Issuu

CONTENTS

08 Is Coffee Pakistan’s cup of tea?

14 14 Saya’s long shadow 21 A sneak peek into the deposit growth of U Microfinance Bank

24 24 The govt wants your telco to finance your next smartphone if you can’t afford it. But how will it work? 27 Why is Quice Foods doing so poorly?

Profit

Publishing Editor: Babar Nizami - Joint Editor: Yousaf Nizami Senior Editor: Abdullah Niazi Executive Producer Video Content: Umar Aziz - Video Editors: Talha Farooqi I Fawad Shakeel Reporters: Taimoor Hassan l Shahab Omer l Ghulam Abbass l Ahmad Ahmadani Shehzad Paracha l Aziz Buneri | Daniyal Ahmad |Shahnawaz Ali l Noor Bakht l Nisma Riaz Regional Heads of Marketing: Mudassir Alam (Khi) | Sohail Abbas (Lhe) | Malik Israr (Isb) Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

Coffee Pakistan’s cup of tea? Tea is part of the country’s cultural fabric: but are young people’s preferences changing that?

By Saneela Jawad

peak to any young Lahori, Karachiite and Islamabadi, and it feels like coffee has taken over the tea market in the country. In fact, with Pakistani Gen-Z and late millennials, there is always a ‘chai versus coffee’ debate going on. Brands like Nescafe have taken their advertisements product expansion up a notch, with taglines like “jagna tou paray ga” or “turn up the chill” entering the cultural lexicon. But can those taglines beat the tea

industry’s classic “chai chahiye” or “tum, main aur aik cup chai”? The truth is, tea is rooted in the cultural fabric of the country. People always talk about having a conversation over a cup of tea. Even marriage proposals are pondered over a “chai ka cup”. Day events like “shaam ki chai” and “Hi-tea” have been a part of society for as long as one can remember. And the tea industry has the numbers to back it. The tea market is expected to grow annually by 10.5% (compound annual growth rate (CAGR) 2023-2028). And this year, the industry’s revenue is expected to

amount to $1 billion this year. It is going to take a lot more effort and a paradigm shift for coffee to break through: but efforts are already underway.

What do Pakistanis drink, anyway?

efore we get to the inroads that coffee has made of late, it’s important to get a lay of the land first. As products, both tea and coffee fall in the ‘hot beverages’ sector. In the report “Pakistan food and drink”

for Q3 2023 by BMI – A Fitch Solutions Company, it is estimated the tea, coffee and other hot beverages market will be the largest market by 2027 and account for 71.2% of total spending. It will also show substantial growth, with an estimated annual spending increase averaging at 7.7%. By 2027, it is projected to reach a total expenditure of Rs 433.3 billion (approximately $ 1.2 billion), compared to Rs 326.6 billion (approximately $ 1.2 billion) spent in 2023. This robust growth reflects the evolving preferences and habits of consumers, highlighting the increasing importance of the hot beverages market. According to the report, the market for hot drinks was around Rs 150 billion in 2022, and it is expected to hit Rs 350 billion by the year 2027. Rapid urbanization and modernization have led to people consuming more hot drinks as manufacturers and retailers have given them a variety of options to choose from, both local and imported. At the moment, tea leads in the hot beverages sector. According to an analysis report on the Hot Drinks Industry in Pakistan by Euromonitor International 2022, Nestlé SA has a 3.1% company shares of hot drinks, compared to Tapal Tea (Pvt) Ltd, Unilever Pakistan Ltd and Vital Group leading the hot drinks market share with 43.4%, 26.6% and 11.6% respectively. But that does not mean the hot beverage industry is not transforming over time. Currently, coffee is experiencing rapid growth, both in terms of volume and value, largely due to its integration into popular culture and current trends within the

country. In 2022 alone, coffee sales reached Rs 7.2 billion, of which Rs 6.5 billion was in instant coffee sales and the rest fresh coffee sales.

Let’s talk about Nescafé

n Pakistan, the competitive coffee market is predominantly led by Nestlé, whose Nescafé brand holds a commanding position. The company has operated

in Pakistan since 1988 under a joint venture with Milk Pak Ltd, and then took over management in 1992. In 2014, Nestlé accounted for a substantial 55% of the retail sales value in this market. Coffee consumption in Pakistan predominantly involves the “Latte” variant, which is mainly coffee with milk. When Nescafé was launched, it started by selling pure soluble coffee in Pakistan in the classic jar and managed to expand their product portfolio over the years. It now offers a variety of coffee products, from the 3 in 1 instant coffee sachets, to the recent gold range of coffees and cold ready-to-drink bottles. Profit spoke to Muhammad Fahad, business manager, Coffee & CPW at Nestle Pakistan, who said Nestle Pakistan prides itself on the fact that “Nescafé is 98% of the coffee category in Pakistan”. Fahad stated that Nescafe has intentionally positioned itself to cater to a niche market, specifically the youth-centric segment of the population. Most of the brand’s advertising and messaging revolves around this target audience. “Nescafe has a renewed sense of ambition and confidence in the coffee industry, which is why we are considering expanding its range to make coffee more affordable for the masses,” Fahad said. He added that this strategic shift indicates “a dual focus on both the niche market that Nescafe has traditionally served and a potential expansion into the mass market”. Nescafe has gained immense popularity ever since the launch of Nescafe Basement

FMCG

in 2012, a music platform that, according to Fahad, has contributed significantly to the brand’s recognition and revenues. The platform has aired 5 seasons so far with 59 episodes. Fahad further said that Nescafé is inherently geared towards a specific demographic, primarily the youth. “The majority of our marketing efforts and brand messaging revolve around this target audience,” he said, adding with their “renewed ambition and confidence in the category” the brand is determined to make their products more accessible to a wider customer base. For a brand operating in the coffee category, where the concept was relatively new and budding, demand generation was essential for business development and growth. Fahad emphasized on this point and said, “Nescafe’s brand personality, both on a global and local level, has been characterized by hip and trendy messaging. This branding approach has been instrumental in establishing Nescafe as a prominent name in the coffee industry.” While Nescafe may have helped establish coffee’s presence in the country, ‘coffee culture’ is now also on the rise. The younger generation prefers hanging out with friends at “coffee shops” as compared to drinking coffee at home, which has helped coffee transition into a trendy and sought-after beverage. So, how much has artisanal coffee and ‘coffee cafes’ helped shape the industry?

The rise of the coffee cafe

rofit spoke to Suleman Khan, owner of Third Culture Coffee in Lahore, to get a primer on the rise of cafes and coffee culture. According to Suleman, coffee in Pakistan arrived in three distinct waves. The first wave marked the introduction of instant coffee, serving as a simple caffeine delivery system, devoid of intricate flavours or cultural significance. The second wave was led by brands in Starbucks in the US, which popularized espresso-based drinks in a café setting, making high-quality coffee more accessible. For example, Costa’s coming to Pakistan was part of the second wave, as it tried to make its mark in Karachi in the late 90s and early 2000s. The same was the case with Jammin’ Java which was opened first in Lahore in 2004 by Faisal Kabil and his partner. The brand now has four branches in Lahore and Faisalabad, with arguably the most popular branch located inside LUMS (Lahore University of Management Sciences). Despite this, both Costa’s and Jammin’ Java failed to make a splash outside their

“Nescafe has a renewed sense of ambition and confidence in the coffee industry, which is why we are considering expanding its range to make coffee more affordable for the masses Muhammad Fahad, Business Manager, Coffee & CPW at Nestle Pakistan

respective geographic locations. Then along came Gloria Jeans. The Australian coffee brand opened its first flagship store on Kasuri Road, Lahore in 2007, and currently has over 50 outlets nationwide. “It struck gold,” Suleman said, adding that it entered the scene at a time when people were starting to embrace the coffee culture, and they secured prime locations in Gulberg and DHA , gaining a first-mover advantage in the process. Then comes the third wave, exemplified by cafes like Third Culture Coffee. Third-wave coffee shops are typically small, independent coffee shops, which prioritize quality over quantity, offering superior beans and unique experiences. These beans undergo meticulous grading, with a minimum score of 80, and are roasted in-house,

Tea plays a vital role in Pakistani culture, transcending various societal strata, from the middle class to the elite. It’s deeply ingrained in various occasions and is expected to remain due to its cultural significance Shaza Rais Akbar, Communications Lead at BSPAN LIPTON Teas & Infusions

adhering to strict standards. Precision-driven equipment, top-notch grinders, and well-defined brewing methods further distinguish this wave. Over the past 15 years, it has gained momentum, shaping the coffee landscape into a more artisanal and discerning experience. Suleman said Pakistan’s coffee market is evolving from second-wave to thirdwave coffee, with an increasing number of coffee drinkers discerning between quality and mass-produced options. He continued stating that, in the Middle East, there’s a relatively high proportion of third-wave coffee drinkers compared to the USA and Europe. Third Culture Coffee began operations as a roastery in 2020. The owners eventually decided to open a cafe in July 2022 due to an influx of visitors. This decision coincided with the pandemic, a time when most people wouldn’t dare enter a shop, and Suleman’s business partner was keen on providing this experience to their consumers. They started in an improv 10-by-20 feet container located on Main Boulevard in Lahore, selling almost 300,000 cups of coffee overall before it closed down in August 2023. Third Culture then opened up multiple branches in different areas of Lahore. Coffee culture is not just about good coffee: it’s also about the experience.“The idea is to maintain an authentic environment that resonates with our customers. We have a loyal base of returning customers, with roughly 700 familiar faces visiting daily out of our approximately 900 daily customers,” Suleman told Profit. Being a coffee roaster has not only benefited the cafe’s business but also presented economic opportunities. They have received export orders from Lebanon, Dubai, and Oman, showcasing the potential

to export roasted coffee. Additionally, while many coffee shops buy pre-roasted beans at a certain cost, this cafe imports fresh coffee beans mostly from Colombia, Brazil, Guatemala and Nicaragua from farmers reducing pressure on the country’s finances. According to a report by The Observatory of Economic Complexity, in 2021, Pakistan’s coffee imports totalled $1.26 million, positioning the country as the 142nd largest coffee importer in the world. Coffee was ranked as the 859th most imported product in Pakistan. Notably, the fastest-growing coffee import markets for Pakistan from 2020 to 2021 were Italy, which saw an increase of $192,000, Canada with a growth of $56,600, and the United Arab Emirates with an upsurge of $42,200.

