Maket insight supermarket industry in bangladesh

www.lightcastlebd.com/blog
Market Insight: Supermarket Industry in Bangladesh
Since the inception of Agora’s journey in 2001, the Bangladeshi supermarket sector has taken a
steady and assuring stride forward. After 12 years and with 107 stores, the domestic industry
now stands at around BDT 1,500 crore. As Bangladesh shifts towards the middle income status,
all the subsequent advantages, such as higher income per capita and urbanization will further
expedite the industry’s profitability.
A closer look
According to the BSOA (Business Supermarkets Owners' Association), currently there are 121
supermarkets in the country. However, the industry is largely dominated by three major players
– Shwapno (59 Outlets), Agora (13 Outlets) and Meena Bazar (18 Outlets). Once a key competitor,
Nandan, now holds just two stores.
In terms of distribution network and competitive prices, Swapno has entrenched itself as the
market leader, whereas, Agora and Meena Bazar are viewed as market leaders in terms of quality
and services.

With rapid urbanization, the industry is expected to grow by almost 15 times its current size by
2021. Positive economic externalities such as generation of employment via SMEs, higher food
safety and security, price stability, and inclusive business development are expected to
accompany this growth.

Industry drivers
The key cost and revenue drivers of the industry are listed below:
 Change in social structure: The steady rise of nuclear families, coupled with the influx
of women in the workforce means less time for shopping. Thus, it is becoming
increasingly important to have a huge variety of products under one roof.
 Change in per Capita Income: Per capita income has increased to above USD 1,000 in
2013 and is expected to grow further, especially in urban areas. This change in socio-
economic structure has given rise to a new breed of middle-class who are willing to
spend their higher disposable income in supermarkets rather than wet markets in
pursuit of convenience and social status.
 Change in Taste and Fashion: Globalization through internet penetration,
international trade, and myriad of international television channels have exposed
consumers to new ideas. Shopping from supermarkets, long considered a Western
concept, is slowly being accepted by mainstream consumers in Bangladesh.
 Consumer Awareness: Due to widespread media coverage over usage of formalin and
chemical contaminated consumable products; consumers are more aware of possible
health repercussions of consuming these products. Moreover, since supermarkets
promise unadulterated produce, many conscious customers are slowly turning away
from the traditional wet markets.

Industry analysis - Porter's Five Forces Model
From the model it is conclusive that stiff competition exists among the major firms which are
backed by the rich capital of their respective parent companies. Such superfluity acts as a barrier
to entry for new firms. Recently, several e-commerce platforms have stepped up to offer
essential commodities with zero cost home delivery facilities. In the long run, as they gain
traction, strong competitors might arise from them.
The present scenario is such that a customer might visit the store at the month’s start, but the
same person might prefer the wet markets to meet immediate needs, provided no supermarket
exists in close proximity. Reasonable pricing, credit facility (from retailers), and convenience also
drive customers to these wet markets. There are also general stores in almost every
neighborhood where customers can purchase their basic daily needs. But even with this looming

threat, buyers have little influence over price, since they only procure in small quantities.
Suppliers have a similar minimal impact on the supermarkets’ profitability.
Supermarket SWOT Analysis
Below is a thorough analysis of the internal and external environment of the industry.
STRENGTHS
 Major players have deep pockets allowing investment in supply chain infrastructure,
outlets, and promotion.
 Bulk buying to some extent allows lower costs and deeper discount for consumers.
 The sector demand is increasing as the growing middle-class prefer the convenience of
supermarkets.
 As the sector enters its second decade, a certain level of sector specialization has
developed with a local supply chain model and efficient middle management.
WEAKNESSES
 Due to huge number of items sold, supermarkets have to reply increasingly on middle-
men and Dhaka based market hubs, especially for perishables.
 Although the contract farming model has been tried by major supermarkets like Agora
and Meena Bazaar, it has not seen much success yet.
OPPORTUNITIES
 Urban consumers are more conscious of the prevalence of contaminated perishable and
protein items like vegetables, fruits, and fish; allowing supermarkets to capture higher
market share.
 Increasing per capita income has made consumers less price sensitive and more focused
toward product quality.
 Some major supermarkets are building a robust contract farming model which has
prospect for scalability and is replicable.
THREAT
 Political unrest and frequent disruption by law enforcement agencies disrupt supply chain
and hamper cost competitiveness.
 Rapidly increasing real-estate rental costs will add to total expansion costs and deter
supermarkets to expand.
 Supermarkets’ market share constitute only 2% of the total market and mainly
concentrated in urban areas. Intense price competition among existing players may
hamper sector growth.

