Cash and Carry Business in Pakistan: Its Scope and Potential

Mar 22, 2021Retail Tales

cash and carry business in Pakistan

Umer Farooq, retail consultant & COO Xtreem Retail, talks to the LumenSoft  team about the Cash and Carry business: Its scope in Pakistan, what factors make it a viable business option, and what are the prerequisites

What is Cash N Carry? How did it start?

The International concept with which Cash n Carry was started was to provide all services under one roof. There were many big players with massive investments involved in it, and they were mainly catering to small retailers.

The basic idea was to play with volumes and small margins. Moreover, the business model required retailers to make up-front payments for all goods. Cash payments were required to forestall the chances of a financial crisis in the event of small retailers not being able to pay.

Now the concept of Cash and Carry has evolved to also serve the end-customers.

Yes. It is about providing good quality products at a good price, and the best possible customer experience to increase customer loyalty. Providing a large number of items under one roof also adds an element of impulse buying that we see in both food and non-food areas.

For example, if a customer is buying shampoo, and conditioner, or other hair-related products are displayed in the same area, the customer may end up buying those as well.

Department stores make direct contact with customers possible. This is the reason multinationals and other local companies also use cash n carry to launch their new products. They offer their products as samples or for tasting and note down the feedback regarding the smell, taste, price, etc.

Providing a large number of items under one roof also adds an element of impulse buying that we see in both food and non-food areas.

Tell us about the cash and carry business in Pakistan. When did it start?

In Pakistan, some old players started the trend in Karachi. However, if we talk about the organized structure of cash and carry stores that led to its popularity as a business model, it started with the government initiative of utility stores. This probably happened in the late eighties.

How do you see the future of Cash N Carry in Pakistan?

The cash and carry sector has huge potential in Pakistan. Certain elements provide impetus to the growth of cash and carry businesses in Pakistan.

First of all, the mushrooming of malls and commercial areas has led to more opportunities for grocery stores. Every small, medium or large mall has a cash and carry to attract customer traffic. If you take a look at any big mall and subtract the traffic of the cash n carry in that mall, you would find it rather empty.

This is because all other retail verticals like fashion or other luxury items are seasonal; while there is an almost weekly-and for some food items daily-turnover for cash and carry stores. And this leads to a regular flow of customer traffic to malls.

Secondly, now people are more accustomed to shopping at malls because they do not have time to purchase various items from different places. You can while away your time in the mall and also purchase everything you need under one roof.

If you take a look at any big mall and subtract the traffic of the cash n carry in that mall, you would find it rather empty

Also, there is a cultural change. Grocery shopping used to be male-oriented as men of the family were responsible for purchasing groceries. Things have changed. Now, females are more actively participating in purchasing and decision-making regarding what and how much to purchase.

And the ambiance plus locations of grocery stores, whether in malls or stand-alone, make it convenient for females to shop.

These are some of the reasons we are witnesses a boom of this trend, especially in small areas/towns.

What about Stand-Alone Cash n Carry stores?

A stand-alone cash and carry store, in my view, is a good investment. If you look at any other retail business vertical, say, garment or footwear, you need specific volume and this requires more investment. In cash n carry businesses, you have the advantage of starting right away with a standalone outlet.

It is true that as compared to the fashion business cash n carry business has lesser margins. But if the store includes both food and non-food sections, it can generate good profit margins. Food is used as bait, and when customers come to buy food items they may be tempted to purchase stuff like kitchenware, gift items, toys, and other such items.

If the ratio of the purchased item is fifty-fifty, it is considered ideal. But usually, the ratio falls within 70 to 30 or 60 to 40 (60% food items and 40% non-food items). If you get this much, the profit margin is 20 to 25% in smaller cities and about 18% in big cities.

How important is the location for a cash and carry store?

There is a famous saying regarding the retail business that three things are important: the first is location, the second is location and the third is location.