What about the tea market?

akistanis have grown up in households where tea consumption is massive. Even the increase in prices and the decrease in tea imports did not make much of a difference. Tea imports in Pakistan for the fiscal year ending on June 30, 2023, saw a 9.13% decrease compared to the previous year. Between June and July 2022-23, the country imported around 231,449 metric tons of tea, valued at $556.043 million. This marked a decline from the previous year when 253,748 metric tons were imported, amounting to $626.195 million, as reported by the Pakistan Bureau of Statistics.

Coffee is often considered an occasional or celebratory beverage, associated with a higher social status. The price of coffee products and the limited winter period in Pakistan further restrict its consumption Furqan Ali Khan, Head of Corporate & Public Relations at Vital Tea

Economic pressures, currency devaluation, and government bans haven’t significantly impacted tea manufacturing in Pakistan. Consumers adapt by buying larger tea packs to maintain taste and quality. In Pakistan, tea is viewed as a “necessity”, with loose black tea being the preferred choice among the majority of consumers which is about 40% of the tea market. Although urbanization has led to a partial transition to tea bags, loose black tea still holds a substantial share of retail volume and sales, particularly among rural consumers. Approximately 75% of the world’s tea production con-

sists of black tea. During the 2017-2018 period, Pakistan sourced black tea from 17 different countries. This imported black tea is blended to create a range of varieties that cater to the diverse preferences of consumers, after which it is either packaged or sold in loose form for consumption. The Euromonitor report also stated that black tea has earned around Rs 124 billion, and tea with milk has earned around Rs 139 billion in retail value for the year 2022. A 2016 report in Dawn stated that the tea consumption formats are changing as a majority of Pakistanis now have a preference for ready-to-consume products and beverages. Tea brands have introduced variations to the products like tea bags (which are the most popular), herbal tea, infused tea, flavoured tea, and instant tea. In terms of consumption and company shares in the overall market Eastern Tea Company’s brand Vital has emerged as a significant player after Tapal and Lipton. Vital Tea has gained significant popularity in recent years. At the time of filing, a 900 grams pouch of loose tea for Lipton costs around Rs2200, whereas the cost for Tapal and Vital Tea is Rs1700.

What tea brands have to say

rofit spoke to Shaza Rais Akbar, communications lead at BSPAN LIPTON Teas & Infusions, who said: “Tea plays a vital role in Pakistani culture, transcending various societal strata, from the middle class to the elite. It’s deeply ingrained in various occasions and is expected to remain due to its cultural significance.” That being said, Gen-Z pakistanis have still made an impact with their preferences. The traditional kehwa and doodh patti have

FMCG

The idea is to maintain an authentic environment that resonates with our customers Suleman Khan, owner of Third Culture Coffee

evolved into a diverse range of teas. Consumers can now find options like ginger tea, and peach tea, and exotic choices like ginseng or lavender tea. Akbar has noticed that there’s a shift towards green tea and flavoured options due to health and fitness concerns among this group of consumers. “Trends like iced tea and infused teas are emerging but are a small part of overall consumption,” she said. She continued to add that Lipton is trying to keep up with this trend by coming up with variations of the tea products, like the recent introductions of green tea flavours, including options like peach and lemon. These new green tea innovations have been well-received, particularly with younger generations and homemakers, according to Akbar. Profit heard a similar opinion from Furqan Ali Khan, head of corporate and public relations at Vital Tea. He said that introducing green tea and Turkish tea is well-received in the market. “New products generate excitement and

curiosity among consumers,” he said, stating that green tea has gained popularity due to its health benefits, but Turkish tea is a flavour that is also gaining traction, with more export orders than domestic demand. “Change and conversion to these new products are expected to take place gradually,” Khan said. Khan said tea is consumed across all socio-economic segments, with a variety of tea types and stock keeping units (SKUs) catering to different preferences. Additionally, he stated that the hot beverage market, especially the tea market will always be in demand because it is a choice for “people of all ages and backgrounds”. Khan said, “Even during the COVID-19 pandemic, when social interactions were limited, tea consumption witnessed significant growth as people spent more time at home.” In fact, Khan went on to say that the coffee market was the one ‘lagging’ in Pakistan. “Coffee is often considered an occasional or celebratory beverage, associated with a

higher social status. The price of coffee products and the limited winter period in Pakistan further restrict its consumption,” he said. He may have a point there. An earlier analysis by Profit in April 2023 showed that “a simple cup of tea costs approximately Rs50, and if a person consumes three cups a day, every day, the cost multiplies to Rs4,500 a month. In a country where the minimum wage is Rs15,000, this means that tea drinking can consume a whopping 30% of income”. Still, tea prices have nothing on the cost of coffee in this country. A small cup of coffee costs around Rs 350 at Tim Hortons, while coffee at Third Culture Coffee can easily hit the Rs600 mark. According to market insights, the price per unit for coffee has not changed much from $5.95 in 2020 to $5.85 in 2023, and it is expected to remain steady till 2028. However, the price per unit for tea hasn’t seen much change in this timeline either, from $7.28 to $7.16. That being said, tea’s price per unit is expected to increase to $10.21 by 2028 (this may be due to imports and the devaluation of the currency). And yet: despite the expected increases in prices, Pakistanis continue to spend money on hot beverages. As per Akbar, “The tea industry’s resilience in the face of economic pressures and rising costs is evident in the mere 2% increase in tea consumption despite inflation rates ranging from 30% to 35%. This underscores the fundamental necessity of tea in Pakistani households.” So will coffee ever take the top spot in a Pakistani’s home? At the moment, it seems unlikely. But changing trends and growing sales suggest that coffee is occupying a different emotional space for younger Pakistanis: one associated with going out and enjoying coffee at cafes. If entrepreneurs can tap into that potential, who knows: maybe taglines like ‘turn up the chill’ will be as mainstream as ‘chai chahiye?’ after all. n *All graphs via Euromonitor’s Analysis on the hot drinks industry in Pakistan (2022).

TEXTILES FMCG

I Daraz 11.11

A Catalyst for Ecosystem Expansion, Employment Surge, and Economic Boost

n the world of click-and-buy, there are few events that compare to the fervor and anticipation surrounding the 11.11 sale that takes place in November annually. The shopping event in Pakistan has successfully recreated the same level of excitement that is usually experienced during the holiday season in the West, even though there is no cultural event taking place during this period in Pakistan. This shopping extravaganza has continued to become bigger and better with greater discounts. Spearheaded by e-commerce giant Daraz, the 11.11 sale has firmly established its place as the biggest sale of the year. Apart from providing attractive discounts to consumers, the mega sale also acts as a trigger for the expansion of the ecosystem, an increase in employment opportunities, and a substantial boost to the local economy. It is crucial to acknowledge how Daraz has succeeded in making 11.11 the most eagerly anticipated shopping event, leading to a series of economic opportunities for various players in the ecosystem. Daraz Pakistan has successfully ingrained in the minds of Pakistani consumers that the 11th of November is a nationwide shopping festival. Similar to Black Friday in the United States or Diwali in India, this date is now associated with incredible deals and discounts for Pakistan’s online shoppers. As November approaches, consumers eagerly anticipate the sale, preparing to make big-ticket purchases ranging from electronics and fashion to home appliances and beauty products. This goes on to underscore the psychological aspect of this seasonality. Consumers tend to withhold major purchases throughout the year, waiting for the 11.11 sale to arrive. This strategic patience can lead to considerable savings, and as a result, this annual shopping bonanza has become a momentous part of the financial planning for many families.

The Ripple Effect

What is interesting to note is that the 11.11 sale isn’t just about great deals for consumers; it has a ripple effect that reaches far beyond individual savings. One of the most striking aspects of this event is the way it envelopes various players within the ecosystem.

Digital Payment Partners

As millions of consumers flood online marketplaces to make purchases, digital payment partners are crucial in facilitating smooth and secure transactions. With the immense surge in digital payments during the 11.11 sale, digital payment providers experience a substantial uptick in their business. This surge also promotes financial inclusion by encouraging more people to adopt digital payment methods.

Retail Brands

The 11.11 sale provides an exclusive opportunity for numerous brands to clear out their inventory and showcase new products. Brands actively participate in this event, offering exclusive discounts and bundles to attract shoppers. This not only boosts their sales but also helps them maintain a competitive edge in the market.

PARTNER CONTENT

Logistics Companies

The logistics sector experiences a substantial surge in demand during the 11.11 sale. With a massive volume of orders to fulfill, logistics companies gear up to ensure timely delivery. This translates into more work for delivery personnel, warehouse staff, and other related roles. The sale creates temporary and sometimes long-term job opportunities within the logistics industry.

Riders and Delivery Personnel

What follows then is a surge in the demand for delivery services. Riders and delivery personnel find themselves at the forefront, ensuring that packages reach customers on time. This surge in demand for their services provides employment opportunities and strengthens the gig economy.

Economic Boost

The economic impact of the 11.11 sale in Pakistan is nothing short of profound. It’s not just a one-day shopping spree; it’s an event that has a lasting effect on the economy.

Consumer Spending

During the 11.11 sale, consumer spending reaches its peak. Families and individuals spend on a wide range of products, boosting economic activity and contributing to GDP growth. This spending also extends to items that may not be directly related to the sale, such as home improvement and entertainment.

Business Revenue

For businesses, especially those in the e-commerce sector, the sale can make or break their annual revenue targets. The event provides an enormous revenue boost, allowing businesses to expand, invest in technology, and improve their product offerings.

