From Changing Perception To Nearing Profitability- A Deep Dive In The Growth Journey Of Shwapno | In Conversation With Sabbir Nasir, ED, ACI Logistics Ltd.13 min read

In a recent insightful conversation with Mr. Sabbir Nasir, Executive Director, ACI Logistics Ltd (Shwapno), we delved into the evolving landscape of the retail industry in Bangladesh and Shwapno’s pivotal role in this transformation.

Mr. Nasir, a dynamic leader at the forefront of Shwapno’s operations, shared comprehensive insights into the company’s journey, challenges, and strategies that have led to its current success. From discussing the initial perception challenges and the innovative approaches to overcome them, to the adoption of new business models like franchising, Mr. Nasir provides a deep dive into the factors driving Shwapno’s growth.

Read more: Case Study: Project AgroBanking by UCB & Shwapno | The Campaign That Won Bangladesh Many Global Awards

The discussion also explored Shwapno’s response to evolving customer behaviors, particularly among younger demographics, and the impact of technology on retail operations. Mr. Nasir emphasized the importance of balancing tech advancements with human interaction, reflecting on the necessity of a gradual tech adoption process in the Bangladeshi market.

Key topics such as the financing landscape in Bangladesh, Shwapno’s approach to international equity investors, and their path to profitability were also addressed. Mr. Nasir’s leadership philosophy and advice

to aspiring entrepreneurs offer valuable insights into the mindset required to navigate the complexities of today’s retail environment.

Markedium: Mr. Nasir, thank you for joining us today. Could you begin by giving us an overview of the current state of the retail industry in Bangladesh? What are some significant developments in Shwapno recently? Could you please give us an overview of Shwapno today?

Mr. Sabbir : Thank you for having me. In simple terms, the total market we’re dealing with is considerably significant, around 16 to 18 billion dollars. Not too long ago, before 2012, modern trade made up only a tiny slice of the retail market, just 0.3%. But now, things have changed a lot, and modern trade accounts for about 2 to 3% of the market. A big part of this growth is I believe due to Shwapno’s impact on the industry.

But let me tell you, getting here wasn’t a walk in the park. People were so used to their usual way of shopping at informal markets that convincing them to switch to this new, modern trade was tough. Some of their reasons were sensible, but others, not so much. We had to start from the ground up, trying to get people into the habit of shopping at these modern trades. We couldn’t just copy what works elsewhere because, honestly, in Bangladesh’s competitive market, those global strategies often don’t pan out.

So, we had to get creative and come up with our own business model that really resonated with our customers. There were loads of challenges, too. Many Banks weren’t keen on lending us money, and a lot of people didn’t think it was a great idea. But thanks to the vision of our founders supported by ACI Group and the relentless effort of our team supported by our partners & guests, we managed to pull through and achieve this growth despite all the odds.

Markedium: Given that customer-centric strategies have been pivotal for Shwapno and the Modern Trade sector, it’s clear that customers are a crucial driving force in this industry. Are there any other key factors or drivers that significantly influence this industry’s success?

Mr. Sabbir : Absolutely, customers are essential. But in our industry, there are a few additional critical drivers. The suppliers and regulators stand out as two major ones, alongside the customers. Additionally, if we look at the broader picture, financiers and real estate owners also play a notable role. In summary, I can say, there are five key drivers in our industry, with three of them being the primary forces where consumers play the central role.

Markedium: Shwapno started in 2008, and for the last 7 years straight under your leadership it has been the top supermarket brand in the country. You’ve pointed out how Shwapno faced challenges in altering customer perceptions. We’re now interested in understanding how customer behavior has evolved in the Bangladeshi retail market, particularly among younger consumers. Are there any noteworthy trends or changes in this demographic?

Mr. Sabbir : Very interesting question. Back in 2012, supermarkets were perceived predominantly as places for the affluent-‘The Richman’s Place!’ The general populace was not only unfamiliar with the locations of these supermarkets but also with the concept of modern trade. Additionally, there was a noticeable lack of variety and availability of products in these supermarkets at that time.

Fast forward to the present, and the landscape has dramatically transformed. Supermarkets like Shwapno have become regular shopping destinations for middle and lower-middle-class families. They are now seen as hubs of comfort and convenience. The perception shift has been significant, with customers recognizing that supermarkets are affordable and cater to the needs of a diverse clientele.

In certain instances, customers can also discover substantial promotional offers and discounts, which provide a considerable relief in managing monthly expense budgets.

Regarding the younger generation, there’s a noticeable trend towards E-commerce & F-commerce shopping. However, this segment is still evolving and has yet to make a significant impact on the business model.

