Bloomberg News

Pakistan Terror No Bar as Unilever Converges With Nestle: Retail

October 05, 2011

Oct. 5 (Bloomberg) -- Unilever and Nestle SA are defying turmoil in Pakistan, where terror attacks have killed at least 35,000 people since 2006, to sell more soap, beauty products and milk to farmers enriched by higher cotton and wheat prices.

Unilever and Colgate-Palmolive Co. are sending salespeople into rural areas of the world’s sixth most-populous nation, where demand for consumer goods such as Sunsilk shampoo, Pond’s moisturizers and Colgate toothpaste has boosted local units’ revenue at least 15 percent.

“The rural push is aimed at the boisterous youth in these areas, who have bountiful cash and resources to increase purchases,” Shazia Syed, vice president for customer development at Unilever Pakistan Ltd., said in an interview. “Rural growth is more than double that of national sales.”

Unilever, the world’s second-largest consumer-goods company, has said it aims to double sales by 2020 through expansion in faster-growing emerging markets. Consumer-goods companies forecast growth in Pakistan even as an increase in ethnic violence in Karachi has made 2011 the deadliest in 16 years for the country’s biggest city and financial center.

U.S. Navy SEALs killed Osama bin Laden north of the nation’s capital, Islamabad, in May. American Defense Secretary Leon Panetta has said the U.S. is considering all options to deal with the Haqqani faction of the Taliban, based largely in Pakistan’s North Waziristan district.

Pakistan has been accused by the U.S., its biggest donor, of aiding insurgents who attack American forces in neighboring Afghanistan. Economic growth has slowed to 2.4 percent in the 12 months through June from a record 9 percent six years ago.

‘Growing Opportunities’

Brand awareness is growing in the country of 177 million people and the urban population is increasing even as security conditions have worsened, said Misbah Iqbal, an analyst with AKD Securities Ltd. in Karachi. “I don’t see any reason why companies operating in Pakistan won’t cash in on the growing opportunities.”

Nestle Pakistan Ltd., which is spending 300 million Swiss francs ($326 million) to double dairy output in four years, boosted sales 29 percent to 33 billion rupees ($378 million) in the six months 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 observation is that Pakistan’s rural economy is doing better than urban areas.”

The parent, based in Vevey, Switzerland, aims to get 45 percent of revenue from emerging markets by 2020.

Living Like Kings

Cotton prices almost doubled last year as demand from makers of the fiber outpaced production, draining global stockpiles. In Pakistan, prices rose as much as fourfold last year, according to Muhammad Atif Dada, the chairman of the Karachi Cotton Exchange.

Haji Mirbar, who grows cotton on a 5-acre farm with his four brothers, said his family’s income grew fivefold in the year through June, allowing him to buy branded products. He uses Unilever’s Lifebuoy for his open-air baths under a hand pump, instead of the handmade soap he used before.

“We had a great year because of cotton prices,” said Mirbar, 28, who lives in a village outside south Pakistan’s Matiari town. “As our income has risen, we want to buy nice things and live like kings.”

Cotton futures rose to a record $2.197 a pound in New York in March before declining to $1.020 on the ICE Futures U.S. as of 4:51 p.m. in Mumbai. That was still more than 50 percent higher than the 10-year average.

Prices are still “quite high by historical standards,” Michael Creed, an agribusiness economist at the National Australia Bank Ltd. said from Melbourne yesterday. “A lot of farmers will still be making very good margins.”

Doll Sisters

Sales for the Pakistan unit of Unilever rose 15 percent to 24.8 billion rupees in the first half. Colgate-Palmolive Pakistan Ltd.’s sales increased 29 percent in the six months through June to 7.6 billion rupees, according to data compiled by Bloomberg.

“In a generally faltering economy, the double-digit growth in revenue for companies servicing the consumer sector has come almost entirely from the rural areas,” said Sakib Sherani, chief executive officer at Macroeconomic Insights Pvt. in Islamabad and a former economic adviser to Pakistan’s finance ministry.

Unilever is pushing beauty products in the countryside through a program called “Guddi Baji,” an Urdu phrase that literally means “doll sister.” It employs “beauty specialists who understand rural women,” providing them with vans filled with samples and equipment, Syed said. Women in villages are also employed as sales representatives, because “rural is the growth engine” for Unilever in Pakistan, she said in an interview in Karachi.

Spending on Beauty

While the bulk of spending for rural families goes to food, about 20 percent “is spent on looking beautiful and buying expensive clothes,” Syed said.

Colgate-Palmolive, the world’s largest toothpaste maker, aims to address a “huge gap” in sales outside Pakistan’s cities by more than tripling the number of villages where its products, such as Palmolive soap, are sold, from the current 5,000, said Syed Wasif Ali, rural operations manager at the local unit.

Its detergents Bonus Tristar and Brite are packed in sachets of 20 grams or less and priced as low as five rupees (6 cents), to boost sales among low-income consumers hurt by the fastest pace of inflation in Asia after Vietnam.

Unilever plans to increase the number of villages where its products are sold to almost half of the total 34,000 within three years. Its merchandise, including Dove shampoo, Surf detergent and Brooke Bond Supreme tea, is available in about 11,000 villages now.

Share-Price Gains

Nestle Pakistan has jumped 49 percent in Karachi trading this year and the local Unilever unit has climbed 29 percent. While Colgate-Palmolive Pakistan has lost 27 percent this year, it’s up more than sixfold since December 2005, compared with a gain of about 24 percent for the benchmark Karachi Stock Exchange 100 Index.

Shares of Nestle Pakistan fell 2.8 percent to 3,532.06 rupees at the 3:30 p.m. close in Karachi trading, while Unilever’s unit in the nation rose 0.4 percent to 5,636.40 rupees. Colgate Palmolive Pakistan was little changed at 589.91 rupees, while the benchmark index declined 0.6 percent.

Pakistan, Asia’s third-largest wheat grower, in 2008 increased wheat prices by more than 50 percent as Prime Minister Yousuf Raza Gilani sought to boost production of the staple.

“The injection of purchasing power in the rural sector has been unprecedented,” said Sherani, who added that local prices for rice and sugarcane have also risen.

Wheat futures, which helped drive food costs tracked by the United Nations to a record in February, have since declined, and traded at $6.15 a bushel on the Chicago Board of Trade today.

Telenor’s Text Services

Increasing consumption in rural areas is forecast to drive economic growth in the South Asian country of 177 million people, according to government estimates.

Higher crop prices boosted farmers’ incomes in Pakistan by 342 billion rupees in the 12 months through June, according to a government economic survey. That was higher than the gain of 329 billion rupees in the preceding eight years.

The farm sector last year accounted for about a fifth of the nation’s $175 billion gross domestic product. “Given the enormous price inducement, the agriculture sector is likely to spearhead economic growth,” according to the government report.

Telenor Pakistan Pvt. is also expanding in Pakistan’s rural areas, which already contribute 60 percent of sales, said Anjum Nida Rahman, corporate communications director for the local unit of the Nordic region’s largest phone company.

“If you’re looking to expand your sales and your market share, that’s whom you have to focus on.”

Karachi Stock Exchange 100 Index Movers: KSE100 <index> MOV <GO>

--With assistance from Haris Anwar in Islamabad and Luzi Ann Javier in Singapore. Editors: Frank Longid, Suresh Seshadri

To contact the reporter on this story: Khurrum Anis in Karachi at kkhan14@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net; Naween Mangi at nmangi1@bloomberg.net


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