Super Shop Industry in Bangladesh: A Sector with Huge Potential
Kazi Waliul Islam ‫ ׀‬November 5, 2021 ‫ ׀‬Business Inspection
The super shop industry of Bangladesh was first introduced while Agora was established in 2001.
According to TBS News, the super shop holds only 1.6% of the local retail market industry of
Bangladesh. Although the super shop sector contributes a very insignificant share of the local
retail market, the potential and customer base of it is increasing slowly.
Super Shop Industry Overview
A supermarket or super shop is a self-service shop offering a wide variety of food, beverages, and
household products, organized into sections. The super shop industry is one of the growing
sectors in Bangladesh. The growth of super shop increased due to the socio-economic
development, urbanization, and purchasing power of the middle and upper-middle class of the
country. Following the western concept, Rahimafrooz Superstores Limited introduced Agora as
Bangladesh’s first super shop in 2001. The next year Gemcon Group launched Meena Bazar. In
2006, Shwapno started its journey in Bangladesh as a sister concern of ACI Limited. In terms of
the number of outlets, Shwapno is currently the top super shop chain in Bangladesh, serving
more than 40,000 customers every day with more than 185 outlets. However, among all the
Shwapno’s outlets, 61 outlets are owned by Shwapno and the rest are managed through
franchises. In addition, the Gemcon Group’s Meena Bazar has 18 locations in Dhaka, Chittagong,
and Sylhet, while Rahimafrooz’s Agora has 18 locations around the country.
According to a report of the Daily star published in 2020, Gemcon Group and Rahimafrooz were
in discussions to take over all Agora locations. United Group’s Unimart also has three outlets at
Gulshan, Dhanmondi, and Wari in Dhaka, as well as two express outlets at United Hospital and
United International University. On the other hand, Daily Shopping, run by Pran-RFL Group, has
51 outlets across Dhaka. Apart from this, there are some other small super shop chains inside
Dhaka including 4 outlets of Almas and 4 outlets of Prince Bazar. Most of the super shop retail
outlets are located in cities and urban areas like Dhaka, Chittagong, Narayanganj, Rajshahi, and
Sylhet.
According to TBS, Bangladesh’s retail market was worth $16 billion in 2020. The super shop
industry accounted for only 1.6% of this total, or around $256 million. However, this figure is
substantially higher in neighboring nations. Super shop account for 43% of the overall retail
market in Sri Lanka. In India, the proportion is 8-9%, while Myanmar and the Philippines have
more than 50% share of the retail sector in 2020. Although the super shop landscape is very small
in Bangladesh, the sector will continue to grow in our country. According to a report of the Daily
Star published in January 2020, the super shop industry will be growing at a rate of 24% each
year on average and according to TBS news, within the next seven years, super shop will account
for at least 10% of retail sales in Bangladesh.
Business Model
Supermarkets’ business models and income generation are profoundly reliant on product sales
across the world. In that case, Supermarkets often acquire products from both primary and
secondary sources. Supermarkets can purchase items at low prices if they obtain them directly
from the source, without the involvement of any middleman. On the other hand, the cost of
purchasing the same amount of product rises due to intermediaries. However, supermarkets
have more purchasing power than grocery stores and they are capable of buying things in bulk
for all of their stores. As a result, despite the presence of several intermediaries, super shops may
obtain items at a cheaper wholesale price than small retail shops or grocery stores. As a result,
supermarkets may generate more revenue at larger margins than small retail or food stores.
Supermarkets sell items with both high and low profit margins. According to one market analysis,
certain local items can create less than 5% profit, and some imported products can generate up
to 50% profit. Super shops can typically make a profit of 15%-16% of total sales. To generate
income, super shops frequently use a ‘bundle pricing’ approach. Super shops can use this method
to clear out stock of slow-moving items by offering a ‘bundle’ consisting of both slow and fast
moving products at a discount price. In addition, for some items, supermarkets offer “buy one,
get one free.” In this approach, Super shops are able to boost sales volume while also generating
huge profit margins.
Furthermore, FMCG giants such as ACI and Pran-RFL operate super shop networks such as
Shwapno and Daily Shopping. As a consequence, both companies offer FMCG products to
consumers through their own retail chains. It has also enabled them to maintain strong profit
margins for chain stores and FMCG corporations.
