Market Information
Southeast Asia

A Peek into the Philippine Convenience Store Industry^*

Ronald Mark G. Omaña
Researcher
Center for Food and Agri Business
University of Asia and the Pacific

The food retailing industry encompasses a wide range of sellers from the sari-sari stores, sidewalk vendors, wet and dry markets to the groceries, supermarkets, hypermarts, and warehouse and discount clubs. Along this scale of retailers is the modern version of sari-sari stores known as convenience stores.

Convenience stores, also called as c-stores, mix the characteristics of the traditional sari-sari stores with a wider line-up of products in a supermarket-like atmosphere that is well lit, air-conditioned and strategically located. They are usually open 24 hours a day, 7 days a week. Another unique feature is its promotion of self-service on fastfood items.

HISTORY

The convenience store concept was introduced in the Philippines in 1984 by local company Philippine Seven Corporation (PSC) when it bought the license to put up the popular American convenience store 7-Eleven. Since it set foot in the country, 7-Eleven has maintained its dominant position in the industry. It took a long period before another c-store opened shop.

In 1997, Uniwide Holdings Incorporated established its own c-store chain under the brand name Uniwide Family Stores. It was a virtual threat until it encountered financial difficulties in 1999 forcing it to sell its 40 outlets to I-Mart International Corporation. The same firm bought the Aboitiz Group's entry into the industry - the Super 24 stores. I-Mart redeveloped the acquired stores and turned them into co-branding set up - a convenience store and a pharmacy in one outlet. As of end-2002, I-Mart has 62 stores all located in Metro Manila.

Another c-store named EASY Mart managed to establish about 20 stores also in Metro Manila.

In early 2003, I-Mart and EASY Mart announced their stores' closure. Industry sources say the two c-stores could not sustain their operations due to financial difficulties. The Floro family, in the mid-90s, brought into the country the franchise for the AM/PM convenience stores. The stores have also ceased to operate towards the end of the period.

The holding company Mateo Management Group (MMG) also entered the industry with its MMG 2000 c-stores in 2000 but shut down operations early this year.

Gas marts or c-stores in gasoline stations, meanwhile, clicked following their establishment in major road networks such as the North and South Expressways. Gas marts differ from the traditional c-stores in terms of location and target customers. The traditional c-stores cater primarily to the nearby communities and transient people while gas marts target the motorists.

KEY PLAYERS

7-Eleven is owned by listed firm Philippine Seven Corporation. It is the industry's market leader. PSC is majority-controlled by the President Chain Store Corporation of Taiwan since 2000 following the effectivity of the Retail Trade Liberalization Act allowing foreign companies to invest in retail firms. The President Chain Store Corp. is also a 7-Eleven licensee in Taiwan.

  Mini Stop is owned and operated by Robinsons Convenience Store Inc. - a joint venture between the Gokongwei family of the Robinsons chain of department stores and supermarkets, and Mitsubishi Corp. and Mini Stop Co. Ltd. of Japan. The company's first c-store was opened in 2000.

Bingo! - Launched in 1990, Bingo! is owned by Jollimart Philippines Corporation, formerly a wholly-owned company by the group behind fastfood industry leader Jollibee Foods Corporation (JFC) until it sold 60% of the company to retail magnate Henry Sy of the SM Group of Companies in 1999.

Mercury Drug Superstores are owned and operated by the Mercury Drug Corporation. These stores are normally located beside the company's drug stores.

With the exception of Mercury Drug's "Superstores" all the other c-stores are operating on a 24-hour basis and are all located in Luzon. In addition, the superstores do not sell fastfood products and focus only on medicines, and health products.

The Hortaleza family's HBC tried for some time the c-store concept by combining food and beauty products but decided later on to just focus on its tried and tested business of retailing only beauty products. Another player is Tropical Hut fastfood chain owner Manuel Que's 10*Q convenience stores with three branches in Metro Manila.

Gas marts, meanwhile, were pioneered by Shell Philippines Inc. in 1993 with its Shell Select stores in its gas stations. Its competitors, Caltex Philippines and Petron Corporation followed suit with Star Mart and Treats c-stores, respectively.

The entry of new players in the petroleum retailing industry in the late 1990s further expanded the number of c-stores such as Seaoil's Palamig and Total Petroleum's La Botique.

(e) estimate
*ceased operations in 2003
**exclusive of I-Mart and Easy Mart outlets
Source: UA&P-CFA Databank

DEMAND DRIVERS

The industry has gone a long way from its beginnings in the 1980s. While no estimates are available on the total value of the c-store industry, PSC alone, the market leader, has registered revenues of P3.014 billion in 2002, up by 3% from P2.925 billion in 2001. The figure, however, was lower by 4% compared to its sales performance in 1998 amounting to P3.138 billion (See Figure 1).

