to gradually replace

traditional stores with chain stores, supermarkets and hypermarkets in the country,

as has been achieved in the developed countries.


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After some time the total number and combined market share of traditional stores

will reduce and those of chain stores will increase. Traditional stores will not be

totally eliminated, but their number and market share will eventually become

comparatively very small.

Presently a very large share of wholesale, retail trade is being carried by small

stores estimated at Rs. 736 billion as stated earlier. This needs to be filled in by

chain stores, supermarkets, hypermarkets, etc. The gap of Rs. 736 billion

currently being catered to by small outlets, traditional stores, etc. is the overall

target for fulfilling by chain stores, supermarkets, hypermarkets, etc.

Total annual sales of this project (operating 70 retail outlets in 20 cities is Rs.

1.113 billion in the first year, increasing to Rs. 2.225 billion in the third year at

100% capacity operations). Compared to the overall countrywide deficit of Rs.

736 billion, it amounts to 0.15% of the deficit (in first year, rising to 0.30% in the

third year).

Projected sales of M/S Makro-Habib and M/S Metro Group are not known,

however, combined with the estimated sales of this project the total sales of all

three projects would not be more than Rs. 10-12 billion i.e. about 1.36% to 1.63%

of the total countrywide deficit of Rs. 736 billion. This still leaves a very large

gap/deficit which needs to be filled by more projects setting up chain stores,

supermarkets, hypermarkets, etc.

Assuming that one store outlet has annual sales of Rs. 30 million per annum,

some 24,530 retail outlets are needed all over the country to completely eliminate

this deficit.

2.6 SWOT ANALYSESAn analyses of the projects strengths, weaknesses, opportunities and threats

(SWOT) is given hereunder.


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STRENGTHS

Allows purchases of goods and products at very competitive prices and terms(in large bulk)

Chain stores get preferential treatment from manufacturers/ suppliers ofgoods, products in terms of prices, credit, quick deliveries, replacement of

defective goods, etc.

Fosters, builds consumer brand loyalty Allows chain stores to develop their own brands (manufactured under

contract)

Consumers identify, rely on quality based on image/goodwill of chain stores

Permits company to sell standardized products and goods at all outletscountrywide

Company allows customers to replace products, goods bought at one outlet atany other outlet (in different city, town) on presentation of valid receipt

Complaints concerning product quality, defects, etc. are expeditiously handled

WEAKNESSES

Pilferage of goods by public, or staff is a major problem which eats into thecompanys profits

Strong, effective marketing is needed to build and retain customer loyalty andsuccessfully meet competitors challenges

Innovative HR policies are needed to reduce staff turnover, provide requiredmotivation to employees to perform at high levels of efficiency

High staff turnover increases cost of new recruitment and also training ofnewly hired staff

OPPORTUNITIES

Large financial resources and countrywide chain of stores opens uppossibilities for deeper market penetration


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Allows induction of modern retailing technology into this traditionallymanaged service sector, combining IT, HR, logistics, inventory

management/control, etc.

Opens up prospects for imparting institutionalized training in Wholesale,Retail Trade and its sub-disciplines. Certificate and Degree course at

universities, specialized institutions, etc. in this specialized field needs to be

offered.

Scale of operations, in terms of countrywide presence of retail outlets andlarge volume sales, allows the company to offer various types of staff

incentives e.g. rapid promotions based on performance/efficiency, bonuses,

stock options, etc. This introduces an element of employees stake in the

company and ensures rapid growth both in terms of total sales and profits.

THREATS

Large turnover companies tend to rely on their size of operations, sales, etc.thereby losing out on innovations and specialized products, services, etc. An

example is the comparison of food quality at a fast food chain outlet compared

to the quality of food and service at a specialty restaurant.

Company management needs to keep a very strict watch on all critical aspectsof operations, lest delayed corrective action may be too late. An efficient

system of reporting could guard against this problem.

2.7 PROPOSED LOCATION OF NEW STORESThe project plans to establish a chain of 70 new retail stores all over the country

as shown below in Table 5, supported by five regional offices / warehouses at:

Karachi, Lahore, Islamabad, Rahim Yar Khan and Multan.


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TABLE 5

NUMBER OF STORES PLANNED TOBE SET UP IN MAJOR CITIES

Number of Stores (By Category)S.No.

CityA B C Total

1. Karachi 5 5 4 10

2. Lahore 3 3 4 9

3. Faisalabad 2 2 2 5

4. Rawalpindi 1 1 2 4

5. Multan 1 1 2 4

6. Hyderabad - 1 2 3

7. Gujranwala - 1 2 3

8. Peshawar - 1 2 39. Quetta - 1 2 3

10. Islamabad 1 1 2 4

11. Sargodha - 1 2 3

12. Sialkot - 1 2 3

13. Bahawalpur - 1 1 2

14. Sukkur - 1 1 2

15. Jhang - 1 1 2

16. Larkana - 1 1 2

17. Gujrat - 1 1 218. Mardan - 1 1 2

19. Rahim Yar Khan - 1 1 2

20. Sahiwal - 1 1 2

TOTAL 9 25 36 70

The above 20 cities/ town are the 20 largest urban centers in the Country. Their

population is given in Table 6.