Markedium: So, we can say that customers have accepted the benefits of Modern Trade and Shwapno with open arms and the business is showing some great response. Probably, that’s the reason Shwapno’s recent data shows a staggering growth of operating profit from Tk 20lakhs from last year to Tk 13 crore this year. Can you elaborate a bit more on this success?

Mr. Sabbir : Well, to be honest, the foundation was set from day 1. We had to first focus on a detailed analysis of profitability at each store, and conduct numerous experiments to enhance profitability across the stores.

Our initial strategy focused on enhancing consumer adoption, which directly contributed to increased foot traffic in the stores—a key factor for market share growth and increase in revenue growth. So, the more we could expand and address the needs of our customers, our market share saw a positive impact.

Moreover, we’ve clearly defined our value proposition pillars: convenience, value for money, and trust. Our strategy of deep market penetration, aligned with these pillars, has reaped the benefits of scale.

This approach has also bolstered our relationship with suppliers, leading to significant growth in this area over the years. In addition, we have embraced innovative methods surrounding the overall value chain.

These strategies have collectively enabled us to gradually increase our margins, with a notable impact observed this year.

It’s also crucial to highlight our relentless pursuit of operational efficiency, which has been instrumental in reducing our operational expenses.

Markedium: Therefore, it’s fair to say that the industry is in a phase of growth, pointing towards a promising future, considering customer adoption, positive responses, and encouraging financial figures. Returning to a critical challenge you previously mentioned, could you elaborate on why financiers in Bangladesh are hesitant to invest in the expansion of such a burgeoning industry?

Mr. Sabbir: Banks, the primary financiers in Bangladesh, tend to shy away from sectors with longer payback periods. Unfortunately, Bangladesh’s finance industry is still in the early stages of benefiting from alternative funding sources like hedge funds or private equity. While some options exist, they are not sufficiently widespread.

Therefore, banks remain the main financing avenue in Bangladesh. They primarily focus on the Balance Sheet & the Profit and Loss statement when making investment decisions. Red lines in the Profit and Loss statement often deter them from investing. While they do recognize and appreciate growth and EBITDA, their primary concern is the Balance Sheet.

Consequently, operating a business in high-growth industries like ours, with these limitations in available funding options, presents a significant challenge.

Markedium: As you said, the expansion of stores worked as a key driver of Shwapno’s growth over the year. And, the significant growth in revenue is a reflection of that. However, we have also seen that the average revenue per store is in a declining trend. We are curious to know why?

Mr. Sabbir: In the early stages, Shwapno financed its own store openings through bank loans. Despite the growth in sales and operating profit, this didn’t reflect in the net earnings due to the substantial financing costs, including compounded interest from both direct bank loans and intercompany debts.

Shifting gears, Shwapno has now embraced a Franchise Model for growth. The franchisees are funding this expansion. However, the small and medium enterprise (SME) franchise investors typically have limited funding capacity, ranging from 20-30 Lakh to a maximum of 1 crore, leading us to establish smaller ‘express’ stores.

This new approach aligns well with consumer behavior. Many customers prefer to shop for groceries at nearby informal stores, and our franchise model allows us to cater to this preference, bringing Shwapno closer to the consumers and addressing their frequent shopping needs.

The downside of this strategy is that these smaller franchise stores, compared to Shwapno’s larger owned stores, often lack a range of ‘basket booster’ items like fish and meat, leading to a decrease in the average revenue per store.

Nevertheless, by being closer to the consumers and providing quality-assured products for their regular essentials, we are gradually seeing an increase in customer spending through these express stores. We are confident that as these franchisee stores grow and reach economies of scale, they will become a critical component in driving profitability.

Markedium: We’d like to turn our attention to the increasing trend of intercompany borrowing by Shwapno. Given the challenges you’ve outlined regarding securing bank financing in Bangladesh for a business of Shwapno’s scale, would it be accurate to consider intercompany borrowing as an alternative strategy to mitigate the current limitations in financing options within the country?

Mr. Sabbir : Well, the interest rates for both intercompany borrowing and direct bank loans tend to be similar. Our current objective is to steer away from these forms of borrowing and instead concentrate on investments driven by equity.

At the moment, we’re focusing on securing capital from our SME partners, namely the Franchisees. They’re incentivized to invest because of the promising returns, which aligns with Shwapno’s commitment to serving their customers effectively.

Indeed, facing the realities of our business model, which operates on slim margins and relies on substantial volumes, it becomes exceedingly difficult to manage the typical financing costs that hover around 10-12% in Bangladesh. This high rate of financing is directly reflected in our Profit & Loss statement, where the red lines are a clear testament to the burden of these staggering financing costs.

