Porter five forces model of competitive analysis is a widely used approach for developing strategies in many industries. The intensity of competition varies across the industries. The intensity of competition is higher in low return industry as compared to high return industry due to less requirement for capital and common products that require minimum R & D (Research & Development) and efforts for production.According to Porter, the nature of competitiveness in a given industry can be viewed as a composite of the following five forces:1. Rivalry among competitive firms2. Potential entry of new competitors3. Potential development of substitute products4. Bargaining power of suppliers5. Bargaining power of consumers

Industry Analysis Example (Porter’s Five Forces and Complementors)Shopwise Super center

Here is a very brief example of an Industry Analysis for the Cases using Shopwise Super center, specifically Shopwise Super center’s competition in the consumer retail industry and not in the industries where it competes. Remember, that you are concerned with where Shopwise Super center is positioned in the industry relative to the respective industry forces. The industry:

In the Philippines, food retailing industry involves a wide array of sellers from the sidewalk vendors, wet and dry markets, sari-sari stores, groceries, supermarkets, hyper marts, warehouse and discount clubs and convenience stores. Food means brisk business. Food is intricately linked with its culture and traditions. In the family, food accounts for 43 percent of total expenditures. Outside the home, eating has become lucrative for the retail business. Expenditures for dining out, excluding corporate representation registered an average growth rate of 15 percent to 20 percent per annum in the last 10 years. In the quick service or fast food segment, the total market in 2000 was over PhP 30 B. (Palma, 2005). According to the Family Income and Expenditure Survey (FIES) of the National Statistics Office(NSO), household spending on food increased by 26 percent from 1997 to 2000. Personal consumption expenditure (PCE) on food and beverages in 2002 reached about PhP 448 B from PhP 401.7 B in 1998, or an average annual growth rate of about 3 percent (Omaña, 2005).Retail development The Philippine retail market is well developed compared to other southeast Asian

countries (Indonesia, Malaysia and Thailand, for example). The share of processed and packaged food sold in retail outlets was estimated at over 60 percent in 2003 (Reardon et al., 2003). There has been growth in the number of retail food outlets and fast food outlets in the Philippines in the past 15 years (Elsevier, 2005). Despite this growth, sales of fresh fruits and vegetables, meat, and fish are still largest in small locally owned convenience stores and wet markets (true in NCR and countryside regions alike) (Elsevier, 2005).The leading retail chains and convenience store chains in the Philippines are Filipino owned and are mostly concentrated in the NCR region. Table 5 provides an

overview of the leading retail and convenience chains, ownership, sales, outlets, and their locations.

Supermarkets are big business in the country. An industry report cited that there are about 5,000 supermarkets in the country in 2007 with estimated sales of over P100 billion.

A supermarket is a self-service store offering a wide array of food and non-food items, which are organized into departments. It is a retail format that is bigger than a grocery store and it has from three to 25 counters. A variation of a supermarket is a hypermarket, which is larger in size and usually combined with a department store. A hypermarket has more than 25 counters and sells both wet and dry goods.

Concentration Although large food retailers appear to dominate the retail food industry, these retailers argued that they face stiff competition especially among supermarkets and have to practice loss –leader pricing to maintain their market shares. They practice giving discounts,

regular bargain sales, reduction in margins, expansion of target markets, bigger store space, and good product quality (Patalinghug, 1996). One possible way of proving this claim is through the computation of the concentration ratios. Available data on these concentration ratios showed that supermarkets are actually not concentrated even in Metro Manila. Rather, the top four supermarkets only have a 1.08% concentration ratio and that they only have about 1% share of total sales. Generally, data on concentration ratio support arguments that the retail industry is fairly competitive. One of the arguments in the retail industry is that it is not the retailing sector but the food manufacturing sector that is highly concentrated. Canning and processing vegetables, vegetable juices, smoking of fish and other marine products, wine manufacturing industries among others have 100 percent four-firm rations (Digal, 2001). Eleven of the 53 industries under this sector have four-firm concentration ratios of 100 percent. Almost half of the 53 industries sectors in the country are extremely concentrated, having ratios of at least 90 percent.

Shopwise SupercentersShopwise, the pioneer in hypermarket operations in the Philippines, formally began operations in November of 1998. Since then, it has grown to seven branches located in Alabang, Makati, Libis, Araneta Center, Antipolo, Harrison Plaza, and Sucat in Paranaque. Shopwise has gained a loyal following among a broad market segment, and is well-known for fun, freshness, a wide range of merchandise assortment, and affordability.

Shopwise is a member of the Rustan Group of Companies, a diversified retail conglomerate, and the second largest broad lines retailer in the Philippines.

Copyright © 2010 Shopwise. All rights reserved.http://www.shopwise.com.ph/#/nav_about

Potential Competitors: Medium pressureo Grocers could potentially enter into the retail side.o Entry barriers are relatively high, as Wal-Mart has an

outstanding distribution systems, locations, brand name, and financial capital to fend off competitors.

o Wal-mart often has an absolute cost advantage over other competitors.

Retail trade liberalizationSince 1954, the retail trade sector has been exclusive to Filipinoinvestors. However, in line with the government’s thrust to liberalizeindustries, a bill was proposed in 1993 to open the industry to foreigninvestors in order to increase competition and improve efficiency.In October 1996, President Fidel Ramos signed an executive orderadvocating full liberalization of the Philippine retail trade sector. Itwas finally signed by President Joseph Estrada in March 2000 for

implementation.The first major foreign participant in the liberalization of the country’s retail sector is S&R PriceMembership Shopping, which opened its first store inside Fort Bonifacio in Taguig (southern MetroManila) in May 2001 and a second store in Ortigas, Pasig City (eastern Metro Manila) later. Itsofficials claimed that sales in 2001 were better than expected and that its Fort Bonifacio store wasthe busiest among all S&R Price sister stores in 14 countries.

