Plenty to play for in Philippines grocery

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By: Jiong-Jiong Yu, Senior Retail Analyst at IGD

With a CAGR of 8.9% over the next five years, the Philippines is the fifth-fastest growing grocery market in Asia, after Bangladesh, India, Vietnam and Pakistan. Jiong-Jiong Yu, Senior Retail Analyst at IGD Asia, outlines the market’s growth forecasts to 2023.

By 2023, the grocery market in the Philippines market will have increased by 53.3% in value, from 2,780 PHP bn in 2018 to 4,293 PHP bn in 2023, driven by a booming population, strong domestic consumption and a buoyant economy.

Traditional trade forms 75% of the grocery market in the Philippines and we forecast by 2023 it will still dominate the market, with a CAGR of 8%. However, we expect modern trade to grow faster and by 2023 to have increased its market share from 25% to 28%, fuelled by retailer expansion both within Metro Manila, as well as Visayas in the central and Mindanao in the southern parts of the archipelago.
Channel hopping

Supermarkets and convenience stores are the two fastest-growing channels, driven by SM Retail and 7-Eleven respectively, both of whom are forecast to see double-digit growth between now and 2023. The top retailers in 2018 will continue to drive strong growth to 2023, with SM and Puregold set to retain their market-leading positions.

7-Eleven (Philippine Seven Corp) will see the fastest growth of all the retailers, driven by network expansion. Robinsons is set to retain its third-place position after the acquisition of Rustan’s Supercentres from Dairy Farm in 2018, while Metro is forecast to maintain strong growth via multi-format networks and ongoing geographical expansion.

Large formats will continue to dominate the market, accounting for 22.2% of the market in 2023 – with the supermarket channel establishing itself as the main generator of sales and a market share of over 15.6%. Convenience is the fastest-growing physical store channel, driven by 7-Eleven and Alfamart continuing to open new stores and expand their footprints.

Online: slow but steady

Online grocery retailing has been slower to take off in the Philippines compared to other markets across South East Asia. However, this channel will see the fastest growth over the next few years; starting from an almost non-existent base today, by 2023 the channel could be contributing up to 0.6% of sales.

Many of the leading retailers including SM Retail, Robinsons and Puregold have started experimenting with online groceries in the Philippines. A number of pureplay retailers, both large and small, are also starting to look at taking advantage of the opportunity. The latest one to do so is Shopee, an online shopping platform with presence in Southeast Asia and Taiwan. In 2018, it launched an online grocery shopping app in the Philippines.

• SM Retail (WalterMart), Puregold and Robinsons are the three major retailers that have shown the strongest ambition to date in online. All are experimenting with various models, whether these be B2C or B2B platforms or via third party services

• Alibaba is selling groceries online in the Philippines via its Lazada marketplace. The range is currently limited to dry and packaged food. We expect Lazada will expand the offer and extend its range over the coming years

• Lots of online pureplay platforms are emerging; for example, The Green Grocer, which offers healthy and high-quality food, Marketa.ph, where one can buy gourmet and artisan food items, and Real Food, a grocer that offers organic food and customers pay cash on delivery

• Third-party platforms such as Honestbee and MetroMart are other solutions enabling the expansion of online, by partnering with retailers, including Robinson Supermarkets and Puregold’s S&R wholesale, to deliver products from multiple stores in one order

What does it mean for suppliers?

As one of the fastest-growing grocery markets in South East Asia, the Philippines presents great growth opportunities, but these require the right level of investment and attention.
Suppliers should consider partnering with local retailers to tap into modern trade. Although international convenience chains are present in the market, they are almost all operated under agreements with the major Philippine-based retailers. Suppliers should prioritise strategic relationships with the country’s four leading retailers: SM Retail, Puregold, Robinsons and Philippine Seven Corp.

Finally, suppliers should also have robust strategies in place for fast-growing channels. Supermarkets and convenience are the two fastest growing channels, mainly driven by expansion, so having the right strategies in place for these two formats is crucial. Online, while growing quickly, will still take many years to become a disruptive force in the Philippines until the underlying infrastructure is vastly improved – but it’s certainly one to watch for the future.

About the Author

Jion-Jiong provides insight on retailer strategies and industry trends in China, South Korea, the Philippines, Taiwan and Bangladesh, as well as leading IGD’s innovation and drugstore workstreams in Asia. She has worked with both retailers and manufacturers in the last 10 years on shopper insight, growth strategy and category management projects. Her background is in management consulting, with experience in qualitative and quantitative research gained at GfK and dunnhumby.

 

*First published on Philippine Retailing newsletter.