Markedium: This leads to an important question: Why hasn’t Shwapno considered obtaining funding from international equity investors?

Mr. Sabbir : Shwapno has received proposals from few major international investors, including term sheets. However, our board believes that the valuations presented in these term sheets do not reflect Shwapno’s true value. The board has certain expectations regarding the company’s valuation, especially considering our promising future.

The issue at hand is whether to secure investment during this incubation phase, as doing so might undervalue the business’s true potential.

This doesn’t mean that negotiations with investors have ceased. We remain open to raising funds, provided the valuation aligns with our expectations.

Markedium: So, when can we expect Shwapno to reach profitability?

Mr. Sabbir : Shwapno is on the verge of achieving profitability. Well, to give a hint, if the board decides to convert our intercompany loans into equity investments, we will be profitable the next day.

The primary obstacle to profitability has been the high financing costs. The decision now hinges on either securing external investments or having the board convert the debt into equity.

Meanwhile, we are expanding our number of stores and striving for maximum economies of scale, along with operational efficiency.

Without external investment and maintaining our current plan of operating profit growth, Shwapno can achieve profitability in the next 4-5 years.

Markedium: If we reroute from finance a bit, are there any key details that the audience should be aware of regarding Shwapno’s expansion strategy??

Mr. Sabbir: We are currently operating in 62 districts. Our ambition is to expand Shwapno throughout Bangladesh, reaching as far as upazilas and villages with our outlets or express stores. Emphasizing an omnichannel approach, we aim to exceed the numbers by thousand stores across the country within the next three years.

Markedium: Globally, humanity has advanced towards advanced technologies like artificial intelligence and new technologies are currently synergizing with human intelligence. How Shwapno is doing in that aspect?

Mr. Sabbir: We have a dedicated department on that matter. The department that includes data scientists, researchers, product managers, and technologists, all collaborating to enhance internal operational efficiency and customer interface.

Our tech team primarily focuses on improving internal operations, and we’ve already made significant advancements in logistics and store operation management with their help. Being data-driven from the outset, we utilize AI and BI tools to analyze store or SKU-level activities.

However, there’s still a considerable journey ahead. We’re in the early stages of using technology to enhance human productivity and anticipate becoming more tech and data-oriented over the next seven years.

Fully transitioning to a tech-driven business model, as seen in developed countries, isn’t currently feasible for us. In those regions, models like auto-checkout are becoming standard, but our customers still prefer interacting with employees. Therefore, our approach to tech adoption must be gradual, aiming to create a harmonious blend of technology and human interaction.

Markedium: You noted that customers often prefer interactions with employees, emphasizing that retail is more about the experience than the transaction itself. Could you share your insights on how the customer perception about Shwapno has evolved from when you first joined the company compared to its current state?

Mr. Sabbir: When I first joined Shwapno, there were low expectations surrounding the brand. Many perceived it as a fleeting venture, with a widespread belief that the stores might shut down anytime. However, the scenario has drastically changed now. People recognize Shwapno as the premier shopping destination, known for addressing service-related queries with empathy and significance.

The recent launch of our store in Bashundhara R/A is a testament to this transformation, having received an overwhelming response from the local customers. This success is a direct result of the brand value we’ve built over the years, where customers not only appreciate our services but also actively provide feedback.

Shwapno has recently been honored as the 6th most loved brand in Bangladesh across all categories, a clear indicator of the trust we’ve earned. This remarkable achievement is primarily due to the exceptional customer experience we’ve consistently delivered.

Markedium: Moving on to a more personal note, as the driving captain of Shwapno, what are some leadership principles you hold dear in managing such a dynamic organization?

Mr. Sabbir: Shwapno’s leadership principles is embedded in its values, represented in a diagram called, Shwapno values tree. This tree has got its wide base, called customers centricity, followed by a thick, long trunk called, pragmatism. There are two branches In this tree. One called passion, which has got two sub branches named disruption & creativity. The branch passion is counter balanced by another branch, named perfection, the pragmatisim trunk, the passion & the perfection branches meet & move to create an extension.

The extension is called progress, which is looking at a sun called purpose. This tree has got roots with values e.g. unlearning & learning , fact based thinking , fairness etc.

Markedium: Finally, what message would you like to share with aspiring entrepreneurs?

Mr. Sabbir:

1. Don’t leave anything half-done .
2. Do real work, be a deep person.
3. Respect your stakeholders .
4. Performance matters .
5. Watch your habits.
6. Find a mentor , find your why .
7. Read .

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