At a Glance

Consumption growth remains strong in the Philippines and the World Bank say the country is

expected to grow by 6.4% in 2014 and 6.7% in 2015 with domestic demand continuing to be

robust.

Franchise Glance

The Philippines has had sixty straight quarters of GDP growth up to 2014 and this growth is

predicted to continue for the next 5 years. A large part of this growth is being driven by domestic

consumption and this is forecast to be sustained due to the expanding middle-class population with

their increasing disposable income. The Philippines’ consumption as a percentage of GDP is

relatively high among ASEAN economies. Private consumption accounts for around 70% of their

GDP-higher than that of Indonesia, Thailand, Malaysia or Vietnam.

Franchising has recently become a particularly buoyant sector and the government realises it is an

influential mechanism for economic development. Relatively unheard of 10 years ago the industry

saw a rise of 15% in 2013 and accounts for a respectable 15% of total retail sales, equating to

US$5 billion. Overall the retail sector looks good and rose by 7.8% in 2012; it is expected to

continue to rise until 2018.

The number of franchise brands is around 1,400 with outlets numbering about 130,000; chiefly in

the food, service and retail markets. The industry’s turnover is growing annually by 20-25% and

local brands make up 66% of the total franchising industry.

The Philippines now ranks 5th in the world in terms of numbers of franchisees, 4th in terms of

number of jobs generated by franchising and 11th in terms of the number of brands that can be

franchised (World Franchising Council). In addition, the country has an educated English speaking

workforce and developed retail distribution channels.

There are 42 IFA members active in the Philippines and more than 50% of the top 20 American

franchises are present. Most foreign food franchises are currently of USA origin though domestic

exposure to Asian and Western consumer culture, recent trends and economic factors have

heightened demand for all global brands-especially those associated with quality or an improved

lifestyle image. The main driver of this demand for higher quality imported brand items is the

emerging young middle-class demographic.

The Philippines was not on global franchisor’s radars until recently: now it is a hot market. The

country is a globally attractive investment and, with integration of ASEAN, particularly for Malaysia,

Indonesia, Singapore; China, Japan, Korea and Thailand.

Enticing domestic dynamics include:

Growing middle-class.

Increasing sophistication of consumers.

Openess to foreign brands.

Young population with an average age of 23.

Desire for brands representing a cosmopolitan lifestyle.

Consequently, franchisors are seeing the Philippines as their Asian franchise launch pad and a

viable location for their regional Head Office.

The Franchise Asia Philippines Conference-Expo 2014 saw a 400% rise in foreign brands and the

recent trade mission saw decision makers of 14 brands (chosen from 23 applicants) attend. The

PFA says that on top of the trade mission, in a one week drive to encourage overseas franchisors

into the Philippines, some 60 foreign brands were in the country to seek local partners or master

franchise holders.

Philippine consumer

Consumer confidence is high and there is more discretionary spending than before and in recent

years there has been a distinct cultural shift in consumer buying behavior in the Philippines.

Filipino consumers have a degree of brand loyalty but they always desire a bargain so are

susceptible to promotions and will willingly try new brands on offer. Franchisors who implement

store offers and promotions that connect with shoppers are a key way to generate interest in a new

brand and increase sales. Since the consumer landscape is constantly changing, research and

listening to the current dynamics will enable you to optimize your price point and meet the needs of

the consumers.

| FRANCHISE Key Point | A new survey by Nielsen revealed that Filipino consumers are among the

world's most socially conscious when it comes to purchasing goods and services. The survey found

close to 8 in 10 consumers are willing to pay extra for products and services that come from

companies that are committed to making positive social and environmental impact. An

overwhelming majority of consumers check product packaging to judge a brand’s commitment to

making a positive social and environmental impact. This is something to think about as a secondary

product attribute marketing/branding strategy.

To fully understand a Filipino consumer, there are "4 key trends that would explain Filipinos' buying

behavior,” says Luz Barra, commercial director of consumer knowledge and insights firm, Kantar

Worldpanel:

Beauty.

Hygiene.

Health.

Convenience.

For separate articles on each sector, follow the link.

Eating & Shopping Overview

Traditionally Filipinos eat 3 times a day: breakfast, lunch and dinner. They are not vegetarian and

have a preference for beef, chicken, seafood and pork. The Filipino cuisine is traditionally a broad

mix of world flavours from Indian to Japanese. This is good for franchisors as nothing much will

surprise a Filipino, however there is greater diversity in diet across the islands than in most other

countries so be sure to customize with regard to local produce and preferred local flavours.

Improving incomes have naturally led to an awareness of higher quality foods with known brands

attached to them and to purchase of a wider range of imported foods. In response to this, many

grocery outlets now offer a wider range of flavours and have extended their product l ines to offer

higher priced options.

Despite the higher frequency of grocery shopping compared to Westerners, the increasingly busier

life of Filipinos now determines shopping choices to be fast, easy and convenient. Over the 5 past

years, the purchase of ready drinks and foods has increased on average by 18% (Kantar

WorldPanel).

To match convenience and time constrained needs there has been a huge growth in supermarket

and hypermarket developments over the recent years. The superior purchasing power of

the Supers has allowed them to run very aggressive price promotions and to offer better discounts

compared to their smaller competitors.

In terms of online shopping and internet purchases, Filipino consumers are very similar to

Westerners when it comes to their attitudes for big ticket items. They will use the internet for

research but go to a physical store to touch and check the items before purchasing. However,

unlike Westerners, the online food shopping sector remains very much a niche activity as

consumers still prefer the sensory shopping environment and have concerns over payment security.

The bottom line

The PFA sees four emerging trends entering the Philippines:

Food brands from regions outside of Asia.

Fashion brands.

Healthy eating.

Technology and retail.

These broad range of opportunities do exist as the Philippines has shown attractive continuous

growth. However, consumer average income is low for the region and it is a comparatively

embryonic market; saying this, Franchisemeets believes that with recent activity and interest in the

Philippines combined with economic factors, this market has undoubted future potential.

To Conclude: Is right now too early or prime chance to get in, take advantage of preferential

indirect costs, establish your brand and grab market share?

Franchise Meets reckons: 7/10.