Job Creation

The increase in demand owing to the 11.11 sale leads to immense job creation across various sectors. This includes temporary roles in logistics, increased staffing for customer support, and even opportunities for content creators and marketers to promote the sale.

Ecosystem Growth

The grand sale catalyzes ecosystem expansion. As businesses gear up to meet customer demands, they invest in their infrastructure and technologies. This, in turn, fosters innovation and growth within the entire ecosystem, spurring economic development. The 11.11 sale organized by Daraz has grown into something much bigger than just a shopping event. It has become a significant driving force for economic growth and opportunity in Pakistan. As digital payment partners, retail brands, logistics companies, and delivery personnel all benefit from the surge in demand generated by the sale, it leaves a lasting economic impact that echoes throughout the country, underscoring the 11.11 sale’s status as the most eagerly anticipated sale of the year.

COVER STORY

By Abdullah Niazi

akistan Cricket has gone to the dogs. Again. It is rare for high ranking officials of any sport to willingly tender their resignation in Pakistan. It is rarer still for them to do so in the middle of a World Cup. And it is virtually unheard of for them to do so on the basis, not of performance, but of alleged accusations of a conflict of interest. Yet that is exactly the position Inzamam ul Haq, the Chief Selector of the Pakistan Cricket Team, found himself in on the 30th of October last week. The former Pakistan captain (lovingly known as Inzi Bhai) was under fire because of the Sports Management Agency that represented him. According to the Pakistan Cricket Board (PCB) and a number of journalists, Inzi has a conflict of interest because he is likely to pick players from the same sports management agency that represented him. Not only this, he is also accused of having a direct financial interest in the sports management company, which would constitute another clear conflict of interest. The agency in question is Saya Corp, which along with its founder Talha Rehmani is at the centre of the controversy. This is the company that not only represents Inzi, and other former players like Waqar Younis and Mushtaq Ahmed, but also is responsible for some of the country’s biggest cricket stars including Captain Babar Azam, his deputy Shadab Khan, Muhammad Rizwan, and Shaheen Shah Afridi. To hear the PCB speak of it, Rehmani and Saya Corp have fostered an environment whereby the agency has unduly influenced selection in the national team. But people close to the top management at Saya have a different take — that the board is initiating a witch-hunt against the agency for their role in ending the surrogate advertising of illegal betting companies in Pakistan. Companies that had been paying the PCB and PSL franchises big bucks for sponsorship. The truth exists somewhere in the middle. Over the course of the past two weeks, Profit spoke to a number of operatives in Pakistan’s cricket infrastructure. Most requested anonymity, among them a former Chairman, a former CEO, a former General Manager of the PCB, a high-up in Saya Corps, one former Captain of the Pakistan Cricket Team, and current officials of the PCB. We also spoke to cricket writer Osman Sammiuddin and the former head of acquisition at the PCB Imran Ahmed Khan. But even as all eyes are focused on the inves-

tigation committee setup at the PCB’s offices in the Gadaffi stadium, our story starts far away, in a small, quaintly named village called Khuda Ki Basti halfway between Jamshoro and Hyderabad.

A small town boy stumbles into making it big

his is a success story. There is no other way to describe the meteoric rise of Talha Rehmani and Saya Corp. The agency is currently the largest and most powerful company representing Pakistani cricketers, including at least five or six players that make up the core of the current Pakistan team across all three cricket formats. So how did he do it? After all, Rehmani is an unlikely figure to rise and become the country’s premier sports management agent. Born in a village two hours away from Karachi, Rehmani, a bright kid with a knack for mathematics and fixing things, secured a degree in Electrical Engineering in 2011 from the Mehran University of Engineering and Technology. His first big break was qualifying as a Fulbright scholar and securing admission in the prestigious Carnegie Mellon University in Pennsylvania where he did his Masters in Robotics. Upon returning to Pakistan, Rehmani began lecturing at Lahore’s Information Technology University far away from his hometown. It was here that he would first become involved in the world of cricket. There are different origin stories floating around about Rehmani. One states that he was the tenant of a former cricketer in Lahore and was introduced into the world of cricket through his landlord. Another claim is that he was a member of the Tableeghi Jamaat, where he got to know former players like Inzi and Mushtaq ‘Mushy’ Ahmed (no one ever accused Pakistani cricketers of giving their teammates creative nicknames) who are also very publicly affiliated with the Jamaat. In any case, Rehmani had stumbled into the world of cricket, and he quickly started developing a rapport with many of these former players. As a smart, foreign educated young man he was also able to help them with a number of their problems. It started off quite innocuous actually. A player asked Rehmani to go over a legal contract he was supposed to sign for a brand endorsement. The player was not fluent in English and Rehmani explained the contents to him, after which the player called his agent and asked to have some changes made. The player suggested that Rehmani should get into

the business of being a sports agent. At the time, sports agencies weren’t really a thing in Pakistan. It was mostly independent agents that had a prominent player or two on their contract. “There is an entire little economy that surrounds an international cricket star,” one prominent sports agent tells us on the condition of anonymity. “Most of these boys and girls come from pretty humble backgrounds. And there are 20-30 households they are contributing to. Once they become stars they spend money on their brothers, their cousins, neighbours, former coaches and mentors and anyone they can. That is all while playing cricket full time. Plus they also are often unaware of how contracts and negotiations work and that is where sports agents come in.” These agents work the same way talent agents work for actors. They find you brand endorsements, negotiate your deals with foreign franchise leagues, take care of your PR and public image, and in exchange take a cut of the proceeds. Now remember, Talha Rehmani had no experience with cricket whatsoever. He had very much accidentally become acquainted with the world of cricket and so he politely shrugged off the suggestion to become an agent. But as time passed the idea festered in the back of his mind. Along with a few of his friends, Rehmani started collecting any and all cricket related data he could find and running it through specially designed computer algorithms. He figured that if he could identify upcoming Pakistani talent that had not yet become mainstream and sign them up early, he might have a shot of making this work. In 2014, Rehmani was introduced to Muhammad Rizwan. “That first meeting was quite by chance,” says one source familiar with the early days of Saya. “We were at the National Cricket Academy with a friend of ours that had access and there Talha spotted Rizwan doing laps of the ground. Mind you, this was in the punishing Lahore heat. Everyone was taking cover under a tree or something and this young man just kept running. When he was done with his laps, we approached him.” At the time, Rizwan was 22 years old. He had not played a single international game and was very much an up-and-comer. But the data Talha and his friends had been crunching had already earmarked him as one for the future. Rizwan started talking to Talha, who admitted he had no experience in being a cricket agent and Rizwan would be his first client. Despite this, Rizwan agreed. One former cricket captain told Profit this trust was built around the fact that Rizwan was also a member of the Tableeghi

If the suggestion is that former players should not be represented in case they take up a position with a federation then that, I feel, is a very extreme position to take. As far as I understand, player managers do not get a share from PCB and earnings Imran Ahmed Khan, former GM Commercial PCB

Jamaat. Within the cricketing fraternity the Jamaat has a strong presence. Younger members like Rizwan look up towards people like Inzamam and Mushtaq Ahmed who Talha was friends with. And even though he had no experience with cricket, this religious affinity was enough to convince the young Rizwan, and this is where Saya Corps was born.

Conflict arises?

rom 2014 onwards Talha Rehmani and Saya got cracking. For the first couple of years they managed Muhammad Rizwan and got a couple of other players on board too. Through his Tableeghi Jamaat connections, Rehmani was also still working with Inzi and Mushy who he now considered friends. Up until this point it was a pretty small operation. Rehmani set off to do things differently. For starters he created a system in which players would sign contracts and brand agreements directly with the sponsor. Before this, most agents would sign on behalf of their clients. Some were known to take advantage of their clients that were not fluent in English or highly educated and take larger cuts that they deserved. By making players direct parties in these agreements Rehmani fostered trust amongst the players and many started coming on board. One other tactic was the introduction of a mentorship program back in 2017-18. In this programme, Saya would identify young players, give them access to coaches, pay for their equipment, pay for their school fees if necessary and groom them into a future star. If your initial hunch was correct and the player has what it takes, they will make it as a professional and start making money. That is where the sports management company starts getting their cut. This was a shakeup. There weren’t a lot of agents around at this point but Saya Corps had come out of nowhere and started dominating the market which was always going to ruffle some feathers. And according to some other agents at the time, the success

behind Saya was the result of something else: Inzamam Ul Haq. You see Inzi became Chief Selector in 2016. Saya had already signed Inzi on as a regular client. The only difference now was that Inzamam was in a position of power. He suddenly had the power to pick and drop players for the national team, and also had access to a vast scouting network. “As soon as Inzamam became the Chief Selector, all of the players that were earmarked as talents for the future were suddenly signing with him,” says one former player agent. “And this was a guy with no prior experience which irked a lot of other agents. Where was he getting such an impressive scouting network? Shaheen, Harris Sohail, Babar Azam all joined Saya and they also started becoming quite prominent.” “Saya Corps bloomed during Inzamam Sb’s first tenure as Chief Selector because of the access they had. They were very easily admitted into the National Cricket Academy, meetings with players were arranged and they were encouraged to join Saya,” says one former high ranking PCB official on the condition of anonymity. “Now just think about this. As a young player you see that your coach is represented by Saya, the Captain is represented by Saya, and the Chief Selector is represented by them as well. Some part of you would start thinking there is a better chance of selection if you’re on the same platform as all these big names,” they explain. It is an interesting theory. The problem is there is no possible way to prove it or to disapprove it. And that is the thing about conflict of interest. As cricket writer Osman Samiuddin explains to Profit, sometimes the perception of conflict of interest is as bad as the real thing itself. “The thing about conflict of interest is that even if there is a perception of it, it exists. It is not down to the substance of it, just the perception that there is a conflict of interest is enough,” he tells Profit. “Now take a look at the perception — one management company has five or six of the biggest

stars and also represents the interests of Inzamam ul Haq who is the Chief Selector. That just isn’t good optics and raises questions.” Others look on the situation more kindly. Imran Ahmed Khan, who was a part of the team that launched the HBL PSL in 2016 was also formerly the GM of Commercial Affairs at the PCB explains, optics don’t always mean something is fishy. “The optics aren’t great, sure, and it might look like there is a conflict of interest but I am trying to understand how this is any different from what all player managers do. They might not have a registered company but their objective is to increase commercial earning opportunities for the talent that they represent,” explains Imran Ahmed Khan. Part of, Imran. In his time at the board, as Head of Player Acquisition for PSL, Imran dealt directly with a number of local and foreign cricketers as well as their agents. “If the suggestion is that former players should not be represented in case they take up a position with a federation then that, I feel, is a very extreme position to take,” he goes on. “As far as I understand, player managers do not get a share from PCB and earnings.” “Brendon McCullum and Jofra Archer are represented by the same player management company and this representation of current and former players by the same management company is not an alien concept in world cricket.” This is where things stand as far as conflict of interest is concerned. And to cut a long story short, it boils down to the fact that while there is nothing illegal going on the optics aren’t necessarily good. And that is how things might have stayed if the PCB had not found what they seem to think is a smoking gun. During the last week of October, rumours started flowing that there was a company registered in the United Kingdom that might undeniably prove a conflict of