In addition to profit generation from product sales, manufacturers provide shelving fees or
slotting allowances to super shops. It helps the manufacturers to display their items in prominent
places or shelves of the super shops. Manufacturers use this method to introduce new products
to the market or to promote less-known brands. Furthermore, several manufacturers provide a
variety of appliances, such as freezers and automated shelves, for a fee in exchange for the use
of their products. In this approach, the super shops promote the brands and generate revenue
as well.
However, the whole business model of super shops is based on selling more and more products
to customers. That’s why every super shop offers a membership program for its consumers, with
a reward point system for every purchase. Customers keep coming back to the super shops
because they receive additional benefits through the use of reward points.
Current Trends
In Bangladesh, the majority of buyers choose to purchase everyday commodities straight from
the traditional market and grocery stores. However, as the purchasing power of Bangladesh’s
middle and affluent classes rises, the number of individuals shopping at super shops tends to
grow. As a result, super shops in Dhaka have increased their operations in various regions in
recent years. However, the Covid-19 Pandemic has resulted in a significant increase in
Bangladesh’s number of super shops. It provides a secure shopping experience while preserving
a hygienic atmosphere throughout the pandemic. According to Mr. Sabbir Hasan Nasir, Executive
Director of ACI Logistics, Shwapno’s gross sales in March 2020 were BDT 131 crore, which is 50%
more than the average sales. Unimart’s sales have grown at a rate of 40% every month until
March 2020, according to Mr. Murtaza Zaman, the company’s CEO.
Aside from super shops, online grocery delivery services have grown in popularity in this
pandemic. According to a statement from the Daily Star of 2020, the average grocery order
basket value at the online grocery store Chaldal was BDT 1,300 before the pandemic, but it
climbed to BDT 3,750 during the period. At one stage, the local ridesharing platform Pathao, and
the online food delivery platform Foodpanda have also come up with offering daily commodities
and grocery delivery services. This has had a significant impact on the rise of super shops.
However, stores like Shwapno, Meena Bazaar, and Agora are focused on online sales and home
delivery along with in-store sales. Serving clients in both physical locations and online has given
the country’s super shops the opportunity to serve more people. However, now that the
pandemic situation has stabilized, the majority of customers continue to shop at the traditional
market and grocery shops. According to industry experts, customers have returned to their prior
buying behavior to avoid paying an additional value-added tax on packaged goods.
Challenges
Investment Cost
According to a Financial Express report published in 2018, Building a single super shop in
Bangladesh costs four times higher than neighboring nations. Opening a 4000 square feet super
shop in Bangladesh can cost BDT 4.5 crore. On the other hand, in Sri Lanka and Indonesia, it costs
only BDT 1.1 crore. When it comes to opening a super shop, location, size, and interior design
strategies play a vital role. Since the majority of the super shop’s customers are from the middle
and affluent classes, and most of them live in the city, super shops are established in densely
populated areas of the major cities. Furthermore, a super shop requires significantly more space
than a regular retail store. As a result, the expenses of establishing and managing a super shop
rise substantially.
Sharing Profit Margin
Super Shops mainly practice 2 types of value chains: direct sourcing and indirect sourcing. When
a super shop uses indirect sourcing, there are 8 intermediaries along with producers and end
customers, which allows them to set a profit margin of 10-12%. On the other hand, when they
use direct sourcing, it contains 5 intermediaries and sets 12-18% profit margin. So, direct sourcing
is more profitable than indirect sourcing. However, supermarkets are not always able to perform
direct sourcing due to issues such as transportation and a limited number of medium and large
farmers.
Logistic Issue
In Bangladesh, supply chain logistics is one of the most serious issues in every industry.
Supermarkets must cope with several challenges of selling fresh vegetables and fish due to
Bangladesh’s limitations in transportation and cold storage management. However, many
customers believe that the supermarket’s veggies, fish, and meat are not fresh. In addition to the
emphasis on cleanliness and hygiene, a specific temperature is constantly maintained in the
super shops. That’s why the vegetables, fish and meat sold in the super shops are fresher than
the unclean atmosphere of the traditional market.
Customer Perception
The perception of customers is the most challenging task in the expansion of the super shop
sector in Bangladesh. Bangladeshi consumers are extremely price conscious. Consumers do not
have to pay any VAT while buying products from the country’s traditional retail outlets. However,
VAT is charged on over 70-80% of the items sold in supermarkets. According to NBR guidelines,
each super shops must pay 5% VAT. Because customers are price sensitive, one of their
assumptions is that the price of a product is high in the supermarket. In addition to that,
Consumers may also check the market price and bargain in traditional retail stores and raw
markets. As a result, they prefer these stores over super shops.
