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Introduction

Chain grocery retailing was a phenomenon that took off around the beginning of the

twentieth century in the United States, with the Great Atlantic and Pacific Tea Company (1859)

and other small, regional players. Grocery stores of this era tended to be small (generally less than

a thousand square feet) and also focused on only one aspect of food retailing. Grocers (and most

of the chains fell into this camp) sold what is known as “dry grocery” items, or canned goods and

other non-perishable staples. Butchers and greengrocers (produce vendors) were completely

separate entities, although they tended to cluster together for convenience’s sake.

The following report details grocery industry analysis, which deals with the grocery

industry merchandisers just as like a food and drink services. Grocery retailers saw opportunities

in providing more convenience and accessibility to local consumers, and pursued smaller store

formats, as well as grocery delivery services. Players which operated several grocery retail

channels put a stronger focus on smaller store formats such as convenience stores and minimarts

(smaller neighborhood supermarkets), which enabled them to locate in residential areas and

business districts closer to consumers. In addition, some players, including Puregold, Supermarket,

Robinsons Retail Group and SM Retail, offered additional services, such as online grocery

shopping and grocery delivery services.

This analysis includes the dominant economic characteristics, Six Forces of Competition

(Porter’s Five Forces of Competition), driving forces of grocery industry, strategic mapping of

company strengths, the ease entry and exit into the grocery industry, and the overall industry

outlook.

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Dominant Economic Indicators

1. Market Size:

The grocery industry is one of the most easiest way for people to buy goods like foods,

snacks, drinks. The supermarket or the grocery has it came to be known, was initially a

phenomenon of independents and small, regional chains. Eventually, the large chains caught on as

well, and they refined the concept, adding a level of sophistication that had been lacking from the

spartan stores of the early 1930s. In the late 1930s, it began consolidating its thousands of small

service stores into larger supermarkets, often replacing as many as five or six stores with one large,

new one. By 1940, supermarkets store count had been reduced by half, but its sales were up.

Similar transformations occurred among all the “majors”; in fact, most national chains of the time

saw their store counts peak around 1935 and then decline sharply through consolidation.

2. Scope of Competitive Rivalry:

Consumer migration online has grocers racing to increase their online presence, while online

players -- including Amazon and China's Alibaba -- are trying out brick-and-mortar retail. Fierce

competition, particularly at the high and low ends of the market, and cost advantages enjoyed by

online retailers have sparked supermarket price wars, which benefit consumers but threaten to

erase the grocery industry's razor-thin profit margins. Here are the main factors of competitive

rivalry:

 Costing of the Prices

 New technology improvement: For example online shopping and delivery

 Better landline services, for customers services

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3. Stage in Life Cycle:

The supermarket industry was approximately a $492 billion powerhouse as of the time of

publication. It’s evolved from a format of pure competition, where hundreds of thousands of small

independent stores essentially sold the same goods, each to a limited geographical area and

customer base. This was the beginning stage of the industry life cycle. In the 21st century, the

industry is dominated by a limited number of large, sophisticated chains serving multi-state regions

in more of an oligarchical structure, the mature stage of the industry life cycle.

This life cycle evolution from many small independent stores to a few large chains can best

be explained by The Wheel of Retailing Theory. The theory postulates that a store will start out to

serve a limited market with a small product mix, low prices and low margins. As the store grows,

it will expand its product mix, upgrade its facilities, and add services. These all add to the cost of

operations, so margins must be raised. As the store continues to grow, it follows the same approach

of increasing product mix, and upgrading facilities and services. It may expand by opening

additional stores and expanding their marketing area, all of which continues the need to increase

margins and prices. If it is managed successfully, eventually the operation becomes the highly

sophisticated chain serving a multi-state area.

4. Numbers of Companies in the Industry:

There are a lot of supermarkets in the Philippines where you can find almost everything from

home appliances, clothing, novelties to all kinds of food products and other basic needs. The next

time you’ll opt for a quick and convenient grocery shopping, these supermarkets are easy to find

as they operates several branches all over Manila. The researchers chose three of them:

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1. Puregold

2. SM Supermarket

3. Robinsons Supermarket

Established in 1998, Puregold is now a well-known supermarket chain in the Philippines with

more than 200 branches nationwide. Aside from the convenient physical stores sited all over the

country, Puregold also offers online grocery shopping and delivery.

Under SM Markets are SM Supermarket, SM Hypermarket and Savemore established by the

Sy family. SM Supermarket is the pioneer brand of the Food Retail Group, offering a wide array

of food and non-food products and services inside SM malls. SM Hypermarket by comparison,

has a larger range of non-food products items as well as a diverse range of food products and is

located either in larger stores either inside SM malls or in stand-alone locations. Savemore is a

mid-format supermarket that stands alone as a neighborhood store built to service impulse markets

and smaller communities across the country.

Robinsons Supermarket is a subsidiary of Robinsons Retail Holdings Inc., the second largest

multi-channel retailer in the Philippines. Established in 1985, Robinsons Supermarket is now the

second largest supermarket chains in the country with over 90 stores and expanding to more than

100 stores in 2014.

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5. Customers:

In the retail industry, it seems as though we are constantly faced with the issue of trying to find

new customers. Most of us are obsessed with making sure our advertising, displays, and pricing

all “scream out” to attract new business. This focus on pursuing new customers to increase sales is

certainly prudent and necessary, but, at the same time, it can wind up hurting us. Therefore, our

focus really should be on the loyal customers - the 20 percent of our clients who currently are

our best customers.

In retail, this idea of focusing on the best current customers should be seen as an on-going

opportunity. To better understand the rationale behind this theory and to face the challenge of

building customer loyalty, we need to break down shoppers into five main types of customers:

1. Loyal Customers: They represent no more than 20 percent of our customer base, but make

up more than 50 percent of our sales.

