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PSO fuels the retail sector

Updated April 16, 2018

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MANY will be surprised to know that an oil company, Pakistan State Oil (PSO), owns the largest chain of convenience shops across the country, and is expanding the chain rapidly every year.

“We already operate around 3,500 stores nationwide and adding over 70 new shops each year to its retail network,” said Sheikh Imran ul Haque, the managing director of the country’s largest oil company, at the seventh international Retail Leaders Conference in Lahore at the end of last month.

PSO, the largest fuel importer that fuels half of the country’s road traffic, 80 per cent of air traffic, a fifth of power generation and the entire railway traffic, derives a significantly big chunk of its profits from 1.2 billion non-oil retail transactions at its store network established at its petrol stations.

Although the PSO chief did not say how much of the company’s gross profit of Rs37bn comes from its network of convenience shops, its ‘other income’ is reported to be Rs11.4bn — a substantial part of which is generated from the grocery sales at its stores.

“(The oil companies the world over) are earning 30-40pc of their revenues from their non-fuel retail operations,” he said.

In order to take full advantage of the changing retail trends and lifestyle preferences of the country’s emerging middle-class with rising disposable incomes, the PSO has chalked out a roadmap for implementing its new business model over the next few years to boost its income from the non-fuel retail business.

PSO, taking advantage of the booming retail sector that contributes around 18pc to the economy, derives a great chunk of its profits from 1.2bn non-oil retail transactions at its store network

By the end of June this year the company plans to add new facilities – such as branded coffee shops, restaurants, and so on — for tourists at 50 stores nationwide and in another 100 stores during the next one year.

“We are the fastest growing retail company in the country with three million consumers visiting our shops. That’s a huge consumer base… we want to create one-stop shop for a variety of our customers.

“Therefore, we are changing our business model and building partnerships with brands,” PSO’s Shehryar Omar told the audience comprising top executives of a large number of domestic and foreign companies.

The new business model envisages offering quick service restaurants, branchless banking, advertisement space, and so on for the PSO customers at its pumps.

Pakistan’s retail landscape has undergone major uplift over time as, according to a study by the State Bank of Pakistan, the retail sector grew 38.5pc from $96bn to $133bn between 2011 and 2015.

Planet Retail has estimated the present value of the country’s retail sector to be $152bn. The booming retail sector that contributes around 18pc to the economy is said to be fuelling economic growth in the country as public and private consumption rises to around 90pc of the gross domestic product.

A large population with people under 30 forming two-thirds of it, rapid urbanisation, increase in disposable income of fast growing middle-class households are among the major factors driving consumption and economic growth that is expected to spike to an 11-year high of just below 6pc this fiscal year.

“The construction of hyper markets and large malls are changing the country’s retail landscape,” Akbar Ali Shah, the country manager of Reckitt Benckiser, speaking on retail evolution in Pakistan, pointed out.

“We have an estimated 700,000 kiryana (general provisions) stores and 32,000-35,000 pharmacies in the country, but only 600 self-select stores. With per capita income quadrupling in less than two decades and 30m households earning $10,000 a year, I see a lot of scope for growth in retail business and new retail formats.

“Power is shifting from kiryana store owners to shelves. The malls and hyper markets have disrupted the retail sector. What could be more attractive for companies than the retail sector growing at annual rate of over 8pc?”

The speakers agreed that the country’s retail sector has yet to take advantage of new technologies to create efficiencies, reduce their expenditure and make shopping a lively experience for their customers.

“A store has to be much more than a place from where you acquire merchandise. The stores should ‘interact’ with customers and add value to their lives as their preferences and culture keep changing with time,” noted Shehryar Omar.

Published in Dawn, The Business and Finance Weekly, April 16th, 2018