COVER STORY

The thing about conflict of interest is that even if there is a perception of it, it exists. It is not down to the substance of it, just the perception that there is a conflict of interest is enough Osman Samiuddin, cricket writer

interest for Inzamam Ul Haq. Documents appeared that a company by the name of Yazoo had been registered in the UK back in 2020 with Inzamam ul Haq, his brother, Muhammad Rizwan, and Talha Rehmani as directors in it. This is the company that has now become the basis of criticism against Saya and Inzamam. Mubasher Lucman, for example, issued a loud condemnation on his vlog using Yazoo as proof of some kind of conflict of interest. ARY’s Shoaib Jutt also asked PCB Chairman Zaka Ashraf about this during an interview to which Ashraf responded by saying it did seem there was a conflict of interest. Within a day the PCB announced an investigation into the matter. It was following this that Inzamam tendered his resignation. Quite something, right? Not exactly. Because Yazoo isn’t really the smoking gun it is being portrayed to be.

How the business works and troublesome bicycle helmets

et’s take a small break here to answer a quick question: How exactly does Saya Corps make money? There are essentially three sources of revenue here. The first is when a player that an agency signs up goes to a foreign league. You see, when you sign up for an agency as a player, you are essentially selling the rights to your cricket. That means if, for example, Shaheen Shah Afridi signs up to play The Hundred tournament in England for Welsh Fire, then he will not be negotiating his contract directly. Instead, the Welsh Fire will reach out to Saya Corps which will negotiate the contract on Shaheen’s behalf. Once a contract is signed, Saya Corps will get a commission. It is important to note here that this only happens with foreign leagues. So if a player is signed up by the HBL Pakistan Super League (HBL PSL) or plays for Pakistan, the sports agency does

not get a cut from this even if they help in the negotiations. Then comes the second source of revenue — brand endorsements. Just like in the case of foreign leagues, the sports agency directly deals with commercial clients. For example, Saya Corps might sign a deal with Pepsico which will then ask them for some of their talent for an advert. In the same way, Saya Corps will take a cut of what the player makes on this. There are many other elements to this. For big stars like Babar Azam, for example, Saya Corps is also responsible for building his own personal brand. For example, as one insider told Profit, Babar Azam prefers not to do advertisements for fast food brands because they are unhealthy and he does not want to be associated with them. And finally we have investments. Business agents like Saya often offer services to their players to invest their money. That means if Saya negotiates an ad campaign for Shadab Khan worth Rs 2 crores, they will then also offer Shadab opportunities to invest this money. By their own mission statements Saya says they “mostly focus on early-to-growth-stage, consumer focused companies that align with our company’s ethos of connecting people and innovation through tech and design.” This is where Yazoo comes in. The company over which Inzamam has resigned was an investment opportunity that Saya offered its clients in 2020. Back then, during the peak of the Covid-19 pandemic, e-commerce was the next big thing. To this end, Saya planned that they would order products from China and sell them on Amazon in the United Kingdom. To do this they had to set up a company in the UK, open a bank account and a warehouse. The only Saya clients that expressed interest in the project were Muhammad Rizwan and Inzamam ul Haque who became directors in the UK company. Talha, the leader of Saya, also invested his personal money in the company. “It actually ended up being a pretty bad investment,” says one source close to Talha Rehmani. “I think they ordered bicycle

helmets or something and didn’t end up selling any. Most of them are rotting somewhere in a warehouse in England we’re trying to get them off our hands by selling them in bulk I think.” So there we have it. The big, bad investment being waved around on Vlogs and television channels was an attempt to sell bicycle helmets in the UK. The fact that Talha Rehmani was also a director in these is still cause for concern. After all, if you are business partners with your sports agent you would also want to ensure they do well in other aspects of their business. While this may not be a squeaky clean acquittal, it is far from the sort of smoking gun that would call for a Chief Selector to step down and for an investigative committee to be constituted.

The last throes of a sinking ship

he reality is that the current situation has been caused mainly by a cricket board on its last legs. With the clownish Zaka Ashraf regime desperately trying to save grace, the investigative committee and press releases are very much the last throes of a dying ship. Remember, at the time this report was filed, Zaka Ashraf had only two days left in his tenure. While he has asked for an extension his tenure was supposed to last until the 5th of November. Already internal communications of the board are showing rising unhappiness with the way Ashraf has conducted himself in these past few months. In particular it seems his attitude of trying to deflect and distract from his own failings is widely unpopular. “The Zaka administration was only authorised to carry out day to day matters by the govt and courts pending the election of a BoG and Chairman but it has hired over 70 high paid employees who are not needed and has taken far reaching decisions which are under challenge in various High Courts. Above all, his utterances have badly demoralised and demotivated the players on tour,” says one former head of the PCB. “His term

TEXTILES

is ending on 5th Nov 2023. He has sought an extension while the global media is writing negatively about PCB and its chairman and Pakistanis are abusing him.” Others concur. “The PCB is in a very unstable position right now,” claims a different General Manager of the Board. “Zaka Ashraf’s tenure is ending on the 5th of November and the team isn’t performing well in the World Cup. Pointing fingers towards Saya Corps, towards Babar Azam, towards Mickey Arthur, and towards Inzamam is simply an attempt to deflect from the troubles that the Zaka Ashraf regime is plagued with.” There we have it. The story up until this point has been that in 2014 a Sports Management Company by the name of Saya Corps was created by Talha Rehmani with the help of a few former cricketers and well meaning friends. The company does splendidly, and some agents and members of the cricket infrastructure grumble at its rise and raise questions of a conflict of interest. The questions are valid but mostly ignored and largely harmless. Then in 2023, in the middle of a world cup, the company is the centre of every conversation and the PCB takes a solid stance against it making it the subject of an investigation. Some claim it is a shallow attempt by the board to distract from its own failures. Makes sense, right? Even though all of this adds up, Saya Corps thinks there’s more to all this unwanted attention they are

getting.

The current conundrum - central contracts

hile Saya Corps and the PCB were busy fighting the media wars at home, the Pakistan Cricket Team has been playing cricket’s flagship event, the ODI World Cup, over in India. The only problem was that before leaving for the flagship event, many of the players of the national team had not signed their central contracts. These are the contracts that players sign every year as a retainer and through which the board pays them a salary. The contracts are divided by category, and on this occasion some of the senior players wanted more of a cut. You see, the PCB has a few sources of revenue. Gate receipts, broadcast rights, franchise fees for the HBL PSL and sponsorships are the most obvious ones. But then they also receive large amounts of money from the ICC every year. The players wanted to get a cut of some of this ICC money. This is normal in most other parts of the world, and player unions represent the interests of players and negotiate these terms with the board. In Pakistan, however, there is no players association. Historically, the PCB

has offered terms and contracts to its players that are uncompetitive globally. Since there is no association, the players have not been able to fight for their rights. Now, however, something is a little different. With six or seven big players under the Saya umbrella, they have been able to better negotiate their position. Their managers have made them better aware of things like image rights and what other sportspersons of their calibre get globally. As explained by a former head of the PCB, the demands were never before heard of. “This year an extraordinary situation arose during Zaka’s tenure. The players’ reps demanded an unprecedented increase in rates, plus a share of ICC and HBL PSL revenues. Inzimam supported them. There was a deadlock. The players refused to sign the contracts offered (percentage increase as in the past but no share of ICC and HBL PSL revenues),” he says in a written response to Profit’s question. “The thing about Talha is what he does is look out for his players. I don’t think he is trying to destroy Pakistani cricket or anything, he is just doing his job which is protecting his players. He has them in his books and players stick with him because he gets them the best deals. As such, he has been known to help them negotiate with the board as well,” says Osman Samiuddin. “On one level the PCB will always be adversarial towards Talha and Saya because

COVER STORY

the board has its own interests and suddenly here is this guy that is advocating for the most important players in Pakistan. In that way it is almost a quasi players association. If you have one guy representing 6-7 players he can bring some coherence into their demands and he can educate them about image rights which they can negotiate with the PCB. And this year the players have been far better informed about this stuff and they have pushed more than any other players have in the past. A lot of that push and knowledge has come from Talha. Unfortunately, players are still beholden to results. The World Cup campaign hasn’t gone that well so the players are now in a weaker negotiating position,” he adds. The players want a cut of the revenue from the ICC and the HBL PSL. And these are not small numbers. The ICC hosts international tournaments like the Cricket World Cup and the T20 World Cup or the Champions Trophy, which attract cricket fans from around the world. From these tournaments, through gate receipts, broadcasting rights, and sponsorship deals, the ICC makes billions. In the projections for ICC’s 2015-23 cycle, the council is supposed to make up to $3 billion, which is then distributed through the different cricket boards. Larger boards that bring in larger television audiences like India and Australia get larger shares. Currently, the ICC is giving around $16.5 million to Pakistan annually until 2023. And then there is the HBL PSL, which has turned into a behemoth over the years. Revenue for last year’s tournament indicates that just the title sponsorship for two years is worth $22 million for three years and the broadcasting rights are worth $25 million for a two year period. On top of this, the board also rakes in $15.65 million every year from the franchises in lieu of a franchise fee. Since the players are the main drivers behind this earning, they want some of that to reflect in their bank accounts. But then why is the PCB so resistant? According to sources close to the top decision makers at Saya Corps, the main reason is something else — gambling.

