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The Changing Map of the Philippine Retail Food Sector

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The Changing Map of the Philippine Retail Food Sector The Changing Map of the Philippine Retail Food Sector The Impact on Trade and the Structure of Agriculture: The Policy Response Dr. Nerlita M. Manalili Manager, Research and Development SEARCA, Philippines South East Asia • H o m e to 5 2 9 m illio n p e o p le o r 8 .5 3 % w o rld p o p u la tio n • Accounts for 45% of the W orld’s Agricultural production • and 30% of agricultural inputs Em erging trading partner 2 nd la rg e st e x p o rt d estin a tio n o f E U 2nd largest export m arket of Australia (1st Japan) 3rd largest and fastest growing market of US • P o te n tia ls: H as the potential to integrate into one big m arket E n d ow ed w ith rich natu ral resou rces, offers a variety of products Agriculture Restructuring in SEA • Increased economic integration • Higher income & higher cost economies Moving towards regional approach to food and agricultural self sufficiency by relocating their lower value agricultural production to lower cost economies of CLVM ¾ M alaysia - reviving rubber in CLVM investing heavily in palm oil facilities (Thailand, Indonesia) ¾ Thailand - m ain participant in the developm ent of aquaculture and forestry industries in CLVM Trends in South East Asia Market Access Trade barriers of different form s exist (Tariffs,non tariffs) • tariffs & tariff escalation discourages mostm ost ASEAN SMEs go into agro processing/value adding ventures • SPS doubled in 5yrs,220-468 (difficulty in com plying) US, Australia restricts entry of products: stringent sanitary and phyto sanitary(SPS) measures MMarket arket Structure • New and well equipped players in the market • New m arketing system s: products are sourced direct (ASEAN smsmallholders allholders finds it difficult to com pete) Superm arkets’ Diffussion Pattern Global SEA • From large cities M alaysia, Thailand, to small poor countries Philippines, Vietnam • From capital cities Capital cities to rural towns to regional urban centers • From upper/middle high end consumers to working class to middle to low Ex. Philippines -AYALA -Market! Market! and Metropoint -Big R Supply Side in SEA Expanding role of private sector and agribusiness / FDI • Government encouraging more and more participation • Development from simple to sophisticated processing widens range of products for export and dom estic m arkets (tropical fruits,veggies,dairy,seafood,wheatbased products) • A significant proportion now serves dom estic m arket, as w ell as growing amount for export Large scale conglomerates/ agribusiness (local & foreign) ¾ driving force behind much of the modernization & restructuring within agricultural sectors ¾ expected to intensify further agricultural production food processing, marketing, and distribution Country Regulation Philippines Trade Liberalization Act of 26 March 2000 approved entry of foreigners & given 2 year investment window to own 100% of retail ventures - Price Smart: S&R Price - SM: Watson, Makro Small foreign investors gradually entered the country Thailand Foreign Business Act (FBA) 2000 superceded Alien Business Law (ADL) of 1977 where aliens not allowed to do business without BOI capital requirement certificate 50% or more of shares owned by alien and cannot own land. Vietnam Laws not always clear with legislative restrictions Dual price system for nationals and foreigners DRIVERS Demand Side Philippines Thailand Vietnam Population 81 M 63 M 82 M young population relatively youthful youthful but (strong buying (less purchasing gradually aging group) power) More women in labor force Real -Emergence of middle Improving farm Growing tourism Incom e class incom e industry -33.1% - Double salaried HH Recovering tourism (safe tourist - US$6 B yearly 10-11M tourists/yr destin ation) rem ittances of Hotel occupancy is Overseas workers 80-90% Retailer Structure Philippines Thailand Vietnam Retail traditionally Historically domina- Store development dominated by wet ted by markets and mostly under markets, grocery, small family owned national and local & sari-sari stores. convenience stores. government control Then department Mid 1990’s modern Plan to build store chain thru retail supermarkets and ShoeMart. In 1996, traditional trading centers by Fastfood channels outlets declined 2005 to 2010 (Jollibee,McDonalds, significantly KFC) Retail sales, 2003 Retail sales, 2003 Retail sales, 2003 (US$ million) (US$ million) (US$ million) Total 35,674 Total 47,883 Total 17,758 Food 22,876 Food 28,806 Food 12,550 Source: M+M Planet Retail MARKET TRENDS Philippines Thailand Vietnam • bullish retail sector • Government, launched •Domestic consumption • big players crowding focused programs to increased by 8.5% out small players stimulate domestic •17.7% of retail