Fauji Foods Seeks to Double Share in Pakistan Dairy Market, Spurred by Growing Middle-Class

BE2C2 Report — Pakistan’s Fauji Foods Ltd. wants to significantly expand its dairy business, ratcheting up competition among fast-moving consumer goods firms chasing the country’s growing middle class.

The firm, a subsidiary of the military-owned Fauji Foundation, one of the largest conglomerates in Pakistan, is looking to double its market share to 8 percent of the country’s packaged milk business this year, chief financial officer Syed Aamir Ahsan said in an interview in Islamabad report Bloomberg News.

The Fauji group, which entered the dairy business by acquiring a majority stake in Noon Pakistan Ltd. about two years ago, will be up against Engro Foods Ltd., whose share dropped to 48 percent of the market in the 12 months ended November, according to the latest available data. In that time, Fauji Foods had already seized 19 percent of the country’s creamer segment, Ahsan said.

The Fauji group’s push is part of a wider effort by companies competing to tap a growing middle class in South Asia’s second-largest economy. Dutch firm Royal FrieslandCampina NV entered the country’s market by buying a 51 percent stake in Engro Foods in December for $450 million, one of the largest acquisitions in Pakistan’s consumer sector. Nestle Pakistan Ltd. is also a player.

Fauji Foods took over Noon Pakistan’s facility in December 2015 and expanded it, investing about $70 million (7 billion rupees). Capacity has gone from 100,000 liters per day to about 600,000 liters per day, he said.

Fauji’s capacity and market share grew despite the fact that only 10 percent buy boxed milk, while most people buy raw milk and boil it before drinking.

“If you look at the dairy sector, it has actually shrunk and we are the only company in the dairy sector which is actually growing its market share,” said Ahsan.

According to observers, the country’s youth bulge, a growing population of millennials, and an expanding middle-class population in the urban areas are leading to rise in demand for better, branded, and reliable supply chain for consumer products – even the service industry.

The IBA-SBP Consumer Confidence Index recorded its highest-ever level of 175 points in January 2017, showing an increase of 17 points from July 2016.

According to prominent political economist S Akbar Zaidi, Pakistan’s middle class has grown rapidly in the last 15 to 20 years on the back of rising remittances sent home by expats and increase in foreign investment.

Based on income and the purchase of consumption goods, research shows that 42% of the Pakistan’s population belong to the upper and middle classes, with 38% counted as the middle class.

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