The betting money angle and surrogate advertising

his is where our story gets intense. Some might say it is positively soapish even. Many of Profit’s regular subscribers might remember a video package from last year that got into the details of how betting websites were using surrogates to advertise in the HBL PSL

and in international matches organised by the PCB. Very briefly put, surrogate advertising is a loophole. For example in India there has long been a law in some states that bans the advertising of alcohol. So what alcohol companies do to get around this is launch a product with very similar brand recognition to their booze. Bacardi famously launched Bacardi records. It is the same with cricket and betting. For example, one of the PCB’s main sponsors was Dafa News. Now, a website called Dafa News definitely existed and was a news website. But it was owned and operated by DafaBet, which is a well known betting company. While the law does not allow DafaBet to sponsor in Pakistan, there is nothing stopping a news website like Dafa News from sponsoring. Hence, a loophole. In last year’s PSL, every team except Peshawar Zalmi and Islamabad United had the surrogate of a betting website sponsoring them. And these websites were paying the franchises big money to put their name on their shirts. Everybody was happy, that is, until the players resisted. Take the case of the Multan Sultans. As one former captain of the Pakistan Cricket Team tells us, when Wolf777 News sponsored the Multan Sultan for a reportedly whopping Rs 15 crores for two years, the team’s captain Muhammad Rizwan asked the management whether it was true that this was for a betting website. “The management told him this wasn’t the case and Rizwan played with the logo for the first few matches. But he is a religious fellow and the doubt had crept into his mind so he asked a religious scholar for a fatwa. When the scholar told him it wasn’t allowed, Rizwan refused to wear the logo leading to a serious dispute with the team management. In the end, however, he got his way and taped over the logo when he came out to play the next day.” This is a story corroborated by others. “Elements of it might be exaggerated but there was a very serious disagreement and Rizwan did cover the logo eventually,” says Osman Samiuddin. On top of this, Rizwan was not the only player rejecting these sponsors. According to one source, Babar Azam was offered a massive contract of over Rs 10 crore to be sponsored by 1XBat, but advised by Saya Corps, he also declined the lucrative offer. For the players this was a matter of both principle and their image. But for the PSL franchises and the PCB it was a bone of contention because they were losing out on big sponsorship contracts. It was also at this point that Saya Corps reportedly began

lobbying with the government to have these websites banned, which they succeeded in. On the 31st of October last week, the caretaker government also announced a crackdown on these websites. “The PCB is upset about this, and so are the PSL franchises. These were massive earnings that they are now losing out on. I think some of them have finally started talking about it, but it has been brought up in conversations where some franchises have said they will suffer serious financial losses. The problem is, the PCB can’t do anything about it because it is a government thing. In the short term this is going to hurt them a hell of a lot and they are deeply concerned about it,” Osman Samiuddin tells Profit. “What Talha is doing is good for the players, but at the same time he is in the unique position of having a lot of important players on his roster. That kind of unchecked power can be damaging and it is already causing problems. It is a pretty big deal that the country’s biggest agent is facing this media campaign.” “I personally think this is an extreme take,” says Imran, who also served as PCB’s GM Commercial in the past. “You are talking about a Cricket Board that earns millions of dollars through ICC revenues and a simple perusal of publicly available financial statements will give you an idea about the Board’s sources of revenue. The PSL franchises have existed for more years than surrogate advertising has existed in Pakistan and the PSL ecosystem has weathered many storms around financial feasibility.” “So to suggest that franchise owners or the PCB will bring down their premier cricketers because of this advertising suspension doesn’t make sense to me.” “We have to keep in mind the fact that player management in Pakistan is not as developed as it is in some other major cricket playing countries. You have a very limited pool of player agents at the moment, unlike markets such as the UK or Australia. In fact, PCB only officially started registering agents around 2019-2020.” And that is really what it boils down to. You have on your hands a powerful sports management company. As managers of players they have a duty to do right by their talent and give them the best possible contracts and support their rights — something that becomes even more important in the absence of a players association. At the same time, sports management is in a nascent stage in Pakistan so there aren’t really any rules out there per say. Lazy legislation and sloppy attempts at deflecting blame towards these parties is doing no one, especially cricketers, any good. n

COVER STORY

A sneak peek into the deposit growth of U Microfinance Bank Faysal Funds, JS Investments and NBP Funds: Key players behind UBank’s deposit growth strategy By 2Paisay

n October 18, in a surprising turn of events, the CEO of U Microfinance Bank (Ubank) Kabeer Naqvi, decided to resign. Naqvi had been steering the ship at Ubank since 2015, serving as both president and CEO. Just a day later on October 19, Mohamed Essa Al Taheri was announced as the acting president and CEO of UBank, according to a press release by the bank, Al Taheri has been associated with Ubank as a member of the board of directors. With the leadership shift at UBank, a wave of online rumours and speculations surged regarding the financial stability of both UBank and UPaisa. Whispers grew louder, suggest-

ing that their capital reserves were perilously teetering on the brink of negativity. The situation escalated so rapidly that a buzz swept through the digital realm, urging depositors to pull their funds from UBank. Immediately after, PTCL group, the parent company of UBank and UBank itself addressed the ongoing speculations through a press release, calling the claims baseless and unfounded. But who exactly are these depositors? Let’s find out.

Ubank’s strategy

nder Kabeer Naqvi’s leadership, Ubank had a unique strategy for boosting its deposits. The focus was primarily on institutional deposits, with the top five depositors contributing a whopping 38% of the total deposits, and the top

10 accounting for nearly half. In addition, the deposits were attracted under a quid pro quo arrangement. These deposits were in a sort of give-and-take arrangement, where any funds received from a financial institution were funnelled right back into the same institution. Furthermore, these deposited funds were heavily concentrated, ranging from 25% to a staggering 77% of the bank’s assets. While the UBank credit rating highlighted the concentration risk, the rating reports of funds do not mention that UBank is the largest investor in these funds. So what was happening? Financial institutions such as Faysal Asset Management, NBP Funds, Allied Bank Limited (ABL) Funds, etc seemed to have discovered a perpetual motion machine to inflate their balance sheet and in turn balance sheet of Ubank as well. In the Profit article “Grow your company size by 3 to 6 times in just months. At least two Pakistani companies have done this & you can too. Here is how”, we hinted that UBank and other financial institutions have discovered a method to inflate their balance sheets. Here’s how that method would work. Let’s say Faysal Asset Management placed a deposit with UBank. UBank essentially used its deposits to purchase money market mutual funds or government securities (T-bills). Then, it pledged those very T-bills to the same banks or even a third-party bank, allowing UBank to borrow additional funds with a small margin. With the borrowed money in hand, UBank repeated the process of purchasing more T-bills. This cycle continued, spinning a web of financial manoeuvring to such a degree that while the size of assets increased from Rs 10,458 crore in 2021 to Rs 22,130 crore in 2022, net assets declined from Rs 749 crore in 2021 to around Rs 709 crore in 2022, a decrease of Rs 40 crore. The result? Ubank’s financial statements grew by three times within a year!

Where did the deposits come from?

ut for all of this to happen, Ubank needed deposits. Unlike other big telecom-based microfinance banks, like Telenor Micro-

finance Bank and Mobilink Microfinance Bank, that had set their sights on branchless banking, U Bank took a more conventional brick-and-mortar strategy. Naqvi had been spearheading an ambitious campaign to open new branches in urban cities like Karachi, Lahore and Islamabad. In a previous interview with Profit in June 2023, Naqvi said, “We did not try to turn it into a telecom company. We said that this is a bank, and its mission is microfinance. Just like a bank, its balance sheet will grow. It will have liquidity, strong cash reserves, a treasury function, Islamic banking, digital banking, and even conventional microfinance. It will also have an urban unit responsible for deposit mobilisation. If all these elements are in place, (only then) will this institution thrive and last for the next hundred years”. These new branches were essentially to bring in low-cost deposits. {Note: Ubank is yet to release its second quarter’s financial statement. The value for Q2 2023’s deposits have been taken from Kabeer Naqvi’s linkedIn post that said that UBank’s deposits have crossed Rs.100 billion} The deposits did increase but the bank mostly attracted high-cost deposits from other banks and firms. This shows that deposits at UBank are not growing organically. This is because these are not sticky retail deposits. The deposits are hot money i.e., from financial institutions that are being used in the perpetual motion machine to inflate the books of both UBank as well as those asset managers. According to the VIS credit report of March 31, 2023, UBank had a high concentration risk. The report said “Concentration risk emanating from deposits portfolio is high as the share

of top-50 depositors was significant; moreover, the same is on a higher side in comparison to the majority of industry peers. Top 5 depositors including CDC-Trustee NBP FSIF, CDC Trustee Faysal IGF, DCCL Trustee JS MICR, CDC Trustee HBL and CDC Trustee FAYSAL accounted for 38% (FY21: 29%) of total deposit mix.” “Although overall concentration amongst top deposits is high, comfort is drawn from satisfactory ADR (advance to deposit) ratio and sound long-standing customer relations with the major depositors. The decline in related parties’ deposits proportion to 7.0% (FY21: 10.5%) further adds to the withdrawal risk faced by the Bank. In addition, the proportion of institutional deposits is also sizable and has increased significantly to 83% (FY21: 46%) at the end of FY22. Therefore, in terms of granularity, Ubank compares unfavourably to other microfinance banks.” Two things to note here: 1. The top five depositors are asset managers NBP Financial Sector Income Fund (NBP FSIF), Faysal Income and Growth Fund (Faysal IGF), JS Microfinance Fund (MICR) followed by the two banks Habib Bank Limited (HBL) and Faysal Bank. They comprise 38% of the Rs 92 billion deposit base, meaning that Rs 35 billion are deposited by these five financial institutions. That would translate into an average of Rs 7 billion per institution. 2. As per the last sentence, institutional depositors comprise 83% of the total deposits, up from 46% a year ago. This is hot money for the perpetual motion machine. While having such institutional deposits may be a cause for celebration for a money market fund or a hedge fund, this is a cause for concern for a microfinance