2. Discount Customers: They shop our stores frequently, but make their decisions based on

the size of our markdowns.

3. Impulse Customers: They do not have to buy a particular item at the top of their “To Do”

list, but come into the store on a whim. They will purchase what seems good at the time.

4. Need-Based Customers: They have a specific intention to buy a particular type of item.

5. Wandering Customers: They have no specific need or desire in mind when they come

into the store. Rather, they want a sense of experience and/or community.

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6. Technology/Innovation:

Technology and innovation are advanced every year making the industry even more competitive.

Supermarket companies design and make evolutionary upgrades are emerging into the market to

be more competitive.

Here are some new technology and innovations on supermarkets:

1. Locating Products. Easily find the in-store aisle location of a single item or route your

entire shopping list on a mobile map of your store. Aisle 411 works in hundreds of

stores around the country. The best part: No more aimless searching.

2. Self-Serve Scanning. Earlier this year, Catalina Marketing bought Boston-based

startup Modiv Media. Modiv’s hand-held in-store scanners as well as its mobile app

enable shoppers to scan bar codes and let customers ring up purchases as they stroll

through supermarket aisles. That means there's no wait for a cashier to check a customer

out at the end. The company’s Scan It! Mobile app is free on iPhone and Android and

can be used at Stop & Shop stores.

3. Supermarket Mobile Applications. Many chains have introduced their own mobile

apps with several useful shopping features. The Wegmans mobile app, for example,

lets you scan a barcode on a product and automatically add it to your shopping list. It

also features recipes and the ability to add the ingredients directly to your list. Weis

Markets mobile app lets you view the weekly circular, and create and email a list to

someone else. The Android version lets shoppers use their voice to add items to the list.

With the new Harris Teeter mobile app, an enhanced store locator adds GPS

technology and driving directions. Shoppers can also view their shopping lists offline

and integrate them with their desktop shopping list. The application even provides text

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message notification and the ability to pre-order subs and sliced meats and cheeses in

select stores.

7. Product Characteristics

Grocery store or grocery shop is a retail shop that primarily sells food. They offer non-

perishable foods that are packaged in bottles, boxes, and cans; some also have bakeries, butchers,

delis, and fresh produce. Large grocery stores that stock significant amounts of non-food products,

such as clothing and household items, are called supermarkets. Some large supermarkets also

include a pharmacy, customer service, redemption, and electronics sections. (Inside Retail, 2018)

One characteristic of a grocery is the small format stores. According to Nielsen (2017),

small format stores are modern trade stores which appeal to today’s modern day, on-the-go

shopper. Neighborhood supermarkets, mini marts, and convenience stores all fall under small

format stores. They have expanded to move close to residential areas and high traffic areas to cater

to shoppers’ busier lifestyles and meet a distinct need of convenience. Additionally, there are four

key factors why small format stores are in demand and trend nowadays, these includes

convenience, choice, shoppability, and price. These factors are the reason of the growing numbers

of small format stores in the Philippines.

Based on Statistica (2018), on the year 2013 there were only more than 1620 convenience

stores in the country, however as of Q1 2018 there were 4300 stores. It is no doubt that convenience

stores are continuously proliferating and increasing market share.

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8. Scale Economies:

Modeling Scale Economies in Supermarket Operations: Incorporating the Impacts of Store

Characteristics and Information Technologies New information and communications

technologies are having profound impacts on business operations, decision processes, and

trading partner relationships in all sectors of the global economy. The food retailing sector

is no exception. During the 1970s and 1980s the development and widespread adoption of

scanning technology and the Uniform Product Code provided the technological foundation

for the introduction of electronic transmission of order data, industry-supported

mechanisms for sharing scanner data, and computer-based product movement analysis at

the store level. At the same time, information technology was the basis for significant

changes in warehouse operations, logistics systems, and manufacturing processes. (Walsh,

pp. 89-106; King and Phumpiu). In the 1990s the Efficient Consumer Response initiative

brought together food retailers, wholesalers, brokers, and manufacturers in an industrywide

collaborative effort to foster adoption of new technologies and business practices based on

information technology (Kurt Salmon Associates, Inc.). More recently, rapid development

of Internet-based technologies has fostered new initiatives in electronic commerce; scan-

based trading; and collaborative planning, forecasting, and replenishment (Kinsey). While

the impacts of information technology on business operations and industry structure in the

food retailing sector have been described and discussed by many, relatively little is known

about how these changes have affected productivity at the store level. This paper addresses

this gap in our knowledge by presenting results of a production function analysis of

supermarket operations. Data for this study are from the 2001 Supermarket Panel

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conducted by the Food Industry Center at the University of Minnesota (King, Jacobson,

and Seltzer). The Supermarket Panel is an annual survey of supermarkets. Store managers

provide information on store characteristics, operations, and performance. The 2001 Panel

consists of 563 stores selected at random from the nearly 32,000 supermarkets in the U.S.

This analysis builds on recent work by Bresnahan, Brynjolfsson, and Hitt incorporating

workplace organizational trends and clusters of new information technologies into the

specification and estimation of firm level production functions. A ray-homothetic

specification proposed by Färe, Jansson, and Lovell (FJL) is used in this study to estimate

a store-level production function with weekly sales minus cost of goods sold as the output

measure and two inputs, labor (hours per week) and store selling area (square feet). This

specification allows for considerable flexibility in estimating returns to scale and ideal

output and does not require data on input prices, which are not available for this data set.