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TABLE - 6

POPULATION OF MAJOR CITIES

(Population in 000)

PopulationS.No. City

1998 2005

1. Karachi 9,269 13,943

2. Lahore 5,143 7,236

3. Faisalabad 2,009 2,653

4. Rawalpindi 1,410 1,862

5. Multan 1,197 1,484

6. Hyderabad 1,167 1,456

7. Gujranwala 1,133 1,405

8. Peshawar 988 1,304

9. Quetta 566 668

10. Islamabad 529 645

11. Sargodha 455 560

12. Sialkot 422 498

13. Bahawalpur 408 493

14. Sukkur 336 407

15. Jhang 293 352

16. Larkana 270 325

17. Gujrat 252 300

18. Mardan 245 302

19. Rahim Yar Khan 234 279

20. Sahiwal 207 248

Source: National Census 1998 for 1998 data estimated for year 2005


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CHAPTER 3

TECHNICAL EVALUATION

3.1 LOCATIONAL ANALYSIS

Considerable investment goes into the setting up of one retail outlet and the

selection of a suitable site is extremely important in its successful and profitable

operation. Decision on a site needs to be based on a proper survey of the target

area involving the following aspects:-

Consumer segmentation (based on income levels) Competition from other stores Traffic flow Parking space availability Rental rates of commercial space

Site selection decisions should be reviewed by at least 2-3 levels of management

in order to minimize the probability of taking a wrong decision. Which would not

only cause financial losses, but also reflect poorly on the companys image.

3.2 SERVICE SECTORThe project of supermarkets and chain of retail stores falls in the service sector

and does not lend itself to project evaluation techniques, methodology

traditionally developed for, and applied to industrial projects involving

manufacturing and processing operations.

In keeping with the growing significance and importance of the services sector in

the national economies of developed countries, and also of developing countries,

both government and private sector entrepreneurs are channelizing more

investment and efforts into this sector.


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The US economy, valued at US $ 10.60 trillion (US $ 10,600 billion) in 2004 has

a hefty 65 percent contribution from the services sectors (US $ 6,890 billion). In

Pakistans Gross Domestic Product of US $ 103 billion in 2004-2005 the services

sector has a share of 52.2 % (equivalent to about US $ 53.77 billion). Out of this

the wholesale and retail trade sector has a share of 18.4 % (estimated at US $

18.95 billion equivalent to Rs. 1,137.12 billion).

3.3 PRODUCT RANGERetailing covers a very wide range of products, commodities and services and it

would be very difficult indeed to list all of them. For the purpose of this study it

may be safely stated that the proposed chain of retail stores will generally carry all

grocery and related items which are carried by supermarkets worldwide.

3.4 RETAILING TECHNOLOGYThe establishment and successful management of large retailing companies which

have hundreds of retail stores spread all over the country, each outlet stocking

thousands of items, requires a high level of management expertise in a number of

disciplines. The relatively more important areas of technological expertise needed

to manage such projects are analyzed below:

MERCHANDIZING POLICY: This basically involves formulation of the

procurement policy of the company and requires entering into commercial

contracts with literally thousands of suppliers located all over the country, and

sometimes even with overseas suppliers. The guiding principle is to have the

right product in the right place at the right time at the lowest price.

Selection of items depends upon the companys policy of deciding which

consumer segment it wishes to target (high income, medium income or low

income).


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QUALITY CONTROL: Checking products for quality and related aspects

ensures customer satisfaction. All stores offer unconditional replacement of

defective, sub-standard products and also pass on manufacturers

guarantee/warranty, however, in todays busy and fast-paced modern life, people

find it irritating and irksome to go back to the store for replacement. An adequate

and effective system of quality control helps to reduce/minimize customer

complaints and the number/level of product replacements.

SYSTEMS: The most advanced automated systems need to be deployed to

manage every aspect of the fast moving retail business. Foremost is the need to

have an efficient inventory/materials management system. Human resource

development is another critical area. Well trained and satisfied employees are

essential for courteous service. A customer irritated by the mis-behaviour of store

employees is unlikely to return anytime soon to the store. High employee turnover

is another problem for retailing companies since it increases the cost of

recruitment and training newly hired staff.

BRAND MANAGEMENT: A useful tool in developing consumer loyalty,

proper brand management allows the company to ensure maximum impact and to

gain maximum value through customer goodwill. Without developing its own

brand, the chain store will forever be marketing some other companys brand and

fail to create a goodwill for its own brand/company name.

OPERATIONS: This involves all organizational operations at the store level

which combine to run the store/outlet smoothly (inventory management, human

resource, finance, marketing, customer relations, etc.). The store management is

incharge of all operational matters for that unit and they need to be suitably

trained.


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3.5 REORDERING POLICY

For a chain of retail stores which operates centralized warehousing to feed retail

outlets within its specified zone/area and which carries thousands of diverse

items, an efficient reordering policy needs to be formulated. Individual items mayhave different suppliers, and different delivery periods even in the case of one

supplier.

