Revenge of the ‘sari-sari’ stores | Inquirer Business
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Revenge of the ‘sari-sari’ stores

And how convenience stores are making a run for fast food chains’ money
/ 05:04 AM February 15, 2019

Stephen Tiu

Stephen Tiu is the sales director of Johnson and Johnson (J&J) Philippines. Prior to this, he was head of key accounts in the Philippine office, head of channels in the Malaysian office, and also worked in shopper marketing for J&J China. Tiu won the Mansmith Young Market Masters Awards in 2013. He will share more marketing trends in the 10th Market Masters Conference on April 3 at SMX Aura.

Q: What trends have you observed when it comes to the size and format of new retail stores and why do you think are these happening?

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A: The Philippine FMCG (fast-moving consumer goods) market is still dominated by supermarkets and “sari-sari” stores, contributing to about 75 percent of value sales. In urban areas, we will continue to see a shift toward neighborhood supermarkets, convenience stores and community self-service drugstores in the next few years. This is due to changing shopper preferences, [with consumers] looking to spend less time in getting their groceries and more time with their families at home.

Due to the smaller selling area, the store’s range (or the number of stock keeping units it can carry) will be limited to the popular products and its aisles will be easier to navigate. With regard to convenience stores, its relevance and proliferation will continue to increase due to the growth of the business process outsourcing industry with its round-the-clock operations.

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As for self-service drugstores, these stores will not just provide better access to medicines but also bring health care, personal care and beauty care products closer to the community.

Outside urban areas, we will continue to see the expansion of shopping malls [complete] with supermarkets, drugstores and personal care stores, making it a one-stop shop.

Q: Middlemen, like wholesalers, are being squeezed out by more organized principals. What kind of wholesalers is progressing? What kind is deteriorating?

A: Same as in other industries, “pure traders” are squeezed out due to better supplier accessibility and distribution structure in the marketplace. However, wholesalers that offer value addition services to its customers, beyond just pricing and terms, will continue to grow.

Aside from good pricing, terms and reliable customer service, these wholesalers provide business system support, retail automation, inventory and order management, and marketing and promotions know-how. They also help their customers gain access to promotions. Wholesalers who work closely and help their customers grow their businesses will continue to be relevant as they enjoy their customers’ trust and loyalty.

Q: In distribution, what new trends are happening in terms of effectiveness and efficiency?

A: Due to the Philippines’ archipelagic nature and accessibility limitations, the relevance of distributors will continue to be high. The challenge is, distributors will have to continually grow revenue, minimize bad debts and inventory losses, and at the same time, control its two largest cost elements: manpower and fuel.

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Distributors who invest in people training and development, sales automation tools and alternative distribution models are able to achieve sustainable profitable growth. They have to make sure they have close working relationships with both customers and principals.

Some distributors are also now delivery providers to provincial outlets of national chains, trucking providers to manufacturers, distribution center of government and private sector relief goods, and fulfillment centers for e-commerce deliveries. Some distributors have also engaged in importing and are building their own brands in the market.

Q: Some consumers now spend time eating in convenience stores rather than in fast food restaurants. Why do you think is this happening?

A: Convenience stores are consciously investing in dining and serving prepared meals that are comparable to fast food chains and restaurants. They are allotting precious space for tables and chairs, making dining enjoyable and experiential. The variety is wide, perceived to be healthier, and consumers can find their preferred brand of drinks. All these at the same cost, if not cheaper [than fast food chains].

Down the road, I see convenience stores offer even more kinds of food like fresh salad, organic food, healthy snacks, or even home-cooked style meals especially for travelers. In residential neighborhoods, they might also offer preordered meals.

Q: What are the developments in shopping behavior and what are the triggers?

A: Aside from e-commerce, we will continue to see an expansion in specialty store formats such as stores for babies and moms and organic food products. This is due to the rising middle class and more Filipinos now look for higher order benefits. Also, there will be a big demand for more imported goods scoured by millennials on social media. You can see that happening in the fashion and skin care businesses.

Q: Do you anticipate any change in profile, preferences or behavior of the over one million small sari-sari stores in the Philippines?

A: While the number of sari-sari stores has already reached a plateau (700,000 to one million stores), it still contributes to around 28 percent of FMCG revenue. This channel will continue to be very relevant to the Filipino shopper as it’s the only store format that provides credit and can sell in “tingi” (economically-sized portions of cooking oil, sugar, cookies, candies, cigarettes, etc). Moreover, the sari-sari store is not just a retail environment but is a “social center” in their respective communities.

We’ve seen some transformation in recent years. Some sari-sari stores are now offering expanded services such as being the distribution points for suppliers for their products (this is especially true for rural and remote areas), where it will be hard or expensive for distributors and wholesalers to reach. We have also seen some sari-sari stores expanding beyond selling mobile phone load and are now also payment centers for utility bills or for remittances. Also, a number of national and local reseller supermarkets are helping sari-sari stores manage the business better, i.e., through conferences. These events usually feature lectures on managing finances, proper sales and inventory tracking, and tips on pricing, merchandising and customer service. —CONTRIBUTED

Josiah Go is chair and chief innovation strategist of Mansmith and Fielders Inc. To read the full transcripts of his interviews with other thought leaders, follow him at www.josiahgo.com.

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TAGS: Johnson and Johnson (J&J), Sari-sari Stores, Stephen Tiu
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