BMI Philippines Food and Drink Report Q2 2017

Q2 2017
www.bmiresearch.com
PHILIPPINES
FOOD & DRINK REPORT
INCLUDES 5-YEAR FORECASTS TO 2021
Published by:BMI Research

Philippines Food & Drink Report Q2 2017
INCLUDES 5-YEAR FORECASTS TO 2021
Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: February 2017
ISSN: 1749-2882
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CONTENTS
BMI Industry View ............................................................................................................... 7

Latest Updates And Industry Developments ................................................................................................... 7
SWOT .................................................................................................................................... 8
Food & Drink ........................................................................................................................................... 8
Industry Forecast .............................................................................................................. 10

Food ..................................................................................................................................................... 10
Latest Updates ....................................................................................................................................... 10
Structural Trends ................................................................................................................................... 11
Table: Food Sales, 2014-2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Drink .................................................................................................................................................... 15
Latest Updates ....................................................................................................................................... 15
Table: Total Alcoholic Drinks Spending And Consumption (Philippines 2014-2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table: Non-Alcoholic Drinks Sales, 2014-2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Mass Grocery Retail ................................................................................................................................ 20
Latest Updates ....................................................................................................................................... 20
Food & Drink Risk/Reward Index ..................................................................................... 22

Asia Pacific - Risk/Reward Index ................................................................................................................ 22
Table: Asia Pacific Food & Drink Risk/Reward Index Q217 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Philippines Risk/Reward Index ................................................................................................................... 23
Rewards ............................................................................................................................................... 23
Risks .................................................................................................................................................... 24
Market Overview ............................................................................................................... 26

Food ..................................................................................................................................................... 26
Recent Developments .............................................................................................................................. 26
Market Drivers And Trends ...................................................................................................................... 26
Drink .................................................................................................................................................... 28
Mass Grocery Retail ................................................................................................................................ 30
Competitive Landscape .................................................................................................... 32

Table: Key Players In The Philippine Food Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Table: Key Players In The Philippine Drink Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Table: Key Players In The Philippine Mass Grocery Retail Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
© Business Monitor International Ltd Page 4

Company Profile ................................................................................................................ 35

Alaska Milk Corporation ........................................................................................................................... 35
LT Group ............................................................................................................................................... 38
Philippine Seven Corp .............................................................................................................................. 40
San Miguel Brewery ................................................................................................................................. 43
SM Investments ....................................................................................................................................... 45
Universal Robina Corp ............................................................................................................................. 47
Demographic Forecast ..................................................................................................... 50

Table: Population Headline Indicators (Philippines 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Table: Key Population Ratios (Philippines 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Table: Urban/Rural Population & Life Expectancy (Philippines 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Table: Population By Age Group (Philippines 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Table: Population By Age Group % (Philippines 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Glossary ............................................................................................................................. 55
Food & Drink ........................................................................................................................................ 55
Mass Grocery Retail ............................................................................................................................... 55
Methodology ...................................................................................................................... 57
BMI Food & Drink Forecasting & Sourcing ................................................................................................ 57
Risk/Reward Ratings Methodology ............................................................................................................ 58
Table: Rewards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Table: Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Table: Weighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

BMI Industry View
BMI View: We maintain our positive outlook for the Philippines' food and drink sector on the back of rising
incomes and favourable demographics. The drinks sector stands out as an outperformer, being driven by
dynamic consumer preferences. We also maintain our positive outlook for development of the mass grocery
retail sector which is experiencing a flurry of investment.
Food And Drink Spending

2014-2021
8,000,000
6,000,000
4,000,000
2,000,000
0
2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Food, sales, PHPmn Non-alcoholic drinks, sales, PHPmn
e/f = BMI estimate/forecast. Source: BMI, National statistics
Latest Updates And Industry Developments

■ Food consumption (local currency) is expected to grow 7.7% in 2017, with a compound annual growth
rate (CAGR) of 8.3% to 2021.
■ Alcoholic drinks sales (local currency) is expected to grow 7.7% in 2017, with aof 8.2% to 2021.
■ Non-Alcoholic drinks sales (local currency) is expected to grow 9.5% in 2017 with a CAGR of 9.9% to
2021.
■ The Mass Grocery Retail (MGR) sector will remain underdeveloped throughout our forecast period.
■ We expect the MGR sector to expand rapidly over our forecast period on the back of rising investment.

SWOT
Food & Drink
SWOT Analysis
Strengths ■
The industry is home to one of the region's leading food and drink conglomerates,
San Miguel Corporation (SMC), and spun-off brewing subsidiary San Miguel Brewery,
thus enhancing its reputation considerably and aiding the early establishment of
industry best practices.
■
The country's soft drink and alcohol sectors are hugely profitable since they are able
to capitalise on a young consumer base with a strong interest in Western brands and
consumption preferences.
■
In the food retail sector, local operators have proved very effective at combining
aspects of modern retail with local traditions, tastes and customs in order to
encourage more consumers to make the switch.
Weaknesses ■
The food processing industry suffers from various structural problems including
limited domestic input, inefficient post-harvest and storage facilities and inadequate
distribution links.
■
Per capita income remains low, and unemployment levels continue to be a major
concern, with a large segment of the population unable to afford processed food
products.
■
Traditional outlets still account for around 75% of food retail sales, and under-
developed distribution infrastructure continues to make supplying retail outlets
inefficient and often costly.
Opportunities ■
Consumption levels are increasing, assisted by rising disposable incomes among
middle- and upper-class consumer groups, which should spur growth in the
processed food sector.
■
Western influences are strong in the country, ensuring a receptive audience for new
Western products and consumption methods.

SWOT Analysis - Continued
■
The ongoing development of mass grocery retail in the country will mean improved
distribution opportunities for food manufacturers.
Threats ■
Slow development of the mass grocery retail network in rural areas negatively impacts
both volume and value sales of foodstuffs in general.
■
Implementation of the ASEAN Economic Community will expose the Philippines to
heightened competition from food processors in other ASEAN countries.

Industry Forecast
Food
BMI View: Rising incomes will drive growth in the demand for higher-value products such as meat &
poultry and fish. Furthermore, the expanding mass grocery retail sector will shape consumption patterns
such that they become westernised.
Latest Updates
■ Food consumption (local currency) is expected to grow 7.7% in 2017, with a compound annual growth
rate (CAGR) of 8.3% to 2021.
■ Per capita food consumption (local currency) is expected to grow 6.1% in 2017, with a CAGR of 6.7% to
2021.
■ Consumption trends among high income consumers are starting to mirror developed market trends.
Food Sales
2014-2021
6,000,000 9
8.5
4,000,000
8
7.5
2,000,000
0 6.5
2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Food, sales, PHPmn (LHS) Food, sales, PHPmn, % growth y-o-y (RHS)

Structural Trends
We maintain a positive outlook for the Philippines' food industry, which is poised for strong growth over
our forecast period. Robust population growth together with income growth will drive consumption in the
sector through to 2021. We expect top line food consumption to grow at 7.7% over 2017 before accelerating
to 8.5% in 2018.
Rising incomes together with growing remittances inflows will drive growth in higher value categories over
the coming years. We forecast the meat & poultry; fish & fish products and dairy categories to outperform
in the food sector- growing at a CAGR of 10.7%; 11.7% and 11% respectively. Strong growth in these
segments will also be driven by the growing demand for high protein diets in the Asia-Pacific region.
Filipino consumption trends are starting to mirror those in developed Asia among high income consumers.
However, characteristically low incomes in the market will constrain premiumisation trends- constraining
discretionary spending growth.
Over the medium-to-longer term, sustained economic growth will increase consumption among middle- and
upper-income groups, particularly in the country's growing urban centres, where the continued spread of
mass grocery retailers (MGRs) will also help fuel increased food spending. Essential food and beverage
items, predominantly cheap, fresh produce, account for the bulk of the diet for most of the population (per
capita food consumption remains very low relative to many South East Asian economies). However, a
gradual trading up process, and local food manufacturers' efforts to cater for this process, will support
consumption growth in value terms.
Confectionery
Chocolate is the largest form of confectionary consumed in the Philippines and will likely stay this way for
the long term. Multinational firms such as Hershey's and Nestlé exist within the country, driving growth
through effective marketing schemes. However, we believe that sugar confectionary will rise as a
proportion of total consumption, although not substantially.
Over the longer term, there are four key drivers that will underpin the confectionery sector's growth:
■ Rising Consumer Affluence: With confectionery products typically viewed as indulgence goods, growing
incomes over the coming years will clearly serve as a major impetus behind confectionery demand.
Rising purchasing power is expected to fuel purchases of higher-value confectionery products such as
chocolate, although we stress that price will remain a key purchasing determinant for local consumers
given that incomes remain relatively low.

■ Sustained Sector Investments: Investment by industry players such as Universal Robina Corporation
(URC), Petra Foods and Nestlé will remain integral towards supporting sector growth. As a case in point,
Swiss food major Nestlé invested in a new facility in the Philippines, as it looks to cater to rising demand
for its Bear Brand milk and Coffee-mate non-dairy creamer. Nestlé also plans to continue investing in its
four existing factories in the Philippines, maintaining a focus on upgrading technology and equipment.
Meanwhile, URC continued to expand capacities in its key categories such as biscuits and to venture into
new product categories such as packaged cakes. These investments will imbue the sector with greater
dynamism to support growth.
■ Growing Health Awareness: As confectionery producers expand their portfolio to include healthier
alternatives such as low-fat choices to cater to an increasingly health-conscious consumer base, this will
provide another impetus to value sales growth given that these products typically carry higher price tags.
■ Spread Of Mass Grocery Retail: The formalisation of the food retail sector will provide more distribution
channels for domestic confectionery producers to reach the end-consumer market.
Dairy
Per capita dairy consumption levels across Asia have been rising in recent years. While consumption of
dairy products remains low in the Philippines, we expect strong growth over the coming years. Given this
consumption potential, the government has developed ambitious plans to boost production under the
National Dairy Development Plan. While the country's competitiveness in the powdered milk segment
remains low, the government believes that it can boost production in the fresh milk category.
Under the plan, milk production is targeted to reach 153.86mn litres (158,430 tonnes) in 2019/20 and then
647.83mn litres (667,100 tonnes) by 2029/30. While we expect strong growth in dairy production from its
current low base, we do not believe these targets are realistic. Unless there is significant consolidation in the
industry and more investment is poured in, we believe that the existence of small-scale farmers will hamper
significant growth in the sector.
Food Services
Fast food is an integral part of Philippines dining culture, largely due to rapid urbanisation, cultural
affinities with the US and a high proportion of outsourcing industries with night-time working hours. Local
quick service restaurant chains dominate the market despite the presence of fast food giants McDonalds and
KFC. For example, Jollibee Foods and its subsidiaries Chow King and Greenwich control 46% of the
food services segment.

