Looking to expand into the Philippines? Consumer sector insights by Enterprise Singapore's regional directors
ENTERPRISE Singapore's regional director Darren Lee talks about the opportunities in the consumer sector in the Philippines. Mr Lee is based in Manila but notes that while Manila is a good starting point, companies should also tap the consumer potential in fast-growing cities like Cebu, Davao, and Iloiilo.
1. What are some of the latest developments in the Philippines’ consumer sector right now?
The Philippines has achieved seven consecutive years of positive GDP growth above 6 per cent, in part bolstered by tourism receipts, its business process outsourcing industry and overseas remittances. It is expected to continue this upward growth, with the Asian Development Bank projecting its GDP growth to hit 6.4 per cent in 2020.
The Philippines has become an attractive market for retail and food, given the growing income levels and increased popularity as a tourist destination. From 2015 to 2018, tourist arrivals in the Philippines achieved a CAGR growth of 9.96 per cent and reached 7.1 million visitors. Currently, the food and non-alcoholic sector forms the largest portion (41.3 per cent) of what the average household spends on among consumer goods and services.
From 2015 to 2017 alone, close to 200 mid-range and luxury foreign retail brands entered the market. In October 2018, Uniqlo opened its biggest flagship store within Southeast Asia in Manila while Ikea announced plans to open its biggest store in the world in the capital city by 2020. To cater to the influx of brands opening in the market, mall developers have expanded rapidly across the country, focusing not just on retail, but F&B and entertainment as well.
In Manila alone, Jones La Salle (JLL) reported that the total existing retail space stock as of Q2 2019 stood at 6.5 million sqm with a registered occupancy rate of 97 per cent. It projects an upcoming space of 673,500 sqm, an additional 10 per cent in supply to meet the growing demand from Q3 2019 to 2022.
The country’s franchising industry is also growing strongly. According to the Philippine Franchise Association, the industry is expected to grow to US$24 billion by 2020 with an annual growth rate of 10 per cent. The franchising prospects helps to lower the barrier to entry and will drive the entry of new concepts in food and lifestyle sectors for the Filipino consumers. For example, international brands including Popeye’s, Shake Shack as well as Singapore’s Hawker Chan, have entered the food scene. At the same time, growth of small store formats offering convenience for the consumer is also on the rise. Example of new entrants include Family Mart, Lawson and Alfamart.
While there is strong growth potential in the consumer sectors, there are also new policies to be aware of. For example, to promote a healthier lifestyle and fight obesity, the Philippines government introduced excise tax on sugar-sweetened beverages. As stevia were exempted from the excise tax, manufacturers are starting to introduce sugar alternatives.
2. Why should Singapore companies from the consumer sector consider entering this market?
Supported by a population of 107 million that increases by 2 million every year, the Philippines is one of the largest growing consumer markets in Southeast Asia. It is also a market where both offline retail and e-commerce have been growing and we expect this trend to last.
E-commerce and offline retail cater to different needs in the Philippines. E-commerce offers a platform for consumers to purchase items that might not be widely available and also for customers seeking convenience. While the threat of e-commerce is real, “mall-ing” as a culture is dominant in the Philippines. It is a lifestyle and it is common for families to go to the mall over the weekend. In fact, there are chapels and churches in most malls in the Philippines for the convenience of the Filipinos.
Interestingly, though challenging traffic conditions in the Philippines should have been a bane for offline retail, instead, it supported the growth of more malls as consumers seek entertainment options closer to homes. Faced with the competition from e-commerce, offline retailers have also adjusted their leasing strategies to attract new tenants. In newer malls, we see that the ratio of services (food, lifestyle
and entertainment) have gone up, as compared to traditional retail. As consumption is set to grow, we believe that both offline retail and e-commerce will continue to flourish.
In addition, many Filipinos are open to international brands and concepts and this present opportunities for Singapore brands. Our companies also stand an added advantage as the Singapore brand is trusted and well received in the Philippines due to our cultural similarities and a huge community of Filipinos professionals, students and families in Singapore who are familiar with our brands.
3. What are some challenges Singapore companies thinking of entering the Philippines consumer space may face and how does Enterprise Singapore assist?