bank. Ubank’s risk profile has gone through the roof. According to the annual report of 2022 of UBank, the microfinance bank had invested Rs 3.8 billion in JS Microfinance Sector Fund and Rs 1.7 billion in JS Islamic Income Fund. The VIS report highlighted that MICR is one of the biggest depositors of UBank. In other words, JS funds are the largest depositors of UBank and UBank is the largest investor in JS Funds. UBank had invested Rs 5 billion in JS’s mutual funds including Rs.3.8 billion in JS Microfinance Sector Fund. In return, JS places the same funds back with UBank becoming one of its largest depositors, according to the VIS report. Interestingly, according to JS funds manager report, JS MICR’s total assets at the end of 2022 were Rs 8.6 billion. This means that UBank’s investment accounted for 44% of the JS Fund. Similarly, Ubank’s investment of Rs 1.7 billion comprises 70% of the assets of JS Islamic Income Fund, as total assets at the end of 2022 for JS Income Fund amounted to Rs 2.6 billion. It appears that UBank is the key sponsor of JS Microfinance and JS Islamic Income fund, financing 44% and 70% of their assets respectively. Similarly, in the 2022 investment, UBank’s largest investment at the end of 2022 was at Faysal IGF, with an investment of Rs 7.2 billion. In other words, Faysal IGF accounted for around one third of Ubank’s total investments in mutual funds. UBank had invested Rs 7 billion in Faysal IGF in Dec 2022 and in return, Faysal is the top five depositor most likely placing the same Rs 7 billion with UBank. That is not all. According to the fund manager report of Faysal IGF, the net assets of IGF are Rs.8.3 billion. At Rs 7.2 billion, UBank’s investment comprises 87% of IGF. At the end of March 2023, the total assets of Faysal IGF were Rs 9 billion. Assuming an average of Rs 7 billion placed by each of the top depositors, Faysal IGF had placed 78% of its assets with UBank. Can you see the pattern here? Again, Faysal IGF is one of the largest depositors of UBank and in turn, UBank is the largest investor in Faysal IGF. The last two of the top five depositors are HBL and Faysal Bank. Not only is Faysal Asset Management placing deposits with UBank, but Faysal Bank is also placing deposits with it. We do not know what UBank is using these funds for, but it would be safe to assume that the relationship would be circular. Why would NBP, HBL, and Faysal place deposits with UBank unless there is some quid pro quo arrangement? A senior official from one of the depositors told Profit that UBank was giving better rates than other microfinance banks. “We as asset management companies (AMCs) want to get the best returns for clients. So we give them

placements. In return, to safeguard some of the concerns in the micro space (seeing Telenor, Khushali, Finca), UBank gave some deposits as well so that our confidence grows in them.” He further mentioned that extra AUMs also help. This resulted in a win-win for AMC that they get good deposit rates and AUMs and a win-win for UBank that it has enough deposits to lend (above and beyond their deposits back to the AMC) at higher spreads. (Assets under management (AUM) is the total market value of the investments managed by a person or entity on behalf of investors. AUM fluctuates to reflect the flow of money in and out of a fund and the price performance of the assets). The senior official further mentioned that this is a good business model which only fails if you have too many non-performing loans (NPLs), otherwise spreads-wise and higher deposits make for good profits. Profit also reached out to UBank but received no response till the filing. The quid pro quo arrangement between depositors, specifically asset management companies (AMCs) rather than banks, works like this: AMCs deposit their funds with UBank in exchange for favourable interest rates. UBank then utilizes these deposits to purchase units of AMCs, ultimately boosting the Assets Under Management (AUM) for these companies. This

setup creates a mutually beneficial scenario. The key advantage here is that if an AMC wishes to withdraw their deposits, it won’t trigger a liquidity crisis for UBank. Why, you might ask? Well, even if UBank faces a temporary liquidity shortage, it can readily liquidate the units it holds from the AMC to meet its liquidity requirements. Consequently, there’s no cause for concern in this situation. However, the situation differs when it comes to traditional banks. Banks typically receive deposits and lend out a substantial portion of these funds. If a large number of depositors suddenly decide to withdraw their money, which is commonly referred to as a bank run, the bank might face liquidity problems because it has lent out a significant portion of the deposited funds. In the case of UBank, the deposits from AMCs would only pose a challenge if UBank had engaged in lending activities. Nevertheless, UBank has taken a prudent approach by safeguarding the deposited funds and not extending loans. Instead, it has chosen to reinvest these funds with AMCs. As a result, generating liquidity isn’t an issue for UBank in these circumstances. It is also important to mention that as per a casual survey conducted by Profit, individual depositors have thus far not encountered any difficulties when withdrawing their deposits from UBank.

In a previous conversation with Profit, Naqvi had said that the increased borrowing was due to Ubank’s newly added treasury and corporate finance vertical. Through this vertical, UBank aims to be the first microfinance bank with an active treasury just like commercial banks. “It will provide UBank with arbitrage opportunities,” Naqvi said. The borrowing activities of UBank encompass syndicated loans, bilateral loans, and bonds, with Naqvi referring to it as a “beautiful bouquet”. Initial borrowing was secured against the loan book, while subsequent borrowing was supported by pledged investments, fostering stronger relationships with banks. “I am building relationships with banks. And over time, they will start lending to me against my advances rather than government-backed securities. One or two banks are already comfortable enough with us to start doing this”, Naqvi added. The VIS credit report also highlighted that while the microfinance bank had a high concentration risk, comfort was sought from “sound long-standing customer relations with the major depositors”.

Conclusion

hat we have seen is that three of the top five depositors are mutual funds. The placements they have made with UBank appear as cash in Fund Manager Reports and not placement i.e., the asset managers can withdraw the money at short notice. Thus, at the first sign of trouble, these deposits could be withdrawn. With the ongoing speculation about UBank’s equity, there’s a looming possibility that its deposits could decrease significantly. There is a possibility that in the December 2023 financial statements, UBank’s deposits will have been reduced by 38%, or even halved. This is because the top 10 institutional deposits account for 50% of UBank’s total deposits, and this could lead to a significant reduction from the celebrated Rs 100 billion figure touted by Kabeer Naqvi. There is also a possibility that by year-end, PTCL Group will restore confidence in UBank, and any deposits that left the bank will return. The same senior official from one of the depositors of UBank commented that everything will be clear once UBank publish accounts which are expected around mid-November. Furthermore, the official mentioned that, in line with the statement by the CEO of PTCL, there is no requirement for an additional infusion of equity into UBank. For now, the future of UBank remains shrouded in mystery, as the institution is yet to release its 2023 second-quarter financial statements. Thus we will have to wait till next year, when the year-end 2023 audited accounts of UBank are published, to see what happened. n *Additional reporting by Mariam Umar

The govt wants your telco to finance your next smartphone if you can’t afford it.

But how will it work? Yes, the risks are high, but the key just might be the prospect of blocking all the defaulters’ SIMs across the networks, reasons Umar Saif; all the telcos still aren’t on board

By Shahnawaz Ali

t makes sense, intuitively. The numbers also add up, if you take a look at the books. So why don’t we yet have anything resembling it? “People would hear good news regarding the availability of smartphones through easy instalment plans,” said the caretaker IT minister Umar Saif, talking to the media on Thursday 4th November. He was referring to the proposed plan to get the telcos in on the phone leasing game, as is the norm in many countries across the world. Earlier this year, Profit covered the reasons for why Pakistanis do not have access to smartphone financing in its feature titled “Why don’t we have phone plans in Pakistan?” The piece concluded that due to a lack of mechanism, high risk, high exposure and lack of customer loyalties companies cannot do it in Pakistan. Recently, however, the government has decided to unveil a policy in this regard called

the “Smartphone Financing Policy”. The policy does exactly that, makes it possible for a layman to access a phone through financing by the The caretaker IT ministry under Umar Saif, is determined to deliver on this policy, despite oppositions from within and outside. The real question is, does the ministry’s policy solve the already highlighted problem? To answer that let us first understand the problem.

How does Cell Phone financing work?

ith the increasing dollar prices and high duties, even the cheapest smartphones are above $100, making it unaffordable for most people. So the idea is simple. The telecom operator buys the phone and sells it to the customer. However, rather than charging the full amount they give it away in instalments. Say that you are a user unable to afford

a smartphone. The telco helps you structure a payment plan that fits your budget. Instead of shelling out a significant sum upfront, you make affordable monthly payments over a specified contract period, typically one or two years. This not only eases the financial burden but also provides you with a predictable monthly expense. Depending on the telco and the plan you choose, you may have the option to enter into a contract or go for a no-contract plan that offers more flexibility. Conventionally, contracts come with added benefits, such as lower device prices and exclusive perks. But the catch is that you cannot use another carrier’s sim for a fixed period of time. This is often referred to as a network lock. Not only does this benefit the telco in the form of a higher future cash flow but also drives down the price and terms of the instalment. On the other hand, a no-contract plan grants you the freedom to switch carriers or upgrade your phone whenever you desire, in which case the telco is essentially doing

what a bank does, simply giving a loan for a phone. The government’s policy mainly refers to a “contract financing” arrangement. In addition to the device payment plan, you’ll also need a mobile plan that covers calling, texting, and data usage. Telcos frequently bundle these services with cell phone financing, simplifying your monthly expenses making the option even more attractive. And that’s not all - many telcos offer enticing extras like device insurance, free upgrades, and exclusive discounts. However these things are less likely to happen in Pakistan. With the Telecom average revenue per user (ARPU) dropping below $0.6/month and 48% of Pakistan still not using smartphones, not only does this plan help increase the digital footprint, but also acts as an approach to increase telecom sector revenue in the longer term. This might sound like a no-brainer and one might feel that Pakistan should have taken this step a long time ago. But why didn’t we?