Table: Food Sales, 2014-2021
2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Food, sales, 3,291,947.1 3,509,954.9 3,761,524.5 4,052,805.8 4,397,328.7 4,764,750.2 5,164,825.2 5,600,486.3
PHPmn
Food, sales,
PHPmn, % 7.4 6.6 7.2 7.7 8.5 8.4 8.4 8.4
growth y-o-y
Bread, rice
and cereals,
973,730.2 1,015,396.4 1,062,242.1 1,115,043.1 1,175,806.9 1,239,662.4 1,306,264.8 1,377,150.7
sales,
PHPmn
Bread, rice
and cereals,
sales, 4.8 4.3 4.6 5.0 5.4 5.4 5.4 5.4
PHPmn, %
growth y-o-y
Pasta
products, 5,372.4 5,468.0 5,564.2 5,659.0 5,751.5 5,833.7 5,897.5 5,947.5
sales,
PHPmn
Pasta
products,
sales, 2.1 1.8 1.8 1.7 1.6 1.4 1.1 0.8
PHPmn, %
growth y-o-y
Baked
goods, sales, 29,356.3 30,137.0 30,965.0 31,839.0 32,771.8 33,691.9 34,563.3 35,416.9
PHPmn
Baked
goods, sales, 3.0 2.7 2.7 2.8 2.9 2.8 2.6 2.5
PHPmn, %
growth y-o-y
Meat and
Poultry, 714,513.4 778,168.3 852,524.6 939,683.4 1,044,077.4 1,157,468.3 1,281,152.8 1,417,213.4
sales,
PHPmn
Meat and
Poultry,
sales, 10.1 8.9 9.6 10.2 11.1 10.9 10.7 10.6
PHPmn, %
growth y-o-y
Fish and fish
products, 697,005.0 766,831.7 848,710.4 945,048.7 1,060,862.6 1,187,025.5 1,325,164.4 1,477,534.0
sales,
PHPmn
Fish and fish
products,
sales, 11.6 10.0 10.7 11.4 12.3 11.9 11.6 11.5
PHPmn, %
growth y-o-y
Dairy, sales, 353,132.6 385,678.8 423,740.5 468,406.5 521,964.6 580,190.2 643,774.9 713,779.4
PHPmn

Food Sales, 2014-2021 - Continued
2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Dairy, sales,
PHPmn, % 10.5 9.2 9.9 10.5 11.4 11.2 11.0 10.9
growth y-o-y
Oils and Fats,
sales, 53,667.2 57,124.3 61,109.1 65,718.0 71,165.4 77,019.4 83,315.2 90,171.0
PHPmn
Oils and Fats,
sales, 7.2 6.4 7.0 7.5 8.3 8.2 8.2 8.2
PHPmn, %
growth y-o-y
Fresh and
preserved 133,152.3 137,913.2 143,187.1 149,036.5 155,652.2 162,500.2 169,489.4 176,803.0
fruit, sales,
PHPmn
Fresh and
preserved
fruit, sales, 4.0 3.6 3.8 4.1 4.4 4.4 4.3 4.3
PHPmn, %
growth y-o-y
Fresh
vegetables, 116,766.8 112,241.6 106,342.9 98,716.0 88,736.4 77,146.5 63,425.3 47,405.5
sales,
PHPmn
Fresh
vegetables,
sales, -3.4 -3.9 -5.3 -7.2 -10.1 -13.1 -17.8 -25.3
PHPmn, %
growth y-o-y
Sugar and
sugar
products, 44,445.4 45,448.1 46,476.3 47,488.1 48,354.3 45,988.1 47,675.9 49,050.6
sales,
PHPmn
Sugar and
sugar
products, 2.7 2.3 2.3 2.2 1.8 -4.9 3.7 2.9
sales,
PHPmn, %
growth y-o-y
Other food
products, 170,805.6 175,547.4 180,662.4 186,167.6 192,185.7 198,223.9 204,101.7 210,014.4
sales,
PHPmn
Other food
products,
sales, 3.2 2.8 2.9 3.0 3.2 3.1 3.0 2.9
PHPmn, %
growth y-o-y

Drink
BMI View: The Philippines' drinks sector will continue to show strong growth over our forecast period on
the back of dynamic consumer preferences in both the alcoholic and non-alcoholic sectors. The non-
alcoholic drinks segment will outperform over this period, driven by hot drinks and carbonated soft-drinks.
Latest Updates
■ Alcoholic drinks consumption (local currency) are expected to grow 7.7% in 2017, with a compound
annual growth rate (CAGR) of 8.2% to 2021.
■ Alcoholic drinks sales (litres) are expected to grow 5.2% in 2017, with a CAGR of 6.5% to 2021.
■ Spirits will outperform on the back of aggressive innovation in the sector.
■ Non-Alcoholic drinks sales (local currency) are expected to grow 9.5% in 2017, with a CAGR of 9.9% to
2021.
■ Soft drinks sales (local currency) are expected to grow 9.1% in 2017, with a CAGR of 9.5% to 2021.
■ Coffees, teas and other hot drinks sales (local currency) are expected to grow 10% in 2017, with a CAGR
of 10.3% to 2021.
Structural Trends
Alcoholic Drinks
The Philippines' alcohol sector will experience robust growth over our forecast period with strong growth in
both alcohol spending and alcohol consumption, which we forecast to grow at a CAGR of 8.2% and 6.5% to
2021, respectively. We forecast the spirits segment to experience the strongest growth, this coming from a
low base, growing at a CAGR of 7.7% over the forecast period.

Total Alcohol Consumption

Total Alcohol Consumption, 2014-2021, litres mn
4,000 10
7.5
3,000
5
2,000
2.5
1,000
0
0 -2.5
2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Total alcohol consumption,sales, litres mn (LHS)
Total alcohol consumption, litres mn, % change yoy (RHS)
e/f = BMI estimate/forecast. Source: BMI, WHO
Strong spirits consumption is due to the emerging cocktail culture in the market, which is being driven by
aggressive product innovation by domestic player San Miguel Brewery. Spirits consumption is
experiencing strong growth via on-trade channels due to a growing number of craft bars in urban areas. We
forecast whiskey to outperform in the segment, growing at a CAGR of 8.1% to 2021. We expect the ready-
to-drink (RTD) segment to become increasingly popular with the advent of San Miguel's 'Ginebra San
Miguel' product lines.
As is the case with the country's soft drinks industry, the Philippines' alcoholic drinks industry is dynamic,
attractive and has high-growth. Alcohol consumption is widespread, and the industry is well-established. In
line with domestic income growth, consumers are likely to gradually trade up to more expensive brands and
variants, creating a significant opportunity for investors and explaining our expectations for value sales to
outperform volume sales.
Beer will continue to dominate alcohol sales in the country by some distance, continuing to account for
more than 66% of total volume sales by 2021 in spite of the explosive growth expected for the wine and

spirits market. Craft beer is starting to gain momentum in the Philippines with well-established breweries in
Manila, Iligan City, Cebu and Angeles City. Growing consumption of craft beers is indicative of
premiumisation in the alcohol sector, which is underpinned by rising incomes.
Wine will remain the reserve of higher-income consumers only, and yet, owing to a very low base, growth
is expected to be strong, thanks to the country's sustained economic development. With that said, hikes in
taxes on alcoholic drinks are expected to have a marginal impact on volumes.
Table: Total Alcoholic Drinks Spending And Consumption (Philippines 2014-2021)
2014e 2015e 2016e 2017f 2018f 2019f 2020f 2021f
Alcoholic drinks spending, PHPbn 69.04 73.62 78.89 84.97 92.14 99.78 108.08 117.12
Alcoholic drinks spending, PHP 7.45 6.64 7.16 7.71 8.44 8.29 8.32 8.36
%
Alcoholic drinks spending, PHP 3,043.33 3,162.13 3,306.15 3,479.24 3,691.23 3,916.05 4,161.48 4,429.70
per household
Alcoholic drinks spending, PHP 696.41 731.13 771.56 818.64 874.70 933.50 996.76 1,064.83
per capita
Total alcohol consumption, sales, 2,116.6 2,182.2 2,273.7 2,391.3 2,536.1 2,704.4 2,896.9 3,113.1
litres mn
Total alcohol consumption, litres 0.2 3.1 4.2 5.2 6.1 6.6 7.1 7.5
mn, % change y-o-y
Total alcohol consumption, litres 31.5 31.8 32.6 33.6 35.0 36.7 38.6 40.7
per capita
Beer, litres mn 1,491.6 1,539.2 1,603.8 1,684.8 1,781.9 1,891.4 2,013.0 2,145.9
Beer, litres mn, % change y-o-y 0.3 3.2 4.2 5.0 5.8 6.1 6.4 6.6
Beer, litres per capita 22.2 22.5 23.0 23.7 24.6 25.6 26.8 28.1
Wine, litres mn 11.2 11.3 12.0 12.6 13.4 14.2 15.1 16.0
Wine, litres mn, % change y-o-y 2.1 0.8 6.0 5.3 6.2 6.0 6.3 6.3
Wine, litres per capita 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Spirits, litres mn 613.8 631.6 657.9 693.9 740.8 798.9 868.8 951.2
Spirits, litres mn, % change y-o-y 0.0 2.9 4.2 5.5 6.8 7.8 8.8 9.5
Spirits, litres per capita 9.1 9.2 9.4 9.8 10.2 10.8 11.6 12.5
e/f = BMI estimate/forecast. Source: National sources, BMI

