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Retail market in the Philippines expected to make up 20% of the GDP by 2025

Secured by strong economic growth, consumer confidence with the Philippines is now at a 10-year high and it topped world rankings in 2016. This has driven strong economic growth and increasing purchasing power, modern retail in the Philippines is expanding rapidly.

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Definition / Scope

Retail is how producers of goods and services get their products to the consumer. Retailers often get their goods directly from the manufacturer. That is when a commodity becomes a finished product. Retail Industry in Philippines is flourishing day by day in the country. Retail is expected to account for one-fifth of the country’s GDP by 2025, as the outsourcing industry helps boost the local economic growth.[8]

Philippines is an island with a population exceeding almost 100 million and also second largest population in ASEAN region. It is also considered one of the largest growing economies in the world with a CAGR growth trajectory of 6% annually in near future. The prime factor for the growth is the median age of the population which is 24.6 years. As it has the youngest population globally[6],it is the most attractive market for the consumption of goods and main reason why retail market has a very high scope to develop in the near future. Increase in GDP alongside with the increasing consumer confidence is allowing consumers to spend more. There are two categories for the retail products: grocery and non-grocery items. Grocery retailers are dominating the retail market because grocery items consist of essential commodities which every household needs to buy and thus, this category has a high demand. [7]

Market Overview

Among the many reasons, the combination of strong sustained growth, a young and increasingly lifestyle of middle-class, and high consumer confidence are creating a robust retail market in Philippines.[1]

Retailing in the Philippines is expected to significantly grow along with the alongside the continued strong macroeconomic fundamentals and favorable demographics which provide a solid base for retailers to come into the country.[1]

Secured by strong economic growth, consumer confidence with the Philippines is now at a 10-year high and it topped world rankings in 2016. This has driven strong economic growth and increasing purchasing power, modern retail in the Philippines is expanding rapidly.[2]

The immense growth of the retail sector in Philippines is due to the influence of four global megatrends which are growing consumer demand for faster and more expedient shopping experiences which are urbanization, women joining the workforce, shrinking household size, and the culture of eating out.[3]

In 2016, the Philippines recorded an impressive economic growth rate of 6.8% and this momentum is expected to continue. If the current level of economic growth can be sustained, the Philippines is on track to become an upper-middle income country by 2022. [2]

Key Metrics

Metrics Value Explanation
Base Year 2017 Researched through internet

Top Market Opportunities

The entry of Alibaba and possibility of entry of Amazon into Philippines brings in new opportunities for local retailers, as they can use such companies expertise with the kind of information that people get from e-commerce, where all the information on a product is readily available from price to reviews, this will shift the paradigm of retail market in Philippines. Although the local retailers can create their own niche market because till date there has been no dominance by large companies in this sector.[4]

The retail expansions in the country are not limited to just traditional outlets, as the country’s population and especially the millennial are becoming tech-savvy which continues to increase the use of online shopping which presents an opportunity for the traditional retailers to introduce online segment in their business too[1]

In the fashion sector, major retailers continue to look for additional brands to bring in, catering to the Philippines' top and mid-market segments, as well as to tourists. The growing hotel & tourism industry also offers a lucrative market, both for related products and services.[5]

Market Drivers

The retail industry in Philippines is growing mainly because of the huge demand of growing population. Disposable incomes are growing, and one factor that is contributing this is the remittances which has increased the retail consumption among the people[4]

As regarding the economic factors, lower inflation rates and a healthy consumer-driven market are the main drivers of retail products and services(both domestic and international brands) in the country.[1]

The grocery segment in retail continue to create most impact on the economy of the country. This category is diverse, which fulfils all kinds of consumption needs for the vast majority of Filipino consumers. As a result, the retailers in this segments are providing increased access and product diversification for items such as food and beverages, beauty and personal care, home care products and so on.[1]

Market Restraints

In the developed countries, the share of e-commerce is small in terms of overall sales i.e. slightly less than 10% whereas in Philippines the e-commerce penetration in retail is about 2% which is also quite less. Although, giant companies like Alibaba has already acquired the local e-commerce companies like As the traditional retailers are unable to tap onto the opportunity of e-commerce growth, the retail market is not flourishing to the extent it should.[4]

