From Challenge to Opportunity: Transforming Pakistan’s Retail Landscape with Digital Solutions

On a simple errand to buy Pantene Pro-V 185 ml for my wife, I encountered Rasheed, the owner of a local kiryana store. To my disappointment, he had run out of stock of Pantene as such leading to a lost sale which unfolded right in front of me. During our chat, Rasheed shared his frustrations, revealing he loses about 10% of potential sales due to such stockouts. Curious, I asked why he hadn’t installed a POS system like the other superstores in his neighborhood. His response was ”POS lagane main merey koh 2 say 2.5 lakh rupay lagay ga hardware kay liye aur mehanga mulazim bhee rakhna parega, mera mulazim 8 class tak parha hua hai, main nahi rakhsakta”.Translation: “I will need to spend Pkr 200-250k just for the POS system and hire resources to manage it as my current worker is a class 8 dropout who will not be able to use this”. This encounter with Rasheed shed light on the immediate challenges retailers like him face and underscored the vast potential for digital empowerment and adoption in the retail sector. It highlighted the urgent need for affordable and accessible digital solutions that will empower and transform these traditional retail grocery stores thereby unlocking their full potential.

I believe transforming Pakistan’s retail landscape through digital solutions centers on three pivotal factors:

• • Affordability: Lowering the cost of POS systems (both hardware and software) is crucial. Accessible digital tools are essential for every retailer.
  • Digital Transition Incentives: There must be tangible benefits for consumers and merchants to switch from cash to digital payments, promoting a cashless economy.
  • Financing Accessibility: The difficulty retailers face in securing loans for inventory underscores the need for broader financial inclusion. Easier access to credit is vital for their expansion.

The State Bank of Pakistan confirms that retail payments made through POS transactions constitute a minor fraction of the total retail payments, not reaching even 10% in Q2, FY 2024.Specifically, POS transactions accounted for 65 million out of a total of 816 million retail transactions during the quarter, which significantly underscores the claim of POS transactions being a very small portion of total retail transactions .The retail sector contributes 18-20% to Pakistan’s $376.53 billion GDP, as such is a cornerstone of the economy with over 2.5 million Kiryana Stores dominating 80% of the estimated $50 billion grocery market. Employing nearly 10 million people, it’s a major employment source. Yet, its full potential remains untapped due to the informal, unorganized nature of much of the sector, speculated to contribute more than 50% to the GDP. Recognizing this, there’s a crucial push by the Government to formalize this sector, providing digital and financial tools to unlock growth, enhance tax revenue, and improve customer service. 

A commendable action taken to normalize digital adoption and behavioral change among retailers by the FBR requires Tier-1 retailers to integrate their POS systems with its system for automatic sales transaction reporting and facilitating tax assessments. Furthermore, The SBP’s introduction of the Raast P2M service, enabling digital payments through various methods like QR Codes and IBAN, is a commendable effort towards accelerating Pakistan’s transition to a digital economy, empowering merchants, and enhancing transaction efficiency .Raast facilitated 107 million transactions, totaling more than PKR 2 trillion in Q2 FY24. Since its launch in January 2021, Raast has processed 343 million transactions with a cumulative value exceeding PKR 7 trillion, highlighting its significant role in digitizing the country’s payment ecosystem .

Kiryana Store Struggles: Bridging the Gap in Digital Adoption and Financial Support

Retailers in Pakistan face significant hurdles in digital adoption due to high costs and limited financial support. The barriers are substantial with only 10% equipped with a POS system and a mere 5% holding a bank account. Despite over 46 million debit and credit cards used in Pakistan, there are only 112,000+ POS machines across the country, serving less than 60,000 unique shops. This is due to the high cost of POS hardware priced between Pkr 60k-100k. Pakistan does not have any local production of POS systems and customs, sales tax, and other duties collectively inflate POS costs by 43.5%, discouraging retailers from upgrading their cash-based systems. This lack of digital tools hampers efficient record-keeping and inventory management, crucial for streamlining operations and boosting sales

Another challenge for retailers is the difficulty in obtaining loans for inventory financing.  Retailers in Pakistan struggle to access loans and financial support due to a lack of formal records and credit history, making only 3% eligible for formal credit. The reliance on informal, often costly, financial sources leads to operational challenges like cash flow issues and stockouts, negatively impacting customer satisfaction. Moreover, negative experiences with tax authorities have made retailers wary of using digital payments, hindering the adoption of efficient, formal banking channels. Enhanced access to digital tools and financial support could significantly boost their operations and contribute to national economic growth.

The retail tech space in Pakistan has witnessed a surge of new players, such as Bazaar, Dastgyr, Jugnu, and Retailo, Creditbook, DigiKhaata each offering different solutions to digitize and optimize traditional retail operations. These solutions include digital wholesale & stock replenishment, digital payments, maintenance of credit books, and access to micro-loans for inventory. Despite the sector’s high competition and low margins, the influx of investment shows strong confidence in its huge potential. Pakistan’s retail and e-commerce startups are booming! Between 2021 and 2023, they raked in a whopping 31.7% of the over $700 million in total funding invested in Pakistani startups. This influx of funding is fueling a major tech revolution in Pakistan’s traditionally slow-to-adopt retail sector. But why the sudden surge? The massive, untapped potential of Pakistan’s grocery market is attracting startups offering tech solutions across the entire retail chain, all stakeholders from the kiryana stores to the distributors to the manufacturers and the consumers.

Empowering Kiryana Stores: Aladdin’s Digital Solutions Revolutionize Retail

Visiting various Kiryana stores across Karachi, Lahore, and Islamabad revealed a common thread: the need for an affordable digital solution to stay competitive against larger stores. This led me to introduce Aladdin Smart Dukaan, a user-friendly, cost-effective SaaS-based ERP platform now being deployed across Pakistan. Aladdin transforms traditional stores into “Smart Dukaans” without the need for expensive hardware or software, offering features like inventory management, sales analytics, and digital payments to overcome financial challenges and boost operational capabilities. Rasheed’s feedback post-implementation underscores Aladdin’s impact: “Aladdin ki wajah se ab mere dukaan pe stock out ka masla nahi raha, munafa bhi behtar ho gaya hai. Aur sab se bari baat, ab mai apne ghar walon aur dost ahbab ko zyada waqt de pata hoon.” Translation: “Thanks to Aladdin, stockouts are no longer an issue at my shop, profits have improved, and most importantly, I can now spend more time with my family and friends.”