Other foreign retailers which had expressed their interest in Philippine market but have yet to maketheir presence here include Ahold, Seiyu, Pricesmart, Seiyu, and Welcome.

Policies Over the past two decades, the Philippine economy witnessed radical changes in its policies from monopolies, cronyism, and excessive government intervention under Marcos to more liberalized markets under Aquino and Ramos (Gonzales, 1999). During the Marcos era, the main economic policy toward industrialization was import substitution. However, its success rate was low as traders experienced high tariffs, quotas, and an overvalued exchange rate. The government became dependent on regulatory controls, public enterprise, investment incentives, and trade restrictions. The goal of the government to undergo industrial development resulted into the concentration of industries, sheltered domestic markets, and distorted price signals (Patalinghug, 1997).

Under the Aquino administration in 1986, most of the unfavorable economic policies were removed. It was during this regime that foreign investment liberalization laws, such as the Foreign Investment Act of 1991, were implemented. However, although there were a number of policy reforms, the implementation was highly constrained by the lack of adequate financial resources. During the Ramos administration starting 1992, the policy of less government intervention was sustained. To promote competition and efficiency, the foreign exchange

Rivalry Among Established Companies: Medium Pressureo Currently, there are three main incumbent companies that

exist in the same market as Wal-Mart: Sears, K Mart, and Target. Target is the strongest of the three in relation to retail.

o Target has experienced tremendous growth in their domestic markets and have defined their niche quite effectively.

o Sears and K-Mart seem to be drifting and have not challenged K-Mart in sometime.

o Mature industry life cycle.

The top three supermarkets in the country are SM Supermarket, Robinsons Supermarket and Rustan Supermarket. These three accounted for 71% of the gross revenues of the leading supermarkets in 2006 as listed in the Philippines' Top 1000 Corporations.

Table 2. Number of outlets of the top three players in the supermarket business

Company Name of supermarket No. of outlets

Supervalue Inc.SM SupermarketSM HypermarketSaveMore

23118

Robinsons Supermarket Corporation Robinsons Supermarket 32

Rustan Supercenters Inc.Rustan's Supermarkets and ExpresslanesShopwise

227

Source: Company websites.

SM Supermarket

The largest supermarket chain in the country is SM Supermarket, which is operated by Supervalue Inc. Supervalue Inc. is part of the SM group of companies which is involved in retailing, banking, real estate, among others. The very first SM Supermarket was established in

1985 in SM City North Edsa. Today, there are about 23 supermarkets which can be found in strategic locations in Metro Manila and in key cities outside Manila.

SM also operates SM Hypermarket which first opened in Sucat, Parañaque in 2001. SM Hypermarkets offer food, fresh and frozen items as well as general merchandise products. The number of branches has since grown to 11.

SM likewise runs a chain of SaveMore supermarkets. SaveMore branches are neighborhood stand alone stores unlike the usual SM supermarkets and hypermarkets which are found inside SM malls. SaveMore offers the convenience of a first-rate indoor wet market, food and general merchandise store. It caters mainly to households with budgetary constraints by offering lower-priced items under SM's private label, Bonus. Since its establishment in 1999, there are now 8 branches in the country.

According to an industry report, supermarket sales including hypermarket sales account for more than half of SM's retail sales.

Sensing the brewing competition posed by new foreign players, local retail firms are not to bedislodged easily. SM Prime Holdings, Inc. (SMPH), the holding company for the SM chain ofdepartment stores, whose earnings have been growing at a steady rate of 13 percent annually,opened two more shopping malls last year. This year, three more shopping malls will be opened tobring the total number of SM department stores to 15 nationwide. SM allots about P2.5 billion forconstructing new shopping malls every year.

The new Makro, now a member of the SM Group, offers a wide variety of fresh and affordable selections to choose from. Groceries, fresh produce, electronics, appliances and school supplies are now available in smaller packs. The whole family is welcome to enjoy more and better deals with its free membership and parking, bills payment counter for the customers’ convenience. Their purchasing power is extended now that all major credit cards are accepted. # Disclaimer

SM Corporate Offices, Building E, J.W. Diokno Boulevard, Mall of Asia Complex, Pasay City, 1300 Philippines

MAKRO stores are set up to allow customers to conveniently find what they need. It is divided into Food (Fresh / Dry Food) and Dry Goods departments along spacious aisles. The Food department is made up of a variety of Dry Foods and Fresh produce. The Dry Goods department features an extensive assortment of appliances, audio and video equipment, house and office furniture, office supplies and do-it-yourself products. MAKRO has its own product line of high quality Food and Dry Goods product that are more affordably priced. ARO and SAVEPAK are made up of high quality household durable and consumable goods. Q-BIZ offers excellent stationery products and office supplies. ARO and SAVEPAK product managers source consumables that provide high quality and better value for money. Currently around 485 articles are registered under ARO and SAVEPAK trademark among them are fresh produce and dry foods that are canned or packed from frozen foods to detergents and pet foods. 

Makro is committed to providing customers with a steady supply of food and dry goods products with the highest quality at the best price. For our dry foods and fresh produce, our supplies come straight from the farms, plantations and manufacturing facilities everyday. Working closely with our suppliers, guiding them with Marko’s strict standards, they have improved on their processes and quality assurance. We assure our farmers and growers of their income by committing the whole harvest while providing the logistics to transport the produce at the quickest possible time. When you buy food item from us, they’re as fresh as they were harvested.

One of the largest chains of supermarkets in the country is Robinsons Supermarket Corporation (RSC). It belongs to the JG Summit Holdings Inc.'s Robinsons Retail Group, which operates Robinsons Department Store, Handyman Do It Best Center, Robinsons Appliances, Top Shop, Dorothy Perkins, Wallis, Toys R Us, and True Value.

The first Robinsons Supermarket opened in Cebu in 1985. There are now 32 branches in various parts of the country.

