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Food and drink consumption expected to grow in Pakistan

Despite counting on a highly favourable demographic outlook, Pakistan's consumer story continues to be restrained by a tense security climate and a fairly subdued economic outlook that reflects the inability of its economy to takeoff. Pakistan is not undergoing the transformative economic lift-off gripping much of emerging Asia.

On a competitive level, multinational food and drink investors will probably remain hard pressed to devote significant capital to a Pakistani market held back by security concerns and a drab business environment. However, with real private consumption growth expected to outpace GDP growth to 2014 and key food and drink indicators pushing up of a low base, lots of room for growth exist.

Headline Industry Data

* 2010 per capita food consumption = +4.85%; forecast to 2014 = +15.21%
* 2010 soft drink sales = +8.46%; forecast to 2014 = +29.3%
* 2010 mass grocery retail sales = +8.50%; forecast to 2014 = +27.26%

Key Macroeconomic Data
* 2010 Real GDP growth = +2.40% (2009, +2.0%)
* 2010 Consumer Price Index = +12.6% chg y-o-y (period average) (2009, +21.0%)
* 2010 Unemployment Rate = 7.3% (period average) (2009, 7.3%)

Key Company Trends

Multinational Duo Reporting Strong Growth - Nestle and Unilever, two of the leading food and drink companies in Pakistan have been reporting strong growth in headline sales. Both companies grew their headline sales revenue by more than 20% year-on-year in the year to December 31 2009. Their annual sales are now approaching US$500mn.

Beer Increasingly Popular - Against the odds, demand for beer is strengthening off the back of strong growth posted by Murree Brewery. Despite Muslim's accounting for 97% of Pakistan population and extensive bans on the consumption of alcohol in place, Murree has been reporting strong financials. Q1 (three months to September 2009) after duty and tax sales climb by 16% to PKR539.4mn (US$6.5mn), while net profit after tax increased by 26% to PKR63.9mn (US$0.76mn).

Health Consciousness Rising - Strengthening health consciousness across Pakistan is strengthening demand for low calorie carbonate substitutes and bottled water. With concerns about the safety of tap water extensive, demand for bottled water is growing strongly off the back of modest gains in per capita incomes and more importantly, more widespread product investment by leading players.

Key Risks to Outlook

Security Escalation - Pakistan's fragile security climate remains a key risk to outlook with unrest impacting on Pakistan's ability to grow its economy at a quicker rate. Security tensions have plagued the economy, particularly since the presidency of Pervez Musharraf ended.

Inflation - An inflation spike back into double-digit territory is another key risk. Bearing in mind how sensitive to prices Pakistani consumers already are, double digit inflation would impede disposable income growth and in turn affect trade-up trends within food and drink and finally stifle the pace at which an empowered middle class emerges.

by S. C.
20 june 2010, World News > Asia