The two key challenges are brand competition and the regulatory requirements. As the Philippines grows in attractiveness as a consumer market, there is rising competition among brands, both local and international. Large, local retail operators are expanding their portfolio to include F&B and vice versa. For example, retail giant Suyen Corporate, which brings in foreign brands such as Cotton On, Aldo as well as
Singapore’s Charles & Keith, has expanded its portfolio to include F&B concepts – it recently brought in international food concepts such as Pablo Cheesecake and PAUL. With significant presence, these local retailers are able to leverage their scale and networks to secure prime retail sites.
From a regulatory perspective, Singapore companies need to take note that the paid-up capital requirement for foreign companies to set up a consumer business is on the high side and stands at US$2.5 million. However, the government is looking to enhance the ease of doing business in the country and review some of the existing requirements. For example, some proposed amendments include:
Reduction of paid-up capital to be lowered from US$2.5 million to US$200,000;
Removal of minimum investment of US$830,000 per outlet;
Removal of paid-up capital of US$250,000 per outlet for enterprises engaged in high-end or luxury products.
Notwithstanding the above, many Singapore companies in the F&B and retail space have successfully entered the market. Examples include Baker & Cook, BreadTalk, Charles & Keith, Hawker Chan, Paradise Dynasty, Play Nation and Salad Stop. We continue to see rising interests from Singapore companies.
To help them enter the Philippines market, we have been working closely with them in various ways:
Finding a good local partner – This is critical and many of the examples cited above work through their local partners. Through our overseas centre in Manila, we have been building our understanding of the consumer landscape as well as networks with potential partners. We share the latest market developments and advise Singapore companies on setup and regulations. In particular, we identify and connect Singapore
businesses to suitable local partners such as distributors, mall operators, mall developers, large retailers and multi-brand retail operators, based on the needs and business model of respective Singapore enterprises. We encourage Singapore companies to work with local partners as they can leverage the partners’ extensive networks in-market and long-term relationships with the large mall owners. To catalyse such collaborations, we organise business missions and targeted meetings to introduce Singapore companies to potential partners. For example, we organised a mission for food services players in March 2019 and another for online-to-offline (O2O) services players, which can help brands navigate e-commerce and traditional retail landscape in June 2019.
Gaining exposure in the Philippines – It is important to test the market, as the consumer preferences can be very different from Singapore. For example, to help companies do this, we brought together 17 Singapore companies collectively under the Singapore branding to exhibit in an exclusive lifestyle and food pop-up ‘Singaporium’ in September 2019 in The Podium Mall, a premium shopping mall in the business and commercial district in Metro Manila. Singapore companies including Collin’s, Our Second Nature, Play Nation and Yeo’s showcased their products at the pop-up. Alongside the pop-up, Enterprise Singapore arranged business-matching sessions with prominent local F&B and retail groups to explore partnerships, facilitating a more long-term establishment of these brands in the Philippines. This event enabled them to get instant feedback on consumer tastes and preferences in-market and several are now using the information gathered to adapt their go-to-
We also encourage and facilitate potential franchise partners to come and visit Singapore companies in Singapore, in order to have a better understanding of their product concept and operations. For example, we organise regular business missions to the Philippines to introduce potential Filipino partners to Singapore brands.
4. What’s your top advice for Singapore consumer companies thinking of entering this market?
The Philippines is a sizable market but it is an archipelago of over 7,000 islands. Manila is a good starting point but to truly tap on the consumer potential of the Philippines, Singapore companies should look beyond Manila. Cities like Cebu, Davao and Iloilo are also growing fast. We encourage companies to take on a long-term approach including plans to go beyond Manila.
Singapore companies should exercise flexibility in pricing, as the locals tend to be price-sensitive, placing value as the top priority. It is also important to localise product offerings to suit the locals’ taste and preferences. In general, doing business in the Philippines entails commitment. Frequent face time and local presence will help build rapport and mutual trust with potential business partners.
For more market insights on ASEAN and information on how Enterprise Singapore can work with your business to venture to the region, please visit www.enterprisesg.gov.sg/ASEAN.