Robinsons Land Corp., the developer of 10 Robinsons shopping malls and Big R and Hypermartsupermarkets, is investing P3 billion to P4 billion in building seven new shopping malls within the next 18 months.

There are also reports that Robinsons Land Corp. (RLC) is in talks with Prime Orion for the settingup of a Big R warehouse in Tutuban Center. RLC operates three Big R Super Stores, which offerwarehouse-shopping retail/wholesale service, similar to Makro and S&R Price.

Uniwide Sales

Uniwide was established by the Gow family as a textile bargain house in January 1975. Unbelievably low prices  and  excellent  quality  of  goods  attracted  vast  masses  of  people  to  the Uniwide Sales Textile Bargain House Centre at the top floor of a major bookstore in downtown  Avenida, Manila. Tremendous success  prodded  the  Gow  family  to  expand  store's merchandise assortment to include ready-to-wear apparel,  accessories,  houseware,  appliances  and   groceries.Eventually,  Uniwide  became  a  complete department  store  and  supermarket  chain  with  various  strategically -located  outlets.  Uniwide,  upon registration  with  the Securities and Exchange Commission, became a full-fledged corporation under the name Uniwide Sales, Inc. in 1983. Five years later, in 1988,the company introduced the "warehouse club" concept, a novel idea in the Philippine retail industry The mass-oriented warehouse club concept, allows consumers  to  enjoy the  convenience  of  "one-floor shopping ." The low maintenance requirements of warehouse clubs enables Uniwide to offer goods at the lowest prices. the first Uniwide warehouse Club

was put up in Libis, Quezon City in 1988. Owing to the enormous success of  the breakthrough concept, several  other  Uniwide  warehouse  clubs  were opened at prime locations within a couple of  years.  As testament to the triumph of Uniwide Sales, all of the company's outlets secured  a spot  in  the list of the Top  Corporations  in  the  Philippines  in 1990. In 1995, total sales reached 13 Billion or US$5 Billion. As the company embarked  on  the  development  of more warehouse clubs as well as other commercial and residential projects. The Uniwide Sales Realty and Resources Corporation  (USSRC) was formed in 1989. To consolidate  the  real  estate  interests  of  the  Gow  family,  the  Uniwide  Holdings,  Inc.  (UHI)  was incorporated  in  September  1994. UHI also  serves  as the central franchisor of the system of operating Uniwide warehouse clubs and department stores. Uniwide is committed to cooperate in nation-building by  helping  to  diffuse  economic  activities  to  the  countryside.   Uniwide  resolves  to  establish more consumer-oriented wholesale and retail businesses and build total communities throughout the country.

Uniwide  Stores provide consumers with the comforts of shopping in style while enjoying  the benefits of cost-competitive products. The company's stores are situated at  prime locations and carry a wide range of quality and affordable goods - grocery  items, cosmetics, toiletries, ready-to-wear apparel, shoes, bags, houseware,  home decor, appliances, toys, school and office supplies, hardware,cassette  tapes and a whole more. Uniwide also distributes an interesting variety of  specialty items from household gadgets to assorted food items to trendy clothing  to high-tech toys and the most advanced appliances. The Uniwide Warehouse Club  offers the convenience of "one-floor shopping". Everything that one could ever  need can be found right there in a huge, one-floor, warehouse-typestore.

Puregold

Landmark

Hi-top Supermarkets

Unimart

Daily Supermarket

Table 1. Gross Revenues of Leading Supermarkets in the Philippines, 2006 (P million) Company 2006

Supervalue Inc. (a) 31,454Robinsons Supermarket Corp. (b) 13,495Rustan Supercenters Inc. (c) 8,779Rustan Commercial Corp. (d) 8,134L.P.T. Marketing Company, Inc. 4,185

Grand Union Supermarket, Inc. 3,761Waltermart Ventures, Inc. 3,715Garbes and Garbes Trading Corp. 2,432Tropical Hut Food Market, Inc. 2,325Waltermart Supermarket, Inc. 2,083Alturas Supermarket Corp. 1,848City Supermarket, Inc. 1,516Hi-top Supermarket, Inc. 1,266Royal Duty Free Shops, Inc. 1,043Grocers Central Alliance, Inc. (e) 870TOTAL 86,906

The Bargaining Power of Buyers: Low pressureo The individual buyer has little to no pressure on Wal-Mart.o Consumer advocate groups have complained about Wal-

Mart’s pricing techniques.o Consumer could shop at a competitor who offers comparable

products at comparable prices, but the convenience is lost.

DEMAND CONDITIONSThe purchasing power of Filipino consumers has improved overthe last few years.

convenience in shopping

The number of dual-income families has also expanded whichhas not only improved purchasing power but has also madeshopping more valuable. With higher household incomes,consumers look for convenience in shopping.

one-stop shopThey want a one-stop shop where they can buy most of the things they need in one trip.While many Filipino consumers still shop at wet markets for fresh vegetables and meat, many have shifted to supermarkets because of convenience. In wet markets, processed products and other grocery items such as toiletries are not usually available. Evenif they are, the choices are limited. They prefer one-stop shopping to minimizetime and energy, even if they have to pay more.

cleaner and more comfortable to Supermarkets are also cleaner and more comfortable to shop because they have air-conditioning. Unlike wet markets, they are spacious and well maintained. Whileprices are cheaper in wet markets particularly for vegetables, high incomeconsumers are willing to pay more for convenience.

Exclusivity of productsImported items and certain supplier tie ups of supermarkets make them the only choice.Sari-sari stores, on the other hand, sell limited items and do not carry perishable food such as vegetables, fish, fruits, and meat. Supermarkets sell both perishable and nonperishable items such as canned meat and vegetables and nonfood items.

