SMC invests P75B in its food lines

San Miguel Corp. will pour in as much as P75 billion into its traditional food business lines—which had taken the backseat in the conglomerate’s rapid expansion during the last decade—due mainly to resurgent demand from increasingly affluent consumers.

In an interview, the president of the country’s largest company said the new investments would include new processing plants for its Purefoods meat products and new bottling lines for its 127-year-old beer business.

“The reason we did not expand our food business before is because, at that time, we were seeing a slowdown in the demand for these products,” Ramon Ang said. “But now, we see that our food and beverage lines and processed meat have very strong demand. That’s why we’re expanding.”

The expansion of the food business will cost San Miguel an estimated P60 billion in capital expenditures until 2018, the bulk of which will be spent on new production facilities for its hotdog, corned beef and luncheon meat products.

“We are going to produce Spam now to export to Asean countries,” he said referring to a partnership San Miguel entered into with US-based Hormel Foods, which produces the processed meat firm popular with Filipinos.

Ang said that, despite the popularity of Spam in the local market, demand was never enough to justify local production. However, that has changed in in recent years due to the rising purchasing power of the Filipino middle class.

“Now, the [Spam] shipment that arrives here is 40 containers per month,” he said, explaining San Miguel’s move. “It’s now justified for you to put up a plant to supply the domestic and export markets.”

“We are also putting up chicken nuggets plant in Cavite, Cagayan de Oro and Cebu, simultaneously,” he added.

In addition, a further $300 million—about P15 billion at the prevailing exchange rate— will be spent to put up a new beer brewery and bottling line for the conglomerate’s flagship brand, San Miguel Breweries, in Mindanao.

“We are breaking ground to put up a 3-million hectoliter brewery in Cagayan de Oro City,” Ang said. “We are expanding our brewery and bottling plant in Santa Rosa, Laguna, by 2 million hectoliters in capacity.”

San Miguel Brewery’s existing Santa Rosa plant has a bottling capacity of 1 million hectoliters annually.

“We are spending about $300 million for the breweries in Cagayan de Oro and Santa Rosa, as well as logistics systems to help us distribute our products more efficiently,” he said, adding that San Miguel’s packaging units will also build a new glass plant in Pagbilao, Quezon, which can produce 400 tons of glass products per day capacity “for export to Australia and America.”

Ang said the refocusing of resources into the food business would also include an expansion of the group’s flour mills with the addition of 1,200 tons per day of capacity, as well as an additional 10-million ton annual capacity to its feed mills business—all of which are slated for completion by 2018.

San Miguel’s food business makes P100 billion per year in sales revenue and P13 billion in free cash flow.

“We don’t flash it around to investors to drive our stock price, but it’s there and it’s big. Plus it generates thousands of jobs for Filipinos,” Ang said.