Binary variables are added to the model to investigate the productivity effects of store

location, format, competitive position, membership in a self-distributing chain,

unionization, and the adoption of a variety of new information technologies.

9. Capital Requirement

Retail grocery ownership structures are as diverse as the products that these stores offer.

Each type of ownership has unique challenges and opportunities when seeking capital. A grocer’s

approach to financing will depend on their business model, their values and responsibilities. The

grocery industry requires intense capital investment in order to enter and remain in the market

successfully. They are required high capital for many reasons and purposes. First is for the

beginning operations, large amount of money is needed to begin work on site preparation and

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modification like establishing the infrastructure or building, the cost for the people working behind

these and especially the environment or the location because a unique, upscale, and innovative

environment required to provide the customer with an atmosphere that will inspire continued use.

Another is for the equipment that will be needed in operating the business and the different

products that will offer to the market and these products are the source of the company’s revenue.

Staffing or the people who will be working in the business, legal requirements, fees of utilities,

rent and advertisement are also included in the start-up cost. To provide quality service, some

technologies are needed, and this will keep the business profitable and can stay in the industry

though the years.

According to Flanagan (2018), estimated total capital requirement to start a grocery

business requires a capital investment between P3,250,000 to P6,800,000. This large amount of

money will allow the business to successfully open and maintain operations in the industry.

Moreover, this provide its customers with a fully featured grocery store.

10. Industry Profitability

Grocery industry continue to have the most impact on the economy due to its day-to-day

essential products that they provide which satisfy the bulk of consumption for the Filipino

consumers. The profitability of the grocery industry is driven mainly by their ability to provide

exceptional service, quality products and making their products affordable for every consumer.

Attractive and engaging advertisement like promos and discounts are also included in the

profitability of the company.

The supermarket businesses can gain profit depends on the number of consumer they can

attract and establish loyalty. This kind of business is a low-margin industry, with the average profit

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margin for nonfood products typically ranging from 1 to 2 percent. However, food products enjoy

higher averages from 3.5 to 6 percent. (Inside Retail, 2018)

According to 2017 Food Retail Sectoral stated in (BusinessWorld, 2018), Puregold, SM

Supermarket and Robinsons Supermarket, still dominate the food retail business that contributed

to the rapid growth of the industry in the last five years. The report showed that in 2016,

supermarket sales reached $10.21 billion in retail value sales. They are continuously the most

frequent visited modern retailer because of its proximity to residential area or in shopping malls

where consumers regularly visit to shop and recreate.

As stated in Euromonitor International (2018), grocery retailers are expected to continue

to enjoy growth in both outlet numbers and value sales over the forecast period, due to both

consumer need and purchasing power. As grocery retailers remain the major source of food and

household consumables, players will strive to adapt consumers’ needs by opening stores in more

accessible locations and increasing their presence in underserved markets.

Porter’s Five Forces Analysis

i. Threat of New Entrants - Low

Potential entrants to the industry are realistic threats especially if the industry is very

profitable. This is determined by the present barriers to entry and the anticipated retaliation from

the extant contender. In the Grocery industry, based on the research above by Flanagan (2018),

potential entrants require intense capital investment since the start-up cost of it are extremely high,

estimated between P3,250,000 to P6,800,000. Other barriers to entry that make it difficult for new

businesses to begin and start operating in a grocery industry are high production-profitability or

economy of scale, high form of technology and numerous government policies that are need to

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assess and follow such as business license, insurance policies, federal employment identification

number (EIN), etc. In short, the likelihood of newcomers to the industry is low because it requires

enough resources to overcome the scale and legal barriers as well as the technology that can help

to formulate strategies for them to have competitive advantage.

ii. Bargaining Power of Suppliers - Low

Suppliers are important players of the industry and the major role of the supply chain is

performed by them. However, their bargaining power in the grocery industry especially in large

supermarkets, like Puregold, SM Supermarket and Robinsons Supermarket, is fairly low since

these grocery stores are already build strong relationship between their suppliers, so they can

negotiate and can also sets lowest possible price. Moreover, these supermarkets are price sensitive,

well-educated regarding to the products and have low switching cost because they have many and

different suppliers thus, they can find another if one will offer higher price compared to others.

(BusinessWorld, 2017).

iii. Bargaining Power of Buyers - High

Buyers are the recipients of products or services from the industry and it is a fact that they

are very price sensitive and more attracted towards low prices. In a grocery industry, the bargaining

power of buyer is fairly high for the reason that the switching cost is low, then any dissatisfaction

with a producer or a product can lead them to find or switch from one brand to another. And in

recent years as stated in Philippine Retailers Association (2018), it shows that the demand of every

buyers are increasing so supermarkets should monitor if they meet the needs of their customers for

it can establish satisfaction and loyalty however the cost of meeting and ensuring that the customer

is happy with the products or services that they have been offering is quiet high since it requires

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advertisement or constant flow of in-store promotion but on the other side the customer are price

sensitive thus they prefer lower prices that can reduce sales.

iv. Threat of Substitute Products/Services - Low

This is another competitive force that may impact the profitability of the industry. Though

substitute do not entirely replace existing products or services however it can lower the revenue

that a business is gaining because of introducing new technology or trends. But in the case of

grocery industry, substitute is seen as a low threat especially to large supermarkets since they are

already established a brand name. Nielsen (2017) claimed that another reason is due to one

characteristic of a grocery industry which is the emerging of smaller chains of convenience stores

in the market since these stores are already easily found because of their accessible location

therefore it is more convenient for the people to visit this.

v. Intensity of Competitive Rivalry in the Industry - High

This is the most dominant and directly influential force when evaluating the attractiveness

of the industry. They are competing with one another in order to improve their market control and

profitability. In a competitive market like grocery industry, the aggressive forces coming from

rival companies are very intense that a business enterprise is weak in mitigating these strong forces

because based on BusinessWorld (2017), there are too many players in the market and Puregold,

SM Supermarket and Robinsons Supermarket still the dominant players in the industry.