Figure 1. Philippine Seven Corporation Revenues, 1998-2002

Source: BusinessWorld Top 1000 Corporations in the Philippines, 2002
Philippine Seven Corporation Annual Report 2001

Majority of the players indicated that the bulk of the items sold in their stores are food and beverage products (e.g. snack foods, bakery products, fastfood items such as sandwiches, dimsum, pizza, dairy products, soft drinks, etc.). Food items are estimated to make up 70% to 80% of total items sold while the remaining 20% to 30% is divided among non-food items like health and beauty products and phone cards.

Considering these, it is important to know how the spending on food and beverages has been doing for the past years.

According to the Family Income and Expenditure Survey (FIES) of the National Statistics Office (NSO), household spending on food reached P786 billion in 2000, up by 26% from P624 billion in 1997. The entire Luzon region, where the c-stores are mostly located, accounted for 67% of total family expenditure on food, equivalent to P529 billion in 2000. In 1997, the region's household food expenditure was at P416 billion, representing 65% of the country's total spending on food.

Personal consumption expenditure (PCE) on food and beverages in 2002, meanwhile, reached about P448 billion from P401.7 billion in 1998. From 1998 to 2002, the average annual growth rate was about 3%.

Figure 2. Total Personal Consumption Expenditure (PCE) and PCE on Food and Beverage, 1998-2002

Source: National Statistical Coordination Board

Another important demand driver is the country's growing population. Based on the NSO's Census of Population, there are 76.5 million in Filipinos in 2000 with expansion rate of 1.8 million persons/year. The number would be reaching about 82 million this 2003. Population for Luzon, as of 2000, reached about 9 million. Increasing number of people in urban areas indicates a growing market for c-stores.

The FIES also reported rising total household income from P1,748 billion in 1997 to P2,199 billion in 2000. Luzon was the biggest income producer in the country accounting for 70% of total income for both periods. Visayas' share stood at 17.7% while Mindanao captured 19.4% in 2000.

Other demand drivers for c-stores include: (1) expanding number of working women with modified lifestyles; (2) the fast-paced lifestyles among working people in the urban areas; and (3) the round-the-clock convenience that c-stores provide to customers that need to make "emergency" shopping trips at any time of the day.

STORE SUCCESS FACTORS

Location is a very important factor for success. C-stores usually locate in areas with high foot traffic. Thus, players have started to invade office buildings, malls, as well as the LRT and MRT stations. Store layout also matters as the overall look and "feel" of the outlets affect customer count.

Pricing and marketing strategies are also important tools because players also have to compete and keep-up with the prices of goods sold in other c-stores, markets, supermarkets and groceries. Industry sources say value meals or 'combo' meals are now a must for any c-store as customers have been observed to be more attracted to purchase these especially with the declining peso purchasing power.

Further promotion of the c-store concept is another key consideration. Players perceive that many people still prefer buying from sidewalk vendors and the traditional sari-sari store rather than from c-stores.

Lastly, a must for c-stores is to have an efficient distribution and logistics system considering its significant effect to its pricing and marketing strategies.

PROSPECTS

Players expect the industry to flourish more in the next five years primarily because the country is not yet saturated with c-stores particularly Luzon. Currently, c-stores number only a little over 600 with main concentration in Metro Manila and in other parts of Luzon. In the United States, there are more than 120,000 outlets as of 2001. In Taiwan, 7-Eleven alone operates more than 2,000 branches while Mini Stop operates 1,200 outlets in Japan and Korea. Players do not yet see the need to set up c-stores in the Visayas and Mindanao. Moreover, they have yet to study the logistics requirements and constraints before expanding outside the Luzon area.

The high cost of setting-up an outlet is also pushing the players to tap on franchising to fuel their expansion plans. It was estimated that a 140 square meter outlet would require about P5 million to build and furnish. 7-Eleven at present has five franchised outlets while Mini Stop recently announced targets of putting up more than 300 stores by the end of 2003 - 75% of which would be coming from franchisees. Jollimart's Bingo! is expected to offer franchises within the year.

A study conducted by research firm AC Nielsen on retail trade in the Asia-Pacific cited that modern store formats are fast replacing traditional stores in the region including the Philippines. Sari-sari stores face rationalization unless they carry more product lines to attract more customers.

C-stores, without a doubt, are here to stay. Despite the closure of I-Mart and Easy Mart, the aggressive plans of new entrant Mini Stop will surely perk up the competition. Expanding incomes and food expenditures will definitely help spur growth for the industry.

References:

BusinessWorld, various issues.

Philippine Seven Corporation Annual Reports, 2001 and 2002.

Uniwide Holdings, Inc. and Subsidiaries Annual Report, 1998.

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