A system of maintaining daily inventory levels at the retail stores, sending

requisitions to the area regional office/warehouse, and maintaining inventory

levels at the area warehouse is a professionally demanding task. It needs to be

managed well, otherwise two likely problems may occur non-availability of

products at the stores causing consumer dis-satisfaction, or over stocking at

stores/warehouses, thereby blocking funds un-necessarily in the form of higher

working capital financing. A computerized system of materials/inventory

management is essential for this nature of business operation.

3.6 CENTRALIZED WAREHOUSING

The company will need to maintain centralized warehouses for each area/zone to

supply the retail outlets within its specified area. In planning for the location of

these warehouses attention needs to be given to the distance from warehouse to

the outlets (in particular the furthest store) and also the probable location of new

outlets which may be opened in future, and which would be supplied from that

particular warehouse.

There are no fixed parameters regarding the number of stores which may be

served by one warehouse, however, it has been observed that 15-20 stores should

at least be supplied by one warehouse in order to make its functioning

economical. Expenses of the warehouse must be defrayed/amortized over all the

outlets it serves (proportionate to the level of sales of each outlet).


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3.7 COMPUTERIZATION

The head office, zonal offices/warehouses and all outlets need to be connected

through an appropriate computer network system. The company also has to invest

in procuring suitable software to manage operations, maintain inventory, listsuppliers, payroll and accounting records, etc.

3.8 FACILITIES / UTILITIES REQUIRED

This project is different from conventional manufacturing and processing

industries since it is a service business and its retail stores will be located at

considerable distance from one another. Furthermore there is no need for

machinery and equipment which forms the bulk of investment in manufacturingindustries. Facilities and utilities needed for retail outlets, regional offices,

warehouses and head office are briefly described below:

The project will acquire commercial space for its retail outlets, regional offices,

warehouses and the head office on rent, hence there is no need to purchase land.

The project will operate three categories of stores in 20 cities/towns (70 outlets in

the initial phase). Additional stores may be set up as dictated by market demand.

The covered area for each type of store is estimated as follows:-

Category A: 6,000 sq. ft.

Category B: 4,000 sq. ft.

Category C: 2,000 sq. ft.

Commercial power connection from the electricity distribution company in each

city/town is proposed to be obtained (220 volts, 3 phase).

Water is needed for human consumption and cleaning purposes only.


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3.9 PROJECT IMPLEMENTATION SCHEDULE

The project requires a core management team which will initiate store site

selection activities and undertake related commencement tasks. Setting up of 70

retail outlets simultaneously is not possible and will have to be phased. The laststore could be established in 36 months time from date of opening of the first

outlet. Complete project is expected to be implemented in 48 months as estimated

below by main activities.

TABLE 7

PROJECT IMPLEMENTATION SCHEDULE

Activity / StageTime Required

(months)

Preparatory activities (preparation of feasibility study,application for financial assistance, etc.) 2.0

Sanctioning of financial assistance 3.0

Fulfillment of post-sanction formalities, allocation offunds, legal documentation, etc. 3.0

Opening of first retail outlet 12.0

Opening of the 70thretail store 36.0

The other major investments in fixed assets will be related to furniture, fixtures,

shelving, trollies, pallet trucks, forklifts, delivery vans, vehicles (cars for

executives and staff), signage, computer hardware and specialized software, etc.


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CHAPTER 4

GOVERNANCE AND MANAGEMENT STRUCTURE

4.1 CORPORATE STATUS OF PROJECTThe sponsors of the project have two options to own and operate the business,

either through a public limited company or a private limited company (to be

incorporated in Pakistan under the Companies Ordinance 1984). The sponsors

have the option to contribute to the extent of 50 % or more of paid-up capital (in

the case of a public limited company) with the remaining percentage to be offered

to the general public through public flotation of shares subsequent to procurement

of the consent of the Securities and Exchange Commission of Pakistan.

4.2 MANAGEMENT STRUCTURE / ORGANOGRAMThe project involves large investment in setting up a network of retail stores

supported by regional offices, centralized warehouses and a corporate head office.

Professional management in all spheres and at all levels is essential to ensure high

efficiency and profitability. The proposed management structure is described

below and subsequently depicted in the form of an organogram.

BOARD OF DIRECTORS: This is the highest level of policy making and

supervisory body, presided over by the Chairman of the Board of Directors. It is

elected by the shareholders at the Annual General Meeting, and performs various

functions as laid down in the Companies Act 1984 in conjunction with the

Memorandum of Association and Articles of Association of the Company.

The Managing Directorperforms his functions in accordance with the MA / AA

of the company and as per policy guidelines laid down by the board, to which he

is accountable. The Managing Director must be a qualified, experienced

professional in the field of distribution and retailing.


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Directors for Operations, Marketing, Finance and Administration are all

senior level executive positions which need to be filled by professionally

competent persons. Director Marketing will perform a crucial role in the

successful marketing of the stores products, whilst the Director Finance and

Administration will be responsible for financial control and administrative

matters. Director Operations will be responsible for all merchandizing, inventory

management and retail store operations.

