VAT waiver on supershops boosts sales 20%

Summary:

• VAT removal led to a 20% increase in footfall at major supermarkets
• Supermarkets now compete with bazaars due to more competitive pricing
• Chains like Agora and Shwapno plan aggressive expansions after policy change
• Supermarkets pay VAT on gross margin; informal shops often evade similar taxes
• Industry leaders seek further tax relief and infrastructure support for growth
• Modern retail holds just 2.5% market share, signaling massive growth potential

After years of struggling with an uneven tax regime, Bangladesh's modern retail chains are seeing a turnaround. The interim government's removal of the 5% VAT on packaged goods at supermarkets, effective 21 February, has led to a 20% increase in footfall at major chains, according to industry insiders.

Supermarkets had long lost customers to traditional bazaars due to higher prices from the VAT. But now, consumers are returning. "People are buying all their groceries from us because prices are competitive, and everything is in one place," said Shameem Ahmed Jaigirder, COO of Meena Bazar.

The numbers support his claim. Meena Bazar, with its 39 outlets across Dhaka and other major cities, saw an average 20% increase in customer turnout within weeks of the tax being scrapped.

A decade of disadvantage ends

For nearly ten years, VAT on packaged goods put supermarkets at a disadvantage. Prices were often higher than mom-and-pop stores, discouraging customers despite better hygiene, variety, and storage. With the playing field leveled, retailers are expanding aggressively.

Agora, Bangladesh's oldest supermarket chain, opened four new stores in March alone. "We plan to open 110 outlets in the next two years," said Khandaker Nur-E-Burhan, Agora's COO. Shwapno, the largest chain, saw a 15% rise in footfall and now serves over 100,000 customers daily.

A roller-coaster tax policy

Since 2005, VAT on packaged goods fluctuated between 1.5% and 7.5%, causing supermarkets to struggle. The final removal in February is now driving rapid growth, with sales volumes rising across all major chains.

The industry was critical of the VAT, as customers had to pay an additional 5% on top of the maximum retail price printed on packaged goods. Retailers endured a turbulent period, with both local and foreign investors facing challenges due to the adverse policy.

Despite the VAT relief, supermarket chains still face hurdles. They must pay VAT on their gross margin—about 2.5% of sales—while informal retailers often evade similar taxes. Additionally, laws like the Food Safety Act are inconsistently enforced, causing further disadvantage to supermarkets

While companies like Agora and Meena Bazar had to sacrifice growth to survive, expansion-focused firms like Shwapno saw their investors bearing a heavy financial burden.

Sabbir Hasan Nasir, managing director of Shwapno, the country's largest retail chain, says that his company continued expanding despite policy barriers.

Same-store sales volume at Shwapno surged by more than 20%, according to Nasir.

Already attracting the majority of supermarket shoppers in the country, Shwapno – which holds over 50% of the market share – witnessed a 15% growth in footfall over the past month, with its 500+ outlets now drawing more than 1,00,000 customers daily.

With the fastest compound annual sales growth of 21% over the past decade, Shwapno has solidified its position as a daily shopping destination for the masses.

Road ahead

Customers have been relieved of the extra VAT, but the playing field is still not level for modern retail chains, said Nasir.

Like other large retail stores, the chains are required to pay the applicable VAT on their gross margin, which is roughly 2.5% of sales.

"Compliant chains will pay it, but the revenue authority is not equipped to collect the same from the vast network of unstructured shops across the country," said Nasir.

The supermarket industry also needs to work harder to create mass awareness about the long-sought relief, said Galib Farrokh Bakht, COO of Daily Shopping, which operates 82 stores and now plans to open 50 more before 2027.

Unlike others, Daily Shopping has been bearing the extra 5% burden on behalf of its customers for years. However, a large number of passing shoppers still believe that the air-conditioned, cleaner stores are more expensive, Bakht said.

Growing market

"Supermarket customer-base should be growing across the country faster in the coming years," said Nasir who now aims for a 30% annual growth rate as a vast market is untapped.

"In Ramadan, supermarkets usually see higher sales, we are not concluding about the topline impact of no extra VAT before Eid," said Agora's Burhan, echoing others.

"Encouraging for us is that the number of walk-in customers jumped," he said. "However, the main growth in sales is coming from the loyal customers who took no time to start buying everything from our stores."

"Membership registration is increasing since 21 February as consumers can avail better bargains through the loyalty programs," said Meena Bazar's Jaigirder.

Previously, 65% – 67% of Agora sales were to the loyalty card members. Now it is at 70% and its COO expects further rise. Agora loyalty card members' share in footfall rose to nearly 60% from 52%.

Zakir Hossain, general secretary at the Bangladesh Supermarket Owners' Association told TBS that the association has 35 members. Beyond that dozens of non-member firms are operating superstores or convenient stores.

"Having them within the association's umbrella in the coming months, total membership will cross 100," he estimates.

There has been a significant jump in middle-class-dominated neighbourhoods like Mirpur, Shewrapara, and Moghbazar, as premium customers are less price-sensitive, according to Burhan.

The industry, excluding Shwapno's extraordinary growth, was growing at an average rate of 7-10%. For the next couple of years, it is expected to grow by over 15% as more people are anticipated to shop at modern stores.

Future growth & challenges

Muallem A Choudhury, chief executive officer at Brummer & Partners (Bangladesh), which manages foreign funds owning a majority stake in Agora, said Bangladesh missed a significant wave of the organised retail boom due to policy barriers over the past one and a half decades.

"It is encouraging that the government is addressing these issues. Still, many problems remain," he added.

"Foreign investors invest in Bangladesh based on its laws. However, some of these laws are not enforced consistently across the spectrum," he explained.

Despite the VAT relief, supermarket chains still face hurdles. They must pay VAT on their gross margin—about 2.5% of sales—while informal retailers often evade similar taxes. Additionally, laws like the Food Safety Act are inconsistently enforced, causing further disadvantage to supermarkets.

Industry leaders are calling for further tax and duty reductions on retail infrastructure. With modern stores still accounting for just 2.5% of Bangladesh's retail market—compared to 12%-30% in countries like India, Sri Lanka, and Indonesia.