Non-Alcoholic Drinks
The country's soft drinks industry is, and will remain, one of its most dynamic food and beverage sub-
sectors. Levels of investment in the industry remain huge, as does multinational interest, both of which have
been demonstrated by the events surrounding PepsiCo and The Coca-Cola Company in the Philippines over
the recent years. Both companies will be looking to consolidate their number one and two positions, ahead
of domestic rivals such as Cosmos and Zest-O.
Non-Alcoholic Drinks Sales

2014-2021
600,000 10.5
10
400,000
9.5
9
200,000
8.5
0 8
2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Non-alcoholic drinks, sales, PHPmn (LHS)
Non-alcoholic drinks, sales, PHPmn, % growth y-o-y (RHS)
Beyond simple expansion, innovative new product development will be a key sales growth driver. The
leading players are already looking beyond carbonates into higher-value, more innovative product
categories to cater to the country's youthful and increasingly affluent consumers, and these launches are
being backed up by substantial promotional and marketing investments.
Both tea and coffee sectors are reasonably mature but have not yet been inundated with the range of
premium and healthy brands that have fuelled growth over long periods in other markets in the region. It

will most likely be the introduction of such products that will drive growth in these sectors to 2021.
However, the industries will suffer adversely from a preference for soft drink consumption in the country
and the strength of both the soft drink and alcoholic beverage industries, which will prevent premiumisation
fuelling growth of the levels witnessed in other countries.
US coffee giant Starbucks has operated within the country since 1997, yet low incomes across much of the
population remain the largest barrier to growth. Currently, around 200 stores have been opened, but there
are no significant expansion plans. This is primarily the case for tea and coffee outlets across the country.
While there is a trade, most of the population do not earn enough for such luxuries. Rather, growth in both
the tea and coffee sector will come from brew-at-home sales from retailers.
Table: Non-Alcoholic Drinks Sales, 2014-2021
2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Non-alcoholic drinks, 240,564.1 260,881.9 284,327.7 311,474.5 343,583.3 377,826.2 415,112.3 455,715.0
sales, PHPmn
Non-alcoholic drinks,
sales, PHPmn, % 9.7 8.4 9.0 9.5 10.3 10.0 9.9 9.8
growth y-o-y
Coffee, teas and other
hot drinks, sales, 114,689.5 124,910.8 136,709.3 150,374.0 166,540.6 183,785.4 202,566.0 223,020.0
PHPmn
Coffee, teas and other
hot drinks, sales, 10.3 8.9 9.4 10.0 10.8 10.4 10.2 10.1
PHPmn, % growth y-
o-y
Soft drinks, sales, 125,874.6 135,971.2 147,618.4 161,100.4 177,042.7 194,040.8 212,546.4 232,695.0
PHPmn
Soft drinks, sales,
PHPmn, % growth y- 9.2 8.0 8.6 9.1 9.9 9.6 9.5 9.5
o-y
Fruit and vegetable 78,931.4 84,902.5 91,788.0 99,755.5 109,174.1 119,213.8 130,141.5 142,037.4
juices, sales, PHPmn
Fruit and vegetable
juices, sales, PHPmn, 8.6 7.6 8.1 8.7 9.4 9.2 9.2 9.1
% growth y-o-y
Mineral or spring 1,682.7 1,799.3 1,933.7 2,089.1 2,272.7 2,468.3 2,681.1 2,912.8
waters, sales, PHPmn
Mineral or spring
waters, sales, PHPmn, 7.8 6.9 7.5 8.0 8.8 8.6 8.6 8.6
% growth y-o-y
Carbonated drinks, 45,260.5 49,269.4 53,896.7 59,255.9 65,596.0 72,358.8 79,723.7 87,744.8
sales, PHPmn

Non-Alcoholic Drinks Sales, 2014-2021 - Continued
2014 2015 2016e 2017f 2018f 2019f 2020f 2021f
Carbonated drinks,
sales, PHPmn, % 10.2 8.9 9.4 9.9 10.7 10.3 10.2 10.1
growth y-o-y
Mass Grocery Retail
BMI View: The Philippines' mass grocery retail sector is poised for robust growth on the back of rising
investment. Growth in the sector will further be driven by robust consumption growth in the food and drink
sector, which will spur value growth.
Latest Updates
■ We expect the Mass Grocery Retail (MGR) sector to expand rapidly over our forecast period on the back
of rising investment, although it will remain largely underdeveloped overall.
■ The dominance of essential spending in the Philippines retail sector will drive investment in the MGR
sector.
Structural Trends
The Philippines MGR sector is set to expand rapidly over our forecast period on the back of rising
investment from existing players. Underpinning our view, Philippine Seven Corporation (which operates 7-
Eleven in the country) has been aggressively expanding in the market. As of June 2016, the company's store
count in the market was 1,740, up from 1,405 in the same period in 2015. Domestic retailers are also
expanding. The Metro Retail Stores Group (multi-format retailer and largest supermarket operator in the
market) has allocated PHP10bn in order to double its store network by 2020. According to the company, it
will have achieved 40% of this plan by 2018. In terms of retail space, Robinsons Retail Holding Inc (a large
multi-format retail operator in the Philippines) plans to invest USD100mn in ten new community malls by
2020, which will help facilitate MGR expansion.
Food and non-alcoholic drink spending is the most important component of household consumption,
accounting for around 40% of total retail spending. Not only does it hold a dominant position, but we
forecast the segment will also experience strong growth in absolute terms. We also believe that the current
expenditure distribution among the different retail segments will remain unchanged, with food & drink
retaining the lead. With that said, a strong outlook on food and drink spending translates into a strong sales
growth outlook for the MGR sector.

While the longer-term outlook for the Philippine organised grocery retail sector is more positive than its
near-term outlook, we stress that the growth prospects nonetheless pale in comparison to the developing
regional retail markets in spite of the sector's under-developed nature. Organised retail makes up around
25% of overall grocery retail sales in the Philippines, making it one of the less developed retail sectors in
the region. We would attribute this to still low disposable incomes and the fact that large sections of the
Philippine population remain beyond the reach of organised retailers in price terms. Furthermore, although
the Philippine economy is expanding at a sizeable rate, such growth is not adequate to reduce the
unemployment rate in the fast- expanding labour market.
Despite its sector immaturity, growth prospects in the Philippine retail sector do not match up to those of the
emerging markets, which can be largely attributed to the fact that there is no major multinational
involvement in the sector. As has been witnessed elsewhere in the region, the arrival of a cash-rich
expansionary multinational typically gives a massive boost to growth both due to that firm's entry and
expansion plans and due to the preparatory expansion efforts of existing retailers as they seek to protect
their market share ahead of increased competition.

Food & Drink Risk/Reward Index

Asia Pacific - Risk/Reward Index
BMI View: The average score for the Asia Pacific region in Q217 is 49.4. Developed markets dominate the
top positions of our Food & Drink Risk/Reward Index for the Asia Pacific region: Australia, Japan, Hong
Kong, Singapore, New Zealand and South Korea. The bottom half of the table consisting of emerging
markets have the potential to grow rapidly as food consumption and GDP levels steadily increase with
economic development. India was one of the outperformers this quarter, jumping up the table from 15th to
14th position, while Japan also greatly improved its score. New Zealand was one of the underperformers
this quarter.
Table: Asia Pacific Food & Drink Risk/Reward Index Q217
Reward Industry Country Risk Industry Risk Country Risk Food & Drink
Reward Reward Rating
Australia 62.7 50 75 74.3 84 65 67.3
Japan 61.4 46 77 67.4 85 50 63.8
Hong Kong 59 52 66 70 73 68 63
Singapore 48 28 68 77 81 72 59
South Korea 49 40 58 74 80 67 59
New Zealand 48.1 34 62 69.1 85 53 56.5
China 52.2 52 52 56.7 57.5 56 54
Taiwan 39.5 26 53 73.2 80 66 53
Malaysia 44.3 40 49 62.7 60 65 51.6
Thailand 39.4 42 37 59.7 60 59 47.5
Indonesia 48 50 46 43 34 52 46
Vietnam 42.2 46 38 47.6 35 60 44.3
India 47 46 48 34.9 21.5 48 42.2
Philippines 40.8 36 46 43.7 37.5 50 42
Pakistan 50.2 50 50 25.3 9 42 40.3
Cambodia 47 58 35.9 26.3 5.5 47.1 38.7
Laos 38.0 40.0 35.9 24.1 5.5 42.7 32.4
Myanmar 33.2 28.0 38.3 22.0 3.5 40.5 28.7
Average 47.2 42.4 52.0 52.8 49.8 55.7 49.4
Note: Each score is out of 100, with 100 the highest. The Food & Drink Risk/Reward Index is the principal index. It
comprises two sub-indices, 'rewards' and 'risks', which have a 60% and 40% weighting respectively. In turn, the