CHART - 1

PROPOSED GOVERNANCE STRUCTURE

Board of Directors

Managing

Director

Director

Operations

Director

Marketing

Director Finance

& Admin

Category CStores

5 Regional Officesand Warehouses

MarketingExecutives

ChiefAccountant

GM HR /

Training

PurchaseOfficers

AccountsOfficers

B RetailOutlets

A RetailOutlets

Category AStores

Category BStores

C RetailOutlets


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4.3 MANPOWER REQUIREMENT

The chain of supermarkets project will need to employ persons with expertise and

professional experience in management of large retailing operations. In addition

skilled and unskilled workers will also be employed.

TABLE 8

MANPOWER REQUIREMENTS

StoreNo. of

Stores

Staff at

each Store

Total No.

of Staff

Module 1Module 2Module 3

92536

302010

270500360

Sub-Total 70 1,130Regional Offices/WarehousesHead Office Staff

51

1740

10040

TOTAL 1,270

4.4 SYSTEMS AND PROCEDURESAn organizations performance is largely dependant upon the formulation of

appropriate systems and procedures to cover all organizational aspects e.g.

Marketing (Brand Management) Materials Procurement Human Resource Management Finance and Accounts Inventory Management Quality Control

Due importance needs to be given to this management aspect by the board of

directors and senior executives in order to ensure organizational efficiency.


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4.5 TRAININGNewly hired staff especially those stationed at retail stores will need to be trained

regarding companys policies, dealing with customers, handling of operational

problems, etc. Initial induction, briefing and training could be conducted byManager HR/Training with special training programs arranged for groups of

employees on different aspects which may be given by organizations/

professionals engaged for such activities.


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CHAPTER 5

FINANCIAL EVALUATION

Financial appraisal of the supermarket projects various aspects, e.g. cost of

project, earnings forecast, rates of return, payback period, cash flow, balance

sheet, etc. is discussed in this section.

5.1 COST OF PROJECT

Total project cost is estimated at Rs. 381.255 million as shown below in

summarized form.

TABLE 9

COST OF PROJECT

(Rs. in 000)

Head of Expenditure Amount

Investment in Retail Outlets 294,370

Investment in Regional Offices 7,300

Investment in Warehouses 15,250

Investment in Head Office 5,860

Vehicles 13,975

Preliminary and Pre-operating Expenses 7,500

Contingencies 17,000

Fixed Cost 361,255

Working Capital 20,000

TOTAL PROJECT COST 381,255

5.2 FINANCIAL PLAN

The project is proposed to be financed through a combination of equity and Ijara/Lease financing in the ratio of 50:50 respectively. The financial assistance (Ijara/

Lease) will carry a profit markup rate of 9 percent per annum payable over a

period of ten years.


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TABLE - 10

FINANCIAL PLAN

(Rs. in 000)

Source of Finance Share Totala) Financial Assistance

Ijara / Lease Financing 50 % 190,628

Sub-Total (a) 50 % 190,628

b) Equity

SponsorsPublic

25 %25 %

95,31495,314

Sub-Total (b) 50 % 190,628

TOTAL (a) + (b) 100 % 381,255

5.3 PROFIT AND LOSS ACCOUNT

A summarized version of the projected profit and loss account is given below:

TABLE 11

PROJECTED PROFIT & LOSS ACCOUNTS

(Rs. in 000)

Description Year 1 Year 2 Year 3 Year 4 Year 5

Sales 1,112,500 1,668,750 2,225,000 2,225,000 2,225,000Cost of Goods Sold 987,850 1,357,256 1,726,840 1,732,451 1,739,264

Gross Profit 124,650 311,494 498,160 492,549 485,736

Total OperatingExpenses 32,950

47,425

61,400

64,250 67,100

Operating Profit 91,700 264,069 436,760 428,299 418,636

Total Markup &Amort. 18,657

16,941

15,225

13,509 11,793

73,043 247,158 421,535 414,790 406,843

Total Deductions 5,113 17,301 29,508 29,036 28,479

Profit before TaxProvision for Tax

67,93023,776

229,85780,450

392,027137,209

385,754135,014

378,364132,427

Net Profit 44,154 149,407 254,818 250,740 245,937

Dividends:

PercentAmount

Retained EarningsCum. Ret. Earnings

20 %38,1266,0286,028

50 %

95,31454,09360,121

75 %

142,971111,847171,968

100 %

190,62860,112

232,080

100 %190,62855,309

287,389


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5.4 RATES OF RETURN

On the basis of the earnings forecast and related projections, rates of return for the

project are calculated below:

TABLE - 12

PROJECTED RATES OF RETURN

(Figures in Percentages)

Description Year 1 Year 2 Year 3 Year 4 Year 5

Gross Profit to Sales 11.20 18.67 22.39 22.14 21.83

Oper. Profit to Sales 8.24 15.82 19.63 19.25 18.82

Net Profit to Sales 3.97 8.95 11.45 11.27 11.05

Net Profit to Equity 23.16 78.39 133.67 131.53 129.01

5.5 PAYBACK PERIODPayback period for the project, both in terms of owners equity and total

investment, is calculated below.

