Aamer Khattak started his grocery store 20 years ago when he was just 17, with a small amount of capital, a small location and big dreams of achieving financial security.
Today, his Khattak General Store is twice its original size, a mainstay of his neighbourhood in the Pakistani capital, Islamabad, and supports his household of 15.
But when the coronavirus pandemic hit Pakistan in February, he was suddenly faced with new costs, dwindling demand and limited opening hours during strict lockdowns imposed in March and April.
“The load [of the losses] fell on our store,” he says, recalling those months. “We had to meet our [household] expenses of food and drink, so the effect was huge on the business.
“We ran short of stock because we didn’t have the money. When you don’t have the money then you can’t have the same variety.”
Khattak was struggling to make ends meet as the monthly profit from the store, usually about $450, dropped by almost 30 percent.
But despite the plunge, Khattak’s business has survived. His strategy? Taking orders over the phone from longstanding customers in his neighbourhood and giving them credit when they needed it.
But others in the grocery business have taken an altogether higher-tech approach, one that has allowed them to not only survive the pandemic but thrive.
As strict lockdowns took hold across the country in the first half of 2020, Pakistani technology entrepreneurs say they saw grocery orders made online and through mobile apps skyrocket, achieving in days the kind of growth they had expected in three years.
The question many of them are now asking is: Will it last?
“We have seen a definite uptick in people getting more comfortable with using tech and online services,” says Misbah Naqvi, co-founder and partner at i2i Ventures, a venture capital fund for Pakistani tech start-ups that are still in their early stages.
“This has been a challenge in the past, where you have great solutions being offered but the adoption has been slow,” Naqvi told Al Jazeera.
Pakistan’s grocery retail space, estimated by tech industry insiders to be worth more than $50bn in revenues annually, is dominated by what is known as ‘karyana’ stores, like Khattak’s. These are small shops, often no larger than a hole in the wall, that cater to household basics like flour, rice, sugar, pulses etc.
In recent years, however, several new players have entered the online grocery market, hoping to take advantage of the fact that no large countrywide grocery retail chains – like Tesco in the United Kingdom or Walmart in the United States – have emerged in Pakistan to take the lion’s share of the market.
“Companies that existed already for the last few years, they saw a big uptick,” says Naqvi. “Companies like GrocerApp, 24Seven and Mandi Express – we saw a huge uptick because people started looking at the convenience factor as a determination of how they made decisions on getting groceries [during the lockdowns].”
In total, tech companies in the grocery delivery space have raised at least $11.7m in funding from investors in five separate deals in 2020, making it the second-largest sector for tech investors in the country, according to i2i’s research.
The growth in the early part of the year was stratospheric, leading, in turn, to its own set of problems.
Accelerating the sector
“Lahore went into lockdown on March 23. For March, April and May our business jumped by 50 to 70 percent month on month,” says Ahmad Saeed, CEO and co-founder of GrocerApp, which delivers products to the eastern city of Lahore and to Islamabad.
Before the pandemic, Saeed says, the app’s orders were growing at a steady 20 percent per month.
“I think the pandemic has pushed e-commerce years ahead – the shift that was going to take millions of dollars by investors, the pandemic has pushed it a lot,” he says.
At first, as lockdowns came into effect often with little warning, Saeed says his business struggled to meet demand.
“We realised that to cater to this demand we need to cut back to the basics of our offerings,” he says. “We realised that in the pandemic, people would realise it was okay if we didn’t have all the varieties of different products, but we needed to make sure that we do not run out of the basics.”
GrocerApp also limited the size of orders of basics like flour, rice and other necessities to prevent possible hoarding by customers.
Today, the app is back at full strength, having grown its operations to keep up with the rising demand. It now offers more than 4,000 products in Lahore. The firm expanded to cater to Islamabad in September, and Saeed says it has seen strong growth there, too.
“We launched Islamabad on September 1, and in three months, Islamabad has scaled to a point that it took Lahore two and a half years to get to,” he says.
Jarrar Shah, CEO and founder of 24Seven, a rival to GrocerApp that also serves Lahore, said his business saw similar challenges in the early days of the pandemic.
To take advantage of the spike in demand, and to ensure his company met all its orders, he changed its business model from being a digital marketplace for other stores to opening its own warehouse and fulfilling almost all its orders itself.
