"We do ultra well during recessionary periods because of the simple fact that we deliver value for money," asserts the company's Director Commercial - Hamid Ali Khan, in an exclusive interview with BR Research. "When a tricky pack of biscuits costs less and is more nutritious than a naan, what else would you expect?" he questions rhetorically. Besides, Khan points out, "We have a population of 180 million people and growing; they have to eat."
Continental Biscuits and English Biscuits Manufacturers are the two largest biscuit manufacturers in the country. According to industry sources, together, the two companies make up almost four-fifths of the sales of the organised sector in this field. However, a majority of the overall demand for biscuits is still fulfilled by smaller players and bakeries. Hamid Ali Khan estimates that "the organised businesses are only about 30 percent of the entire market for biscuits in Pakistan; the rest is all being catered by bakeries and smaller manufacturers".
TALKING NUMBERS:
But Khan points out that consumption patterns are shifting in favour of packaged goods. "Consumers perceive that everything packaged is pure. They identify packaged goods with health, purity and freshness," he explains.
Rising health consciousness has helped the company grow leaps and bounds in recent times with a thrust of sales from rural areas. "About three or four years back, only about 30 percent of our sales were coming from rural areas while the rest came from urban areas," says Khan adding that "This proportion is shifting quickly and in the future sales will skew to a point where a majority of the sales come from rural areas."
Due to this phenomenon the company has witnessed sales growth of about 18 percent per year and currently has a sales turnover of about Rs8 billion while its sales volume stands around 49,000 tons. The company's plant is situated in Sukkur and employs about 400 workers there. Khan explains that "This location is equidistant from markets in Sindh and Punjab," facilitating timely delivery of products to consumers.
"The industry's average expenditure on advertising is about 12 percent of turnover, which is also what we follow," he sums up.
PASSION FOR BISCUITS
Hamid Ali Khan dispels the notion that the supply chain network of a company is the most important aspect for maintaining its market share. While he acknowledges the need for an effective supply infrastructure as well as distribution system, Khan insists that the "key to maintaining the edge over competition lies in keeping up quality standards".
"We were the first to use coated film, biaxial-orientated film. We go into transmission ratios of water and oxygen," highlights Khan stressing that the company has set high standards of quality for itself, which are only imitated by the larger competitors while smaller players often resort to the use of sub-standard ingredients and packaging.
"Food is a living, breathing organism and manufacturers must have intimate knowledge of the technical dynamics involved. You have to know heat application, the behaviour of packaging and you have to buy the best."
Laying stress on the company's quality standards, he highlights, "We submerge the packaged biscuits under water as one way of testing the durability and effectiveness of the packaging."
GOING GLOBAL
Continental Biscuits was a joint venture between Hasan Ali Khan and French-based Generale Biscuit; however the latter's 49.5 percent stake in the company was eventually sold to Kraft Foods.
While the company has shown impressive growth in local markets since its inception, exports have also surged during the past five years. Currently, Continental Biscuits is the country's largest exporter of biscuits, selling its products in more than 20 countries in the Middle East and Africa. Khan asserts that the company has gained invaluable experience and knowledge from these markets because there they "compete with all the international brands".
But the most lucrative growth prospects in international markets are in Afghanistan, according to Khan. He adds that the western neighbour also presents an avenue for exports to Central Asian republics - a market that Continental Biscuits has leaped into in the hopes of mushrooming revenues.
GOING PUBLIC AND GROWING
The family of Hasan Ali Khan, the founder of the company, have remained the majority stakeholders in the company since its creation. Most family-owned companies shy away from listing at stock exchanges due to higher disclosure requirements, stringent conditions for seeking liabilities and loss of management control.
However Hamid Ali Khan asserts "There can be no better force for demanding efficiency than shareholders." He reveals that Continental Biscuits plans to list at the local stock exchanges "within the next two years".
Kraft Foods, also owns 40 percent of EBM, but Hamid Ali Khan is adamant that there "is no way" that Continental Biscuits would merge with EBM. While he concedes that the phenomenal growth in the industry has allowed all players in the industry to grow; Khan insists that competition between large manufacturers is tough. "There is very much a fight," he says, adding that "Everyone knows everyone else's numbers and there is competition in the trade and people switching between companies."
BEYOND PROFITS
Continental Biscuits was the first company to employ females in Sukkur and is the largest employer of women in Sukkur. The company is also on the board of IBA-Sukkur and maintains seats there for female students.
"In terms of sustainable projects we have set up the first kidney dialysis centre in Upper Sindh so that people do not have to travel all the way to Karachi for treatment. We have set up schools in the Nara deserts as well as set up tube wells there," narrated Khan.
He also revealed that the company contributed $400,000 for flood relief and fed about 5000 people a day in the aftermath of last year's floods.
An avid conservationist himself, Hamid Ali Khan has worked on out-of-the-box solutions for limiting the wastage of water and energy. He proudly explains how his factory utilises heat from electricity generators to produce 600 tons of air conditioning. Khan is currently working on ways to produce electricity from renewable sources such as wind and solar power, through low-cost solutions.
THE BOTTOM LINE
Hamid Ali Khan contends that his company has not raised prices by more than five percent over the past three years, despite spiralling input costs. "Four years back, I was buying flour at about Rs11 per kilogram which is now at Rs31 per kilogram. Sugar prices have also gone up by about as much over the same period."
While he is irked by increases in the prices of sugar and wheat flour, Hamid Ali Khan says that the biggest irritant has been the rocketing price of fat. "Fat used to cost about Rs50 per kilogram but now it's at Rs140 per kilogram," he says.
One of the ways that local manufacturers have coped is by reducing the proportion of fat in their products. "Pakistani biscuits have become the healthiest biscuits in the world because they have virtually no fat!" quipped Khan.