Total Investment = Rs. 381.255 million

Equity (50 %) = Rs. 190.628 million

(Rs. 000)

Year Net Profit

1 44,154

2 149,407

3 254,818

4 250,740

5 245,937

Payback period for Equity = 2.00 years

Payback period for total investment = 2.75 years


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TABLE - 14

PROJECTED CASH FLOWS

(Rs. in 000)

DescriptionEnd of

Constr. Year 1 Year 2 Year 3 Year 4 Year 5

CapitalisedExpenses 7,5000 - - - - -

Repayment ofLease Instalment - 19,063 19,063 19,063 19,063 19,063

Dividends - - 38,126 95,314 142,971 190,628

Increase in CurrentAssets - 43,255 22,287 21,514 500 500

TOTAL

OUTFLOW 361,255 62,318 79,476 135,891 162,534 210,191

Surplus / (Deficit) 20,000 10,652 88,747 137,743 107,022 54,562

Cash Opening - 20,000 30,652 119,399 257,142 364,164

Balance 20,000 30,652 119,399 257,142 364,164 418,726

5.8 BALANCE SHEETBalance sheets for the first five years of operation are shown below:

TABLE - 15

PROJECTED BALANCE SHEETS(Rs. in 000)

DescriptionEnd of

Constr.Year 1 Year 2 Year 3 Year 4 Year 5

ASSETS

Current Assets:-

Cash/Bank Balance 20,000 30,652 119,399 257,142 364,164 418,726

AccountsReceivable - 11,125 16,688 22,250 22,250 22,250

Investment ofGoods - 30,130 46,354 61,806 61,806 61,806

Stores and Supplies - 2,000 2,500 3,000 3,500 4,000

Total Current Assets - 73,907 184,941 344,198 451,720 506,782

Cap. Expenses 7,500 6,000 4,500 3,000 1,500 -

Fixed Assets(at cost) 353,755 353,755 353,755 353,755 353,755 353,755

Less: Accum. Dep. - 12,316 24,632 36,948 49,264 61,580

(Continued)


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TABLE - 15

PROJECTED BALANCE SHEETS

(Rs. in 000)

DescriptionEnd of

Constr.Year 1 Year 2 Year 3 Year 4 Year 5

Fixed Assets (net) 353,755 341,439 329,123 316,807 304,491 292,175

TOTAL ASSETS 381,255 421,346 518,565 664,006 757,712 798,957

LIABILITIES

AND EQUITY

Current Liabilities - - - - - -

Dividend Payable - 38,126 95,314 142,971 190,628 190,628

Accounts Payable - 15,000 20,000 25,000 30,000 35,000

Total CurrentLiabilities - 53,126 115,314 167,971 220,628 225,628

FinancialAssistance 190,628 171,656 152,502 133,439 114,376 95,313

Equity

Paid-up CapitalRet. Earnings

190,628-

190,6286,028

190,628

60,121

190,628171,968

190,628232,080

190,628287,389

Total Equity 190,628 196,565 250,749 362,596 422,708 478,017

TOTAL

LIABILITIES

AND EQUITY 381,255 421,346 518,565 664,006 757,712 798,957

(Continued)


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CHAPTER 6

CONCLUSION

This service sector business has evolved over the last several decades to develop

specialized companies in distribution and retailing. The worlds largest retailer

M/s Wal-Mart operates over 5,170 retail stores in USA and 10 other countries,

employs 1.60 million persons with sales of US $ 282.2 billion in 2004.

Most large retailing companies in developed countries are listed on the countrys

stock exchange i.e. shares are held by the public. The financial performance of

retailing companies (sales and profits) is considered as an indicator of thecountrys economy since it reflects on public spending for goods and services.

The Utility Stores Corporation is the only organization which is running a chain

of stores in the country (363 outlets at present). At one time it had 975 stores,

however, due to management and financial problems it was compelled to reduce

the total number of outlets.

Two new ventures in this field have recently been announced and are under

implementation. M/s Makro-Habib Pakistan Limited plans to set up a chain of 30

high volume stores in the country, each outlet to have about 100,000 sqaure feet

of space, parking facilities for 300 cars and 200 employees.

Metro Group of Germany (the worlds fifth largest retailing company) plans to

set up 30 department stores in Pakistan at an investment of US $ 400 million.

Total wholesale and retail business volume/value is estimated at Rs. 856.531

billion in 2004-2005 as per Gross Domestic Product data. The share of retailing

business alone is estimated at Rs. 756.745 billion


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There is large potential for establishment of various types of chain stores in the

country. This prospect seems to have been recognized by investors of two groups

which are implementing chain of stores (supermarkets/hypermarkets and

department stores).

There would still be a very large void in the retailing sector and local/foreign

investors need to be motivated to invest in the upgrading of this business activity.


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ANNEXURE 1

PAKISTAN - A PROFILE

INTRODUCTION

Pakistan is located in South Asia. It borders Iran to the southwest, Afghanistan to the

northwest, China to the northeast and India to the east. The Arabian Sea marks Pakistans

southern boundary.


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The total area of Pakistan is 796,095 square kilometers and the country is divided

administratively into four provinces Balochistan, North-West Frontier Province, Punjab

and Sindh and numerous federally administrated areas. The disputed territory of Azad

Jammu & Kashmir lies to the north of Punjab.


