Market Information
Southeast Asia

The Improving Market for Packaged Foods

Philippines

Florence E. Mojica
Senior Agribusiness Specialist
Center for Food and Agri Business
University of Asia and the Pacific

Packaged food is a multi-billion peso industry in the country. It is a major source of employment, investments and output for the Philippine economy.

The industry is not a homogenous entity. It is composed of several categories as many as the varieties of products consumed, as follows:

• Cereal preparations;
• Meat preparations;
• Fish and marine products;
• Dairy products and eggs;
• Processed fruits and vegetables;
• Non-alcoholic beverages;
• Coffee, cocoa and tea; and
• Other food commodities such as sugar products, sauces and condiments and cooking oil.

This paper dissects the eight categories of packaged foods as defined by the National Statistics Office (NSO). Figures presented are household spending for each category.

Cereal preparations

Cereal preparations include flour, bread, biscuits and cookies, cakes and baked goods, pastries, breakfast cereals, pasta and noodles. Total household expenditures for this category reached P215.6 billion (B) in 2000 compared to only P125.6B in 1994. Among the major contributors are flour and noodles.

Source: NSO-FIES

Total household expenditure on flour reached P1.04B in 2000 per NSO Family Income and Expenditures Survey (FIES). Bread consumption increased by 28% from P18B in 1997 to P23B in 2000. Spending on biscuits totaled P4.7B in 2000 up by P400 million (M) from 1997.

Spending on noodles (categorized into bihon, miki, miswa, sotanghon, macaroni, etc.) reached P3.7B in 2000. Instant noodles, on the other hand, are valued at P6B in 2000, with growth estimated at 16% p.a.

Household spending for flour is very small. Most of flour goes to non-household as flour demand is highly dependent on the industries it supplies, that is, bakery goods, noodles and pasta. Flour is primarily an intermediate good. Bakeries constitute its biggest market at about 80%. Growth in bakery production translates to higher sales for the flour milling industry. Recent developments show that the bakery industry is becoming more and more competitive with the opening of new bakeries and the expansion of current chains (i.e. Goldilocks, Red Ribbon, etc.). The other buyer of flour - the noodle and pasta markets - offer more promising growth with the strong demand for instant noodles which are now becoming cheaper alternatives to canned products.

KEY PLAYERS: FLOUR AND BAKERY PRODUCTS

FLOUR

General Milling Corp.
RFM Corp.
Purefoods Corp.
La Filipina Uygongco
Universal Robina Corp.
Liberty Flour

BAKERY PRODUCTS

Goldilocks
Merced
Red Ribbon
Jo-ni's
Delifrance
Julie's
Gardenia
Baker's Fair
Fortune
Golden Donuts
Rolling Pin
French Baker

Source: CFA-UA&P Databank

Meat preparations

In 2000, household spending on canned and uncanned meat preparations amounted to P32.4B (NSO-FIES). Uncanned meat (e.g. longganisa, tocino, chorizo, hotdog, tapa, etc.) accounted for about 70% while the rest are canned meats (e.g. corned beef, luncheon meat, meat loaf, Vienna sausage, etc.). Demand for meat products usually picks up during the Christmas season as Filipinos generally follow the tradition of purchasing packaged meat for personal consumption and gift-giving. Meat processors market their goods either directly to retailers and institutions or through dealers. When demand increases, they source some of their requirements from abroad. Processed meat imports have significantly increased since the 1990s.

The meat processing industry is expected to benefit from increased consumer spending and the expansion of the fastfood industry. San Miguel Purefoods Corporation is the top meat processor in the country accounting for more than half of the processed meat market. Swift Foods, Inc. is a far second with around 30%. Other players are Pacific Meat Company, Inc. Virginia Foods, etc. These players cater mainly to the household sector and, to a lesser extent, the institutional markets.

Source: CFA-UA&P Databank

Fish and marine products

Fish and marine products consist of canned fish, dried/smoked fish, salted fish and other processed marine products. Total household spending reached P104B in 2000 compared to only P59.2B in 1994.

Source: NSO-FIES

Expenditures on processed fish and marine products reached P19B in 2000. Dried fish accounted for the bulk (54%) followed by canned fish (34%), salted fish (11%) and other processed products (1%).

Source: CFA-UA&P Databank

Dairy products and eggs

Dairy products and eggs include condensed milk, evaporated milk, powdered milk, fresh milk, ice cream, other dairy products, and fresh and processed eggs (e.g. balut, salted eggs, etc.). In 2000, total family expenditure amounted to P54.1B from P42.8B in 1997 (NSO-FIES). Of the total spending, 56% went to powdered milk and 26% to fresh eggs.

