Philippine convenience stores – the epidemic is underway
There is no doubt the invasion and rapid expansion of the modern day convenience store is now running rampant in the Philippines.
Many astute observers have long and correctly predicted convenience stores would be the next phase of modern retail growth in the Philippines and judging by the retail brands now springing up like plants in a well-watered garden, the scramble for market presence is well and truly underway. All major retail groups are participating in the convenience store segment.
The modern day convenience store retail segment was pioneered in the Philippines by 7-Eleven, (PSC), which opened its first store in 1984 and has held the number one position ever since. Store numbers are predicted to reach 2000 outlets in the next couple of years and some suggest the expansion over the next decade could see 10,000 7-Eleven stores adorning the retail landscape. Such volume in number of outlets gives 7-Eleven a substantial market advantage which in addition to being part of the largest retailer, (in store outlet numbers), in the world, in the Philippines it will be in the strongest position to leverage its critical mass.
The second major player is MiniStop, (Robinson Retail). Launching its first store in August 2000, its store numbers raced to 100 within just four years and this is indeed fast paced when considering 7-Eleven required 12 years to reach the same number of outlets. Ministop has now passed through the 500 store mark and it is possible that number will double over the next two to three years, (if for no other reason than that increased market competition will demand the growth in order to secure the locations critical to a convenience store’s success).
As new convenience store players establish their position in the market, the speed of outlets popping up across the retail landscape will accelerate as each plays a game of catch up, or at the least, to get to the number of outlets required to offset operational costs.
Over the last couple of years, with the new entrants coming into play, the retail market has seen frantic activity in both retail brands and outlet locations. Some of the new players are:
- FamilyMart, (SSI Group and Ayala), raced onto the retail scene in 2013 and was operating 100+ stores within just two years, (compare this speed to 7-Eleven reaching 100 stores in 12 years and Ministop hitting the same milestone in four years), and has indicated it aims to open 60 – 70 stores per year.
- AlphaMart (SM Group in partnership with Indonesia’s AlphaMart), hit the ground running with 22 stores open in 2014.
- FamilyMart has indicated it requires up to 3000 stores to reach critical mass and sees this as possible within five years, (it would be foolhardy to ignore the overall position and resources of the number one retail group in the Philippines).
- Lawsons (Puregold) has now entered the market and is reported to be targeting 500 stores by the end of 2020. The initial focus is on greater Manila but it is reasonable to believe geographic expansion will follow. Given Lawson sits in second place behind 7-Eleven in Japan we can expect the chase to be continued here in the Philippines.
- All Day Convenience Store, (Manuel B Villar Jr) could be considered a slow starter in the segment, but there are two aspects of its strategy which are unique: Firstly, All Day Convenience Store is the only wholly-Filipino owned brand among the imported players and secondly, the location strategy includes opening outlets within its network of residential estates. Whilst store numbers in estates alone would not seem sufficient to provide critical mass it would be an interesting start that could provide a “captured customer” base.
Another challenge to be faced by all players is the “experience library” that is a part of the partnership package where local retail giants are teamed with the largest, (by store numbers) convenience store retailers in the world.
With so many players now in the market all understanding the importance of securing “the right” location providing passing traffic and ease of access – individual brand growth may be slowed as each fights to get their hands on the prime “convenience” locations. Whilst new outlets will open within the blink of an eye selecting of the right sites at the right time will be paramount to the success of each convenience store retail brand.
The convenience store retail format is exactly as the name suggests – being convenient. Ease of access will result in stores being visible no matter which direction the customer is looking. Some stores will be linked with gasoline outlets, others will sit conveniently to capture the working population, (coming and going), others will target public transport hubs and all will seek to be within reach of a local neighbourhood.
The convenience store product offer is narrow and focusing on basic living essentials, services such as bill payment, and food and drinks. This mix is diverse in margin and the food element usually is a tremendous bolster to profitability. Use of retail space, speed of product turnover and margin mix will inevitably determine the profitability of each outlet.
It comes at a cost
The convenience retail model is not without cost. Across the counter the customer pays for this convenience as item for item the same product purchased in the convenience store will cost more than that identical item purchased in the supermarket. Typically convenience store prices will be 5 per cent to 15 per cent higher, (the amount of increased price will vary across product categories and within the different convenience store retail brands).
This new era of retail growth can be seen as dynamic and good for the country, the economy and the general public. Literally thousands of jobs will be created in building new stores and many more jobs to staff and manage the outlets, supply chain and business operations. In addition to the economic values, (rent to the landlord, electrical costs, promotional expenses to name a few), customers will gain access to clean, air conditioned modern stores that are open to serve the customer 24 hours a day and stores will be at arm’s reach virtually in every street in the country.
If it sounds too good to be true….. maybe it is! There is another side to this story that deserves careful consideration as the social and economic ramifications are potentially extreme and could impact upon millions of everyday, hardworking Filipinos. In my next column I’ll address the impact of modern convenience stores on the traditional Sari Sari.
Inside Retail Philippines columnist Darrell Wisbey has 40 years retail experience, living and working in Australia and Asia. Darrell delivers seminars and workshops for Philippine Retailers Association. Contact Darrell here.