Asia Pacific Food & Drink Risk/Reward Index Q217 - Continued
Reward Industry Country Risk Industry Risk Country Risk Food & Drink
Reward Reward Rating
'rewards' index comprises 'industry rewards' and 'country rewards', which have equal weighting and are based on
growth and size of a country's food, alcoholic drinks and soft drinks market (industry) and the broader economic and
socio-demographic environment (country). The 'risks' index comprises 'industry risks' and 'country risks', which also have
equal weightings and are based on a subjective evaluation of the market's regulatory and competitive issues (industry)
and its broader country risk exposure (country), which is based on BMI's proprietary Country Risk Index. Source: BMI
Philippines Risk/Reward Index
The Philippines ranks 14th out of 15 markets in our Asia Pacific Risk/Rewards Index in Q217, ahead of
Pakistan. Weak scores in the Industry Reward and Total Risks scores are the main disadvantage to this
market, performing well below the regional average.
Rewards
The Philippines scores 40.8 for rewards in Q217.
Industry Rewards
The Philippines underperforms in this metric with a score of 36, largely due to weak per capita food sales
and a weak five-year food consumption outlook, which are currently at USD771.5 and 4.8%, respectively.
The Philippine market is characterised by low food and drink spending levels, which generally imply lower
scope for premiumisation growth, at least in the near-to-medium term. Interestingly, while low consumption
levels in developing markets typically translate into massive room for future growth (given that
consumerism is not as yet entrenched as elsewhere in the developed world) this is not the case in the
Philippines. Due to sector crowding and the presence of industry majors such as the San Miguel
Corporation, which already dominate a sizeable market share, foreign industry players have found it
difficult to make significant headway in the market. This inability to pull in foreign capital has clearly
weighed on the growth prospects of the Philippine consumer-facing sectors.
Country Rewards
The country scores well in this metric, supported by a large and growing youthful population. However, low
GDP per capita prevents a higher score. The Philippines scores 46 in this metric compared to 55 for the
region. Nonetheless, the Philippine market does have a strong point, which is its enticing demographic
profile. The Philippines has one of the largest populations in the region, and has a favourable demographic
make-up as well. The country's youth population makes up 57% of its overall population, and this should

translate into considerable dynamism in the mass market. Low GDP per capita is indicative of weak
spending power which will limit discretionary spending and the scope for dynamism in the consumer
market. We believe that the Philippines will see an improvement in this metric over the coming quarters as
we forecast real GDP to grow at a robust rate over 2017.
Risks
The country scores 43.7 for risks in the industry.
Industry Risk
The Philippines's industry risk score grossly underperforms the regional average - coming in at 37.5,
compared to 58.8 for the region. This score is largely undermined by weak mass grocery retail penetration
which acts as a deterrent to investment inflows in the food and drink sector. Lacking the pull of foreign
capital in its mass grocery retail sector, the organised grocery retail sector remains fairly underdeveloped in
the Philippines as compared to other markets such as Singapore and Japan. The absence of a developed
organised grocery retail system to facilitate the distribution of consumer goods to the end-consumer market
will remain a deterrent to foreign investors. Other factors such as under-developed physical infrastructure
and excessive bureaucratic regulations continue to blight the Philippines's investment appeal.
Country Risk
The country performs just below the regional average in this metric: 50 compared to 58.2 for Asia Pacific.
This metric is buoyed by the short-term economic growth outlook together with economic openness. With
that said, bureaucratic obstacles and corruption remain major issues, which, along with inadequate transport
networks and high labour costs, mean the Philippines is often overlooked in favour of other markets in the
region.

Philippines Vs Asia-Pacific
Q217 Risk Reward Scores
Note: Scores out of 100, with 100 being the best score. Source: BMI

Market Overview
Food
Recent Developments
■ Filipino consumption trends are starting to mirror those in developed Asia among high income
consumers.
■ Swiss food major Nestlé invested in a new facility in the Philippines, as it looks to cater to rising demand
for its Bear Brand milk and Coffee-mate non-dairy creamer.
Market Drivers And Trends
Food Processing
Agricultural inefficiency has inevitably had a knock-on effect on the country's food-processing industry,
which has had to rely increasingly on imported ingredients and packaging materials to meet demand. Only
larger companies have been able to modernise and upgrade their facilities, and a significant number of
manufacturers, particularly in rural areas, still rely on manual processes.
In spite of these inherent production problems, the food and beverage sectors in the country are increasingly
influenced by Western branding and consumption habits. Busy lifestyles, particularly in urban areas where
Western influences are at their strongest, have fuelled an interest in packaged and convenience foods
spurring on growth in this sector. This trend has no doubt also been helped by the presence of regional
industry behemoth San Miguel Corporation (SMC). Its marketing and distribution efforts have
substantially increased exposure to branded foodstuffs in the country, causing the sector to develop at a
faster pace than that witnessed in other comparable economies.
Again, perhaps aided by SMC and its influence on industry best practices in the region, local food
manufacturers have focused on developing products that address the issue of inherent consumer price
sensitivity, while still meeting consumer needs. An example of this has been packaging innovations.
Manufacturers have introduced smaller pack sizes, which enable consumers to still buy potentially non-
essential goods but in small volumes, and by using inexpensive packaging materials, the corresponding
savings are passed on to consumers.
SMC operates a number of businesses across a diverse range of products, of which many dominate their
respected markets. Monterey Foods Corporation, Philippines's largest pork and beef producer, is fully
integrated in its meat operations, indicating the type of scale SMC holds. SMC is also in a joint venture with

The Purefoods-Hormel Company, which accounts for almost two thirds of the processed meat market,
leading both the refrigerated and canned goods market. Likewise, Magnola Inc, which manufactures and
markets a wide range of dairy products, is by far and away the largest margarine producer in the country.
Other companies under SMC's jurisdiction include Magnolia Ice Cream and San Miguel Super
Coffeemix Company.
Around the Philippines, distribution and logistics networks are also improving. For example, in October
2012, Philippine food distributor Island Merchants Corporation (IMC) opened a new logistics centre. The
facility is located on the National Road in Bacolod City. IMC CEO and President Manuel Parroco said that
the new logistics centre would increase the company's ability to store and distribute products on behalf of its
clients, including Swiss consumer goods company Nestlé.
Agriculture
Despite the Philippines's potential as a major agricultural producer, the country suffers from various major
structural problems, such as a limited and unstable supply of domestic inputs, resulting in prices that can be
higher than world market prices. Despite sustained growth in the country's major agricultural sub-sectors in
recent years - the product of continued government efforts - the industry remains blighted by inefficiency or
non-existent post-harvest storage facilities and hugely inadequate farm-to-market support.
The Philippines government has repeatedly reiterated its commitment to the agricultural sector, both as a
means of improving the country's trade balance - the country remains a major importer of many
commodities including high-value dairy products - and as a means of improving the financial situation of
the rural poor. It is estimated that around 10mn people - just under half of the labour force - are employed in
the agricultural sector, and that the industry almost exclusively employs poorer rural workers. By enriching
these communities, the government can stimulate the contribution this section of society can make to the
economy in general, through increased consumption, and not just through production.
However, government efforts are frequently criticised for failing to address real problems and for instead
focusing on popular, but low financial return, crops such as rice. The country's high-value fisheries industry
is largely overlooked, despite the contribution it could make to the economy, while certain agricultural
crops that use around 90% of land available for harvesting return just 20% to the value of the industry. This
inefficiency, coupled with problems concerning the convoluted process of deferring agricultural
responsibilities to local government departments, has severely hampered the industry's potential and kept its
contribution to GDP below 20%.

Organic Farming
Structural problems at the primary agricultural level have inhibited the potential of added-value sectors such
as organic food. However, with more than 500 certified farms already in existence, the sector could be an
important contributor to the country's agricultural economy in the future. While harnessing opportunities
such as these remains secondary to more pressing problems such as improving rural living standards and
agricultural aid allocation, pursuing high-value prospects is just the sort of thing that the government will
eventually need to do to transform an under-performing industry into a dynamic one.
Drink
Recent Developments
■ Craft beer is starting to gain momentum in the Philippines with well-established breweries in Manila,
Iligan City, Cebu and Angeles City.
■ Leading players are already looking beyond carbonates into higher-value, more innovative product
categories to cater to the country's youthful and increasingly affluent consumers.
Hot Drinks
Hot drinks volumes remain driven by more affluent consumers, who use organised retail. However, higher
raw materials and production prices in the past years have had an impact on the shape of the market, with
consumers now making more careful purchasing choices. US retailer Starbucks has operated in the region
for some time now, yet only has around 160 stores open. Nevertheless, innovation (especially with regard to
'healthier' alternatives), the development of specialty coffee and tea shops, and marketing campaigns
organised by leading players - including Nestlé Philippines - in the sector will continue to drive the market
forward.
Nestlé Philippines is a subsidiary of the Swiss food and beverage conglomerate. The company is especially
prominent in coffee and other hot drinks segments in the Philippines. In the tea segment, another
multinational, Unilever, is one of the key players, accounting for around a quarter of the retail market. Its
leading brand is the affordable Lipton, which covers a variety of teas, from green to herbal.
Soft Drinks
Filipinos are among the largest consumers of soft drinks in Asia. Carbonated soft drinks continue to be the
most popular sub-segment in the soft drinks sector despite the global increase in health consciousness,

which has led to the decline in soft drinks sales in other countries in the region. Bottled water, however, is
experiencing strong growth rates, while powdered juice drinks remain popular. Bottled water producers
include The Coca-Cola Company, Asia Brewery, Nestlé and Filipinas Water Bottling Company.
The market leader in the Philippine soft drinks sector is Coca-Cola Bottlers Philippines Inc (CCBPI),
which is jointly owned by Coca-Cola FEMSA, Coke's leading bottler in Mexico, and The Coca-Cola
Company. CCBPI operates 23 production facilities throughout the country, producing carbonated soft
drinks, sports drinks, juice and bottled water, together with 42 sales offices. The local Pepsi bottler is Pepsi
Cola Products Philippines.
The most popular bottled soft drinks in the Philippines are the international ones - for example Coca-Cola,
Pepsi and Sprite. However, many of the brands which retail only in the Philippines, catering for specific
tastes and lower budgets are also owned by the multinational players. Coca- Cola owns brands such as Jaz
Cola and Lift, and Sarsi through its subsidiary Cosmos Bottling Corp.
Despite the rapid growth of soft drinks consumption, the industry is at risk of new excise taxes. In
November 2015, a bill aiming to impose an excise tax on non-alcoholic beverages with added sugar and/or
caloric/non-caloric sweetener was passed. If enacted, it will impose a PHP40 (USD0.22) tax on every litre
sold, which poses significant threats to the sector.
Alcoholic Drinks
As the largest food and beverage company in the Philippines, and one of the largest firms in the Asia Pacific
region, San Miguel Corporation (SMC) exerts significant industry influence, affecting local market forces
such as price levels and shelf allocation. It is backed by considerable financial resources and an extensive
distribution network, not to mention the pure marketing and recognition power of its brand.
Leading spirits producers include the subsidiaries of the country's major conglomerates Lucio Tan and,
once again, SMC, which operates Tanduay Distillers and the Ginebra San Miguel units respectively. A
similar situation exists in the beer market and the country's top brewers are San Miguel Brewery (SMB)
and Asia Brewery (Lucio Tan), the latter producing Carlsberg under licence as well as its own range of
beers such as Manila Beer, Stag, Lone Star and Colt. SMC is the clear market leader, with an approximate
90% market share. Japan's Kirin Brewery holds a 48% stake in the spun-off brewing subsidiary SMB.