According to Subido (2018), Puregold took the 1st rank with the largest gross revenue in

2016 at P87.2 billion, a 13.4% rise from the year prior. Since it was established in 1998, it has

grown a network of over 290 stores both in the hypermarket and supermarket format. Robinson’s

Supermarket as the 2nd placer in the industry with a gross revenue of P48.6 billion. It currently

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operates 129 supermarkets, many of which are linked to the company’s malls, while also handling

17 smaller branches called Robinson EasyMart. Lastly, the SM Supermarket ranks third with a

gross revenue of P48.5billion, just slightly below Robinson’s.

Strong research to formulate strategies for innovations are needed, for it can be a big help

to have a competitive advantage, to remain in the market and to increase market share.

Growth Rate and Stage in Life Cycle

Grocery retailers, especially modern grocery retailers, are expected to continue to enjoy

growth in both outlet numbers and value sales over the forecast period, due to both consumer need

and purchasing power. As grocery retailers remain the major source of food and household

consumables, players will strive to adapt to consumers’ needs by opening stores in more accessible

locations and increasing their presence in underserved markets. On the other hand, as consumers

enjoy increasing purchasing power, players will benefit from larger basket sizes and a higher

appreciation for imported products and superior goods (Euromonitor International, 2017).

According to Mordor Intelligence (2017), Philippines is always a disaster prone country

and thus consumption of FMCG goods can increase or decrease suddenly. Philippines retail market

is driven by large and young consumer’s market base and an expanding middle class with high

disposable income. The retail industry in Philippines continues to maintain its momentum, driven

by economic and social developments and population growth. Key factors in the growth of retail

industry are rising population, growing youth segment, changing consumer trends and rising

purchasing power. Retail industry in the Philippines region will expand at a CAGR of 8.3% over

2013-18. Most of the consumers in Philippines prefer cheap and best goods. The traditional Sari-

Sari convenience stores (Variety stores) dominate the market because the demand is mostly of

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cheap goods. Philippines retail sector is driven by rising income, consumer confidence and

increasing high net worth Individuals. Majority of Philippines’s have relatively low income,

because of less agricultural production and disaster prone location. Instead of spending people

tends to save more money.

In line with this, it has been stated by Ferrolino (2018), that according to the 2017 Food

Retail Sectoral Report by Global Agricultural Information Network, the largest grocery retailers

in the country — SM Supermarket, Robinsons Supermarket and Puregold — still dominate the

food retail business that contributed to the robust growth of the industry in the last five years.

Furthermore, conforming to the data released by IGD (2017), the international grocery research

organization; the grocery retail market in the Philippines is forecast to grow on average 9.3% year-

on-year between 2016 and 2021, which will make it the fifth-largest grocery retail market in Asia.

Grocery retailers continue their aggressive expansion to extend reach to where busy

consumers live and work. While big supermarkets continue to extend their footprint, rapid

expansion is being driven by the emergence of small format stores, according to performance

management company, Nielsen. In addition to this, according to Nielsen’s latest Shopper Trends

report, while supermarkets increased in store count by 8%, convenience stores are leading the

expansion of the small store format concept in the Philippines, showing a growth of 20% in 2017

and 15% the year before that. In 2013, there were only more than 1,620 convenience stores in the

country versus close to 4,300 convenience stores as of Q1 2018 (Llamas, 2018).

As explained by Retailing in the Philippines (2018), the sustained strong economy in the

Philippines led to an increase in consumer spending, which was felt across all retail channels. 2017

was a good year for retailing in the Philippines, as the majority of key players increased their

outlets and sales, brands emerged to provide more options for Filipinos, and companies continued

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to improve the shopping experience, with a special focus on convenience. The Retailing in

Philippines report offers insight into key trends and developments driving the industry. The report

examines all retail channels to provide sector insight. Channels include hypermarkets,

supermarkets, discounters, convenience stores, mixed retailers, health and beauty retailers,

clothing and footwear retailers, furniture and furnishing stores, DIY and hardware stores, durable

goods retailers, leisure and personal goods retailers. There are profiles of leading retailers, with

analysis of their performance and the challenges they face. There is also analysis of non-store

retailing: vending; home shopping; internet retailing; direct selling, as available.

In addition, Grocery Industry is at maturity stage for it has been stated by Ingram (n.d.)

that the most reliable and profitable grocery products fall into this category. Some products in this

stage are almost guaranteed to remain here indefinitely, such as fresh milk and cheese, although

the popular producers and brands may rise and fall over time. Most products on grocery-store

shelves should be in this stage, since they have firmly established their presence in the popular

recipes and dietary habits of local customers.

DRIVERS FOR CHANGE IN THE BROAD ENVIRONMENT

Political Factors

Political factors like government policies and regulation of the retail industry affect its

revenue and profitability. The political environment affects so many things including economic

environment of a nation and international supply chains of businesses. Political stability means

better business because political disruption leads to the disruption of supply chain and sales.

Moreover, political issues can also become hindrance to smooth business operation (Pratap,

2017).

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Economic Factors

Many economic factors affect retail sales which can have a positive or negative impact on

businesses. The state of the economy decides the type of impact economic factors have on retail

companies. The economy consistently faces factors that can change its growth and decline, thus

affecting everyone (Twist, 2017). The retail landscape is evolving thanks to the rise of several

economic trends, many of which involve technological innovations. Because of new technology,

there are now various ways to shop away from the high street. That’s why in 2018, industry experts

predict a significant growth for retail (Patterson, 2018).