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Pakistan has a diverse array of landscapes spread among nine major ecological zones

from north to south. It is home to some of the worlds highest peaks including K-2 which

at 8,611 meters above sea level is the worlds second highest peak. Intermountain valleys

make up much of the North-West Frontier Province, while the province of Balochistan in

the west is covered mostly by rugged plateaus. In the east, irrigated plains along the Indus

River cover much of Punjab and Sindh. In addition, both Punjab and Sindh have deserts,

Thal, Cholistan and Thar deserts respectively.

Most of Pakistan has a generally dry climate and receives less than 250 mm of rain per

year. The average annual temperature is around 27oC, but temperatures vary with

elevation from -30oC to -10oC during cold months in the mountainous and northern areas

of Pakistan to 50oC in the warmest months in parts of Punjab, Sindh and the Balochistan

Plateau. Mid-November to February is dry and cool; March and April bring sunny spring,

May to July is hot, with 25 to 50% relative humidity; Monsoons start in July and continue

till September; October- November is the dry and colourful autumn season.

Pakistan had an estimated population in 2005 of 160 million, 40% of this population was

less than 15 years of age. The major cities of Pakistan and their estimated populations

are; Karachi (16.0 million), Lahore (8.0 million), Faisalabad (6.0 million), Rawalpindi

(5.0 million), Multan (4.5 million), Hyderabad (3.0 million), Gujranwalla (1.8 million)

Peshawar (1.6) and Quetta (0.85). Islamabad, the Capital of the country, has a population

of around 750,000.

According to the 1973 Constitution, Pakistan is governed under a federal parliamentary

system with the President as head of state and a Prime Minister as head of government.

The legislature, or parliament, consists of the Lower House (National Assembly) and the

Upper House or Senate. Members of the National Assembly are directly elected for five-

year terms.

Executive power lies with the President and the Prime Minister. The Prime Minister is an

elected member of the National Assembly and is the leader of the majority party in the


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National Assembly. An electoral college consisting of members of the national and

provincial legislatures elects the president for a five-year term.

After the events of 9/11, Pakistan has become a key US ally in the war against terror.

This alignment is totally in-line with the views of the majority of Pakistanis who practice

and preach a moderate version of Islam. The Government of Pakistan fully realizes the

need for promoting Islam as a modern progressive religion. The Government has chosen

the difficult option of fighting the war against terror by clamping down on Taliban and

Al-Qaeda remnants along the border with Afghanistan. The people of Pakistan fully

support the Government in its efforts to promote the true face of Islam.

The US Government fully backs and supports Pakistan in this war against terror. US Aid

which was stopped after the 1998 Nuclear Test has been restored and Pakistan will

receive US$ 3.0 billion over the next 5 years, divided equally between economic and

military aid.

Pakistan follows a very active policy of regional alliances for trade and economic

development. It is an active member of the South Asian Association for Regional

Cooperation (SAARC) which groups Pakistan, India, Bangladesh, Sri Lanka, Nepal,

Bhutan and the Maldives. It is also an active member of the Economic Cooperation

Organization (ECO) comprising of Turkey, Iran, Pakistan, Afghanistan, and the six

Central Asian Republics. Pakistan has an observer status at the Gulf Cooperation Council

(GCC) as well as ASEAN and Shanghai Cooperation Organization. Being a member of

WTO it conforms to most of the international trade regimes.

ECONOMY

Pakistans economy has made significant progress in the last six years. This has been

possible because of the Governments policy of initiating growth through domestic and

foreign direct investment. The GDP growth rate has increased from 1.8% per annum in

2001 to 8.4% per annum in 2005. Despite the devastating earthquake in October 2005,

the economy is expected to grow at over 6.6% in 2006. Pakistans GDP in 2005 was


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estimated at US$ 385.2 billion and its per capita GDP was US$ 2,400. The Countrys

credit rating has been upgraded by Moodys from Caa1 in 2002 to Ba3 i.e. stable in

2006.

Pakistan has over 3.5 million laborers working in various countries of the Middle East. In

addition, Pakistani technical and professional manpower is engaged in lucrative pursuits

in USA, UK, Canada, Malaysia, etc. These non-resident Pakistanis annually send over

US$ 4.0 billion in foreign remittances.

The Government of Pakistans policy of encouraging Foreign Direct Investment (FDI)

has seen it grow from a mere US$ 376.0 million in 1999 to more than US$ 1.5 billion in

2005 which is expected to grow to over US$ 3.0 billion in 2006.

In addition to Foreign Direct Investment, low domestic interest rates have meant that

there has been an upsurge in domestic investment; the weighted average rate of lending

has fallen from 16% in 1999 to approximately 8% in 2005.

The Governments economic policy has seen foreign currency deposits rise from US$ 1.7

Billion in 1999 to now US$ 13.0 billion in 2006; this has led to both low rates of inflation

and to a stable exchange rate.

With the Government of Pakistan targeting annual growth in the economy at 7.5% per

annum in the next 5 years, Pakistan is the country of choice for foreign and domestic

investors.