“When [the Lahore lockdown] happened, we started this warehouse in two weeks flat,” he says. “The lockdown was very strict initially, police were everywhere, they wouldn’t even let us deliver.”
The pandemic and lockdowns saw demand “shoot up”, and the business had to adapt, he says.
“When COVID happened, our baselines kind of shifted. Where we thought it would take the country or ecosystem three or four years to get to where people were using online and adopting it, COVID kind of brought that three-year thing overnight.”
‘With their own hands’
But not everyone is convinced Pakistan’s e-grocery boom is here to stay.
Javed Anwar is the manager at Sauda Sulf, one of the largest grocery stores in the F-11 neighbourhood of Islamabad, and says while the company’s decision to launch a website and Whatsapp-based grocery delivery service helped it survive, he is unconvinced it will lead to substantive changes in customer behaviour.
“People in Pakistan, they want to shop for themselves,” he says, sitting at a till in the store. “This trend [of online shopping] is not here in Pakistan yet. [For] groceries, customers have a mentality that they want to buy it themselves, with their own hands.”
Anwar says Sauda Sulf saw a peak of up to 250 orders a month through its website during the lockdown, but as restrictions eased over the summer, those orders dropped, too.
“In that time, [the apps] were very useful. When there was an emergency, to get those services [that you needed],” he says. “[But] there is an interaction [with the customer], and you cannot have that interaction online.”
Internet access, or rather the lack of it, is another issue facing budding tech entrepreneurs in Pakistan, says Anwar. Even where broadband speeds are acceptable, many in the country lack the digital literacy needed to feel comfortable ordering products online.
Pakistan, a country of 220 million people, has 169 million cellphone subscribers and 87 million broadband Internet users, almost all of whom access the web through their cellphones, according to official Pakistan Telecommunications Authority data.
E-commerce is a relatively new phenomenon in Pakistan, amounting to an estimated $2.1bn, not including travel, in consumer sales in 2019, according to digital research firm DataReportal.
Of that amount, $185m was spent on food and personal care last year, DataReportal’s figures show.
Those running neighbourhood karyana stores say they do not believe their place in the community – given the ease of access to them, established modes of consumer behaviour, and limited digital literacy – can be easily supplanted.
“Rich people use it,” says Manzoor Ahmed, a worker at a karyana store in Islamabad. “Today is the era of the internet. They order everything on the net. But poor people like us, we come to stores.”
GrocerApp and 24Seven both reported sales were initially up in high-income areas, but they have seen a recent uptick in middle-income neighbourhoods too, as customers are drawn in by lower prices and a greater variety of products compared with small physical stores.
Nevertheless, tech entrepreneurs say they are not looking to replace karyana stores, and that there is plenty of room for everyone.
‘Not a winner-takes-all space’
“Grocery is the largest retail space in every country,” says Shah of 24Seven. “It’s not a winner-takes-all space.”
Shah says even if e-commerce grocery platforms capture just a small fraction of the estimated $50bn market, it would be enough to sustain very profitable businesses.
“Eventually what size e-commerce will be, even if it is three to five percent [of the overall grocery market], it will be a huge number,” he says. “And we think that is very feasible for that to happen in the next three to five years.”
Saeed, of GrocerApp, agrees with that assessment.
“E-commerce will never finish general trade, but e-commerce will have a big share of the market,” he says.
“I don’t think the largest e-grocery player will capture even 10 percent of the market. But the market is big enough to sustain several large companies or even a large number of players.”
For Khattak, standing up from the counter to stock the shelves at his Khattak General Store, that would be just fine, because he says he has no plans to expand operations to incorporate an app.
“Our store is not that affected by this because the people in this neighbourhood, we have such a relationship with them that even if they call us without an app, we’ll get [what they need] to them, or if they have some issues in the house [with payment], we’ll [cater to that] too,” he says.
“We meet these people every day. We’re not changing, and neither are they, so we see each other all the time. Thankfully we have spent a long time here, everyone knows us.”
This article is part of Al Jazeera Digital’s ongoing series profiling small businesses around the globe that have survived market disruptions from COVID-19 as well as economic challenges unique to their countries. Click to read about small businesses in Tehran, Beirut, Mumbai and the central English town of Wigston in the United Kingdom.
Asad Hashim is Al Jazeera’s digital correspondent in Pakistan. He tweets @AsadHashim.
— to www.aljazeera.com