Faced with the threat of consumption saturation in the country's beer and spirits markets, the two leading
breweries - San Miguel Brewery and Asia Brewery - have committed significant resources to marketing
beer and spirits to women. Efforts have included re-branding and promotional campaigns, and San Miguel
can claim success, with sales of its San Miguel Light brand, which is aimed at female consumers, exceeding
all expectations.
In terms of the distribution of alcoholic drinks, around 75% goes through the off-trade, meaning it is sold
through retail outlets as opposed to in bars and restaurants. In spite of price sensitivity in the Philippine
economy, the country's alcoholic drinks market appears remarkably buoyant. The beer sector accounts for
around two thirds of volume sales, with cheaper standard and economy lagers accounting for 94% of these
beer sales.
Wine is a relatively small sub-sector of the alcoholic drinks market, although sales are accelerating rapidly
from their low starting point, with light red wine by far the best seller. In comparison with the country's
wine and beer segments, the spirits sector is fairly stagnant, with local favourites gin and rum continuing to
dominate the market.
Mass Grocery Retail
Recent Developments
■ Philippine Seven Corporation has been aggressively expanding in the market. As of June 2016, the
company's store count in the market was 1,740, up from 1,405 in the same period in 2015.
■ Robinsons Retail Holding Inc plans to invest USD100mn in ten new community malls by 2020, which
will help facilitate MGR expansion.
Despite the liberalisation of foreign direct investment in the retail sector in the 2000s, foreign capital in the
Philippines's food retail sector remains limited. In response to market liberalisation, domestic operators
have started to modernise their outlets and increase the variety of products on offer - fearing an onslaught
from global multinationals, such as Walmart and Carrefour, as has occurred in other recently liberalised
markets in the region.
However, this onslaught has not yet occurred - with the country's retail potential not yet deemed strong
enough to offset the economic risks that exist in the eyes of the major multinational retailers. In addition,
the strong market power of leading domestic retailers has also acted as a deterrent for foreign actors. The
country's fragmented geography requires adapted distribution systems, which favours actors with strong

local knowledge. For instance, Puregold Price Club does not operate with a centralised distribution
system. Instead, hypermarkets serve as distribution hubs for smaller stores, which we view as a positive
move considering the fragmented geography of the country and traffic congestion in Manila. Therefore, we
believe that foreign investment will be limited to regional retailers, especially through partnerships with
local players. In early 2015, Dairy Farms increased its stake in Philippine retailer Rustan to 66%.
Metro Manila presently accounts for more than 50% of the country's total retail sales. However, other
regions with urbanised centres are also becoming strong centres for retail activities, particularly as the retail
sector in Metro Manila begins to mature and opportunities in the city decrease.
At present, the local sector largely comprises supermarkets and convenience stores. While the hypermarket
concept has only been introduced recently, it has become increasingly popular among Filipino consumers.
The sector as a whole continues to expand and modernise in response to consumer demand for convenience,
product variety, food safety and quality. This demand is driven in particular by the country's young and
upwardly mobile population, who continue to be attracted by Western lifestyle influences.
While markets and sari-sari stores (small convenience outlets) still account for the vast majority of food
sales, their share is declining, albeit slowly, with the expansion of modern MGR chains. Philippine
convenience stores mix the characteristics of the traditional sari-sari stores, but offer a wider range of
products in a well-lit, air-conditioned and strategic location. They are usually open 24 hours a day, seven
days a week. This crossover between traditional forms of shopping and newer, more modern ideas is
successful as it appeals not just to the country's youthful population, but also to older shoppers who value
this style and are increasingly interested in more hygienic and pleasant surroundings.
Leading retailers include SM Investments, which operates hypermarkets, supermarkets and convenience
stores in partnership with Alfamart, Puregold Price Club and Robinsons. In the organised convenience
sector, leading players include Philippines Seven (a 7-Eleven franchisee in the Philippines) and Mini Stop
(run by the Gokongwei group). Other smaller operators are Caltex Star Mart and Shell Select (petrol
station stores), some Mercury Drug outlets and Finds Convenience Stores Inc, owned by Villar.

Competitive Landscape
Table: Key Players In The Philippine Food Industry
Company Sub-Sector Sales Sales Financial No Of Year

(PHPmn) (USDmn) Year End Employees Established
San Miguel Corp Food & beverages 673,900e 13,100e Dec-15 18,538 1890
(and heavy industry)
Nestle Philippines Inc Food & beverages 111,745e 2,494e Dec-13 3,500 1911
(snack foods, dairy)
San Miguel PureFoods Food - agri & 107,000e 2,200e Dec-15 3,223 na
branded consumer
Unilever Philippines Food - mixed 17,320e 400e Dec-11 na na
branded consumer
Mondelez Philippines Food - snack food 10,825e 250e Dec-11 na na
(Formerly Kraft Food
Philippines)
RFM Corp Food - mixed 11,010e 248e Dec-14 454 na
branded consumer
General Milling Corp* Food - pasta, flour 7,000e 162e Dec-11 na 1961
products, snacks
Century Pacific Corp Food - canned 23,300e na Dec-15 na na
food, seafood
Pilmico Foods Corp Food - flour 4,200e 99e Dec-12 na 1962
products
Alliance Select Food - canned na 81 Dec-14 2,361 2005
food, seafood
Note: Financial year is the latest available data; e = BMI estimate; na = not available. Source: BMI
Table: Key Players In The Philippine Drink Industry

Nestle Philippines Inc Food & beverages 111,745e 2,494e Dec-13 3,500 1911
(snack foods, dairy)
San Miguel Brewery Beverages - alcoholic, 75,053 1,666 Dec-13 2,749 2008
beer
Universal Robina Beverages - 109,051 2,251 Sep-15 11,623 1954
Corp confectionery & snacks
Coca-Cola Bottlers Beverages - soft drinks 21,650e 500e Dec-11 7,800 1927
Philippines Inc
Ginebra San Miguel Beverages - alcoholic, 14,921 336 Dec-14 879 na
spirits
Pepsi-Cola Products Beverages - soft drinks 29,807 672 Dec-14 12,671 na
Philippines

Key Players In The Philippine Drink Industry - Continued

LT Group (Formerly Beverages - alcoholic, 52,154 1,175 Dec-14 12,671 1937
Tanduay Holdings) spirits
Alaska Milk Beverages - dairy 11,153e 249e Dec-13 728 1972
drinks
Cosmos Bottling Beverages - soft drinks 7,939 176 Dec-10 55e na
Corp
Zest-O Corporation Beverages - soft drinks 3,500e 81e Dec-11 na 1981
Note: Financial year is the latest available data; e = BMI estimate; na = not available. Source: BMI
Table: Key Players In The Philippine Mass Grocery Retail Sector
Parent Country Of Sales Sales Financial Fascia Format Number

Company Origin (PHPmn) (USDmn) Year End Of Outlets
SM Investments* Philippines 82,000e 1,700e Dec-15 269
SM Supermarket Supermarket 40
SM Hypermarkets 42
Hypermarket
SaveMore Discount stores 113
WalterMart Supermarkets 24
The SM Store Department 50

stores
Suy Sing Philippines 21,650e 500e Dec-11 Rustan's Supermarket 22
Commercial Supermarket
Corp
Shopwise Hypermarkets 9
Philippine Seven Philippines 22,400 na Dec-15 7-Eleven Convenience 1,282

Corp Store
Price Smart Philippines 4,330e 100e Dec-11 Price Smart Cash & Carry 4
Gokongwei Philippines 3,464e 80e Dec-11 Robinsons Supermarket 66
Group Supermarkets
Mini Stop Convenience 120
Store
Grand Union Philippines 650e 15e Dec-11 South Supermarket 8
Supermarket Inc Supermarkets
Uniwide Philippines 217e 5e Dec-11 Uniwide Sales Supermarket 6
Holdings
Shell Netherlands na na na Shell Select Convenience 100e
Store

Key Players In The Philippine Mass Grocery Retail Sector - Continued
Parent Country Of Sales Sales Financial Fascia Format Number

Company Origin (PHPmn) (USDmn) Year End Of Outlets
Caltex Australia na na na Star Mart Convenience 150e
Store
Puregold Price Philippines 84,700 1,908 Dec-14 Puregold Price Supermarket 200e
Club Club
Puregold Junior Convenience na
Store
Puregold Extra Discount Store na
Note: Financial year is the latest available data; *total group earnings - retail merchandise segment revenue for FY2013 =
PHP180,900mn (73.3% of total revenue); e = BMI estimate; na = not available. Source: BMI

Company Profile
Alaska Milk Corporation
SWOT Analysis
Strengths ■
AMC's brands rank first and second among food and beverage companies operating
in the Philippines.
■
Product diversity is an important strength, leaving AMC less exposed to demand
downturns in single product areas.
■
Thanks to its continued promotional initiatives, Alaska Milk has maintained its position
as a market leader in the Philippines's liquid canned milk market and strengthened its
hold as the second leading brand in the powdered milk category.
■
A trusted local brand, with an emphasis on quality and nutrition, will prove favourable
on the back of new regional food safety scares.
■
A move towards premiumisation has provided some cushion from volatile ingredient
costs, with margins on these items generally higher.
Weaknesses ■
With diversification into food not yet achieved, AMC is vulnerable to declining
demand for dairy, typically perceived as a non-essential item.
■
AMC's commitment to product diversification could jeopardise its focus on the keenly
contested dairy sector.
Opportunities ■
Low disposable incomes remain a challenge, yet added-value dairy, such as yoghurt,
is a profitable long-term growth channel.
■
Partnerships with established international firms should represent a low-risk, if costly,
means of pursuing expansion.
■
Domestic dairy production is low at circa 1% of domestic consumption.

