I just came back from a trip to the Philippines and one can feel the optimism in the air from taxi drivers to senior executives. Economic growth is strong (6%+) and people have confidence in their President, Benigno “Noynoy” Aquino. The country has a population of 100 million people and they love to consume, especially at the SM and Ayala malls that dot all major first and second tier cities. They also love American and Japanese food concepts but new trends are also emerging offering opportunities to innovative restaurant groups.
Surprisingly, the Philippines has a very stable and robust franchise industry which is growing rapidly. I visited the largest franchise show last year and was impressed with all the creative local concepts that are enjoying success with the franchise model. Everything from coconut shakes, to distilled water and generic drugs were represented. The one theme in common however were the affordable prices of all the products being offered. The Philippines is still a poor country and spending power is low especially in tier 2 cities so if you want scale you need to offer low prices. High carb impulse items like donuts and cakes do especially well.
Higher end concepts are growing as well but price clearly limits the scalable potential. The Singapore tea concept, TWG, is enjoying strong sales in luxury malls and you also find more expensive drinks concepts like Jamba Juice now sprouting around the capital.
Here are a few issues for overseas franchisers to consider when approaching the Philippines market. First, franchise terms and conditions in the local market are very low compared to the developed world so do not expect the same franchise fees and royalties that you can earn in the USA, Japan or Germany, especially if sub-franchising is involved. Second, the mass market is where the action is so it would be wise to avoid concepts with average spending exceeding US$8 per person. The sweet pricing spot for impulse deserts is 40 Pesos (US$1), for QSR 80-100 Pesos (US$ 2.00-2.50) and 200 Pesos (US$5) for casual dining. Finally, make sure you find a partner who is capable of developing your concepts in tier 2 cities as well as Manila and Cebu. Too many Manila based companies only care about the capital city and can limit the development potential of your brand.
We have been active in this market for more than 25 years and have excellent relationships in the industry. Feel free to contact us if you are serious about entering the market.