The operating costs are increasing for the modern retailers residing in the Metro City Manila and other developing cities. These retailers are using their own trucks and due to the continuous hike in fuel prices it has posed adverse effects in their business operations.[9]

The traffic is getting worse in big cities and to prevent any kind of delay of delivery of the goods, the delivery vehicles leave as early as 12 Am to 3 Am and reach the destination only between 8Am to 12 Am. It is taking more than 24 hours to complete one trip and this is creating inefficiencies and incurring higher operational costs.[9]

The beaurcracy that exists in the surrounding environment of Philippines is hampering the businesses of retailers. The companies that are operating their own trucks are facing this issue. The Land Transportation Office “LTO” is the government agency that is causing all the backlogs For instance, issuing Driver’s License alone takes months to a full, issuance of License Plates for registered Trucks would take more than two years for some.[9]

Department of Environment and Natural Resources has passed a mandate on Certificate of Conformity (COC) only to Euro IV configured Vehicles. Price increase in the value of Trucks with Euro IV configurations which will force retail businesses to pay more.[9]

As said earlier, retail companies are operating their own trucks due to the challenges that exist in macro and micro level. As a result they have outsourced the truck service providers' .Sadly, there is not just enough professional Trucking Service Providers available.[9]

Industry Challenges

The market share of e-commerce is expected to double in next 3 to 5 years. The Philippines is in its way to convert all smartphone users into 3G technology which is the main reason that will increase the e-commerce exponentially, if this happens then the traditional retailers in the market maybe in a verge to extinction if they don't adapt e-commerce soon as some dominant players have already started to incorporate e-commerce segment into their business[4]

Technology Trends

Online payment platforms known as AlipayHK and Philippines-based GCash have launched a cross-border remittance service based on block chain technology. It allows users to wire money to the Philippines through a secure, transparent and fast channel.[10]

The Philippines Department of Trade and Industry has publicized the establishment of 58 Go! Lokal stores and upgrades to more than 100 One Town One Product (Otop) stores nationwide. A rebranding initiative is underway to rename these stores as Products that sell successfully in the stores will go on to be hosted at Go! Lokal outlets in malls.[10]

A mart called 'Family Mart' in Philippines has opened new leading store, termed FamilyMart Generation 2, offers a wider range of food with an enlarged cafe-style dining space. It has airy design and is mostly aimed at the millennials.[10]

E-commerce platform known as Shopee Philippines has launched Shopee Mart, selling groceries online via smartphones. It is operating not only in country itself but has expanded its footprints in southeast Asia. Groceries was a logical extension in the Philippines.[10]

Local mobile phone brand known as MyPhone will launch a built-in e-commerce platform called MyBarko exclusively for Filipino brands on new models of its phones which will allow the users to purchase online without the merchants on Myphone charging them for their placements on platform.[10]

Pricing Trends

The retail price index in Philippines increased 4.2 percent in July, 2018. Regarding the various categories of retail: Mineral fuels, lubricants & related materials (24.3 percent from 23.5 percent) Beverages and tobacco (12.1 percent from 11.9 percent); Machinery & transport equipment (1.8 from 1.5 percent), Chemicals, including animal & vegetable oils & fats (1.2 percent from 1.1 percent). Retail Sales Year on year in Philippines averaged 7.52 percent from 1980 until 2018, All time high- 79.50 percent (September, 1984) Record low of -3.13 percent in (November, 1999)



Other Key Market Trends

There is a bulk of entry of foreign brands into the country especially in sectors such as, modern grocery retailers, food vendors, and apparel and footwear specialists are trying to partner with local distributors in order to take advantage from the market sales rather than competing with them instead. Swedish apparel brand H&M, for instance, opened its largest store to date in the country in Cebu in late 2015 as part of its expansion strategy outside of Metro Manila.[1]