Threats ■
Softer domestic demand conditions could dent demand for non-essential items, such
as dairy.
■
Dairy behemoth Nestlé represents a formidable competitor in the battle for market
share.
Company Overview Alaska Milk Corporation (AMC) is one of the country's leading dairy manufacturers. The
market leader in liquid canned milk, AMC also enjoys a dominant position in powdered
milk as well as a growing presence in value-added dairy categories, such as yoghurts,
and in other branded food categories. Its non-dairy coffee creamer business is operated
by Alaska Krem-Top. The company is the local distributor for brands including Quaker
Oats, Oreo and Cornflakes. Alaska Milk runs strong marketing and promotional
campaigns, which have helped lift its sales in times of flagging consumer confidence
levels. In 2012, Dutch dairy cooperative Royal Friesland Campina (RFC) acquired
control (98.1%) of the company.
Strategy Branding Initiatives
Thanks to its continued promotional initiatives, Alaska Milk has maintained its position
as a market leader in the Philippine liquid canned milk market and strengthened its hold
as the second leading brand in the powdered milk category. By ramping up its branding
initiatives, Alaska Milk could facilitate its brand awareness among local consumers and
grow its market share in higher-value segments such as the ultra-high temperature
(UHT) and ready-to-drink (RTD) markets.
Capacity And Portfolio Expansion
Another priority for Alaska Milk is to continue strengthening its core milk product
portfolio and venture into new markets through product innovation. In 2010, for
instance, Alaska Milk entered the non-dairy coffee creamer category with the launch of
its Alaska Krem-Top Coffee Creamer, and in 2014 it launched its first prenatal and infant
formula line under RFC's Friso brand. As Alaska Milk continues to invest capital
expenditure in order to expand its production capacity and, similarly, to expand its
product portfolio, it should look forward to stronger sales opportunities over the coming
years.
Ramping Distribution
Building a wide distribution network is arguably the most integral factor for consumer-
facing players to enjoy success in the Philippines, and Alaska Milk clearly recognises
this importance. Alaska Milk has collaborated with organised grocery retailers in the

country to facilitate the distribution of its milk products, ensuring an effective reach
across the country. As organised retail spreads across the Philippines in the coming
years, this should enhance Alaska Milk's presence in the country.
Financial Data For year ending December:
■ 2011 sales: PHP11,802.0mn, decrease of 3%

■ 2010 sales: PHP12,162.7mn, growth of 15%
■ 2009 sales: PHP10,580.4mn, growth of 6.2%

LT Group
SWOT Analysis
Strengths ■
Access to a market with a high tolerance of alcohol consumption and relatively high
per capita consumption rates translates into reasonably strong growth opportunities.
■
Aggressive expansions have expanded LT Group's domestic reach and put it in a
better position to tap into the Philippines's spirits growth.
Weaknesses ■
LT Group competes with Ginebra, which is backed by high-spending behemoth SMC,
in the spirits category.
■
Beer accounts for three-quarters of alcoholic drink sales in the country, thus limiting
the audience for spirits.
■
Spirits typically carry high sales values and are thus prohibitive to many consumers.
Opportunities ■
An increasing number of women in the workforce should boost female spending
power, and with this comes a key audience for spirits distributors.
■
LT Group's wide white spirits portfolio should prove popular, with such products
typically considered to be healthier and purer than darker varieties
Threats ■
The high value spirits sector could be badly affected by a slower than expected
domestic demand outlook, with consumers reducing spending on non-essential,
higher-value products.
■
As yet, there has been limited multinational penetration into the Philippines's alcoholic
beverages sector. However, as incomes rise, high profile multinationals may enter the
market.
■
A ruling by the WTO (about the Philippines's high excise taxes on imported
spirits) would threaten the market share of LT Group.
Company Overview LT Group (formerly Tanduay Holdings) engages in the manufacture and sale of liquor
products primarily in the Philippines. It has a diversified portfolio including rum, gin,

brandy, vodka and whisky. The company also manufactures fodder yeast and
distributes related liquids and products. The company has a history of name changes,
being known as Asian Pacific Equity Corporation prior to November 1999, and Tanduay
Holdings prior to November 2012. In April 2013, LT Group floated on the Philippine
Stock Exchange in the country's largest ever equity sale, raising PHP37.72bn
(USD912.2mn).
Strategy LT Group adopts an aggressive growth strategy. The company shops very aggressively
for acquisitions, as well as committing funds to the expansion of existing facilities. In
February 2013, LT Group acquired five investment management firms as an extension
of its business.
In addition, LT Group is constantly looking for means of expanding its consumer base,
and is therefore considering entering other markets in the region. The importance of
geographical diversification is further accentuated by the WTO's recent ruling that the
Philippines's high excise taxes on imported spirits are inconsistent with WTO's
regulation that member states are not allowed to tax imported spirits differently from
domestically produced spirits. The consequential removal of trade barriers would
inevitably threaten the market share of LT Group. The magnitude of trade barriers in the
Philippine spirits market has protected the dominance of domestic spirits producers,
and these companies are at greatest risk from a potential liberalisation of the country's
trade regulations.
In order to retain healthy earnings growth, which has come under pressure recently
from higher commodity costs, the company seeks to acquire immediately profitable
partners rather than snapping up bargain companies and rebuilding them. In November
2009, the company issued a PHP5bn retail bond, funds from which went towards
expansion and paying down existing debt.
■ 2015 sales: PHP54,374mn, growth of 4.3%

■ 2014 sales: PHP52,154mn, decline of 6.6%

Philippine Seven Corp

SWOT Analysis
Strengths ■
Philippine Seven is a clear market leader in the increasingly profitable convenience
sector.
■
Being the franchise operator of arguably the world's best-known convenience retail
brand gives it a strong foothold in the Philippines's convenience retail sector.
■
The early adoption of cutting edge retail technology, such as point-of-sale monitoring,
allows for the tracking of fast-changing consumer purchasing habits.
■
The company has shown itself willing to close under-performing outlets and to adopt
an aggressive approach to expansion.
Weaknesses ■
In operating in the convenience retail sector exclusively, price is a greater barrier for
Philippine Seven than for other modern retailers.
■
Opportunities to boost same-store sales are restricted by limited floor-space.
Opportunities ■
A focus on smaller convenience stores allows the company to expand into otherwise
crowded areas.
■
Combining the convenience offering with a fresh and healthy food focus has proved
popular throughout Asia and should likewise be so in the Philippines.
■
Expansion into provincial areas, where there is minimal competition, provides a strong
opportunity for uncontested brand building

Threats ■
Expansion has affected group profitability and this could impact on future growth
initiatives.
■
With consumers already paying high prices for convenience, the company would
most likely be severely hit by slower domestic demand.
■
The threat of multinational retailers entering the market looms large, with convenience
possibly a favoured channel for these experienced companies.
■
The entry of Japanese convenience store operator FamilyMart in 2013.
Company Overview Philippine Seven is the franchise operator of 7-Eleven convenience stores in the
country. There are just over 1,700 stores in the Philippines (both self-managed and
franchised), making it the market leader by some distance. The company continues to
expand both inorganically - acquiring the 35-outlet-strong Bingo chain in 2004 - and
organically, via new store openings. It has also expanded into 'grab-and-go' fast-food
business.
Strategy Philippine Seven has undertaken a rapid expansion of its stores, which stood at below
800 in 2011, but now exceed 1,700. In 2005, it focused on identifying strategic locations
for further store openings, and in 2006 it focused on increasing its level of promotional
activity in order to boost same-store sales, as well as opening new outlets. In 2007, new
store openings returned as a priority. Despite continuing to expand throughout the
country's economic downturn in late 2008 and 2009, the company's pace of expansion
really ramped up again in 2010. Between October 2009 and September 2010, the firm
opened 120 new outlets. In addition to expansion, three other elements of the
company's strategy are notable. First, it is looking for provincial openings in order to
diversify its geography and broaden its consumer base. Secondly, the company has
acknowledged the need to expand in a more cost-effective manner, in order to improve
its profitability (this could mean a greater emphasis on franchising down the line since
this is typically a cost effective means of opening new stores). Finally, it continues to
adopt a very active corporate social responsibility programme, the benefits for the
company being improved branding opportunities.

■ 2015 sales: PHP22.4bn, growth of 16.0%


San Miguel Brewery

SWOT Analysis
Strengths ■
The backing of a financially powerful parent company that is one of the region's
largest conglomerates provides a strong capacity for expansions.
■
A stranglehold over the domestic beer market and equipped with a brand that is
globally renowned.
■
Equipped with an extensive and efficient distribution network, covering both the on
trade and the off trade.
• Beer accounts for three-quarters of local alcoholic drink sales, representing a massive
market for SMB.
Weaknesses ■
SMB is unlikely to see its beer market share rise further and consequently domestic
investments are generally just for market share preservation.
■
Branded alcoholic drinks do not appeal to the entire population due to price
constraints, particularly among lower-income rural groups.
Opportunities ■
The immature markets of Cambodia, Laos and Myanmar represent high growth
opportunities for the brewer.
■
Economic growth will boost sales of beer at the premium end of the market.
■
The parent corporation has announced intentions of spending PHP281bn on
expansion through 2020.
Threats ■
Economic growth in the country should encourage other brewers to look to the
market, leading to enhanced competition, even if SMB's dominance is not realistically
under threat.
■
Concerns remain that investment funds from other SMC businesses will be drained to
support expansion in heavy industries.

