Industry Trend Analysis - Grocery Retail Opportunities In The Philippines - JAN 2018
BMI View: Growing consumer spending on food and non-alcoholic drinks, an urbanis ing population and the majority of households falling in the low-income bracket will benefit the development of the formal Mass Grocery Retail (MGR) market in the Philippines, notably price-competitive hypermarket s and supermarkets . While online grocery services will emerge over the medium term (2017-2021) , we believe it will be restricted to Manila and wealthy urban neighbourhoods , due to lack of e-Commerce penetration and poor logistics network s nationally .
The Philippines consumer will continue to spend their largest share of disposable income on essential spending owing to overall low household income levels. Out of the essential spending category, food and non-alcoholic drinks will account for 37% of household spending by 2021, followed by housing and utilities that will account for 23% of spending in the same period. Food and non-alcoholic spending is not only the largest household spending segment, but is also the segment offering the strongest growth at 8.8% annually between 2017 and 2021, with a forecast worth at PHP6.2trn(USD124bn) in 2021, up from PHP4.4trn(USD88bn) in 2017.
|Food and Non-Alcoholic Drinks Spending To Outperform|
|Household Spending Sub-Segment (PHP %y-o-y)|
|e/f= BMI estimate/ forecast. Source: BMI/National Statistics Office|
The growing spending on food and non-alcoholic drinks provides greatest opportunities for growth in Mass Grocery Retail (MGR). We believe that MGR players will also benefit from growing levels of urbanization in the Philippines, with 3mn people expected to be added to the urban population between 2017 and 2021. This will increase the pool of the consumers that formal grocery outlets can cater to. Furthermore, the majority of the population in the Philippines will continue to fall in the low-income bracket (less than USD10,000), with an estimated 70% of households falling into this bracket in 2021. As the majority of households have not entered the middle-income bracket yet, growth opportunities for higher quality or premium food are limited, with consumers shopping instead at discount-orientated formats such as hypermarkets and supermarkets.
|Majority Of Households In Low-Income Bracket|
|Household Disposable Income (USD), % total households|
|e/f= BMI estimate/forecast. Source: National Sources/BMI|
Existing players in the Philippines MGR sector are SM Retail, Puregold and Robinsons and all of them are expanding their operations, further backing our view for growth opportunities in the food and non-alcoholic drinks market.
SM Retail continues to expand beyond metro Manila, with 80% of its store openings in 2016 coming from outside this area. The company has focused on expanding the number of mid-sized and small format stores, with 22 Savemore stores, three SM Supermarkets, one SM Hypermarket and 111 Alfamart stores (a joint venture with Indonesia-based PT Sumber Alfaria Trijaya). Meanwhile, Puregold, a leading grocery retailer, has allocated PHP1bn for its expansion in 2017. Beyond expansion in Luzon and Metro Manila, the company plans to open in Visayas, Iloilo, Negros and Samar by the end of 2017.
We believe that MGR online has a role to play in the overall growth of the food and non-alcoholic drinks spending in the Philippines. However, in the medium term due to low levels of disposable income and poor logistics, MGR offerings will be restricted to metro Manila and the main cities in the Philippines. Furthermore, online MGR will be dominated by domestic players, with international players unlikely to enter the market in the medium term.
|Philippines Logistics Below Other Emerging Asian Markets|
|Logistics Risk Index|
|f= BMI forecast. Source: BMI|
The Philippines ranks at the bottom of our e-Commerce rankings for Asia (see 'BMI e-Commerce Rankings: Asia Holds Greatest Potential', September 12, 2017), owing to its low e-Commerce sales, small middle-class and poor scores for its transport network and trade procedures and governance. These latter two scores originate from BMI's Operational Risk Logistics Index (100= Lowest Risk; 0= highest risk), with Philippines scoring 44.6 out of 100, lower than its regional counterparts Thailand (68.2), Indonesia (57.6)and Vietnam (54.5). A good logistics network is key for e-Commerce companies as the sector has developed to offer the convenience of the delivery of goods to a customers' place of works or home, if the transport infrastructure impedes this then delivery times are lengthened and costs rise.
There is an online MGR market in the Philippines, comprising of domestic players who operate mainly in Manila and for those who operate outside Manila, they have a high delivery fee highlighting the logistics costs and challenges.
|Source: Company websites, BMI|
|Walter Mart||Has 25 shops with goods ranging from fresh produce to imported goods||Metro Manila but expanding to neighbouring areas|
|Green Grocer||Specializes in organic, fresh and high quality food||Metro Manila but delivery charge dependent on location|
|MetroMart||Delivers food from SM Supermarket (42 stores)||Metro Manila|
|Phil Grocer||Wide range from food grocery to household appliances and beauty products||Anywhere in the Philippines but with a flat rate of PHP500 for delivery|