Due to the culture of shopping and increasing socializing activities, there has been rise in entertainment, shopping and restaurant services which has also provided the shopping centers to rapidly expand their offerings to include more consumers. This growing interest in commercialism has resulted in the Philippines now being the location of three of the world’s largest shopping centers namely, SM City North Edsa, SM City Mall of Asia and SM City Megamall.[1]

Market Size and Forecast

The population of Philippines is exceeding and has contributed 6.6% GDP growth in 2017. This economic growth is underpinned in part by overseas workers’ remittances, which totalled $26.9 bn in 2016, up from $25.77 bn the previous year, along with a strong services sector driven by a business process outsourcing (BPO) industry that should continue to fuel increasing levels of disposable income and consumer spending. At the same time, headline inflation has remained in check, with 2016 levels holding steady at 1.8%

According to the Philippine Statistics Authority, Philippine retail sales grew by 10.6% year-on-year in the 1st half of 2016, with retail sales equivalent to $48 billion USD for the period. The retail sector is expected to make up 20% of the country's gross domestic product (GDP) by 2025.[4]

Market Outlook

The Philippines was ranked as the 16th most attractive retail market in the world among developing countries in AT Kearney’s 2016 Global Retail Development Index.

in the top 30 developing countries for retail development based on relevant macroeconomic and retail-specific variables such as market size, country risk, market saturation and time pressure. The index score for the Philippines was 47.7 but in Asia Pacific it was ranked below regional competitors China (1st), India (2nd), Malaysia (3rd), Indonesia (5th) and Vietnam (11th).It is the 4th most attractive retail market in Asia.[1]

Distribution Chain Analysis

There are numerous international brands who are making their foray into this industry.[1]

In the first half of 2016, Singaporean food and beverage company Pezzo Pizza, Canadian clothing apparel brand Joe Fresh, Japan-based lifestyle goods company Miniso, and two US-based food and beverage companies; Texas Roadhouse and Pink’s Hot Dogs have already established themselves successfully in Philippines whereas there are number of companies in pipeline to open their foreign branches in the country looking at its attractiveness and increasing demand among consumers in this sector.[1]

Competitive Landscape

Four major groups – SM Group, Ayala Corporation, Robinsons and Rustans, dominate the Philippine retail industry.[5]

Thailand’s leading online retailer Ascend Group, which launched the shopping platform and German-owned, e-commerce company Lazada also making their entry in the online retail industry in Philippines[1]

Competitive Factors

Ayala acquired online fashion platform Zalora and subsequently detailed its strategy of creating online and traditional retailing synergies.[4]

Sari sari stores are also the traditional,family-run convenience stores known for offering a diverse array of goods ranging from food and beverages to household goods and clothes. Although due to modernization, these trends have started to deplete and the consolidation of such stores is occurred due to large players such as Rustans, Robinson and Ayala Corporation who acquire small players and are establishing themselves as bigger food chains by doing so.[1]

Robinson's is set to invest nearly $100 million in 10 new community malls by 2020. Another mall and departmental store operator, Metro Retail Stores Group is doubling its number of outlets over the next five year. Lastly Prince Philippines has announced plans to open four new stores by the end of 2017.[1]

Key Market Players

The top three business groups in Manila belonging to the retail sector are SM, the Ayala Group, and JG Summit which have all built their empires on the back of their retail behemoths SM Supermalls, Ayala Malls, and Robinsons Malls, respectively. These malls have become a part of the daily culture of people residing in Manila and already transcended the concept of retailing[4]

The SM Group owns over 40 malls nation-wide, and is aggressively expanding not only their shopping malls but also their supermarket chains. Ayala Corporation continues to develop mixed-use developments, combining commercial, residential and retail space. Robinsons reports continued growth in rental revenues, showing increased uptake of retail space. Rustans, the Philippines’ largest luxury retailer, currently handles more than 70 foreign brands and are still expanding their portfolio[5]

Strategic Conclusion

The one significant factor that could have a substantial effect on the retail market in the near future is the final composition of the new government’s plans to reform taxes, which include proposals to lower personal income tax and alter other income tax exemptions, increase excises taxes on certain goods, increase fuel tax and alter the value-added tax rate.


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