“The goal is to get a food delivery guy, or a security guard with an easy solution to purchase a 24,000 rupee phone by paying 1000 every month. People whose productivity increases with a phone are our focus, not iPhone owners” Aamir Ibrahim, CEO Jazz

What are the problems?

he problem is deep and complex. Explaining the problem to Profit, CEO Jazz Mr. Aamir Ibrahim stated that “Telcos have not been in the handset selling business in Pakistan because there is no credit scoring system, so a company cannot go after a defaulter and reduce their credit. That is also a reason why credit cards are not prevalent. Even when we tried it, it did not work”. He stated that at least 99% of the handsets sold in Pakistan are decoupled from the telecom companies. “Phone loans are unsecured. Financing for phones exists for credit card customers, using their cards as collateral,” explains Muhammad Naqi, CEO of Premier Code, one of the oldest mobile phone assemblers in Pakistan. Many Pakistanis do not own credit cards. According to Karandaaz, only 1.9 million credit cards existed across Pakistan in December 2022. “Across the developed world the risk is borne by a bank or telecom operator, and not the brand, so unless the operator gets involved, obstacles will persist. There’s always a chicken-and-egg problem for a brand. If a brand has decent volumes on cash sales, why give a year’s worth of credit?” Naqi adds further. “Let’s assume a telecom operator wants 100,000 devices on credit for a year. If I take the exposure of say Rs 300 million for a year and the delinquency rate is 30%, that’s Rs 90 million lost. Manufacturers don’t operate

on high enough margins to bear such costs,” laments Naqi. However, isn’t this just a case of underwriting then? Surely, the banks could do it. No? Shehzad Ishaq, the Chief Digital Officer at MCB states that “Banks finance handsets directly through credit card guarantees or personal loans. But that’s different from signing up for a service contract as it operates abroad. Of the bankable population in the country, just 18% currently have bank accounts. This constrains what we can do, but we can do something for that 18%,”.“If the bank were a partner, the contracts would be underwritten. Underwriting involves checking the repayment ability, debt burden, bureau checks, past records, and more. With a good underwriting process, you can reasonably foresee that the customer will pay,” explains Ishaq. But what is the biggest problem from the Telco’s perspective? As narrated earlier by the Chief Operating Officer of Telenor, Mr Khurram Ashfaque, “Our country operates on a prepaid market model. Most consumers avoid long-term relationships with operators,” ”In contrast, the global postpaid or contract market necessitates customers to sign up for 1-2 years. This establishes a long-term commitment with their telecommunications provider. This arrangement affords the provider the opportunity to offer bundled handsets as

part of the contract, with payments spread out in instalments.” Ashfaque explains. “Our core business provides data and connectivity services and does not entail lending or loans for handset purchases,” Ashfaque clarifies. “The average revenue per user for a telecommunications subscriber within the local industry is less than $1. This demographic diverges significantly from the typical clientele banks serve. The checks and balances required to assess creditworthiness incur exorbitant costs, rendering it an unappealing model with high credit risk. Banks shun such territory,” Ashfaque elaborates.“Even if we could surmount financial hurdles, technical complications pose further challenges. For instance, in other markets, telecommunications providers do not permit customers to switch to competitors while bound by a contract.,” Ashfaque continues. “Enforcing such technical control here is unfeasible due to the prevalence of ‘jailbreak’ technologies. Handsets procured through loans can be effortlessly unlocked in the open market,” Ashfaque adds. Ashfaque’s argument is supported by the case of a Pakistani citizen named Fahd, who was sentenced for 12 years in the United States for setting back the global telecom giant, AT&T, by $200 million, doing exactly the; breaking the network lock. Hundreds of Fahd’s are likely to emerge, if the

TELECOM

“Even if we could surmount financial hurdles, technical complications pose further challenges. For instance, in other markets, telecommunications providers do not permit customers to switch to competitors while bound by a contract” Khurram Ashfaque, COO Telenor

opportunity is provided in Pakistan. Afterall, even if we could brick the phone by blocking the IMEI, what’s to stop individuals from storing it in a drawer or using it as a paperweight? They could even disassemble it, and sell the parts. Of course, locking the IMEI, as has been seen in the case of PTA taxes, does not render the phone entirely useless. And the workarounds for that are already widely spread in the market.

What is proposed?

ost of the aforementioned problems sound too difficult to be solved. The IT ministry cannot possibly bank half the population, maintain credit scores and inculcate ethical practice in the market. Yet there are some solutions presented by the ministry. To answer the primary concern regarding people defaulting on those loans, the caretaker IT minister, Umar Saif told the media that the ministry is working towards blocking the IMEIs of the issued phones and in worse cases the CNICs of the users. Blocking the CNIC of a user is not a piece of cake. With a long standing legal kerfuffle, the Sindh High Court, in 2021, ruled that even NADRA itself cannot abrogate the citizenship of someone i.e. block their CNIC. However the latter part of the solution turned out to be different than it was perceived by certain sections of the press. Talking to Profit, the CEO of Jazz, Aamir Ibrahim stated that the two proposals pushed by Jazz and under consideration by the ministry were a) blocking the IMEI of the said smartphone and b)blocking all the sim cards issued on one

CNIC. Hence giving rise to the term CNIC lock, not cancelling CNICs, as assumed by certain sections of the press. He further expounded that, “The problem with only blocking the phone is that it is enough. Our proposal was to let MNP to monitor the system and whosoever defaults, loses access to all the sim cards issued on their CNICs” For those who don’t know, Pakistan Mobile Number Portability (MNP) Company is jointly owned by the top four telcos in Pakistan, which are Jazz, Telenor, Zong, and Ufone. MNP allows mobile phone users to switch their service provider while retaining their existing mobile phone number. The Pakistan MNP Company facilitates this process by managing the porting of SIM cards and ensuring smooth transition. The company possesses the tools to monitor such a ban because it has the data to do so. The “CNIC-lock” though a smart solution also presents the opportunity of workarounds. One CNIC provides access to 5 SIM cards. Even if all the defaulter’s SIMs are blocked the phone might not run a SIM but the user could always use someone else’s SIM card to stay mobile. “A defaulter is a defaulter of the telecom industry, and the industry should band together to find a workable solution. We should be able to do it in a manner that the customer is aware of what they are getting into. And if they realise that they cannot pay, they have the option of returning the handset with a specified penalty.” said Ibrahim. “The goal is to get a food delivery guy, or a security guard with an easy solution to purchase a 24,000 rupee phone by paying 1000 every month. People whose productivity increases with a phone are our

focus, not iPhone owners.”, said Mr. Ibrahim. He further elaborated that his goal has always been to facilitate local cell phone manufacturers rather than making imported phones accessible.

What is the disagreement?

ith the recommendations tabled, and a policy set to be in the works, two of the top four telcos are not on board with the proposal of blocking the SIM cards of the defaulters. These telcos are Telenor and Zong. When asked about their disagreement, Telenor referred to the already cited reasons (mentioned above) as their reservations. It is important to note here that Jazz has been at the forefront of this policy despite the failure of their earlier campaign of their “Jazz Digit 4G” being given on instalments. On the other hand, Telenor, earlier this year agreed to partake in a partnership with local startup Kistpay, where the telco assumes less of the financial responsibility, passing it onto the startup that specialises in doing so. It is also important to note that in the Telenor-Kistpay financing scheme, the solution to defaulters is a proprietary algorithm that will shut down the phone as explained earlier to Profit by CTO Kistpay, Khurram Shaikh.A response from Zong could not be garnered till the filing of this report. As reported earlier, banks have also shown reluctance to partake in the exercise. However, telco-owned EMIs, namely Mobilink Microfinance Bank, Telenor Microfinance Bank, and UBank, have shown eagerness to offer phones in instalment plans. n

TELECOM

While sales have surged, Quice Foods fail to clock profits and keeps losing its market and brand share By Mariam Umar

hat comes to your mind when you think of syrups? Most likely Rooh Afza or Jam-eShirin. But have you ever heard of Quice Sharbat or Quice Ice Cream Syrup? What about Quice Ice Cream Soda, Quice Perfect fruit drink, or Quice Little Master fruit drink? Chances are, you haven't. Despite its diverse product range and a history dating back to 1990, Quice Foods Industries Limited remains a relatively obscure name in the world of beverages. The reason for its lack of recognition becomes evident once you delve into the company's turbulent financial performance. For a company that specialises in crafting concoctions like syrups, fruit-based drinks, and soft drinks, Quice Foods has been facing

FMCG

a long-standing struggle to turn a profit. In this story, we explore the intriguing journey of Quice Foods, the challenges it has encountered, and the recent glimmers of hope that may hint at a brighter future

History of Quice

uice Foods Industries Limited (Quice Foods) was incorporated in Pakistan on 12 March 1990 as a private limited company, and was converted into a public limited company on 13 December 1993. Quice Foods was listed on the Karachi and Islamabad Stock Exchanges on 2 August 1994 and 18 July 1995 respectively. Its registered office has been transferred to Karachi with effect from 15 November 2011. According to the financial statements of Quice Foods, they specialise in “crafting delicious treasures” like jam, jelly, syrups, custard powder, pickles, essence, juices, and aerated drinks. Or so we thought. Their website tells

a slightly different story, listing three main products: syrups, fruit-based drinks, and soft drinks. In the syrup category, the company has two products: Quice ice cream syrup (green syrup) and Quice sharbat (red syrup like Rooh Afza or Jam-e-Shirin). In the fruit-based drinks category, the company produces a range of products under different brands. These include Quice Little Master fruit drinks, Quice Perfect fruit drink, and Quice fruit drink. Flavours offered include mango, apple, orange, pineapple, lychee, pomegranate, orange mango and fruit punch. In the carbonated soft drink category, the company offers Quice ice-cream soda (like Pakola ice cream soda), Quice fresh pudina (a mint-based soft drink), and five other fruit-flavoured soft drinks namely: Quice perfect apple, anaar, peach, lychee, and red grapes. Currently, the company operates its manufacturing units in Swat and Hub.