Access to other businesses.They are located in shopping centers or within the mall with department stores,specialty stores, entertainment facilities and other amenities. Although grocery stores carry both perishable and nonperishable items, they cannot offer as much variety as supermarkets due to limited shelf-space.

AccessibilityMoreover, improved purchasing power has made consumers more mobile as many families now own cars. Likewise, there has been a significant improvement in infrastructure facilities and transportation systems, particularly in urban and suburban areas,which have made shopping centers more accessible.

Shopwise offer free parking for a minimum purchase of 300p and free for their elite card members.

Libreng hatid and shuttle servicesThus, the location advantage of sari-sari stores has diminished. Also, due to increased purchasing power, many consumers can now afford to buy their groceries in bulk for weekly consumption. Based on In the Philippines, they are known as ‘palengke,’ where both wholesalers and retailerslocate.

Some supermarkets have also extended store hours to provide customers with longer time shopping time. During weekends, some supermarkets also open earlier than usual.

Value consciousness-consumerismFilipino consumers have also become value-conscious8 , not only due to higher income but also due to higher educational attainments. Moreover, consumerism in the Philippines is gaining some attention. The Department of Trade and Industry, together with consumergroups, is educating consumers on their rights and how to get thebest value from their money and a high demand for convenience.

Return and exchange policy of supermarkets.

There is also a changing pattern in the way Filipino consumers pay their bills. The 5.6 percent growth in the trade sector in 2001 was supported by 34 percent increase in credit card loans in the third quarter of the same year. In its latest report, the Central Bank said credit card loans surged 34 percent to P43.5 billion (US$847 million) in the third quarter of 2001 from only P32.5 billion a year earlier. This, for one, indicates the evolving mode of payment by Filipino consumers. The local retail industry is also following the global trend of using an automated system in managing consumer needs. For example, food distribution is increasingly becoming consumer driven, rather than producer-driven. The entry of market research firms that monitor consumers’ buying habits and spending patterns is pointing to retail companies’ desire to satisfy if not saturate the needs of Filipino consumers.

The availability of credit card and eps payment modes This service is only available to supermarkets And a few groceries. This is not available to sari sari store and convenience stores The success of these supermarkets was reinforced by their use of high-tech facilities such as the point of sales (POS) scanner system, value-added networks (VANs), and the electronic data interchange (EDI) (PASI, 1995). The latter has significantly reduced the inventory costs of retailers. This was because this technology has allowed them to automatically purchase from their suppliers electronically. However, due to the high capital requirement of this system, only the large food retailers, which have access to credit, were able to take advantage of this.

In the Philippines, “sari-sari” stores dominate the retail market as they account about 70 percent of the total. “Sari-sari” store is defined as small grocery or convenient store that serves the basic food and grocery essentials of the households. Sari-sari stores are usually constructed as an extension of the owners’ house. Their dominance, especially in rural areas, is due to geographical convenience, intimate customer service and payment flexibility (Philippine Food and Beverage Retail industry: Opportunities for Canadian Exporters, 2000).

While price remains the top consideration of poor Filipinos in purchasing products, this is not necessarily true for the whole population. Filipinos are known for their penchant for foreign-made goods, particularly those made from the United States. A number of American middle-class brands have carved their niche in Philippine market, particularly among richer Filipinos in Metro Manila and other urban areas. Typical markups for products are estimated at 30 percent of invoice value. According to Philippine Retailers Association (PRA), most non-food retail items carry a 20 percent to 30 percent profit margin.

Bargaining Power of Suppliers: Low to Medium pressureo Since Wal-Mart holds so much of the market share, they offer a lot of

business to manufacturers and wholesalers. This gives Wal-Mart a lot

of power because by Wal-Mart threatening to switch to a different supplier would create a scare tactic to the suppliers.

o Wal-Mart could vertically integrate.o Wal-Mart does deal with some large suppliers like Proctor & Gamble,

Coca-Cola who have more bargaining power than small suppliers.

Distributor Unilever Philippines Inc. is spending P1 billion in its expansion plans, as it reported adouble digit growth last year. Preliminary estimates placed Unilever’s sales at P24 billion last year,up from around P20 billion in 2000. Unilever distributes leading home and personal care brands likeSunsilk shampoo, Creamsilk hair conditioner, Close-Up toothpaste, Rexona deodorant, Surfdetergent powder, Pond's beauty products, Vaseline skin lotion, and Lifebuoy and Lux soap.

Supermarkets carry a wide array of products from food (fresh, packaged, canned) to non-food items (household, personal care, etc.). Some formats (e.g. hypermarket, warehouse clubs) also carry general merchandise (e.g. clothes, school supplies, etc.) and home appliances. The products are sourced from local producers, traders and importers. Some supermarkets like Rustan's directly import some of its products.

The large supermarkets also have their own private label products such as SM's Bonus, Rustan's Sure Buy, Shopwise's Save Big and Robinson's Supersavers. Some also offer exclusive or unique items to entice customers.

The intensifying competition in the market will also spur supermarkets to pursue more creative approaches. Many supermarkets now offer value-added products and services such as bills payment, courier services, photo developing, ticketing, cell card counters, among others. Further, on-line grocering has been implemented for some time by large supermarkets but they have stopped the service.

SUPPLY CONDITIONS

Exclusive distribution of sinandomeng , belle france products

Processed products as retailers source them from largelocal and multinational firms, which may exert countervailing poweragainst retailersDue to the rift between Colgate Palmolive and Sm. Shopwise and the other supermarkets have a supply advantage over SM

The majority of supermarkets in the Philippines have now installed point of sale (POS) scanner systems. A few have sophisticated systems where the POS is integrated with the inventory

management system. A number of value-added networks (VANs) have been established and a standard purchase message format has been adopted to operationalize the electronic data interchange (EDI) (PASI 1995). This is a major breakthrough in retailing as retailerscan now automatically purchase from suppliers electronically through the system. Through an effective computerized inventory management system, the lag between purchasing and delivery time is not only greatly reduced but will also minimize inventory cost.Unfortunately, this technology requires large capital outlay and is only feasible for large food retailers who have access to credit. In the Philippines, large retailers have substantial investments in banks. The SM Group, for example, owns Banco de Oro. Clearly, theseretailers have a competitive advantage over those who do not have a strong financial network.The benefits of adopting this technology go beyond enhancing merchandise planning, control, and market information systems.