Sociocultural Factors
Social trends are also a major impact on the retail sector and its profitability. Demographic

changes and changing consumer preferences are going to have a deep impact on retail sector.

Living in the 21st century means we have to get that notion of big change and development.

Retailers will follow the needs and wants of their customers. Demographic changes have also

affected the popularity of products. The technological products are in more demand than ever. The

demands of the new generation are much different than the older generations. The importance of

customer service is growing and a lot of retailers’ popularity will depend on how well they have

crafted their customer experience. More focus shall have to be on customer engagement (Pratap,

2017).

Technological Factors

Technology has a lot to offer in the modern world. Utilizing it properly and using it by all

means of data searching would mean a lot in terms of meeting the goal of success. It is important

in the Grocery Industry to have those advancements of course to make efficient results. Moreover,

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if technology would not be emphasized by any industries, then probably less efficacy will be

produced. It is in no doubt that, products/services that the retailers offer have that special

characteristics as they are willing to aim that excellence of their company. Competitions may

emerge but at least more consumers are satisfied by the services that the company has to offer.

Environmental Factors

Like the other industry sectors, the retail sector is also affected by the sustainability

concerns. Packaging, waste reduction, renewable energy and several other concerns related to

sustainability are there before the retail sector (Pratap, 2017). Every Industry gives a lot of

importance in conserving the Mother Nature. As much as possible, they are into that goal of

achieving 100% renewable energy usage in the long term. Monitoring of their waste management

is one of their goal for it also leads to better results in supply chain.

Legal Factors

Legal factors are one of the most important factors to be considered. Implemented laws

have a big impact in any industry for it also tests how flexible the company is. Implored

products/services can be affected by considering all the external factors of an industry. Thus, the

relationship between customers and retailers will be challenged by any legal factors. In a nutshell,

it gives a notion to consider the importance of it for it plays a big role on how a business operates,

what profits they receive, and how customers behave for they have that various preferences in

considering their preferences based on their needs and wants.

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COMPANIES IN THE STRONGEST/WEAKEST POSITIONS

Supermarket is defined by Merriam Webster’s dictionary as a self-service retail market

selling especially foods and household merchandise. According to Subido (2018) of Entrepreneurs

Philippines, the three supermarket chains that have high grocery retail growth and also the biggest

in the Philippines are: SM Retail Inc., Robinson’s Supermarket Corp. and Puregold Price Club,

which Institute of Grocery Distribution identified as the largest grocery retailers in the country.

SM Retail Incorporated

The SM Investments Corporation website states that with customers as top of mind, SM

food stores boast of the most diverse and best quality merchandise. Customers are greeted by warm

smiles from the staff as they walk into attractive stores designed with their convenience in mind.

Wide aisles, well-organized shelves and food stations, efficient check-out counters that are

supported by state-of-the-art retailing technology and more are the minimum standard in every

store. Its various store formats under SM Markets—SM Supermarket, SM Hypermarket and

Savemore provide SM the ability to serve different market segments.

SM Supermarket is the pioneer brand of the Food Retail Group, offering a wide array of

food and non-food products and services inside SM malls. SM Hypermarket by comparison, has

a larger range of non-food products items as well as a diverse range of food products and is located

either in larger stores either inside SM malls or in stand-alone locations. Savemore is a mid-format

supermarket that stands alone as a neighborhood store built to service impulse markets and smaller

communities across the country. Savemore is SM's fast expanding vehicle for introducing

organized retail in areas where there is either a limited offer of products or none at all. Most SM

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stores also offer additional services like ATM banking, bills payment, remittances, money

exchange, pharmacy, and even laundry services in select outlets, ensuring the one-stop shopping

convenience that the SM brand is known for. The SM Supermarket's tagline, "At Your Service,

Yes!", the SM Hypermarket's "Happy To Serve” and Savemore’s “Here To Serve” reinforce the

group's business philosophy of putting the customer first and exceeding their expectations.

SM Food Retail also recently entered into a joint venture with Walter Mart stores which

are anchor establishments in its community malls. As one of the youngest and fastest growing

supermarket chains, it has gained a sizeable following particularly in North Luzon, Laguna, Cavite

and the greater Manila area. Alfamart is SM’s small-format store which is a first mover in the

minimart space.

Robinson’s Supermarket Corporation

Robinsons Retail Holdings, Incorporated website states that the business was established

in 1985, Robinsons Supermarket is the Philippines' first major retailer anchored on health and

wellness. With an intuitive store layout and vibrant array of healthy product options, each store

seeks to offer a comfortable and refreshing shopping experience for every customer.

Accommodating a wide breadth of consumers, it has three sub-formats: Robinsons

Selections, Robinsons Easymart, and Jaynith's Supermart. Likewise, it manages a chain of

community malls, Robinsons Townville, which are conveniently located near residential areas.

Robinsons Selections has two stores located in Taguig City and one in Robinsons Galleria Cebu.

Catering to the high-class metropolitan market, each store carries premium items, including

imported and local gourmet choices alongside household staples.

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Smaller in size and designed for convenience, Robinsons Easymart is a series of pocket-

sized stores with sections for grocery shopping, bills payment, TelCo loading, and a pharmacy.

All of its branches are located in neighborhoods across Luzon and Metro Manila. Jaynith's

Supermart, on the other hand, positions itself as a go-to destination for sari-sari store bulk

purchases, offering friendly rates and promotional deals. These can be availed through its loyalty

program, the Kasama Kard.

