The launch of a chain of milk shops called Mabrook sees Engro Foods venturing into the loose or fresh milk (khula dood) segment.
Mabrook is a test market project that will be piloted in Karachi only in the first year. The first retail outlet was launched in mid-November last year in Federal B Area, followed by others in December. Two to three shops will be launched every other week until Engro reaches its first year target of 30 shops.
According to Salman Goheer, Director Fresh Dairy Business, Engro Foods, the company entered the milk market in 2006, gaining market leadership in the UHT segment in 2009, and since 2012 it has enjoyed a market share of over 50% with brands like Olper’s and Tarang now household names. The next logical move, says Goheer, was to tap into the bigger chunk of the pie, which is the loose milk segment. Pakistan is among the top five milk producing countries in the world with an annual production of between 34 to 35 billion litres of tradable milk (the official figure keeps changing); Engro Foods’ internal estimate is at approximately 20 billion litres. The segment accounts for 92% of the tradable milk produced while packaged and powdered milk have an eight percent share, although the latter segment has been growing steadily since 2003.
To ensure continued and rapid expansion in the milk category, Engro has now decided to place itself at the front end of the value chain. Mabrook’s target consumer group is mainly the middle income segment and Engro will be matching the current prices for milk and yoghurt (Rs 78 per litre and Rs 110 per kilogramme, respectively).
Given that in Karachi, 90% of the loose milk is sold through shops, Engro has set up a franchise-based business model to operate the Mabrook shops. The company has identified 16 of its 30 franchisees and aims to reach its target in the next five to six months. Mabrook shops will be located in Gulberg, Gulshan-e-Iqbal, JamshedTown, North Nazimabad and Saddar although the exact locations are still under evaluation for visibility and easy access.
The criteria for selecting franchisees include reputation, financial strength and market history. Engro will handle the back end of the operation to ensure the smooth delivery of the milk to the shops and to this end has created its own milk procurement infrastructure; the milk is collected from areas within a 100 kilometre radius of Karachi and the processing plant is based in Korangi.
Goheer expects the company to face multiple challenges in this new venture, which is why Engro is test marketing the concept. Among the challenges are managing a one-day shelf life product, and ensuring consistent quality and hygiene inside the shops.
The venture will require Engro to invest over a billion rupees in 2014; so far the company has invested approximately Rs 200 million in infrastructure alone. Investment will also go towards establishing strong systems and training people to ensure that hygiene protocols and standards are followed by the franchisees. The design and layout of the Mabrook shops has been geared to guarantee that the product does not attract high bacteria counts as the day progresses.
Apart from the internal challenges of quality, shop design and implementation, Goheer says the biggest external challenge is the law and order situation in Karachi. For example, if the city shuts down for five days, Engro will have to figure out how to store the milk safely.
The venture is not expected to affect Engro’s share in the packaged UHT segment as it caters mainly to SEC A+ (and to some extent SEC A) consumers and the company does not anticipate any overlap between the two segments. On the other hand, there is a lot of competition in the loose milk category with countless unbranded milk shops operating in Karachi, although the conditions there tend towards the unhygienic, and adulteration is common.
Goheer says, “Engro now has an efficient knowledge base in terms of milk. We will be able to deliver a good and consistent quality product in a very hygienic way to our customers, and this is how we will move against our competitors. Engro is deeply rooted in Pakistan, with a 50-year history, so the name helps a lot in attracting people to work with us and in reaching out to customers. We have sufficient experience with operational controls and will use it to keep a quality check on the Mabrook franchisees.”
In terms of the marketing strategy, the focus will be on ground activities and these are scheduled to start in the next couple of months. The name Mabrook is derived from the Arabic words barkat (abundance, auspicious) and mubarak (blessed) and has been endorsed by consumer research.
After the one year test marketing period in Karachi, Engro hopes to expand to other parts of Pakistan. Goheeer predicts that “we will rapidly expand next year. This year will be a learning platform and we will move forward according to our experience in the market. We are creating a new channel and once it proves successful, I am sure other companies will follow, which will be good for the consumer and the industry.”
First published in the January-February 2014 issue.