Strategic partnerships

In the Philippines, large manufacturing companies such as Procter and Gamble are establishing strategic partnerships with retailers via programs such as efficient consumer response.9 The main goal is to maximize manufacturers’ and retailers’ profits via better market information. In this program, retailers and manufacturers jointly monitor and analyze sales behavior based on various factors such as advertising, sales promotion, improved customer service, and soon. Manufacturers have the incentive to establish strategic partnerships with retailers because the latter, being closest to the consumer, have the most current market information, especially with a POS system in place. This information is vital to product development, production scheduling, and development of marketing strategies in general. However, based on the experience of one large retailer in the country, it appears that manufacturers such as Procter and Gamble prioritize retailers with sizeable market share, big potential for growth, and relatively advanced management information systems. This is expected as the value of market information is higher for retailers with substantial market share and bigger potential.Otherwise, insights gained from market analysis would not be as useful if they were based on an insignificant portion of the market. One of the essential elements for strategic partnerships to work is a well-established information system. Procter and Gamble, for example, introduces their program called SPACEMAN (space management) to improve retailers’ existing merchandising systems by assisting them to effectively plan, evaluate, and monitor salesand profitability particularly in allocating space to various brands for a certain product category.However, this situation is reversed in processed products as retailers source them from largelocal and multinational firms, which may exert countervailing poweragainst retailers.

RAW MATERIAL SUPPLIERS

Producers-farmers low bargain powerParticularly for fresh fruits and vegetables, which are highlyperishable, these inadequate and inefficient transportation andcommunication facilities have adversely affected their movement.These products are also given low priority by airfreight carriers,preferring to carry other products such as computer chips andelectronic devices. This causes delays, resulting in losses anddecreased capability ratings from local and foreign buyers

Traders-high bargain power

This problem is further compounded by the absence ofa grading system, as market information, such as prices of certainvarieties and qualities, is not transmitted efficiently to farmers. Inthe fruits, vegetables, and ornamental industries, one of the majorconstraints is the lack of uniform grades and standards. The presentsystem is based on subjective judgment of size, quality, and varietyrather than on well-defined and objective standards (Lantican et al.1996, p. 9). These supply conditions limit integration of markets andprovide an environment conducive to exercising buying poweramong wholesalers, food processors and retailers directly buyingfrom primary producers.

Retailers- moderate- Due to availability of imported goods in

Because of the perishable nature of agricultural products andinadequate infrastructure, farmers are unable to receive higherprices. Their bargaining power is weakened relative to that oftraders, which include wholesalers and retailers, who have theresources and better market information. However, this situation isreversed in processed products as retailers source them from largelocal and multinational firms, which may exert countervailing power

- against retailers.

ROROMeat and dairy products, for instance, are highly differentiated, being dominated by brands of large corporations such as San Miguel Corporation, the largest agribusiness firm in thecountry. Food manufacturers aggressively promote their branded products through advertising. A number of large food companies are vertically and horizontally integrated. The largest, particularly San Miguel Corporation and Purefoods Corporation, operate theirown retail outlets for processed and unprocessed meat products.

small and medium-size retailers areconstrained to purchase their goods from middlemen at higher prices

due to inadequate telecommunication and transportation facilities, poor infrastructure, the high cost of power and lack of infrastructure support, particularly in rural areas,

large retailers purchasedirectly from farmers and farmer cooperatives. They may also possess oligopsonistic power as agricultural products are perishable and bulky with high transportation costs. These limit the mobility of products and accessibility to buyers particularly those who arenot close to production areas.

Shopwise, SM and Robisons also have their brand or by products of meat and poultry. The large supermarkets have noted increasing patronage of their house brands, even among the upper income classes.

Shopwise also imports meat products exclusive to their stores.Impacts on Domestic Agriculture The growing competition within the convenience food industry has important consequences for the agricultural sector. First, the industry has become a lucrative market for agriculture. However, certain conditions must be satisfied. For instance, because of stiff competition the players in the food industry must be ensured of quality and freshness of raw materials. Also, they must tie-up with reliable suppliers of raw materials for smooth operations. Atomistic farmers and wholesalers are the primary sources of vegetable and fruits by the retailers. However, due to the geographical characteristics of the Philippines, distribution of these goods has become costly. This situation is further complicated by the poor infrastructure facilities, primitive sea and air transportation systems, and the lack of a grading system for these goods. Due to these inadequacies in the distributional system, trading between buyers and sellers has been greatly constrained (PASI, 1995). In addition, grading system is sometimes based on subjective judgment of size, quality, and variety, rather than on well-defined and objective standards (Lantican, et al., 1996). Altogether, these have limited the integration of markets and have provided an environment that is conducive to exercising buying power among the wholesalers, food processors and retailers directly buying from primary producers. Farmers usually receive lower prices due to the agriculture products’ high perishability and the lack of adequate infrastructure facilities in the country. They have lost their bargaining power, which on the other hand is being enjoyed by the retailers and 7

wholesalers who have the resources and better knowledge of the market situation. However, this advantage of both retailers and wholesalers are not absolute, for they are deprived of such power when they are into processed goods. Impacts on Trade In some cases, the agriculture sector has limited carrying capacity to provide the industry’s bulk requirements. In turn, many agricultural raw materials and ingredients have to be imported. These include beef, potato, cheese and other dairy products (Palma, 2005). In particular, the local livestock sector cannot provide enough beef supply. On the other hand, local potatoes do not meet the quality required for production of French fries, a major food item in the fast food industry. In a more recent study, Macabasco (2004) pointed out two essential attributes that make imported vegetables more attractive to the institutional markets and the supermarkets who cater to the high-end consumer markets. First, imported vegetables are cheaper by 30% to 50% compared to some of the locally produced ones. Second, they are better packed and generally of better quality. In turn, importations of vegetables have grown sevenfold since 1996 to 2002.

