Market Information
Southeast Asia

An Update on the Philippine 
Fastfood Industry

Ana Cecilia S. Palma
Researcher
Center for Food and Agri Business UA&P

(Second of Two Parts)

Critical Success Factors

Advertising and Promotion. To maintain a competitive edge in the industry, players spend millions on advertising. There are different kinds of gimmicks like a toy in every set meal for kids, discounted food items if you purchase two items, free gift items, raffle draws and a lot more. Some food companies even get celebrity endorsers to create brand consciousness and market loyalty.

Proper Pricing. With the present economic slowdown, people eat out but with a limited budget. Price cuts and discounts are offered to increase sales. Food outlets that offer the most value for money (less than P100/ meal) are the popular ones. Almost all eating places offer their own price cuts or discounted meals.

Quality of Food, Service and Facilities. Providing high quality food that conforms to the taste of the consumer coupled with fast and efficient service in a clean environment is a big incentive to growth. Consumers have become even more discriminating and quality-conscious.

Product Lines. Targeting the consumers' taste buds means continually upgrading the menu. This is one key in capturing more customers.

Extensive Branch Network. To keep their share of the market, most players extend their service coverage by setting up other branches. Malls, university areas, and other places where there is heavy pedestrian traffic are the usual places where food outlets are highly patronized. It is a risk to take as malls charge high rentals. Due to the economic crisis, many are also closing their unprofitable outlets.

Availability of Raw Materials. The smooth operations of food outlets require a steady and adequate supply of raw materials. These companies must then establish tie-ups with reliable suppliers.

Franchising. For new investors, franchising is a good way to start. With franchising, there is already product identification.

Competitive Analysis

Market Entry. Entry into the fastfood industry is quite challenging. Market niching is key. Entrants must strive to project an image that can shift brand loyalty from existing players. A well-managed logistics support system is required to run several local operations.

Aggressive marketing is required to make a strong impact. However, good marketing strategies mean having sufficient capital to support the marketing campaign.

There is also some degree of capital investments.

Exit Barriers. Due to the nature of the business, exit barriers are relatively high. The food equipment are quite expensive; their use is also specialized.

Government Policies

The government has taken an active role in cultivating an environment that would allow the local food service industry to be globally competitive and to operate at levels comparable to international standards.

The industry is subject to rules and regulations promulgated by government agencies establishing reasonable standards of quality for food products. Specifically, the Department of Health (DOH) together with the Bureau of Food and Drugs are mandated to ensure that food sold and distributed to the general public are safe for human consumption.

The DOH, upon presentation of appropriate authorization to the owner or operator of any food establishment, is authorized to enter and inspect its equipment, raw materials, containers and storage facilities to ensure that the food manufactured and served in such establishments are fit for human consumption.

Meanwhile, the Department of Trade and Industry approves advertising campaigns of the food outlets. Its attached agency, the Bureau of Patents, Trademarks and Technology Transfer (BPTTT), is authorized to do the following: a) register trademarks, service marks and other marks of ownership; and b) hear and adjudicate contested proceedings affecting the right to trademarks. Further, all franchise agreements with foreign franchisors are registered with the BPTTT as well as licensing, technical assistance and services, technology transfer and distribution agreements.

Medium Term Prospects

The medium-term outlook, i.e. the next five years, for the Philippine food service industry appears cautiously optimistic. This expectation is supported by several factors including:

• The growth in population which is expected to continue to increase. Majority is skewed towards the younger age brackets representing an increase in potential demand;
• The modest overall economic growth of the domestic economy over the next five years is expected to translate into higher per capita income;
• The bright prospects for the industry may serve as a magnet for possible entrants that could further intensify the competition. This may lead to expansion in product lines, competitive pricing, more outlets in areas outside Metro Manila and other innovative strategies and ideas which augur well for the industry;
• The expansion of malls which influence and allow greater access of consumers to the food service industry;
• With the increased number of players, it may not be surprising to find mergers or the diversification of several firms from different industry segments. Jollibee used this strategy when it acquired Greenwich Pizza in 1994 and Chowking, the country's leading Chinese food chain.

REFERENCES:

Family Income and Expenditure Survey, 1991, 1994, 1997 and 2000. National Statistics Office.
Survey of Establishments, National Statistics Office.
A Consumption Habits Study on Fastfood. 1999. Center for Food and Agri Business (CFA)-UA&P.
Seminar Papers on Winning Management Styles and Success Factors of Food Service Giants, April 2000. CFA-UA&P.
Various Company Annual Reports
Industry Interviews
http://www.dti.gov.ph
http://www.jollibee.com.ph
http://www.franlinkasia.com
http://www.maxschicken.com