WHILE major mall developers in the country are aggressively expanding to other retail formats, such as hyper and supermarkets, Filipino shoppers still turn to their trusted sari-sari, or neighborhood variety stores, and nearby market stalls, as they still consider traditional channels as the No. 1 shopping destination for fast-moving consumer goods (FMCG).
Based on the latest Smart Shopper research of Kantar Worldpanel, traditional trade accounted for 46 percent of the total FMCG sales in 2017, while hyper and supermarkets partook 30 percent.
Kantar Worldpanel Philippines General Manager (GM) Alexandre Duterrage attributed this to the fact that traditional trading centers serve as an “extended pantry” for Filipino households, while supermarkets only replenishes them with products not easily purchased from just around the corner.
Apart from the convenience element, another factor traditional trade is the most-preferred channel for FMCG among the local consumers is the suki relationship, wherein there is trust and confidence between the household purchaser, mostly the housewife, and the shop or store owner, he said.
“This relation to them is very strong. It’s still much stronger than the competition made by hyper and supermarkets, especially in categories such as fresh vegetables, meats and so on,” he told reporters during the company’s recent announcement of the results of the annual study, which delves into the opportunities and challenges for shopping channels and retailers.
The report revealed groceries as the third leading destinations, contributing 6 percent to the aggregate FMCG sales this year, followed by drugstores at 4.5 percent; gifting 4.5 percent; direct sales 2 percent; convenience stores 0.4 percent; online 0.1 percent; and others 7 percent.
“Online is very small [here] compared to the share of e-commerce in FMCG of various countries in the region,” Duterrage said. “For example, from our data in South Korea, online is already almost 20 percent [or 19.7 percent to be exact] and it’s 6.2 percent of total FMCG sales in China.”
FOLLOWING the election year, the growth of FMCG is tapering off in 2017 at 3 percent in sales value, with the top destinations traditional trade and hyper and supermarkets both barely moving 1 percent and 3 percent, respectively.
“The growth of traditional trade is [flat or stable], especially in this country where modern trade should be developing. This is the same with hyper and supermarkets,” Duterrage said.
Among the retail channels, convenience stores performed well with a 15-percent value-contribution to total FMCG sales in the past 12 months finishing June 2017.
“Why it’s growing [so high]?” he asked. “The convenience store is the new extension of the pantry—with air-conditioning and refrigerated products, and a slightly different assortment.”
Drugstores, on the other hand, sustained their growth at 8 percent during the period. Local pharmacies, according to the top executive, are relatively different from other countries.
The first model, which is similar abroad, has the mix of semi-commerce of simple products, on one side, and beauty products/cosmetics on the other side, another type which is uniquely found in the Philippines that has a pharmaceutical component and, at the same time, an FMCG offering.
While groceries posted flat performance, direct sales registered a -3 percent value-share to overall FMCG sales in June compared to the same period in 2016.
Limited buying power
FILIPINO households still have other priorities than FMCG insofar as their consumption is concerned, the SmartShopper research showed.
“We’re very conscious about the limited cash outlay,” Kantar Worldpanel Philippines New Business Director Des B. Deocareza told the BusinessMirror, while referring to the 90 percent of Filipinos who still belong to classes D and E with restricted disposable income.
“The FMCG [sector] is also challenged because we’re competing with a lot of other expenses like load, recreation, utilities and gadgets,” she added.
Across all retail formats, the average spend per household on FMCG in the Philippines is P84 per trip in June of this year, or just P1 higher than P83 in 2016. Given that the frequency of their visit stands at 395.2 annually, each buyer spends P33,367 per year. This is P358 greater than the P33,009 expenditure for 395.8 visits to all channels last year.
Traditional trade remains to be the most frequently visited at five times per week, or 257 in 2017 against 262.4 in 2016. Even if every client’s expenditure per trip remains the same at P59, it still rakes in P15,262 from the purchase of each customer this year compared to P15,452 a year ago.
For hyper and supermarkets, a payout per trip from over the two periods in review hiked from P253 to P254, together with expenditure for every buyer from P11,286 to P11,290 annually. The result is encouraging despite a slowdown in frequency from 44.6 to 44.4.
Notable of all is the growth of drugstores, driven by visits and heavier baskets. Filipinos’ FMCG purchases in these retail formats are on the rise, with shopping frequency growing steadily from 12.8 times in 2016 to 13.4 times in 2017, and spend per trip increasing from P187 to P198, or P2,394 to P2,643 expenditure yearly.