However, the local food chains seldom export. What they just usually get from other countries are the cooking equipment and utensils that are specifically made for their products, and which will be used in their overseas branches (Palma, 2005).

Policies Over the past two decades, the Philippine economy witnessed radical changes in its policies from monopolies, cronyism, and excessive government intervention under Marcos to more liberalized markets under Aquino and Ramos (Gonzales, 1999). During the Marcos era, the main economic policy toward industrialization was import substitution. However, its success rate was low as traders experienced high tariffs, quotas, and an overvalued exchange rate. The government became dependent on regulatory controls, public enterprise, investment incentives, and trade restrictions. The goal of the government to undergo industrial development resulted into the concentration of industries, sheltered domestic markets, and distorted price signals (Patalinghug, 1997). Under the Aquino administration in 1986, most of the unfavorable economic policies were removed. It was during this regime that foreign investment liberalization laws, such as the Foreign Investment Act of 1991, were implemented. However, although there were a number of policy reforms, the implementation was highly constrained by the lack of adequate financial resources. During the Ramos administration starting 1992, the policy of less government intervention was sustained. To promote competition and efficiency, the foreign exchange 3

Substitute Products: Low pressureo When it comes to this market, there are not many substitutes

that offer convenience and low pricing. o The customer has the choice of going to many specialty

stores to get their desired products but are not going to find Wal-Mart’s low pricing.

o Online shopping proves another alternative because it is so different and the customer can gain price advantages because the company does not necessarily have to have a brick and mortar store, passing the savings onto the consumer.

Specialized stores meatshops Wet markets

Philippine Seven Corp. (PSC) On October 26, 1982, Philippine Seven Corp. (PSC) acquired the license agreement to

use the 7-Eleven Convenience Store system in the entire Philippines from Southland Corporation of Dallas, Texas. After a month, PSC was registered with SEC on 29 November 1982. The incorporators were Jose T. Pardo, Vicente T. Paterno and Francisco R. Sibal. The company’s chief mission was to introduce an entirely new retailing concept to the Filipino consumers, i.e. operating a chain of 24-hours convenience stores. The first corporate office was located at the ninth floor of the Century Tower building in Salcedo Village, Makati City.

In July 1988, PSC transferred the Philippine area license to operate 7-Eleven stores to its affiliate, Philippine Seven Properties Corporation ("PSPC"), together with some of its store properties. In exchange thereof, PSC received 47% of PSPC stock as payment. Concurrent with the transfer, PSC entered into a sublicensing agreement with PSPC to operate 7-Eleven stores in Metro Manila and suburbs. As part of PSPC's main business, it acquired or leased commercial properties and constructed retail store buildings, leasing the buildings to PSC on long term basis together with most of the capital equipment used for store operations. Hence, PSC concentrated on managing its stores and effectively took the role of a pure retailer.

7-Eleven today is focused on redefining and enhancing convenience through strategic initiatives designed to take advance of new technologies and merchandising processes, but which remain based on the fundamental principle of the simple business concept it pioneered over 70 years ago - to provide customers an ever changing selection of quality products and services at fair everyday prices, through speedy transactions in a clean, safe and friendly environment.

Binggo stores to boost PSC sales Philippine Seven Corp., the local franchise holder of 7-Eleven Stores, expects a boost in

annual revenue of up to P557 million from its acquisition of 39 Binggo 24-hour convenience stores from rival Jollimart Philippines Corp. Of the 39 Binggo stores, 35 will be converted into 7-Eleven Stores, Philippine Seven told the stock exchange. It is to

buy the Binggo stores for P130 million, using funds from existing and approved credit line facilities. “The total purchase price considered ... the sales potential of the stores over a period of 10 years,” Philippine Seven told the stock exchange, providing additional details on the transaction that was disclosed last week. Jollimart, a local company formed on June 29, 1999 to trade food, canned goods and other items on wholesale and retail basis, has signed a sale and purchase agreement with Philippine Seven. Philippine Seven said it has no material relationship with Jollimart, its directors and officers, or any of its affiliates. Philippine Seven booked a full-year 2003 net profit of P9.3 million, turning around from losses in the previous three years.

Direct marketing is not allowed for foreign retailers in the Philippines. American firms such asTupperware, Avon, SaraLee, High Desert, Forever Living, Encyclopedia Britannica, Herbalife,Amway, Golden Neo-Life, Barclay-Elle Marge, Nu Skin, Neways, Futurenet, and Sunrider havetapped local agents to distribute their products in the country. In essence, they are not foreignretailers. The Consumer Act of the Philippines limits direct marketing to Filipino companies, manyof them members of Direct Sellers Association of the Philippines.The Retail Trade Liberalization Act (RA 8762) specifically prohibits foreign retailers from selling theirproducts outside their accredited stores through the use of mobile or rolling stores or carts, use ofsales representatives, door-to-door selling, restaurants and sari-sari stores and such other similarretailing activities.

The option of using the Internet for shopping is also widely available in the country, given the high incidenceof credit card ownership and easy access to the web. Philippine online shopping websites have begun exploiting the potentials of e-commerce as early as 1998.Not all of them had survived the competition though. Last year, AC Nielsen reported that about four percent of Filipinos living in urban areas and seven percent of Metro Manila residents have access to the Internet. This, of course, is relatively lower than the use of Internet in otherAsian countries.The option of using the Internet for shopping is alsowidely available in the country, given the high incidenceof credit card ownership and easy access to the web.Philippine online shopping websites have begunexploiting the potentials of e-commerce as early as 1998.Not all of them had survived the competition though. Lastyear, AC Nielsen reported that about four percent ofFilipinos living in urban areas and seven percent of MetroManila residents have access to the Internet. This, ofcourse, is relatively lower than the use of Internet in otherAsian countries.