INFRASTRUCTURE

The National Highway Authority (NHA) has the responsibility for 17 of Pakistans major

inter provincial links called the National Highway including the Motorways, which are

access controlled and tolled highways. Total length of roads, under NHA, currently

stands at 8845 Kms.


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These roads account for only 3.5% of Pakistans entire road network but cater for 80% of

the commercial road traffic in the country. Improvement and extension of the existing

network is, therefore, essential to develop remote areas and provide better connection

between the economic centers of Pakistan. In addition a first class road network is

essential if Pakistan is going to connect its all-weather Arabian Seaports with the

landlocked Central Asian Republics and Western China. The Government has initiated

work on the North-South Trade Corridor with planned investment of over US$ 60 billion.

In order to further speed up the development of the road network, the Government is

actively seeking the participation of the private sector to implement road projects on a

Build-Operate-Transfer (BOT) basis. A number of projects are currently being

implemented under the BOT concept and others are in the identification stage. These

BOT projects cover the construction of new roads as well as the upgrading of existing

roads.

Pakistan has about 1062 km of coastline on the Arabian Sea running from the Indian

border to the Persian Gulf. The Karachi Port is the premier port of Pakistan and is

managed by the Karachi Port Trust (KPT). Karachi port handles about 75% of the entire

national cargo. It is a deep natural port with a 11 km long approach channel to provide

safe navigation up to 75,000 DWT tankers, modern container vessels, bulk carriers and

general cargo ships. The Karachi Port has 30 dry cargo berths including two Container

Terminals and 3 liquid cargo-handling berths. KPT intends to cater for 12-meter draught

ships, which are the most widely used container vessels. In order to facilitate

accommodate and fast turnaround time of mother vessels, the KPT is offering to the

private sector the opportunity to develop a terminal on BOT basis. In addition KPT has

plans to develop a Cargo Village on 100 acres. This Cargo Village shall serve as a

satellite to the port, integrating container, bulk and general cargo handling as well as

providing processing plants for perishable exports. With direct connection to the National

Highway Network, as well as National Railways Network the cargo village shall also

alleviate the problem of upcountry trade with cost effective storage/handling services in

the vicinity of the port. A master plan is under preparation and all the units within the


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village shall be allocated to the private sector on BOT and Build-Operate-Own (BOO)

basis within the next year.

Pakistans second Sea Port, Port Qasim is located 50 kilometers to the South East of

Karachi. It is the Countrys first industrial and multi-purpose deep-sea-port. Currently it

is handling 23% of Pakistans sea trade. Port Qasim has attractions and advantages for

investment both in port facilities and port-based industrial development. Port Qasim

Authority from the very beginning has actively sought the help of the private sector in the

development of its port structure. Some of the projects which have been completed with

private sector involvement include; dedicated oil terminal developed in private sector on

BOO basis at a cost of US$ 87 million to cater for oil imports with a handling capacity of

9 million tons per annum, a container terminal developed by P&G Group, Australia, at a

cost of US$ 35 million on BOO basis, for chemicals imports a facility in collaboration

with Vopak of Netherlands on BOT basis at a cost of US$ 67 million. Some of the

projects which the Port plans to develop with the private sector on the basis of BOT

include; establishment of a second oil jetty, establishment of a dedicated coal and

clinker/cement terminal and the establishment of a marine workshop and dry dock

facilities.

To encourage industrial development the Port Qasim Authority has reserved 300 acres of

land on a prime location in the Eastern Industrial Zone (EIZ) for allotment of plots to

Overseas Pakistanis to induce and encourage foreign investment and provide them an

opportunity to establish small size industries in Pakistan. Each plot is measuring 100

square yards at a very low cost on attractive terms and conditions. This is in addition to

existing 1,200 acres of industrial zone which houses a number of auto assemblers such as

Toyota, Suzuki, Chevrolet and the Textile City spread over 1,250 acres.

The Pakistan Merchant Marine Policy 2001, has deregulated the shipping sector and aims

to attract investment; both local and foreign, public and private, by offering a range of

incentives. The new policy in addition to offering duty-free import of ships, offers many

new incentives to local and foreign investors including Income Tax exemption till 2020.


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Pakistan's annual seaborne trade is about 45 million tons, just 5 per cent of which is

carried by the national carrier Pakistan National Shipping Corporation (PNSC), the

country's annual freight bill surpasses staggering $ 1.5 billion which is causing a colossal

drain on foreign exchange resources, the marine policy aims to reverse this situation to

some extent.

The Shipping Policy aims to revive and augment national ship-building/capacity to meet

20 per cent ship construction requirements of the country merchant marine and entire

requirements of support and ancillary crafts. The policy also aims to rejuvenate and

expand the ship repair potential to undertake the entire range of repairs and maintenance

of 50 per cent of Pakistani Flag ocean-going vessels and all ancillary sectors. The new

Shipping Policy offers many financial incentives for potential investors. It offers tax

exemptions and concessional tax measures backed by assurances. It also aims at

simplifying the rules by deregulating the sector.

