The Philippine food retail and wholesale industry faces both opportunities and challenges in 2010. Of our Gross Domestic Product, 70% is consumption-driven. A major portion of this consumption demand is for food.
Filipino families, in general, continue to spend as much as much as 50% of their income on food. We also know that the demand for food is inelastic. People can only consume so much. However, poverty and hunger incidence is high and any increase in income will be channeled to food spending. Demand for non-food products, given this scenario, will show little improvement. Hence, the question arises of source of income growth for the nation.
What will drive the growth of the Philippine economy and Filipinos in 2010? That’s a tough question to answer. We know there are initiatives in the information technology, data processing, and call center sectors. There are initiatives to promote tourism. There are efforts to push mining activities in the country. But these seem to be limited in terms of impact on income generation for majority of Filipinos.
In that case, the economy will be expected to show little improvement and the net benefit to Filipinos will be in pockets. Although election spending this year creates temporary employment and income opportunities for the downscale market, which will fuel higher demand for consumer goods, sustainability remains uncertain from a pump-priming perspective.
The battle in 2010 will be centered on market positioning for the major players. The major players namely the SM group, Puregold, Robinson’s, the Gaisano group, and major regional players are expected to be more aggressive with expansion, displaying a significant growth in market share as objective.
These major players have gone into multi-format retailing and some have wholesale at the heart of their operations. The independent medium-size stores will be adversely affected in the process. This sector of the retail and wholesale trade will have stagnant or shrinking market shares.
Shares of convenience stores will remain intact and will exhibit growth as this sector serves a specific market niche. Wet-market share will remain at current levels, but is expected to fall as modern trade outlets encroach. Sari-sari store operations will continue to thrive given their focus on street-by-street demand satisfaction and as a low-entry-barrier livelihood alternative.
This year ushers in the beginning of market consolidation, where volume dictates the amount of trade support given by manufacturers and suppliers. We will begin to see the squeeze on some market players, particularly the independent supermarkets and groceries.
Likewise, we will see a further decline in retail margins, especially with fast-moving consumer goods, as players fight to protect their remaining market shares. A sizable number of retail operators are now into pseudo-wholesale operations, with retail margins brought down to wholesale margin levels.
While major players focus on sales and volume growth, the independents will have to focus on operational efficiency. Effort will be exerted to further reduce energy and manpower costs both on the management and labor side. Significant attention will also be given to inventory turnover efficiency. A few will be able focus on store differentiation as this strategy requires a new retail mindset. Creation of a new retail business model will be the order of the day as the majors expand their presence in the retail and wholesale industries.
Hence, survival tactics in 2010 will have to focus on store differentiation. On the operations side, efficient consumer response initiatives among retailer, manufacturer, and supplier will be crucial. Independents will have to consider non-traditional product categories and services, as well as innovative ways of selling to sustain growth or protect market shares.
Store branding will become a more and more attractive endeavor. Income from these initiatives will offset losses arising from dwindling market shares, especially in the case of fast-moving consumer goods.
Carlos Cabochan is current president of the Philippine Association of Supermarkets Inc. Send comments to info@TradeDynamicsConsulting.com.
(China Business Philippines 03/10)