Moreover, Robinsons Supermarket Automates Inventory and Replenishment with JDA

which according to Rouse (2018) is a software and consultancy company that specializes in selling

supply chain management products and services to businesses. Currently, its list of clients spans

across a variety of industries from automotive to food and beverage to retail. According to Robina

Gokongwei-Pe, president and chief operating officer at Robinsons Supermarket, “As the

supermarket is a non-discretionary format that serves the daily needs of our customers, we have to

ensure that the products that meet these needs are always available on-shelf. An efficient and

equipped supply chain process powered by JDA has enabled us and our vendors to address the

persistent challenge of on-shelf stock availability.” This was further supported by Anthony Paul

Pasia, information systems delivery manager who stated that “by tapping into JDA’s transactional

and database management capabilities, the business streamlined the processes, increased

productivity, enhanced understanding of customers, and completed operational tasks and activities

more efficiently. Simply put, JDA helped in achieving the business’ mission of putting the

customers at the heart and center of the business.” (Scottsdale, 2017)

Puregold Price Club

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According to Puregold’s website, Puregold Price Club, Incorporated or simply Puregold

was incorporated on September 8, 1998 and opened its first Puregold hypermarket store in

Mandaluyong City in December of the same year. In 2001, it began its expansion by building 2

additional hypermarket stores in Manila and Paranaque. It also launched its loyalty program, which

was eventually renamed as “Tindahan ni Aling Puring” in 2004. Between 2002 to 2006, Puregold

continued its expansion at an average of 3 new stores every year and established operations in

North and South Luzon.

In 2008, Puregold was recognized by Reader’s Digest Asia’s as the Most Trusted Brand in

supermarket category. To expedite market coverage, a new format called “Puregold Jr.

Supermarket” was introduced in the 4th quarter of 2008. By mid-2009, the Company gained

market leadership being the second largest hypermarket and supermarket retailer in the Philippines

in terms of net sales. By 2010, it was already operating 62 stores, and launched another format

called, “Puregold Extra”. In the same year and henceforth, Puregold was recognized by Retail Asia

Pacific as one of the top 500 retailers among the 14 economies of the region.

The highest number of store openings in Puregold history with the launch of 38 new stores

making its number of stores to a total of 100 happened in the year 2011. In the succeeding year,

Puregold acquired a related retail company, Kareila Management Corporation, with 6 S&R

Membership Shopping Warehouses (patterned after the Costco and Sam’s Club in the USA),

opened 31 new Puregold organic stores and acquired Gant Group of Companies known as “Parco

supermarkets” with 19 stores.

In 2013, Puregold acquired another supermarket chain, Company E Corporation, with 15

stores and opened 40 new stores. S&R opened 2 warehouses located in Davao Province and

Mandaluyong City. Company E and Gant Group of Companies later merged with Puregold.

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In 2014, Puregold opened 28 stores, 1 S&R store and 4 S&R New York Style Pizza/quick

service restaurants (QSR). It also partnered with Lawson, Inc. and Lawson Asia Pacific Pte Ltd.

under a joint venture company called PG Lawson, Inc. PG Lawson plans to build and operate a

chain of Lawson convenient stores all over the Philippines targetting a total of 500 stores by 2020.

The parties’ investment share is 70% Puregold and 30% Lawson.

In 2015, Puregold opened 15 hypermarkets, 11 supermarkets, 1 S&R Warehouse and 10

QSRs. While in 2016, Puregold opened another 15 hypermarkets, 8 supermarkets, 2 extras, 1

minimart, 2 S&R Warehouse and 7 QSRs. By the end of 2016, Puregold was operating a total of

147 hypermarkets, 100 supermarkets, 29 extra, 1 minimart, 12 S&R warehouse clubs, 23 S&R-

QSRs, 9 stores under NE Bodega and 8 Budgetlane stores, for a total of 329 stores.

Therefore, the competition between these three strong supermarkets are quite high.

Convenience and good customer relations are all served in each business. However, the edge which

Puregold has is that it has competitively low-priced goods with the same quality compared to the

other two, that is why smaller retail stores tend to buy here often. But the business which has the

first-mover advantage is SM because it locates its branches faster than the other two. SM also is

more competitive in a way that it has branches outside of the Philippines. Whereas, the asset which

Robinson’s has is its reputation for fresh and healthy food choices.

Key Success Factors

Key Success Factors (KSF) are factors that the company should focus on to achieve its mission

and vision to attain specific goals. There are list of factors that are prerequisite in order to attract

customers, able to compete and be successful in the grocery industry. The following factors can

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be a major flaws of a company that is required to be inscribed in order to meet the qualifications

and strengthen the company.

According to Essays, UK. (November 2013) Key Success Factors are the following:

I. The general factors that determines the success of supermarkets

Grocery industry, specifically supermarkets are using all kinds of tricks to attract customers

from introducing to new offer and promos to give them loyalty discount. Such as Pure Gold Perks,

SNR card and etc. that can allure customers to think that they are saving and earning points and

thus, they buy goods in bulk. Supermarkets are providing all kind of incentives to customers. The

starts of online shopping of grocery service by Supermarkets have created more convenience for

the consumers to order their groceries from the comfort of their home.

 Range of choice

Supermarkets sells a variety of products that are needs and wants of the consumers. In order

for the customers to select from the variety of products that they want. Otherwise customers

will transfer to other supermarket or grocery stores if they do not find the product that they

want. Consumers are very keen on what product they buy. Products must have varieties of

ethnic foods such as European, American, African or Asian product to attract ethnic customers.