Company Overview San Miguel Corporation (SMC) is the country's largest food and beverage company and
one of the largest firms operating in South East Asia. San Miguel Brewery (SMB) is its
spun-off and independently listed beer unit, in which Japanese brewing giant Kirin owns
a 48% stake. The subsidiary controls 95% of the local beer market via five key brands,
while the eponymous San Miguel brand is famous worldwide.
Strategy In January, SMC announced that it would spend USD300mn on a new brewery in
Cagayan de Oro City and to increase the capacity of its Sta Rosa plant. This is in
addition to the company's five production facilities located across the Philippines,
which serve just under half a million retail units, and its six facilities located outside of
the Philippines.
As the dominant player in the Philippine alcoholic drinks sector, SMB would have to
pursue opportunities outside the Philippines to sustain growth. Despite already
dominating the beer market in the Philippines, SMB remains one of the most active
players in the domestic beer sector and plans to install four new bottling plants across
the country to further spread its dominance. According to media reports, each plant,
which is estimated to cost around PHP1bn (USD23.1mn), is expected to contribute an
additional 22mn cases of beer to SMB's total output. In line with domestic wealth
accrual, consumers are likely to gradually trade up to more expensive beer brands and
variants, thus creating a strong opportunity for SMB.
Financial Data For year ending December (results for San Miguel Corporation):


SM Investments
SWOT Analysis
Strengths ■
As the market leader, SM enjoys a very dominant position and has ensured that its
name is synonymous with modern retailing in the country.
■
A multi-format operation allows SM to appeal to a wider range of consumers and
cater for more diverse shopping occasions.
■
SM Investments represents a powerful parent, and operational synergies are evident,
particularly with regard to real estate
Weaknesses ■
Modern retailing continues to account for only a small proportion of retail sales, with
price a major barrier to SM growing its customer base.
■
Expansion opportunities outside of Manila are currently fairly limited.
Opportunities ■
Expanding its store network through its partnership with WalterMart will improve SM's
economies of scale and its buying and negotiating power.
■
Should scale increase sufficiently to allow for aggressive purchasing and pricing, the
discount offering could represent a viable growth path for SM.
■
Private labelling should prove popular with consumers who are interested in modern
retail but still want low prices.
■
Added-value products and services represent cost-effective ways of boosting sales
without having to invest in store number expansion.
■
Further expansion of the SaveMore discount channel will enable SM to harness the
potential of lower-income groups.
Threats ■
The arrival of multinational competition would place SM's market share under serious
strain.
■
Volatile operating costs could threaten profitability, with SM unable to pass these
costs on to its price sensitive customers.

Company Overview SM Investments acquired its grocery retail interests in 2006. It now operates more than
200 outlets under the fascias SM Supermarket, SM Hypermarket, SaveMore (branded
discount stores) and WalterMart. In addition to department stores and shopping mall
management, SM Investments also has banking, financial services, real estate and
tourism interests.
Strategy Expansion is currently at the core of SM's retail strategy. The company invested heavily
throughout the downturn of late 2008/2009, and in 2010 it doubled its 2009 capital
expenditure budget to PHP40.6bn. The company will look to retain its individual sub-
sector leadership positions by gradually increasing its store numbers - discounting
appears to have been a particular focus and SM could be looking to leverage its
valuable first mover advantage in this area. SM appears to believe that multinational
competition in the country will eventually arrive and it wants to have boosted its scale
and improved its buying, and thus pricing power, before this happens.
In January 2013, SM Group bought into WalterMart, resulting in a 50/50 partnership

between the two companies. This has allowed WalterMart to expand its operations, with
SM Group financial backing.
■ 2015 sales: PHP82bn

■ 2010 sales: PHP142.4bn, decline of 3.0%

Universal Robina Corp

SWOT Analysis
Strengths ■
A diverse product portfolio allows URC to offset category declines in one area with an
improved performance elsewhere.
■
Geographic diversity has a similar balancing effect, with a poor performance in one
market offset by an improved performance elsewhere.
■
A willingness to reinvest, in spite of low profitability, is demonstrative of URC's
ambition.
Weaknesses ■
Competing with San Miguel, and increasingly with multinationals, means URC must
always operate at a stretch of its resources.
■
Managing an underperforming commodities division could divert funds from URC's
core food business.
Opportunities ■
Diversification into beverages and the pursuit of growth in this category should boost
sales with this being one of the country's fastest-growing consumer goods
categories.
■
Most of URC's categories allow for extensive product innovation, which will be vital in
achieving competitive differentiation.
■
Heavy marketing and branding expenditure will appeal to the fast-growing youth
market.
■
A commitment to improving distribution should allow URC to broaden its consumer
base without the need for considerable investment.
■
Health categories - such as bottled waters and iced teas - represent important long-
term growth opportunities, even if returns are currently limited. A proposed JV with
Danone will enable URC to diversify and increase the sales of its various beverage
products as well as expand its local market share.
■
Continued expansion into high growth neighbouring countries will grow the
business's revenues and profits.

Threats ■
A disappointing international performance, although not problematic in the short term,
could cause problems going forward, particularly if the high potential of China cannot
be harnessed.
■
As with reinvestment, volatile ingredient costs have negatively impacted profitability.
Company Overview Universal Robina Corp (URC) is the food and beverage unit of the JG Summit
conglomerate. This branded foods company - the market leader in the snacks, candies
and chocolate sub-sectors - also operates throughout the wider region in China,
Thailand, Malaysia, Singapore, Vietnam, Indonesia and Hong Kong. The company also
has a non-core commodities division and a growing beverage business.
Strategy URC plans to sustain sales growth in three ways: firstly, by expanding its distribution
network from the current 42,000 outlets; secondly, by continuing to be innovative with
new product development; and thirdly, through international expansion. The company
has invested heavily in developing and finding successful routes to market for its
branded food products. While this has negatively impacted profitability, it is viewed as
vital in building market share in the face of increased competition, and the company
only plans to commit more resources to advertising and promoting its brands. URC
acquired Swiss giant Nestlé's local bottled water business Nestlé Waters in 2007, thus
significantly expanding its presence in this fledgling sector. However, acquisitions
remain a relatively minor part of the company's strategy, with organic expansion
favoured. Beyond domestic distribution and new product development, URC intends to
continue pursuing international expansion in a bid to lift the contribution of its
international division to total sales to 30% from 22.9%. China, Thailand, Malaysia,
Singapore, Vietnam, Indonesia and Hong Kong will be key target markets. Last year,
URC's capital expenditure was almost 50% of its earnings, with the primary focus of
such investment going into the Branded Foods business, primarily in the ASEAN.
URC announced in October 2014 that it would enter into a joint venture with Danone
which, subject to approval by the boards of both companies, would begin commercial
operations by 2015.

Financial Data For year ending September:
■ 2015 sales: PHP109,051


Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only
is the total population of a country a key variable in consumer demand, but an understanding of
the demographic profile is essential to understanding issues ranging from future population trends to
productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2015, the change in the structure of
the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show
indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split
and life expectancy.
Population
(1990-2050)
200
150
100
50
0
1990
2000
2005
2010
2015f
2020f
2025f
2030f
2035f
2040f
2045f
2050f
Philippines - Population, mn
f = BMI forecast. Source: World Bank, UN, BMI

Philippines Population Pyramid

2015 (LHS) & 2015 Versus 2050 (RHS)
Source: World Bank, UN, BMI
Table: Population Headline Indicators (Philippines 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, total, '000 61,947 77,932 86,141 93,038 100,699 108,435 116,151
Population, % y-o-y na 2.2 1.8 1.5 1.6 1.4 1.3
Population, total, male, '000 31,292 39,249 43,293 47,059 50,812 54,578 58,308
Population, total, female, '000 30,654 38,683 42,848 45,979 49,886 53,856 57,843
Population ratio, male/female 1.02 1.01 1.01 1.02 1.02 1.01 1.01
na = not available; f = BMI forecast. Source: World Bank, UN, BMI
Table: Key Population Ratios (Philippines 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Active population, total, '000 34,640 45,414 51,235 57,903 63,915 69,513 74,935
Active population, % of total population 55.9 58.3 59.5 62.2 63.5 64.1 64.5
Dependent population, total, '000 27,307 32,517 34,906 35,135 36,783 38,921 41,215
Dependent ratio, % of total working age 78.8 71.6 68.1 60.7 57.6 56.0 55.0

Key Population Ratios (Philippines 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Youth population, total, '000 25,360 30,001 31,957 31,270 32,171 33,363 34,386
Youth population, % of total working age 73.2 66.1 62.4 54.0 50.3 48.0 45.9
Pensionable population, '000 1,946 2,516 2,948 3,864 4,611 5,558 6,828
Pensionable population, % of total working age 5.6 5.5 5.8 6.7 7.2 8.0 9.1
Table: Urban/Rural Population & Life Expectancy (Philippines 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Urban population, '000 30,100.2 37,372.4 40,144.5 42,104.8 44,683.3 47,993.7 52,170.6
Urban population, % of total 48.6 48.0 46.6 45.3 44.4 44.3 44.9
Rural population, '000 31,847.1 40,559.8 45,996.9 50,934.1 56,016.1 60,442.1 63,980.8
Rural population, % of total 51.4 52.0 53.4 54.7 55.6 55.7 55.1
Life expectancy at birth, male, years 62.6 63.7 64.1 64.5 65.0 65.7 66.3
Life expectancy at birth, female, years 68.1 69.8 70.5 71.2 71.9 72.7 73.5
Life expectancy at birth, average, years 65.3 66.7 67.2 67.7 68.3 69.1 69.7
Table: Population By Age Group (Philippines 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, 0-4 yrs, total, '000 9,450 10,738 11,408 10,730 11,254 11,568 11,732

Population By Age Group (Philippines 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Population, 60-64 yrs, total, '000 983 1,444 1,693 2,262 2,708 3,338 3,861
Population, 65-69 yrs, total, '000 788 1,070 1,239 1,507 1,953 2,351 2,916
Population, 70-74 yrs, total, '000 548 672 855 1,162 1,216 1,589 1,925
Population, 75-79 yrs, total, '000 362 447 480 721 845 892 1,177
Population, 80-84 yrs, total, '000 178 221 257 341 424 505 541
Population, 100+ yrs, total, '000 0 0 0 0 0 0 0
Table: Population By Age Group % (Philippines 1990-2025)
1990 2000 2005 2010 2015f 2020f 2025f
Population, 0-4 yrs, % total 15.25 13.78 13.24 11.53 11.18 10.67 10.10