Concentrates and Syrups: an overview

efore we look into Quice Foods’ financial performance, let’s provide some context on the industry it operates within. According to the Euromonitor “Concentrates in Pakistan” report of 2022, off-trade volume sales of concentrates (syrups) rose by 2% in 2022 to 35 million litres and will continue to increase at a CAGR of 2% over the forecast period of 2023 - 2027 to 38 million litres. The category includes liquid concentrates and powder concentrates (such as Tang). For the sake of this story, we will focus on liquid concentrates only. According to the Euromonitor report, although the category continues to face strong competition from carbonates and juice, concentrates remain widely popular, enjoying a traditional appeal among the local population. Concentrates remain particularly popular among rural and low-income consumers, who account for the majority of the population in Pakistan, as these drinks can be diluted to taste or in response to cost concerns. Low prices have also made concentrates popular among lower middle-class consumers, with the ease of variation in terms of dilution appealing to people focused on cost-effective options. Laal sharbat (“red drink syrup” products) is expected to continue to dominate sales of liquid concentrates due to a traditional appeal and distinctive flavour. Most households keep at least one bottle of the laal sharbat in stock. According to the Euromonitor report, sales of liquid concentrates spike in Ramadan and Ashura. According to the Euromonitor report, high inflation encourages consumers to shift their package preferences towards value and economy sizing. In general, affluent consumers prefer bigger packs, while the large population of lower-to-middle-income consumers choose single-serve sachets. Single-serve sachets of Tang registered positive sales growth as this pack type appeals to price-sensitive consumers. Increased unit prices have forced consumers to shift to cheaper options and substitute one product for another. Before the sudden increase in inflation in the first quarter of 2022, consumers had slowly moved away from liquid concentrates and towards carbonates and juice, but inflationary pressure brought a notable shift back to liquid concentrates. According to the Euromonitor report, concentrates are projected to see further off-trade volume and value (constant 2022 prices) growth over the forecast period.The category is set to benefit from population growth, moves towards packaged products and widening distribution,as the retail landscape continues to modernise and expand. Many consumers are predicted to gain access to a wider range of concentrates, as the presence of modern grocery retailers widens across the country and low-income consumers look for affordable products.

Financial Performance

k, so a growing sector, with sales increasing in spite of the high inflation rate: surely Quice Foods would have latched on to the industry’s success? It is what makes Quice Foods financial performance all the more unusual. Their financial performance is no less than a rollercoaster ride. Back in 2015, they managed to turn a profit, but even then, operating in the red remained a bitter truth. The following years echoed the same sombre tune, with losses trailing them right into 2023. The profit margins remained stubbornly low despite increasing sales, leaving us with eight long years of no net profit.

But why? Profit reached out to the company for comments but received no response. In fact, Profit called the company’s landline, the irate assistant company secretary said they “are very busy and cannot entertain our queries”, and to go find answers in the financial statements. Which is exactly what we did.

The lost years of 2017 - 2019

hile Quice Foods have been making losses for the last seven consecutive years, the years 2017, 2018, and 2019 were particularly quite bad. That is sales declined during these years. In 2017 sales plunged by around 34%. According to that

Inflation has hit the common Pakistani consumer like never before and with growing inflationary pressures consumers are adapting by showing three distinct behaviours: they (consumers) trade-off, trade down and sometimes even reduce the moments of consumption. Since we are a very collectivist society, our stoic beliefs always push us to cut on moments of personal indulgence when our pockets come under pressure Arfa Syed, Senior Vice President at Oula

year’s financial statement, this was due to a decline in the syrup category. The company decided to diversify and launched the fruitbased drinks segment. While the company was able to make strides in the juice market, it came at a high cost, eating into its profit margins. The sales decline trend persisted in 2018 and 2019, hovering around 17% and 8%, respectively, due to economic slowdown and increased costs. In 2018’s financial statement, the company attributed low sales to the decline in the purchasing power of the public. It further added that the sale volume of syrup declined due to strong competitors. It attributed its high cost of sales to an increase in the exchange rates and commodities prices. In 2019’s financial statements, the company attributed low sales to economic slowdown. Overall sales declined by 8%. Local sales declined by 4% while exports declined by 45%. It was during this year, the company launched carbonated soft drinks. According to the financial statement, multiple brand-build-

ing activities were undertaken to generate trial and awareness to penetrate this segment. However, the statement does not specify the kind or scale of activities.

The year 2020: sales increase

n years between 2020 and 2023, the situation slightly improved at Quice Foods, as sales started increasing. The graph presented above illustrates how Quice Foods' successful foray into export markets significantly bolstered the company's total sales. According to the financial report, the primary export destinations for the company were the United Kingdom, South Africa, and the Mauritius region. It's worth noting that the United Kingdom, with its substantial Pakistani diaspora, stands out as a key market. South Africa and Mauritius, being warm countries, offer ideal conditions for Quice's production of cold beverages, which are typically in high demand during the summer season.

Although the percentage growth of export sales has been positive, it's important to note that local sales continue to surpass export sales in terms of overall value. This growth in sales is attributed to factors such as increased export sales, the expansion of local sales, and specific product segment growth, notably a historic 62% rise in the syrup segment in 2021. However, despite soaring sales, the company remains plagued by persistent financial losses, year after year. The reason behind this paradox is the substantial increase in various costs, notably driven by rising commodity prices and rupee devaluation, which undercut the company's gross profit margins. Additionally, distribution costs experience a staggering year-on-year increase, fueled by substantial marketing expenses, outward freight, and handling charges. As a result, Quice Foods reports net losses throughout these years, creating a stark contrast between impressive sales figures and the company's overall financial health. According to the Q3 2023 Pakistan Food & Drink Report from BMI – A Fitch Solutions Company, “Several inflation drivers are on the supply side, meaning that contractionary monetary policy will have little effect. This is the economic reality for consumers in 2023. Inflationary pressure started to rise globally in 2021, as localised shortages were created by base effects, higher commodity prices and supply chain challenges. The Ukraine-Russia conflict has also significantly impacted the global supply prices of key commodities, such as oil and gas; fertiliser; wheat; corn; and barley. The commodity price increases are already feeding through into higher consumer prices and this will continue into 2023….The (Pakistan) market's declining foreign exchange reserves has also limited its ability to import foods, driving up the costs of food and non-alcoholic drinks in the market.” Importantly, while there is a marginal improvement in gross profit margin over these years, owing to enhanced pricing strategies and

FMCG

increasing export proceeds during currency devaluation, the company still records an overall net loss. Furthermore, external factors such as high input costs, minimum wages, and freight charges negatively impact profit growth. Nevertheless, there is a glimmer of hope on the horizon, as evidenced by 2023, where Quice Foods achieves its lowest net loss in seven years, suggesting a potential trend toward financial recovery amidst the backdrop of continual sales growth. Profit spoke to Arfa Syed, the senior vice president at brand consultancy Oula, who offered her expertise in understanding the Pakistani consumer landscape. “Inflation has hit the common Pakistani consumer like never before and with growing inflationary pressures consumers are adapting by showing three distinct behaviours: they (consumers) trade-off, trade down and sometimes even reduce the moments of consumption. Since we are a very collectivist society, our stoic beliefs always push us to cut on moments of personal indulgence when our pockets come under pressure”, said Syed. The Q3 2023 Pakistan Food & Drink Report from BMI forecasted that household spending on non-alcoholic drinks in Pakistan will slow slightly in 2023 to 8.9% y-o-y, from 9.4% y-o-y in 2022. It further forecasted that consumer spending on non-alcoholic drinks in Pakistan will average annual growth of 7.6%, to Rs 608.9 billion ($1.8 billion) by 2027. As inflation remains elevated over the year, households weighed down by weakened purchase power, will trade down price points and shift consumer spending away from discretionary spending to stretch disposable incomes.

Lack of marketing

hile inflation has affected people’s purchasing power, the low price point of syrups as compared to other categories like carbonated drinks is likely to increase demand for syrups as highlighted by the Euromonitor report. But for Quice foods to tap into this opportunity, it needs to improve its marketing efforts. According to the Euromonitor report, Quice is the fourth largest player in the syrup category. Yet sales and brand share for Quice has been on a decline as compared to other brands like Rooh Afza (Hamdard), and Jam-E-Shirin (Qarshi) and Shezan (Shezan). This decline is particularly concerning, as one senior marketing official, contacted by Profit for comments, admitted to being unaware of Quice Foods and its product offerings.. While Quice Foods has mentioned in its financial report that it has undertaken brand-building activities, the details of these

efforts are not elaborated upon. In fact, the last TVC produced by the company was in 2017. It has been six years since then.

Future outlook

s mentioned earlier, Quice reported the smallest net loss in seven years. This situation might be improving. The impact of inflation on consumer behaviour, and the need for cost-effective options, could potentially benefit the low-cost syrup category as highlighted by the Euromonitor report. Quice Foods, as a player in the syrup category, may find opportunities to tap into this shifting consumer demand. However, it is crucial for the company to enhance its marketing efforts, as it faces strong competition from well-established brands. The Euromonitor report also underscores the

efforts made by established brands like Jame-Shirin and Rooh Afza in creating emotional connections with consumers for special occasions, which has contributed to their market dominance. These leading brands are expected to continue promoting the consumption of concentrates throughout the year, expanding beyond seasonal summer consumption to encourage constant demand. Quice's recent progress, with decreasing net losses, offers a glimmer of hope, but the company needs to address its cost structure and improve its brand visibility to carve a stronger presence in the competitive beverage industry. As the Euromonitor report suggests, the ability to create emotional connections with consumers and diversify consumption occasions could be the key to success in the evolving market landscape. n

FMCG