sector • Entertainm ent dem and/sluggish econ controlled by state based retailer,m alls • growth rate of agri- • Young people • SM Es w ill continue cultural economy strong buying group losing market share - • purchasing power • Fondness of flea business failures of rural population market so malls among such operators • Urban areas enjoy introduced “surplus w ill continue benefits area” •Infrastructure create • Purchasing behavior new supermarkets -small packs • purchasing power - buy im ported item s/ of urban group but not substitute brands translating to same -wait for sales level of spending) Entry Procedure for Supermarkets Philippines Thailand Vietnam • Appoint exclusive • Supplier approach • Certification from im porter/distributor the store local authority • Engage services of headquarter • Sign contract on trading firm (may act as • Submit product long term basis but distributors) sample and match trading terms are - elim inate inconvenience with store’s renewed of registration as local specifications (including •Invoice from company farmers are needed - no personnel hiring traceability of products) and these are -no customs and provided by the • Offer price/price im portation gov’t inconveniences bargaining • Contract signing • The shelves for • Register w ith Philippine fresh produce are Bureau of Food and Drug labeled on w here (exclusive to Filipino the vegetables are entities) g row n. (traceability) Country Experiences Philippines Thailand V ietnam Entry Bond/business Fees/cost of -Invoice Requirements perm it by sm all promotion - Certification producers Container/ - Refrigerated vans -stainless Equipment containers at their own cost Quality - Specifications -Specifications - 2 m onths after m atch m atch farm visits - Spot check -farm visits Market -Info from public -Price info based -Info from on survey of both buyers & Info market & supermarkets in M anila and 44 trading farm gate & prices processors System stations in the provinces paid by consumers m anually or thru fax, SSB carried out radio,phone regularly by designated farmers & dealers Market Characteristics and Trends Case of the Philippines Supermarket Driven Vegetable Supply Chains Scheme 1. S &R Stores (2 stores) Imported FARM Australia WHOLESALER •One supplier one store •Spot check farms monthly Supermarket BAGUIO WHOLESALER FARM •Weekly order placement on daily volume Highland requirements •15-90 days payment (Average 30 days) CENTRAL LUZON FARM Lowland WHOLESALER 2. Shopwise (3 stores) Imported WHOLESALER FARM Australia •Multi-supplier •90 days payment scheme Supermarket BAGUIO WHOLESALER FARM Highland Market Characteristics And Trends Case of the Philippines Supermarket Driven Vegetable Supply Chains 3. Big R Stores Imported Australia PURCHASER BAGUIO WHOLESALER FARM SUPERMARKET Supermarket Employee Highland NORTHERN MINDANAO VEGETABLE ASSOCIATION FARM Positioning: quality at wet market prices or even lower Fresh produce section opens at 7am MM arket Characteristics and Trends • Five major groups comprised the retail market in the region: Hypermarkets, Cash and Carry, supermarket/groceries, convenience store/gas marts, “ Mom & Pop” /sari-sari stores • Increasing health and food safety consciousness is positivelypositively aaidingid in g the growth of modern retailers in SEA (Philippines) • The influence pattern is two ways, modern retailing raised level of standard of grocery services wet markets popularity made modern retailers approximate wet mmarket arket attributes • In modern retailing, price is the name of the game, there is pressure to source cheaper but quality/fresher goods to lower costs Domestic players are joining forces to be able to m eet competition (associations, strategic alliances) • The levels of retail development vary by level of technology and regulatory policies in place in terms - product range (processed commodity) more in Thailand - well planned development pattern (Vietnam) Implications on Trade and Agriculture Increasing com petition : horizontal and vertical • small processors face increasing competition with large suppliers who advertise supermarket consumers for processed products are brand conscious • retailers have higher bargaining power with small suppliers (processed) as supermarkets are the only major outlets • consolidators may exercise buying power over small suppliers (fresh) Concentration of suppliers for economies of scope and higher efficiency to compete • Emergence of large consolidators for fresh produce, • dominant suppliers in processed • supermarkets are also exporters squeezing m argins at various levels in the chain particularly for sm all upstream agents • increasing vertical and horizontal competition squeeze margins • large consolidators(fresh produce) presence weakens bargaining power of farmers • foreign hypermarkets into wholesaling indicative of barriers
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