So location is the primary factor. You can change every other decision afterward, for example, you can change the décor or even products but it is very difficult to change the location.

The location selection is dependent on the factors like customer flow, convenience, parking space, the suitable environment around the store location, etc.

What’s would be the approximate capital and working capital cost for a small stand-alone cash n carry?

Investment varies. If you start with a 10 Marla land with 2 floors then the standard investment is between 8 to 10 Million. This includes your stock, chillers, lighting, electricity work, etc.

As for the working capital, for the cash and carry businesses, the cash flow problem is gone the moment your store opens because sales start from day one.

If you take a look at any big mall and subtract the traffic of the cash n carry in that mall, you would find it rather empty

If someone wants to open a cash and carry store, in your opinion, what should be the first step?

To begin with, the first question that we ask our clients is this: how do you want to make your store different?

No matter what the preferred locality is for your business, there will always be a store, or a small shop, nearby selling the items you want to sell.

So you need to ask: what’s one thing that people can’t get from the other stores in the same locality? And then build your store experience around it.

Think about the kind of experience you are offering, like how convenient is the layout, how welcoming is the interior, what facilities are there, etc. There are many options and budgets to play with. Although we do not enforce heavy investment on the interior but a sensible investment in the interior covers up a lot of things. For example, if you cannot afford air conditioners then there are really good air coolers available and you can install those.

To sum it up: a great retail experience can step up your game.

What is the recommended legal entity of a Cash and Carry?

There are many options as far as the legal entity of a cash n carry is concerned. Cash n Carry can be on Sole proprietorship, it can be a partnership, and it can also be a Private Limited Company.
We normally suggest a simpler path by advising our clients to go for a sole proprietorship. As you are just starting a new business and have no idea about sales volumes, it is better to play it safe. Moreover, in a sole proprietorship, many legal matters like taxation can be handled easily.

And if you running other businesses as well, it is not necessary to give your cash and carry store the same name as that of your business. You can get your store registered under a different name.

 

We normally suggest a simpler path by advising our clients to go for sole proprietorship

What else would you suggest to someone starting a Cash and Carry business?

A key suggestion is to always invest in good products.

For example, if you are buying chillers, freezers, or computers, do not worry about every penny. Consider buying top-of-the-line products, they come without much price difference but can have a huge impact.

For example, if the air conditioner is not working it can damage your products and affect your sales. The cheaper installations can save some upfront costs but lead to much hassle in the long run. It is always better to invest a little extra in a good quality product right from the start.

Another important contributing factor to a store’s success is the selection of the right retail software to manage the retail operations. For Software selection, my suggestion to the client is to especially look at two things: the software itself, and the company providing it.

Good retail software should provide the features necessary for a fast retail POS checkout experience, and inventory management.

In my career spanning over two decades, I have seen many software companies vanishing after a couple of years. The owners switch jobs, go abroad, or close the company leaving their customers in the lurch. Thus the reliability of the software provider company is important.

How long the software company has been around, how many customers it has, does it provide support services– all these are important considerations for retail software selection.

If anyone who wants to start a cash and carry business approaches you, will you guide them completely right from the registration to layout?

Yes. We provide turnkey solutions to Cash N Carry businesses. Starting from Store design to lighting, interior, racks layouts, customer flow, advertising, social media marketing and product sourcing, etc. everything is included in the package.

After the launch event, we provide three months of support services to handle various operations issues. So basically, we provide a complete service mix from the concept to the ribbon cutting, and everything in between

Another important contributing factor to a store’s success is the selection of the right retail software

You mentioned product sourcing. This means, you also help your cash and carry clients in purchasing a stock for the store?

Yes. We help our clients in purchasing the inventory they need from the trusted vendors we know. We get the management on board and acquaint them with the suppliers. For stock-refills, it is up to the client to buy from our suggested vendors or any other source.

Thanks so much, Mr. Omer Farooq, enjoyed talking with you.

Thank you for having me.

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