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By Darwin G. Amojelar, Reporter
WITH inflation hitting
doubledigits and the economy slowing down, the Philippines’ two
largest convenience store chains are eyeing to cash in on a growing
number of middle-income consumers dropping out of the fast-food
circuit in search of more value for their money.
Last month, the inflation rate
accelerated to a 16-year high of 12.2 percent. The
higher-than-expected price increases forced the Bangko Sentral ng
Pilipinas to recast its whole-year forecast to a higher 9 percent to
11 percent range from the original 7-percent to 9-percent estimate.
First-quarter economic growth
also slowed to 5.2 percent from the scorching 7.4-percent expansion
in the fourth quarter last year, leading the country’s economic
managers to downgrade this year’s growth forecast. Personal
consumption expenditures alone eased to 5.1 percent in the first
three months this year from 5.9 percent in the same period last
year.
As low-income families shy away
from dining out, fast-food chains like Jollibee are moving up the
market to capture those from the higher-income set opting to scale
down their tastes. For the two convenience store giants, this shift
in the fast-food demographics presents a challenge and an
opportunity.
With the middle-income consumer
on the prowl for cheaper yet filling meals, convenience stores are
scampering for a piece of the action.
To be sure, the opportunity to
encroach into the fast-food market was thrust upon convenience
stores partly by the difficult economic environment.
Sari sari stories growing
Jose Victor Paterno, chief
executive officer of Philippine Seven Corp. said sari-sari stores
are likely to put a dent on the company’s operations, despite
growth projections of between 8 percent and 10 percent this year.
“For me that’s my barometer
of underemployment. If the economy gets worse, sari-sari stores are
growing. This year we could feel the impact of inflation and [a]
weakening economy,” he told The Manila Times.
So far, the local operator of the
7-Eleven chain has held up relatively well. In the first three
months, sales reached P1.45 billion, a 13-percent increase over the
P1.29 billion in the same period last year. This translated to a net
income of P5.6 million, a turnaround from the P22-million loss in
the same three-month period last year.
But Paterno said store sales of
late had been flat compared with last year. He said 7-Eleven has to
offer new products to maintain existing customers if not cater to
new ones.
Robinsons Convenience Stores Inc.
(RCSI) is in the same boat, according to its President Johnson
Robert Go Jr.
“The wallets are getting
smaller. It’s inevitable that they will come to purchase items,
[but] it is not as much as they did,” he told the Times. RCSI
operates the local chain of Mini Stop convenience stores.
Go said the company’s top line
margin has been squeezed “a little bit.” “[But] we’ve been
performing according to expectations. Despite the relative
difficulty of the economy, the business has been able to withstand
the [hostile] environment,” he added.
The company’s available
financial data showed that it posted a net loss of P5.32 million
last year, lower than the P40.21 million in 2006. Revenues however
climbed to P2.34 billion from P1.62 billion year-on-year.
New product rollouts amid
price hikes
Both convenience store chains
have already raised their prices to cope with the rising cost of
inventories. Paterno said 7-Eleven hiked prices by 5 percent, adding
the company passes on to customers these costs particularly for
manufactured goods.
“There may be additional
increases, but the bulk of the price increases was over and done
with,” he said.
Go said Mini Stop also undertook
price adjustments of between 7 percent and 15 percent for some
products.
“We try not to pass on the
price increases to the customers. If ever, we provide very marginal
increases,” he said.
But where the two giant chains
have been spending more time and resources on is the roll out of
fast-food products to compensate for the possible loss of customers
due to high inflation.
Go said Mini Stop does a lot of
promotions to attract more customers. “It’s a matter of
creatively coming up [with] a promotion that will still keep them
interested [since] we know that the disposable income is not big
now,” he said.
The executive said the company
introduces a new product every month especially for its fast-food
category. “We have to be able to come up [with] innovative
products like new desserts, sandwiches and rice meals to attract
more customers,” he said.
At present, fast-food items such
as fried chicken, sandwiches, dim sum, and beverages like C2 and
soda are Mini Stop’s best selling products.
The operator of 7-11 is also
betting on the company’s food services. “We’re experimenting
with new products, toward value orientations,” Paterno said.
The executive said the company is
catching the spillover from the fast-food chain and restaurant
market that shifted to low-priced stores. So far, 7-Eleven customers
have responded favorably to the new products offered, such as rice
meals and sandwiches, he said.
“Rice meals are especially
important as they are our entry to the lunch and dinner [markets],
after building on our strengths in snacking to enter the breakfast
segment some years back,” Paterno said.
He said proprietary merchandise
led sales and margin growth in its stores, adding that cup drinks,
such as Slurpee, Gulp and Café 24/7, were the best performing
items.
Focus on BPO market
Given the shrinking purchasing
power of their traditional customers, 7-Eleven and Mini Stop are
focusing on the BPO market, which has embraced their fast-food
offerings.
“I think generally, they
[contact center agents] have more disposable income. Most of them
are not married, so they spend for themselves,” Go said.
“Our observations are that we
have higher transactions and more regular traffic of people in the
stores that are located near the BPO,” he said.
The executive said cigarettes,
cell phone loads, energy drinks and coffee are the fastest-moving
items in the call center market.
“Usually that’s the profile
and you have to be efficient because what happen[s] is they only
have 10 minutes to 15 minutes to get their food and back to work,”
he said.
About 12 percent of Mini Stop
stores are located near BPO offices. At end-June, it had more than
200 stores.
“We’re ending this year with
250 stores and next year another 100 stores,” Go said, adding the
company has allotted P200 million in capital expenditures for the
additional 50 stores.
He said the company plans to
increase its franchise stores to 95 percent from the current 85
percent.
“The best way to really grow
the model in most countries is to increase franchise stores because
you share investments. You can’t grow as fast if you don’t
franchise. If you go to Japan, Taiwan and Korea most of them are
franchise,” Go said, adding that only 5 percent to 10 percent are
company-owned.
Paterno said 7-Eleven is also
focusing on the BPO market, but provided no details.
The company ended the first
quarter with 318 stores, a 12-percent increase from 283 last year.
By year-end, the company aims to
spend P650 million to put up 400 stores, of which 70 percent would
be franchisee-run.
Still very young industry
“The management believes that
the strategic directions committed to in the crucial areas of
franchising, development, and marketing were validated by the
company’s performance in 2007,” Paterno said. “By the end of
2008, we expect that more than 60 percent of our stores will be
operated by franchisees.”
In the next five years,
franchised 7-Eleven stores may reach 85 percent of the total, he
added.
The local Mini Stop operator
agrees. “I think the convenience store in the Philippines is still
very young compared [with] matured markets in Thailand, Indonesia
and Malaysia. Those places have thousands of conveniences,” Go
said.
“I would still predict growth
in terms of revenue and bottomline. It’s really how you creatively
use the resources that you have. There’s a way of getting over the
humps without necessarily spending more money,” he added.
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