 Products must be on shelves

Products that are available should always have a stock and it is very important that it must

be on shelves. All the products must be properly organized and displayed according to

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specifications. The mixing of product in shelf must be equal so that it can be effortless for the

customers to choose varieties of products. Supermarkets must observe and monitor what the

customer buys the most or what particular product is on trend so that they can display it on

shelves. It is said that supermarkets always display basic product needs in the last corner of the

store such as bread, milk, meat, etc. because with that customers can see all the products on

the shelves while passing to get the basic needs that they are looking for. With that kind of

strategy, they are promoting other products and persuade customers to buy the certain products

in the frontline shelves.

 Effective Marketing

Supermarkets use all sorts of marketing strategy to attract the customers. Their

advertisements are more customer centric. For e.g., Puregold has “Aling Puring” that has a strong

financial certainty along with the sari sari store owners who have access to the huge product

inventory with probably a discount.

 Pricing Strategy

Price is the major factor which influence consumers to switch to other supermarkets or

retailer. Supermarkets compete with each other to sell the products at the best rate to the

consumers. They are trying to sell the products to best price to retail the customer loyalty to

supermarket. Many supermarkets offer price comparison on their website so the consumers can

see how much they have saved on their shopping. Most supermarkets also show the competitor’s

price next to products in their shelves in order to make it easy for the consumers to compare. It is

the biggest success factor of the Supermarkets.

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 Lower Price

During the economic downturn consumers tends to limit on their spending and looking for

the inexpensive bargain products. Tesco has large consumer group. It is effortless for them to buy

large quantity to meet the demand in order to meet the consumer requirement at a lower price. So

they can offer the products at a lower price to customers. Consumer can also compare the price of

the products they buying to make it easy for the consumer to select the products.

 Affordable Products

Groceries must sell various products with a reasonable cost for all the targeted customers.

Consumers always looks for the product that has high quality but is affordable and is suited with

their allocated budgeted for their groceries.

 Promotions & Offers

Consumers always look for better promotions and offers for them to save their money.

There would be many ways to give an attractive offer to consumers. In order to maintain the loyalty

of the customer, grocery industry or specifically supermarkets can create their loyalty club or cards

for their customers.

 Clubcard

Clubcards such as Puregold perks or SNR loyalty card and etc. encourages the consumers

to buy in large quantities because they can earn and save points.

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Effects of Recession on Supermarket Industry

 Primary Research

To explore the effect of recession Supermarket Industry, the author has done a primary

research to find out the consumer behaviour during the recession in order to find out the habit and

patterns of the consumers. Author has also tried to find out the impact of VAT increase on the

consumer buying behaviour.

 Questionnaire Research

Using a survey questionnaire, researchers can help to gather data that will determine the

common answer from the customers or the targeted customers. It will help identify how to improve

the flaws of the industry and the goods and will strengthen the strong features of the industry and

products.

These factors vary by segment because of the customer preferences and characteristics.

With the passage of time, there are many changes that have happened and will happen to the

industry. From time to time the variety of choices can change due to the change of technology,

taste and preferences of the customers and the change of income and government policies. With

this changes the industry must cope in order to survive the competition. The evolution of changes

over time implies change, threat, innovation and risk to the industry.

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Industry Prospects and Overall Attractiveness

Factors Making the Industry Attractive

A company must identify the external factors in order to fulfill the goal of the company.

Supermarkets and grocery stores uses all kinds of tricks and magic to attract customers and make

them as loyal customers.

According to Porter (1998), there are five factors that makes the industry attractive. These factors

can measure the long term attractiveness of the company.

1. Threat of New Entrants:

As stated by Porter, entering into industries where there are already established

competition is unattractive however the possibility of having high profit is still attractive

to new entrants.

2. Threat of Substitutes:

Substitutes are those products or services that meet the same need as another product but

which belong to different industries or product categories. Substitutes usually pose a threat

if it is equal in quality but less in cost or if it has better quality.

3. Bargaining Power of Customers:

Competitors on who can best provide the demands of the customers such as high

product quality but is affordable to everyone, quick delivery and personalized customer

support from a wide range of products or services. In conclusion, competition is created in

the market because of the demands of the customers.

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4. Bargaining Power of Suppliers:

The cost of production can impact by the suppliers by changing the prices of the

supplied raw materials or intermediate goods. For example, increase in sugar because of

inflation can signify the impact of the price of many products that requires sugar in the

production of trendy products. However, in the availability of low cost substitutes, low cost

of switching to another supplier and low necessity for the supplier’s product in finalization

of product can result in the low bargaining power of supplies.

5. Competitive Rivalry:

A high rivalry of industries reduces profitability; with that it makes the industry

less attractive for potential new entrants. making the industry less. There are some factors

that can result to a low level of competition. For example, is the existence of monopoly,

oligopoly and duopoly.

Porter’s Five Forces for Industry Attractiveness also help a company decide whether or not

to enter an industry. However, if the company is already present in a particular market or industry,

then this model can be used to devise strategies to achieve and maintain profitability. In

conclusion, what makes the industry attractive is that when the industry can give the costumers the

needs and want in anytime and place according to taste and preferences.

Factors Making the Industry Unattractive

An Unattractive industry is one in which the combination of the Porter’s Five Forces acts

to drive down overall profitability. An Unattractive industry would be the industry that has pure

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competition, in which all profits are all converted to normal profit. This analysis is associated with

its principal innovator Michael E. Porter of Harvard University. Porter referred to these forces as

“the micro environment, to contrast it with the more general term macro environment.” They

consist of those forces close to a company that affect its ability to serve its customers and make a

profit.

The overall industry attractiveness does not imply that every firm in the industry will

return the same profitability. Firms are able to apply their core competencies, business modelor

network to achieve a profit above the industry average. It has been applied to a diverse range of

problems, from helping businesses become more profitable to helping governments stabilize

industries.