To begin with, ships and floating crafts tugs, dredgers, survey vessels, and specialized

crafts purchased or bareboat chartered by a Pakistani entity flying the Pakistani flag

will be exempt from all import duties and surcharges till 2020. The policy accords shop-

building and ship-repair the status of an industry under the investment policy which is

entitled to all incentives contained therein.

To attract foreign investment, all port and harbor authorities in Pakistan will allow all

ships and floating crafts 10 per cent reduced berthing rates when the same are berthed for

purposes of repair and maintenance. Under the Policy, ships and all floating crafts are

considered bonafide collateral against which financing can be obtained from Banks and

Financial Institutions subject to policy of the financial institution.

There are 42 airports in the country managed by the Civil Aviation Authority (CAA). Out

of these, five airports; Lahore, Karachi, Islamabad, Peshawar and Quetta are international

airports. The CAA is planning to develop a new international airport at Islamabad for


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which land has been acquired and it is planed to fund the US$ 250-300 million on BOT

basis.

The Pakistan International Airlines (PIA) is the national flag carrier flying to 46

international and 36 local destinations. Other Pakistani airlines in the private sector

include, Aero Asia, Air Blue, Shaheen Air International and Pearl Air. In addition to

direct flights from most parts of the world, Pakistan can also be accessed through the

regional hubs of most international airlines, which operate through airports in the Gulf

countries.

The Pakistan Railways provides an important nation-wide mode of transportation in the

public sector. It contributes to the countrys economic development by catering to the

needs of large-scale movement of freight as well as passenger traffic. Pakistan railway

provides transport facility to over 70 million people and handles freight above 6 million

tons annually.

The Pakistan Railways Network was based on a total of 11,515 track kilometers

(including track on double line, yard & sidings) at the end of 2001-2002. This network

consists of 10,960 kilometers of broad-gauge and 555 kilometers of meter gauge.

Pakistan Railways has launched modernization activity with rehabilitation and

improvement plan both for its infrastructure and rolling stock including prime mover.

The ongoing schemes worth over US$ 500 million are progressing satisfactorily and have

brought a radical improvement in service. The railways is gearing up to the challenge of

providing improved connectivity to Iran, India, and link the upcoming Gwadar Port to

Afghanistan and onward to Turkmenistan.

Pakistan Telecommunication Limited (PTCL) dominated Pakistans telecommunications

market for the fixed-line services. Today the Pakistan Telecommunication Authority

(PTA) has the role of a regulatory body and is responsible for implementing the telecom

deregulation policy. For a long time, Pakistan lagged behind in the region as far as


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telecom access is concerned. With cellular mobile revolution taking place, Pakistan's

tele-density currently stands at 10.37%, with gross subscribers base of fixed (5.05

million) as well as mobile subscribers (10.54 million) touching 15.59 million for a

population of 160.0 million.

The Telecomm Sector has attracted the largest FDI in Pakistan with approximately

US$ 1.5 billion having been invested in 2005.

At the moment there are six companies providing mobile phone services in Pakistan, with

the largest of them, Mobilink (owned by Orascom Telecom) with nearly 50% of the

market share, other foreign players include MCE, Telenor and Warid.

In addition Wateen Telecom, a subsidiary of UAE-based Al Warid Telecom, has

launched a US$ 75.0 million project to lay an optic fiber optic backbone across the

Country. The first segment of the project of 800 kms would stretch from Karachi to

Rahimyar Khan and would be further linked with the rest of the country up to Peshawar

through 63 cities. When completed the backbone would be 5,000 kilometers, long

spanning the length and the breadth of Pakistan and would facilitate both the corporate

and residential segments, providing voice and high-speed data services on a converged

wireless network.

Pakistan in 2005 had 70 operational providers of internet services across 1,900 cities and

towns of the Country catering to about 2 million subscribers. In addition the Government

has reduced bandwidth rates for high speed board band internet connections and the

number of subscribers in this category is expected to grow to 200,000 by end of 2006.

AGRICULTURE

Agriculture accounts for nearly 23 percent of Pakistans national income and employs 42

percent of its workforce. Nearly 68 percent of the population lives in rural areas and is

directly or indirectly dependent on agriculture for their livelihood. Livestock is the single

largest contributor 47 percent share in the national income. The major crops; cotton,


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wheat, sugarcane and rice contribute 37 percent to agriculture while the minor crops like

oilseed, spices, onion and pulses contribute another 12 percent.

Pakistan is the fifth largest producer of milk in the world. The per capita availability of

milk at present is 185 liters, which is the highest among the South Asian countries. Milk

production in Pakistan has seen a constant increase during the last two decades. The

production has increased from 8.92 million metric tons in 1981 to 28 million metric tons

in 2005. There is a large and untapped potential in the dairy industry. With a population

of 160 million, a significant demand for dairy products exists in Pakistan. There is a need

for establishing modern milk processing and packaging facilities based on advanced

technology to convert abundantly available raw milk into high value added dairy

products. In addition, with improved conditions for milk pasteurization, availability of

chilled distribution facilities and consumer preference for the low cost pasteurized milk,

the sector provides unique opportunity for investment in establishing pasteurized milk

production

Documents

Chain of Super Markets in the Country