Underground Economy

Grocers could potentially enter into the retail side and become microenterprises that are not covered by the census and surveys of establishments. These microenterprises constitute the informal sector sometimes referred to as the

‘underground economy.’ This indicates that the retail trade sector might have served as an alternative source of employment for a number of individuals thereby alleviating unemployment. Anecdotal evidence shows that many self-employed and unemployed individuals venture into retailing and set up their ownsari-sari stores.This is primarily due to the ease of entry into thistype of business, which requires minimum capital and skills. A number of unemployed individuals also sell goods in wet market stalls or join the ranks of sidewalk vendors.

Sari-sari in Filipino means variety. They are family-owned neighborhood stores selling avariety of food and nonfood items. Moreover, the retail sector is also a major source of employment for part-time workers, particularly students. There are many families in the countryside who depend on retailing as an alternative source of livelihood to augment theirincome. Farm produce is brought to public markets and sold to wholesalers and retailers, or marketed directly to consumers. Since farm produce is an input to retail food production, the well-being of the agricultural sector depends significantly on the performanceof the retail industry. Finally, retailing is also an integral component of Filipinos’ culture. It reflects the free enterprise system in action, where individuals are able to sell their goods outside churches, schools, theaters, and even outside large retailers where customer traffic is high, with minimal if any restrictions Finally, while there appear to be minimal regulations in terms of entry to public wet markets or in operating a small family store, the retail industry is open only to Filipino investors. However, as discussed below, there is a move to open the sector to foreign investors.6 Based on a survey conducted in 1996 by one of the large food retailers in the Philippines.However, a survey by Labra et al. (1995) in 1993 showed that about 94 percent of the consumersinterviewed patronized sari-sari stores for food and nonfood items, and only 22 percentpatronized supermarkets. This survey, however, did not cover the amount of money spenton these retail outlets.7 They are medium-size stores selling a greater variety of food products and at least threetimes the size of sari-sari stores. Convenience stores are similar to sari-sari stores and grocerystores, as they are small in size and sell a variety of goods such as food, school supplies andtoiletries, although they mainly cater to high-income consumers.DIGAL : Retail Food Industry 21anecdotal evidence, sari-sari stores mainly target consumers whobuy their groceries on a daily basis and often on credit due to limitedcash.

In the Philippines, “sari-sari” stores dominate the retail market as they account about 70 percent of the total. “Sari-sari” store is defined as small grocery or convenient store that serves the basic food and grocery essentials of the households. Sari-sari stores are usually constructed as an extension of the owners’ house. Their dominance, especially in rural areas, is due to geographical convenience, intimate customer service and payment

flexibility (Philippine Food and Beverage Retail industry: Opportunities for Canadian Exporters, 2000).

Complementors: Low pressureo One complementor that exists for Wal-Mart is Sam’s Wholesale

Clubs. Although the same company owns this, it complements Wal-Mart by offering the same products in wholesale form, making the company more profitable.

o Suppliers of goods need to have innovative products to attract customers.

o For the most part, complementors do not affect Wal-Mart’s business model.

Rustan Supermarket

Another leading supermarket in the country is Rustan Supermarket, which is now operated by Rustan Supercenters Inc. after it assumed the management and operations of Rustan Supermarkets Inc. in 2006. Rustan Supercenter also operates the chain of Shopwise supercenters, the premier supercenter in the country which offers fresh goods, groceries, clothes, toys, home items, all under one roof. Rustan Supercenter is a division of Rustan Commercial Corporation (RCC), a member of the Rustan Group of Companies, which is into the business of department stores and food, specifically, coffee shops, being the local franchisee of Starbucks Coffee.

The very first Rustan Supermarket opened in 1970 in Makati. Today, there are 22 branches, mostly located in Metro Manila. Meanwhile, Shopwise first opened its doors in Alabang in 1998 and now has five outlets

MANILA, Philippines – When Shopwise opened in Alabang, its maiden store in its growing chain of hypermarkets, 10 years ago, shoppers were just so happy to discover — at long last — a one-stop shopping destination that’s got practically everything they needed, from fresh items to dry goods. And now, assorted hordes of loyal shoppers are rediscovering an even fresher, more exhilarating, and more mouthwatering Shopwise Alabang.

I must confess that I was one of the first shoppers who eagerly waited outside Shopwise Alabang when it first opened its doors one November morning in 1998. I was simply awed by the well-lighted aisles that were so wide you could skateboard through them, the near-impeccable layout of the shelves, the careful and thoughtful arrangement of the products, the great variety of merchandise, and not to forget, the very courteous service. Surely, Shopwise puts the “super” in the supermarket.

And here’s even fresher news. “We’ve renovated the store and strengthened a lot of areas like the produce or fresh section,” says George Anthony Domingo, store manager. “We tried to combine all the fruits and vegetables for the produce, and the ice creams, yogurts, and cheeses for the dairy section.”

Oui, Le Gourmet, a restaurant with a French twist, opened at Shopwise Alabang just last year. Now, you can dine and wine like the French. Shopwise Alabang gets fresher and Frenchier with its new assortment of products flown in straight from France by the company Belle France.

It can’t get any Frenchier than this: Belle France flies in hundreds of French products to Shopwise Alabang which include, hold your breath now: muesli, cereals, cornflakes, baking powder, marmalades, pate, duck terrine, cassoulet (white bean stew with meat), sausages and lentils, ready-to-fry and enjoy confit de canard (cured duck meat poached in its own fat), ratatouille, turkey, chicken, veal, cheeseburger, lasagna, pizza, frozen paella, couscous, soup, mayonnaise, vinegar, olive oil, coffee, coffee filter, tea, quiche lorraine, cookies, ready-to-bake cakes, crepes, chocolates, peanuts, ice cream, ice cream cakes, and of course, french fries.

