Business Consulting BlogWhat you need to know about the Retail Sector in the Philippines

June 11, 2014

General consumption and Distribution/retail business in the Philippines

Before understanding the general distribution system in the Philippines, it is necessary to first understand the country and its consumers.

The Philippines is composed of 3 main cities (Manila, Cebu City and Davao). Among its population of approximately 100 million inhabitants, roughly 50% of them live in the cities while the remaining half are mainly located in the province and a good part of it lives in places with difficult access (Island, mountain, etc). It is important to understand that the Philippines population is extremely young, 63% of the population is less than 30 years old, 57% is less than 25 years old. The minimum salary is about Php 447,5 per day (USD 10.2) in Metro Manila and around Php 267,5 (USD 6.1) in other regions of the country. The lower class whose salary averages between Php 10,000 and 20,000 (USD 230 -460) represents about 52% of the whole population!

General distribution environment

The number of department stores in the Philippines is impressive. The most important are the “SM Department Stores, Robinson and Gaisano” that supply the biggest share of the population. The most luxurious one is “Rustan’s” whose luxurious and imported brands and products are mainly consumed by the highest class and emergent expat community.
For food products, most of the distribution is assured by super and hypermarkets. The biggest group and leader in the country (SM) owns 130 stores, the second Puregold operates about 65 stores in the country followed by Robinson’s supermarket, Shopwise/Rustan’s and Gaisano. There are barely no international groups present in the Philippines, mainly due to the legal restrictions against foreign ownership, the high cost of distribution and logistics and also the lack of maturity of this market. One of the exceptions is the Japan’s Family Mart. As a reference, the average expense per customer is of about Php 400 (USD 9.1) in supermarkets and of Php 650 (USD 14.8) in hypermarkets.

Drugstores are also well present in the Philippines, however, it is interesting to mention that they do not sell just pharmaceuticals, medical devices or general health products, but are also considered as distributors of food products and general daily products (snacks, drinks, etc.). Mercury Drug is the main actor followed by Watson and other smaller actors.

Convenience stores are more than present in the whole country with 7 eleven, mini stop (owned by Robinson) overflowing the market. A new retailer, Family mart is developing its network recently and distribute general daily consumption products.

Finally, the biggest part of the consumption (45%) is done through the “Sari Sari” stores (more than 1 million in the country). The word “Sari Sari” is a Filipino word meaning “Variety”. They are present in almost all neighborhoods and commodities are displayed in a window covered or metal barred window in front of the shop. Most of these local stores are privately owned shops and are operated inside the shopkeeper’s house. They sell a bit of everything, from consumer goods to house commodities, cigarettes, alcohol, etc.

How to set up distribution channel in the Philippines and advice

Like in the most countries in Asia, the most powerful brands are already present in the Philippines and generally under their own name in the largest commercial areas as shopping malls. These malls welcome as many retail activities a possible such as restaurants, boutiques, decoration stores, etc. In the Philippines, the largest commercial centers belong to the group Ayala and SM.

The rental cost is pretty cheap when compared to some countries in the region. The rental cost in the most prestigious commercial centers usually cost around Php 1600 (USD 36.5) per square meter with a % (about 3%) of the profits. This is about 10 times cheaper than in Hong Kong or Singapore for example. However, obtaining a free space in these prestigious areas is not easy as the most luxurious brand have some sort of privilege due to their brand name.

If you are looking to enter the Philippines market and you want to understand the retail or other business sectors, do not hesitate to contact us. Triple i and its team can provide you assistance in the registration of your business in the Philippines and guide you through all the different aspects of this market.

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