Raw Material Procurement
A. Indirect Sourcing
When a direct sourcing chain is not maintained, as depicted in the diagram above, several
intermediaries take a chunk of the profits, leaving a reduced amount for the supermarket and
the farmers. Typically, a 30 percent margin exists between the original producer and the end
consumer. Supermarkets, via this model, command about 10 to 12 percent of this margin and
farmers get about 3 to 4 percent. The rest 14 to 15 percent is taken by the intermediaries, which
are about 4 to 8 in number. Except for the bigger players, who have investment to help them
sustain, this anomaly has led to the closure of many smaller superstores. Sharp rise in overheads
– rent, utilities, salaries and maintenance costs have also contributed. Furthermore, the market
growth is also affected as higher prices mean a significant portion of the middle class is remaining
untapped.
B. Direct Sourcing
In case of direct sourcing model, the number of actors in the value chain decreases to 3. This
enables the supermarkets to command a higher profit margin, usually in the range of 12 to 18

percent. Naturally, it also translates to higher return for the farmers (3 to 6 percent). The rest
goes on to provide competitive prices to the consumers. As for Agora, it regularly surveys wet
markets so that it can match their prices. At Agora, perishables and commodities are charged at
the market rate, or lower. But, proteins (fishes and meats) are still charged higher than the
conventional wet markets.
In the direct sourcing model, the supermarkets have to employ rural buying agents, contract
farming or co-operative models, forward purchase, transportation risks and also deduct the
suppliers’ credit. Additionally, they also have to deal with post-harvest loss. A more streamlined
value chain, however, would mean a larger share of the margin for both parties. Compared to
India where supermarkets command a margin of almost 30 percent, Bangladesh can only entail
around 12 percent.

Challenges
Due to the complexity of procuring different products and impending supply chain uncertainty,
many supermarkets depend heavily on local wholesale market hubs including Karwan Bazar,
Shyam Bazar, Krishi market and Babu Bazar for perishable and essential commodities. For
Supermarkets in Dhaka, these centers act as the middle-men. For the value chain of Karwan Bazar
to be enhanced, the best practices of handling foods, transportation techniques (using plastic
crate boxes to reduce in-transport damage), and credit facilities have to be brought forward. If
the assembled markets work via a stronger co-operation with the farmers, then the margins
would improve for both parties and the unwarranted inefficiencies in the market will dissipate.
Way Forward
As of now, the supermarket industry captures only 2 percent of the market. Increasing awareness
about food contamination, rise of income levels, and the expansion of urbanization is likely to
have a constructive impact on the future of the supermarket industry. If the number of players
can be decreased, the existing chain of operation will become more robust. Supermarkets will
place weekly order with the sourcing firm which will in turn buy in bulk and supply to individual
outlets. Large scale buying will allow firms to cut down the middle-men and ensure higher
revenues for farmers and lower prices for the end clients. The sourcing firm will also engage in
grading the quality of the commodities. This development, along with each shop’s ambience,
product quality, and convenience factors will lure customers into shopping at the supermarkets
in Bangladesh. The large portion of customers, who are generally more price sensitive, will then
see an added incentive to shop at the finest of the city.
Prepared by: LightCastle Analytics Wing

Maket insight supermarket industry in bangladesh

More Related Content

What's hot (20)

Viewers also liked (12)

Similar to Maket insight supermarket industry in bangladesh (20)

More from LightCastle Partners (20)

Recently uploaded (20)

Maket insight supermarket industry in bangladesh