The Philippine milk industry is dominated by four major milk processors. There is no local dairy industry to speak of, despite the government's efforts to encourage its development. The Philippines imports 99% of its milk requirements either as finished goods or skim milk powder for further processing. Nestle remains the market leader nation-wide. This is due to its strong position in the fast growing powdered milk sub-sector. The liquid milk sub-sector, on the other hand, is dominated by Alaska Milk Corporation.

The Philippine ice cream industry is composed of two major players - Nestle and Selecta - and a number of smaller niche foreign and local brands.

Ice cream consumption is seasonal; it is generally stronger in the second and fourth quarters of the year. The second quarter not only covers the hot summer months of April and May but also the fiesta season, while Christmas falls during the latter part of the year.

Processed fruits and vegetables

Processed fruits and vegetables include fruit preparations (canned, dried, preserves, jams and jellies), vegetable preparations (pickled, tokwa, tausi, etc.) and others (peanut butter, etc.). In 2000, total household spending amounted to P80.2B compared to only P55.7B in 1997.

Source: CFA-UA&P Databank

Non-alcoholic beverages

Non-alcoholic beverages include carbonated drinks, fruit juices, bottled water and other non-alcoholic beverages (i.e. ice candy, ice buko, ice drop, etc.). Total household expenditures reached P24.7B in 2000 up 25% from 1997's P19.7B. Carbonated drinks accounted for 58% of the total; fruit juices, 29% and bottled water, 10%.

Source: NSO-FIES

Coca-Cola Bottlers Inc. is the country's traditional leader in softdrink production and distribution. Pepsi Cola Products Phils., Inc. has been a distant follower. Cosmos Bottling Corporation is believed to be second to Coca-Cola. Cosmos has been aggressively eating market share. The market for softdrink is quite price sensitive, as evidenced by the success of Cosmos' low price strategy to steal market share in the 1990s.

La Tondeña Distillers, Inc. is currently the largest fruit juice producer in the country by its acquisition of Sugarland International. Its competitors include multinationals such as Kraft (Tang) and local companies such as Zest-O Corporation (Zest-O) and Selecta Dairy Products, Inc. (Sunkist).

*in cups, mainly to institutional buyers
Source: CFA-UA&P Databank

Meanwhile, there are four major companies in the bottled water industry, but a multitude of small operators. These are Metro Bottled Water Corporation, Nestle Corporation, La Tondeña Distillers and Asia Brewery Inc.. The market for bottled water has been the fastest growing segment in the beverage industry. Such rapid growth is due mainly to the industry's relatively small size and the insufficient supply of potable water in some parts of the country.

Coffee, cocoa and tea

In 2000, total spending on processed coffee powdered tonic drinks, processed cocoa and processed tea amounted to P17.5B. The bulk are accounted for processed coffee (58%) and processed tonic drinks (38%). In soluble coffee, Nestle enjoys 90% of the market.

Other food commodities

Other food commodities include sugar products (e.g. candies and chocolates), sauces (e.g. mayonnaise, catsup, soy sauce, fish sauce, etc.), other spices and seasoning (e.g. black pepper, vinegar, garlic, ginger, MSG, etc.) and cooking oil.

Aggregate household spending on sugar products stood at P3B in 2000, the same level as of 1997. Total family spending on sauces grew by 30% to P7.3B in 2000. Household expenditure on other spices and seasoning totaled P10.9B in 2000 from P8.8B in 1997. Aggregate spending on cooking oil stood at P9.8B in 2000.

CONCLUSIONS

Several conclusions can be drawn about the Philippine packaged food industry:

1. Few dominate the various categories, say two to four players (for example, ice cream, softdrinks, milk and meat) and only one for coffee (with Nestle cornering 90% of the market). If there happens to be more players, only a handful corner the majority of the market share, the rest remain as marginal players (i.e. bottled water, chicken, etc.).

2. Growth is not evenly spread across each category or subsector. Some reflect stronger growth than the economy, while others fall way below it. Those that reflect very strong demand growth of 10% and over are ice cream, fruit juices, and bottled water. Meanwhile, the rest - softdrink, milk and others - reflect slower growth of less than 10%.

3. The threat of foreign imports is high and is seen to further intensify once the 0-5% tariff takes effect in 2004. Imports of canned meat products i.e. luncheon meat and corned beef, have significantly grown since the 1990s. With the opening up of the market, competition with local producers may bring down prices and could increase household consumption.

Overall, the packaged food industry is set to benefit from increasing disposable incomes, on the back of higher economic growth. Principal markets would continue to be the middle and upper consumer groups accounting for 15-20% of the population. As lifestyle changes, demand for convenience proliferates among more working women with fast-paced lifestyles leading to increasing demand for packaged foods. Improvement in the distribution system also contributes significantly to higher sales even in far flung areas.