On the other hand, Consumers in Bangladesh have a tendency to buy on credit. But there is no
way to buy on credit in super shops without using a credit card. In Bangladesh, however, credit
cards are used by less than 1% of the population. As a result, supermarket shopping in Bangladesh
is still restricted to the top and upper middle classes. Consumers in this group enjoy shopping at
the supermarket because they may find a variety of brands in several product categories as well
as a clean and healthy atmosphere.
Growth Depends on VAT Percentage
Bangladesh’s super shop revenue is derived by the percentage of VAT on the retail price of the
product. From 2005 to 2018, the percentage of the VAT has changed a couple of times. Prior to
2012, when VAT was only 1.5%, this super shops grew at a pace of more than 100%. When a 4%
VAT was implemented in 2012, the shop’s revenue growth slowed and went negative. Later, in
2014, the VAT rate was reduced to 2%, and revenue began to rise at a rate of 46%. However, the
reintroduction of 4% VAT in 2015 resulted in a decrease in revenue growth. And, once again, the
increase in the VAT rate to 5% in 2018 is causing a reduction in revenue growth.
Future Opportunity
In Bangladesh, People’s purchasing power is increasing day by day. This year, per capita income
increased to USD 2227 from USD 2064, so we can say people’s disposable income is increasing as
well as, middle and affluent class consumers want to purchase everything under one roof. So,
demand for super shops is increasing all over the country. According to a business standard
report, it is expected to meet the rising demand within 5-10 years, super shop will be built in all
district headquarters and suburban areas of Bangladesh. According to another report of TBS
news, Trading at traditional kitchen markets is expanding at a pace of 5-6%, whereas Shwapno’s
growth is predicted to reach 20% every year, which indicates that customers are moving away
from traditional retail markets to super shop. So, there is a huge growth opportunity for super
shop.
Though the Bangladeshi super shop business is still in its early stages, it is well established in
some developed countries. If this industry develops effectively in Bangladesh, it will be able to
attract the world’s largest retail conglomerates. If these retail giants come to Bangladesh, they
would expand the country’s super shop business as well as the total retail market size. While
worldwide retail giants are gradually shifting to e-commerce, traditional stores are still surviving
in the market. Although Amazon is an e-commerce company, the company is doing research in
physical stores using various innovative technologies for in-house grocery item selling. Thus, they
will be able to service more customers as they’ll be able to serve both physical and online
platforms.
Although the number of super shop outlets in Bangladesh is insufficient, it has significant
potential to grow since the customer’s demand pattern is changing, overhead incomes are rising,
and super shop chains are rising as well. During the last 19 years super shops have changed the
country’s shopping pattern, customer service as well. If the government agencies like regulators
and tax authorities help the super shop industry by enforcing fair policies and equal opportunities
it could have grown at a faster speed.
Brief Overview of Shwapno
Shwapno started its journey as a superstore in 2006 under ACI Logistics. The store is doing
business in major cities in Bangladesh such as Dhaka, Chittagong and Sylhet through 130 outlets
out of which 61 are their own and the rest are franchise stores. Shwapno is now at the top in the
retail chain market with about 50% market share. In 2017, Shwapno also entered the ecommerce market through shwapno.com. ACI Logistics has also been working with GLOBAL G.A.P
to expand agriculture in Bangladesh.
Although the inception of Shwapno as a superstore was much later than Agora & Meena Bazaar,
it was quick to capture the market share. But in the beginning, Shwapno faced some challenges.
Like other super shops, in the beginning, the targeted customer for Shwapno was the affluent
class people. And because of this Shwapno faced hard competition from Agora and Meena Bazar
from the very beginning. Along with that, buyers also complained about hygiene maintenance
and the availability of various products. Due to these reasons, the number of Shwapno’s retail
outlets started to decrease at that time.
Later on, Shwapno was able to make a turnaround with some timely steps. The super shop made
some strategic changes like reducing product prices and expanding product portfolios and aimed
to attract buyers of all classes. Later on, Shwapno with Agrilinks and Logistics started working
together to directly deliver the products produced by the farmers to the consumers through the
Seed to Shelf policy. Although Shwapno occupies almost half of the super shop chain market, it
was never able to make profit since its inception. Extensive expenditure in the ad and marketing
department of the company, the bigger loans or interest expense due to taking a large loan can
be held responsible for this. The company plans to reduce its reliance on financing through loans
in the future and focus on equity financing.