“There is obviously a trust or confidence in buying pharmaceutical products in a drugstore,” Duterrage said of the encouraging factor for consumers to visit and spend more in this shop. “You think this store is probably cleaner. And this trust have some kind of an umbrella effect that is covering close category to pharmaceutical products that is FMCG.”
LOCAL shoppers’ preference vary depending on their needs and socioeconomic class, the report showed.
Amid a challenging environment for the FMCG sector, given its flat performance, the most consumed category is family or adult milk pegged at P47 billion. This is followed by instant-coffee powder, breads, growing-up milk, biscuits, infant milk, baby diaper, instant noodles, laundry powder and soft drinks.
As of June 2017, traditional trade still dominates channel spending in food (43 percent), household care (47 percent) and beverages (60 percent). Hyper and supermarkets maintain contribution in personal care at 36 percent.
Per economic status, classes A, B and C are largely hyper and supermarket shoppers at 54 percent. But still, they spend 20 percent of their FMCG spend on traditional trade.
“[This is because of] the trust [or] the relationship that is still there between the household, whether it is through the housewife or the maid, with the market or store owner,” Duterrage explained.
As expected, classes D (45 percent) and E (62 percent) mainly source their spending from sari-sari stores and market stalls. Classes A, B and C spend more in drugstores. Meanwhile, classes D and E are gradually including modern trade in their shopping destinations, at the expense of traditional trade.
Top 5 retailers
ALTHOUGH Filipinos’ FMCG shopping habits mostly favor traditional trade, five retailer accounts still benefit from it.
Puregold, SM, Robinsons, Mercury Drug and Gaisano all contribute to 15 percent of the overall FMCG sales in the local market in the past 12 months ending June 2017.
Among these powerhouses, the fastest-growing is Mercury Drug, which reported a 19-percent value change growth this year. It is seconded by Gaisano, with a hike of 15 percent.
Puregold and SM are growing at the base of FMCG by 5 percent and 2 percent, respectively. However, Robinsons registered a 7-percent decrease in value change.
“So, it’s not everyone growing in the same place at all. Here, it’s only on one year. If you project that on several years, you will see that there are fantastic differences between different stores,” Duterrage said.
The go-to market
ACCESSIBILITY of location is the main consideration for buyers when shopping at retailers since all of them want convenience.
Second, Filipino shoppers prioritize merchants that make them feel like they’re spending their money wisely with good price points and promotions, per the study.
When it comes to product range and layout, the research showed that retailers that offer a wide array of brands, types or sizes of products gain the customers’ patronage.
More so, they are greatly attracted to good marketing initiatives via events or animation in store.
Buyers also tend to purchase from those retailers that help local manufacturers and their fellow Filipinos.
“Our research shows that, while Filipino shoppers are embracing the expansion of hyper and supermarkets, they are still loyal patrons of traditional trade,” Duterrage said.
SARI-SARI stores and market stalls are seen continuing their appeal to Filipino households next year and beyond.
“So, remember the extended pantry [or the] traditional trade in the Philippines is still there for some time. It’s not going down,” predicts the executive of the global expert in shoppers’ behavior.
But modern trade will grow faster as local households spend more on these channels, especially drugstores and convenience stores, he cited.
The former is winning the confidence of consumers though infant or toddler milks and personal care since they have the closest affinity to pharmaceutical products. The latter, on the other hand, stand to benefit from being a “modernized extension of the pantry.”
In the online setting, FMCG e-shopping in the country is expected to be constantly minimal, as regards its penetration.
Nonetheless, it will cater to a very specific market segment that is personal care.
Meanwhile, direct sales will only be important for some specific parts of the population. Duterrage said: “It is not something across everyone. It’s really specific for [classes] D and E.”
Obviously, hyper and supermarkets differ from each other in terms of location, price and assortment. To compete better in this channel, the players must understand what attributes across these factors will help win the hearts and loyalty of Filipino homes, he recommended.
The study engaged the participation of 3,000 panelists nationwide—2,000 of them are from urban areas and the remaining 1,000 from rural sites.
“Kantar Worldpanel’s Smart Shopper Study is a unique tool that allows retailers and manufacturers to understand where consumers are purchasing their FMCG needs and why they choose to patronize that particular channel. The combination of the actual data from our panel and the insights we get from our extensive interviews provides a wealth of information that help our clients craft their business strategies to boost growth,” Duterrage said.