With all the French ingredients and condiments available, you can whip up a gourmet feast at home and imagine you’re dining in a bistro in Paris.

Cassou what? Fret not — just because you can’t pronounce these tongue-twisting French names doesn’t mean you can’t afford them. George assures shoppers, “Since we get our products straight from the producers without having to pass through middlemen, our French products are 40-percent cheaper than comparable brands.”

Did we forget something? Of course, there are the French wines. “People know that when it comes to wine, the French are superior so they can never go wrong with French wines,” says wine lover Frances Yu, VP-marketing, Rustan’s Supercenters, Inc. “A lot of times, our wines, especially the French wines, are 50-percent cheaper. Our Bordeaux, for instance, is only P385 and it’s a good wine you won’t be ashamed to give to a friend.”

The Vineyard promises to be the toast of the town. “We have a nice Chilean table wine that’s only P195,” Frances tells us as she walks us through The Vineyard of Shopwise Alabang. “During our store anniversary, we had a buy-one-take-one promo for cabernet sauvignon and merlot for only P195.”

“And our wines are kept at a temperature-controlled room (21°C) 24/7 to keep the quality of the wines,” George reveals.

The Vineyard houses an intoxicating selection of wines from different parts of the world like the US, Australia, Chile, Spain, Italy, and South Africa. They range in price from less than P200 to over P2,000 for the champagnes that would cost twice as much in other wine stores. For instance, a Veuve Chabert, which normally costs P3,000 plus, sells for only P2,185 at The Vineyard.

Frances notes, “People think of Shopwise as a place for one-stop shopping for all their basic needs. What they don’t know is that there are a lot of items here, which we call fine finds, or exciting products from all over the world that are offered at very affordable prices. For example, Le Gourmet is like a specialty store within a store. You don’t have to go to a specialty store to get your special sausages, imported

cheeses, Spanish hams, etc. And we have a lot of products that have no comparison — we’re the exclusive distributor in the Philippines of Belle France products.”

Shopwise carries other imported labels from other parts of the world like the US (Springfield, among others), available at prices that are 40-percent lower than national brands.

“We’re also developing an imported frozen aisle where we have Wagyu, Aussie beef, etc.,” George shares more beefy news.

Surely fast sellers are the products in the Sure Buy section. Says Frances, “We don’t have just affordable imported products, we also have Sure Buy for those who are on a budget, actually for everybody because who isn’t cost-conscious these days? It’s our private label that includes products from paper to plastic to food. This brand is about 20-percent cheaper than the leading national brands, but they’re of comparable quality. This is something you really want to look at in times of economic crisis like now.”

Shopwise’s smart shoppers also save big during the store’s 10-day promo held twice a month. “The promo features anywhere from 500 to 1,000 products on sale at up to 70-percent off,” says Frances.

Shopwise has something for the health-conscious, too and it’s called Simply Healthy, where high on the list of favorites are the organic, sugar-free, low-fat, and low-carb items.

What else is cooking, or should we say baking, at Shopwise? But of course, the breads and pastries that are baked in the store that’s got two giant ovens! “We bake not just in the morning but three times a day so that whatever time of the day you drop by, you can get your breads hot and fresh,” says George, a walking encyclopedia of Shopwise facts and figures. “We’re baking some 1,800 pieces of bread a day.”

You’ll just love (as much as we do) the crusty oatie bread, multi-grain bread, pork/chicken empanada, whole wheat mini baguette, pizza baguette, hotdog in a bun, ham bread, tuna pan de sal, asado pan de sal, corned beef pan de sal, cream of chicken pan de sal, bread pudding, coffee/raisin bun, ham/pineapple roll, onion/bacon roll, open garlic bread, tuna turnover, mushroom turnover, creamy cheese delight, potato curry delight, walnut pie, apple strudel, and the list goes on and on.

A lot of the dough-licious bread/pastry recipes come from Divina Couvreaux, wife of Christian Couvreaux, chief operating officer of Rustan’s Supercenters, Inc. The couple shares a passion for good food.

For those on the go (and who isn’t in these frying, er, trying times?), there’s food-to-go at Shopwise. Bring home or to the office a roast pork belly or a chicken a la kiev or a cream dory, for instance, and you’ve got your instant lunch or dinner. Bon appetit!

And for homemakers, don’t just sit there. Head off to the new furniture section of Shopwise Alabang, where a lot of items are now on sale. For instance, there’s a buy-one-take-one promo on the comforters.

“Here, we have combined all the rugs, carpets, and ready-to-assemble, or what we call RTA, items,” George enumerates. “We have our hardware section, electricals, appliances, and home decor. And soon, we’ll be carrying cell phones, too, in our gadgets section.”

Say hello to a new, fresher, and Frenchier Shopwise Alabang!

(Shepherd, 2005) (chen, sheperd, & da silva, 2005) (robles, 2009)chen, k., sheperd, a. w., & da silva, c. (2005). Changes in food retailing in Asia. rome: FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS.robles, d. (2009). philippines :retailing Industry. U.S. Department of Commerce, 2008.Shepherd, A. W. (2005). The implications of supermarket development for horticultural farmers. Rome: Agricultural Management, Marketing and Finance Service , FAO.

chen, k., sheperd, a. w., & da silva, c. (2005). Changes in food retailing in Asia. rome: FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS.robles, d. (2009). philippines :retailing Industry. U.S. Department of Commerce, 2008.Shepherd, A. W. (2005). The implications of supermarket development for horticultural farmers. Rome: Agricultural Management, Marketing and Finance Service , FAO.