Special Industry Problems and Issues

All kinds of industry face difficulties in managing and producing quality services or goods.

According to Orbital Shift (2018) there are top five challenges that grocery industry may face.

1. Organic Trend

For the past decades until this year, the rise of the purchased organic products never

failed and there was no down turning point. According to Statista Poll, the number of

people who bought organic products leaped from 52.6million in fall of 2017 to almost

55million in spring of 2018. The millenials or the youth preferred organic products.

However, the rise of organic trend can be a problem to grocery industry because the rise of

people who patronized organic products can lead to diminishing farmland and organic

resources. As people go to healthy lifestyle by organic products, grocery industry must

determine as how to obtain those organic resources at a reasonable cost for the company.

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2. Socially Concious Millenials

Millenials does not only care for the high quality and authenticity of a product but

millenials tend to look for the quality of the company they buy from. In deciding where

they purchase their groceries, millenials are concerned about the convenience and cost they

will have to pay. Also, they are concerned to the ability of the company to pay their workers

with the right amount of wage or the ability of the company to help in society and

environment.

3. The voice search surge

The technologies are becoming more advanced and thus the Google voice search,

Amazon’s Alexa are rising and more people are becoming dependent to the voices to search

and place orders and get answers without exerting too much effort. According to

SiteVisibilty, voice searches will make up half of all the searches in the internet by the year

2020. In the years to come, all consumer, not just consumer shopping for groceries will

prefer online buying experience. Grocery industry must level up their technology as year

passes by for them to catch up from the competition and succeed.

4. Busy Parent

Parents in this generation compare to older ones carry more responsibilities such as

multiple jobs, multiple kids etc. Parents are relying to the convenience of technology

specially in shopping for the groceries of the family as they have no time to spare to buy

groceries. Parents are the largest consumer of the groceries in the online grocery shopping

trend, along with the millenial parents.

5. Digital Shopper

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Older generations rely on the traditional method of advertisement such as coupon,

commercials, word of mouth. While the young generations develop technology, they use

technology in accessing information to everything. Grocery industry must have an accessed

to advance technology by saving all the data information in a system along with the

advertisements that will be seen by the internet users specially the young ones. With this

kind of strategy, the industry will survive in the technology era.

CONCLUSION, ANALYSIS AND SUMMARY

Future Growth and Potential

The Grocery Industry has grown from time to time. According to Business World (2018),

in 2016, convenience stores led the growth of modern grocery retailers with almost 17% growth

on the number of outlets and 8% in terms of sales. The growth was driven by the existing players

in the country such as 7-Eleven, Ministop, All Day and Alfamart, as well as the gaining popularity

of various foreign brands such as Lawson and Family Mart.

According to the 2017 Food Retail Sectoral Report by Global Agricultural Information

Network, the largest grocery retailers in the country — SM Supermarket, Robinsons Supermarket

and Puregold — still dominate the food retail business that contributed to the robust growth of the

industry in the last five years.

According to a 2016 Nielsen report, the penetration rate of convenience stores and online

shopping have surged significantly, recording an increase to 32% and 38%, respectively, from

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2015’s 19% and 35%. This has pushed traditional supermarkets to transform and adapt to the

changing needs of the consumers.

“The report found that the lure of cheaper goods online has had a significant impact on

consumers’ behavior, with 61% of those surveyed said they choose to buy things online due to

cheaper prices, a significant rise from 42% last year. About 56% of the respondents said they prefer

online shopping platforms due to ‘easier to compare prices’, an increase of 15% from last year’s

figure. Another 54% of respondents said that they shop online because of the delivery service; that

number last year was 42%,” Nielsen wrote on its Web site.

Will competitive forces get stronger?

Based on the research and facts stated above with regards to the Porter’s Five Forces

Analysis on Grocery Industry, it is commonly be traced and concluded that competitive forces

which includes bargaining power of buyers and competitive rivalry among existing companies,

will get stronger as time passes by due to continuously increasing of consumers demand in the

day-to-day products that the grocery industry are offering. And because of these forces, it can

directly influence the attractiveness of the industry since the competition between players in the

market are very intense and the cost of meeting the expectations of every consumer is quite high

that can negatively affect the profitability of the company.

Will driving forces increase/decrease profitability?

The driving forces can increase profitability in the grocery industry for it offers key

trends to those people who patronize their products/services. Those forces would let them feel

that eagerness of striving for better results. There are so many factors to be considered but the

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most important factor that any industry should be focusing on is the goal of aiming the

excellence and not perfection. In addition, with the innovative skills of those retailers that the

Industry has is more than enough to meet the efficacy that they want. It is the thought of

innovation and growth of the company as it looks forward to profitability.

Which company’s strategic position will improve/decline?

Company’s strategic position that will improve is in terms of convenience stores. By

spreading the small stores, the consumers may feel the positivity of that small store for they prefer

cheaper and best goods. Now that the inflation is rampant nowadays, better results for those small

stores could occur. On the other hand, in terms of the strategic position that will decline, most

probably it is because of the threats and competitors that the company has to deal with. If the

company does not know how to go with the never ending change, then profitability and aiming for

that excellence is undefined for the company itself.

Is this an attractive industry in which to participate?

Yes because there are many advantages that this industry will give a person. Such as,

Supermarkets can have prospect of earning more profit, because they purchase in large quantity

and sell out small quantity. Moreover, they bear only little operation expenses and do not provide

free services to customers. This automatically results in more profit. Also, Supermarkets take

relatively low operation expenses. Supermarkets do not provide free services to customers, except

some nominal. They are established with the objective of providing goods to customers at cheaper

price. So they employ least number of sellers. As a result, supermarkets can be operated with less

cost.

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