Population By Age Group % (Philippines 1990-2025) - Continued
1990 2000 2005 2010 2015f 2020f 2025f
Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Glossary
Food & Drink
Food Consumption: All four food consumption indicators (food consumption in local currency, food
consumption in US dollar terms, per capita food consumption and food consumption as a percentage of
GDP) relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/
section.
Off-trade: Relates to an item consumed away from the premises on which it was purchased. For example, a
bottle of water bought in a supermarket would count as off-trade, while a bottle of water purchased as part
of a meal in a restaurant would count as on-trade.
Canned Food: Relates to the sale of food products preserved by canning. This is inclusive of canned meat
and fish, canned ready meals, canned desserts and canned fruits and vegetables. Volume sales are measured
in tonnes as opposed to on a unit basis to allow for cross-market comparisons.
Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products. Chocolate sales
include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum;
and sugar confectionery sales include hard-boiled sweets, mints, jellies and medicated sweets.
Trade: In the majority of BMI's Food & Drink reports, we use the UN Standard International Trade
Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and Vegetable
Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits. Where an alternative classification is used due to
data availability, this is clearly stated.
Drinks Sales: Soft drinks sales (including carbonates, fruit juices, energy drinks, bottled water, functional
beverages and ready-to-drink tea and coffee), alcoholic drinks sales (including beer, wine and spirits) and
tea and coffee sales (excluding ready-to-drink tea and coffee products that are incorporated under BMI's
soft drinks banner) are all off-trade only, unless stated.
Mass Grocery Retail
Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by
companies with a network of modern grocery retail stores and modern distribution networks. MGR differs
from independent or traditional retail, which relates to informal, independent-owned grocery stores or
traditional market retailing. MGR incorporates hypermarket, supermarket, convenience and discount

retailing, and in unique cases cooperative retailing. Where supermarkets are independently owned and not
classified as MGR, BMI will state so clearly within the relevant report.
Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of
general merchandise goods (non-food items) and typically more than 2,500sq m in size. Traditionally only
found on the outskirts of towns, hypermarkets are increasingly appearing in urban locations.
Supermarket: Supermarkets are the original and still most globally prevalent form of self-service grocery
retail outlet. BMI classifies supermarkets as more than 300sq m, up to the size of a hypermarket. The
typical supermarket carries both fresh and processed food and will stock a range of non-food items, most
commonly household and beauty goods. The average supermarket will increasingly offer some added-value
services, such as dry cleaning or in-store ATMs.
Discount Stores: Although most commonly between 500sq m and 1,500sq m in size, and thus of the same
classification as supermarkets, discount stores will typically have a smaller floor space than their
supermarket counterparts. Other distinguishing features include the prevalence of low-priced and private
label goods, an absence of added-value services, often called a no-frills environment, and a high product
turnover rate.
Convenience Stores: BMI's classification of convenience stores includes small outlets typically less than
300sq m in size, with long opening hours and located in high footfall areas. These stores mainly sell fast-
moving food and drink products (such as confectionery, beverages and snack foods) and non-food items,
typically stocking only two or three brand choices per item and often carrying higher prices than other
forms of grocery store.
Cooperatives: BMI classifies cooperatives as retail stores that are independently owned but club together
to form buying groups under a cooperative arrangement, trading under the same banner, although each is
privately owned. The arrangement is similar to a franchise system, although all profits are returned to
members. The term is becoming more archaic, with fewer cooperatives remaining that conform to this
model. Most cooperative groups now have a more centralised management structure, operate more like
normal supermarkets, and are thus classified as such in BMI's reports.

Methodology
BMI Food & Drink Forecasting & Sourcing
How We Generate Our Industry Forecasts
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined. BMI mainly uses OLS estimators and in order to avoid relying on subjective views and
encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear
model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods
of 'industry shock', for example a deep industry recession, dummy variables are used to determine the level
of impact.
Effective forecasting depends on appropriately-selected regression models. BMI selects the best model
according to various different criteria and tests, including, but not exclusive to:
■ R2 tests explanatory power; Adjusted R2 takes degree of freedom into account
■ Testing the directional movement and magnitude of coefficients
■ Hypothesis testing to ensure co-efficients are significant (normally t-test and/or P-value)
■ All results are assessed to alleviate issues related to auto-correlation and multi-co-linearity
BMI uses the selected best model to perform forecasting.
It must be remembered that human intervention plays a necessary and desirable role in all of BMI's industry
forecasting. Experience, expertise and knowledge of industry data and trends ensures that analysts spot
structural breaks, anomalous data, turning points and seasonal features where a purely mechanical
forecasting process would not.
Within the Food & Drink industry, this intervention might include, but is not exclusive to: significant
company expansion plans; new product development that might influence pricing levels; dramatic changes
in local production levels; product taxation; the regulatory environment and specific areas of legislation;
changes in lifestyles and general societal trends; the formation of bilateral and multilateral trading
agreements and negotiations; political factors influencing trade; and the development of the industry in
neighbouring markets that are potential competitors for foreign direct investment.

Example of Food Consumption Model:
(Food Consumption)t = β0 + β1*(GDP)t + β2*(Inflation)t + β3*(Lending Rate)t + β4* (Foreign Exchange

Rate)t + β5*(Government Expenditure)t + β6*(Food Consumption)t-1 + εt
Sourcing
BMI uses the following sources in the compilation of data, developments and analysis for its range of Food
& Drink reports: national statistics offices; local industry governing-bodies and associations; local trade
associations; central banks; government departments, particularly trade, agricultural and commerce
ministries; officially-released information and financial results from local and multinational companies;
cross-referenced information from local and international news agencies and trade press outlets; figures
from global organisations, such as the World Trade Organization (WTO), the World Health Organization
(WHO), the United Nations Food and Agricultural Organization (FAO) and the Organisation for Economic
Co-operation and Development (OECD).
Risk/Reward Ratings Methodology
BMI's approach in assessing the risk/reward balance for food and drink industry investors globally is
twofold. First, we identify factors, in terms of current industry/country trends and forecast industry/country
growth, that represent opportunities to would-be investors. Second, we identify country and industry-
specific traits that pose or could pose operational risks to would-be investors.
Ratings System
Conceptually, the ratings system divides into two distinct areas:
Rewards: evaluation of sector's size and growth potential in each country. This section also includes a
strong demographic aspect with a focus on both the size and age distribution (younger being better) of
populations.
Risks: evaluation of industry-specific risks and those emanating from the country's political/economic
profile that call into question the likelihood of anticipated returns being realised over the assessed time
period.

Indicators
The following indicators have been used.
Table: Rewards
Industry Rewards
Food and drink consumption per capita, US$ Indicator denotes overall breadth of market.
Wealthier markets score higher.
Per capita food consumption growth, five-year Lead Food & Drink growth indicator. Scores based
compound annual growth, % on compound annual growth over our five-year
forecast period.
Market fragmentation Subjective score reflecting how relatively developed
the industry is. Higher score reflects a more
fragmented industry.
Country Rewards
Population size (mn) Indicator denotes size of market.
GDP per capita, US$ Proxy for wealth. Size of population is important, but
needs to be considered in relation to spending
power. High-income states receive better scores
than low-income states.
Youth population, % 0>15%, % of total working age population. Younger
populations are generally considered to be more
desirable.
NB See Business Environment section for regional and country-specific ratings explanations. Source: BMI

Table: Risks
Industry risks
Mass grocery retail (MGR) The proportional contribution of the organised food retailing sector; higher scores reflect
penetration, % better developed routes to consumers and more efficient internal trade systems.
Regulatory environment Subjective rating based on the industry-specific regulatory environment and the presence of
potentially restrictive legislation.
Country risks
Short-term economic Rating from BMI's Country Risk Ratings. It evaluates likely growth trajectory over a two-year
growth forecast period, based on BMI's forecasts and projections of business and consumer
confidence.
Income distribution Middle 60% of population, % of total spending. Higher score is an indicator of incomes
being spread more equitably.
Lack of bureaucracy From Country Risk Ratings. It evaluates the risks to business posed by official bureaucracy,
the broader legal framework and corruption.
Market orientation Subjective rating from Country Risk Ratings to denote predictability of openness to foreign
investment and trade.
Physical infrastructure From Country Risk Ratings. Poor power/water/transport infrastructure act as bottlenecks to
sector development.
NB See Business Environment section for regional and country-specific ratings explanations. Source: BMI
Table: Weighting
Component Weighting
Rewards 60%
- Industry Rewards 30%
- Country Rewards 30%
Risks 40%
- Industry Risks 20%
- Country Risks 20%
See Business Environment section of report for regional and country-specific ratings explanation

BMI Philippines Food and Drink Report Q2 2017

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BMI Philippines Food and Drink Report Q2 2017

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Q2 2017

Published by:BMI Research

Part of BMI’s Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: February 2017

BMI Research © 2017 Business Monitor International Ltd

BMI Industry View ............................................................................................................... 7

Industry Forecast .............................................................................................................. 10

Food & Drink Risk/Reward Index ..................................................................................... 22

Market Overview ............................................................................................................... 26

Competitive Landscape .................................................................................................... 32

© Business Monitor International Ltd Page 4

Company Profile ................................................................................................................ 35

Demographic Forecast ..................................................................................................... 50

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BMI Industry View

Food And Drink Spending

e/f = BMI estimate/forecast. Source: BMI, National statistics

Latest Updates And Industry Developments

© Business Monitor International Ltd Page 7

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SWOT Analysis - Continued

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e/f = BMI estimate/forecast. Source: BMI, National statistics

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Table: Food Sales, 2014-2021

2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

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Food Sales, 2014-2021 - Continued

2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

e/f = BMI estimate/forecast. Source: BMI, National statistics

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■ Spirits will outperform on the back of aggressive innovation in the sector.

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Total Alcohol Consumption

e/f = BMI estimate/forecast. Source: BMI, WHO

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Table: Total Alcoholic Drinks Spending And Consumption (Philippines 2014-2021)

2014e 2015e 2016e 2017f 2018f 2019f 2020f 2021f

e/f = BMI estimate/forecast. Source: National sources, BMI

© Business Monitor International Ltd Page 17

Non-Alcoholic Drinks Sales

e/f = BMI estimate/forecast. Source: BMI, National statistics

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Table: Non-Alcoholic Drinks Sales, 2014-2021

2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

© Business Monitor International Ltd Page 19

Non-Alcoholic Drinks Sales, 2014-2021 - Continued

2014 2015 2016e 2017f 2018f 2019f 2020f 2021f

e/f = BMI estimate/forecast. Source: BMI, National statistics

Mass Grocery Retail

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Food & Drink Risk/Reward Index

Table: Asia Pacific Food & Drink Risk/Reward Index Q217

© Business Monitor International Ltd Page 22

Asia Pacific Food & Drink Risk/Reward Index Q217 - Continued

Philippines Risk/Reward Index

The Philippines scores 40.8 for rewards in Q217.

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The country scores 43.7 for risks in the industry.

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