(First of Two Parts)
If there’s a company praying that the Philippines’ row with Taiwan doesn’t worsen, it is this billion-peso behemoth whose 829 convenience stores all over the country are getting to be as ubiquitous as Jollibee or Mercury.
You see it nearly everywhere now, but because of its US brand and its front men, you’d never think it is controlled by the Taiwanese: Philippine Seven Corp. (2012 revenues: P14 billion), which runs the 7-Eleven “convenience stores,” essentially the bigger versions of our traditional sari-sari stores.
The legality of Philippine Seven stores—at least for the 278 it directly owns (the rest are franchises)—is questionable, but that entirely depends on government’s interpretation of the Retail Trade Liberalization Law of 2000. I will discuss the matter this Wednesday.
The company had very troubled years after it was set up in 1982 by Francisco Sibal of the family owning Alemar’s Bookstore, together with Vicente Paterno, who had left Marcos in 1979 as Trade and Industry minister, and businessman Jose Pardo, who would subsequently become President Estrada’s Trade and Industry secretary. Pardo would play, as I will narrate next week, the most critical role in the company’s growth.
After 16 years, Philippine Seven managed to set up 100 stores, but hardly anybody could call that accomplishment stellar business performance. It was only after 2000 that 7-Eleven saw its stores sprout like mushrooms in the country, when it got the backing of, and the huge capital infusion from, the Taiwanese conglomerate President Chain Store Corp.
The Retail Trade Liberalization Law was passed in March 2000, and its implementing rules issued in June. This, at least by its interpretation, allowed the Taiwanese President Chain Store—which held the American 7-Eleven franchise in Taiwan—to enter the country’s retail trade industry in a big way.
In October that year it bought for P1 billion, through its 100 percent subsidiary based in Malaysia, the controlling 54 percent of Philippine Seven’s shares, which would rise to 57 percent by 2012. (The US Seven Eleven, Inc., has a miniscule 0.39 percent in Philippine Seven, but the latter, however, pays the former a royalty of around P50 million yearly for the use of its name and logo.)
To go around the constitutional ban on foreign firms owning land, Philippine Seven set up a subsidiary, Stores Sites, Inc., 40 percent of which is owned by the firm and the other 60 percent owned by the company’s Filipino stockholders. It is the “Filipino” Store Sites, Inc., which owns the properties upon which Philippine Seven stores are situated.
The two original Filipino investors, Pardo and Paterno, plus Jorge Araneta of the Araneta-Roxas clan, who bought out in 1984 the shares of a reportedly unwilling Sibal, had about 10 percent stake each, with some 10 percent trading in the stock market. (Their shares were reduced when the British Virgin Island-based Arisaig Asia Consumer Fund last September bought for P2.2 billion some of their shares totaling 9 percent, at a windfall price of P70 per share.)
Although Pardo and Paterno have been the firm’s public faces, either as chairman or president, the Taiwanese actually exercise tight control over the firm. Seven of the regular 11 members of the board of directors (i.e., excluding two independent directors) including the vice-chairman are top executives of the Taiwanese President Chain. The chief financial officer and his deputy, the operations director and several other key officers, are all Taiwanese.
President Chain Stores is one of the biggest conglomerates in Asia with 80 subsidiaries and affiliates all over the region. It registered in 2012 the equivalent of P188 billion in sales. It dominates the convenience store and coffee shop industry in Taiwan, operating 5,000 7-Eleven stores there, 220 Starbucks coffee bars, and hundreds of drug stores, supermarkets, and Mister Donut outlets. It has aggressively expanded into China, Malaysia, and even Vietnam.
Its Philippine 7-Eleven stores are now practically the “Jollibee” of the convenience-store industry, with its 829 stores accounting for about 60 percent of such retail outlets. The company has even allocated P2 billion this year to set up at least 200 more outlets.
The Gokongwei group’s Mini-Stop (franchised by a Japanese firm) is a far second with only 334 stores. The industry has been so profitable that Senator Manny Villar’s conglomerate has moved into it with its Finds Stores, while the Ayala group has partnered with two Japanese firms to expand its FamilyMart chain.
There is a bit of irony here. The 1954 trade nationalization was intended to push the immigrant Chinese out of the retail industry. Today, the Chinese—or those in Taiwan— through Philippine Seven are dominating the modern retail industry through these convenience stores
So how did a giant foreign firm get into the country’s retail convenience-store industry and dominate it? The credit goes to Pardo and his former boss, President Joseph Estrada.
I’ll tackle that interesting part of the story next week.
Websites: www.trigger.ph and www.rigobertotiglao.com