2015www.businessmonitor.comPHILIPPINESFOOD & DRINK REPORTINCLUDES 5-YEAR FORECASTS TO 2018ISSN 1749-2882Published by:Business Monitor InternationalPhilippines Food & Drink Report2015INCLUDES 5-YEAR FORECASTS TO 2018Part of BMIs Industry Report & Forecasts SeriesPublished by: Business Monitor InternationalCopy deadline: December 2014Business Monitor InternationalSenator House85 Queen Victoria StreetLondonEC4V 4ABUnited KingdomTel: +44 (0) 20 7248 0468Fax: +44 (0) 20 7248 0467Email: subs@businessmonitor.comWeb: http://www.businessmonitor.com 2014 Business Monitor InternationalAll rights reserved.All information contained in this publication iscopyrighted in the name of Business MonitorInternational, and as such no part of thispublication may be reproduced, repackaged,redistributed, resold in whole or in any part, or usedin any form or by any means graphic, electronic ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consentof the publisher.DISCLAIMERAll information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time ofpublishing. 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All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind asto the accuracy or completeness of any information hereto contained.CONTENTSBMI Industry View............................................................................................................... 7SWOT .................................................................................................................................... 9Food.......................................................................................................................................................9Drink....................................................................................................................................................11Mass Grocery Retail................................................................................................................................13Industry Forecast.............................................................................................................. 15Consumer Outlook...................................................................................................................................15Food.....................................................................................................................................................18Table: Food Consumption Indicators - Historical Data & Forecasts (Philippines 2011-2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . . . . .20Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Drink....................................................................................................................................................22Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Table: Soft Drinks Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018) . . . . . . . . . . . . . . . . . . . . . . . .24Mass Grocery Retail................................................................................................................................26Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Philippines 2011-2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27Table: Sales Breakdown By Retail Format Type. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28Trade....................................................................................................................................................29Table: Trade Balance - Historical Data & Forecasts (Philippines 2011-2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30Macroeconomic Forecasts ............................................................................................... 31Economic Analysis ...................................................................................................................................31Table: Economic Activity (Philippines 2009-2018). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34Industry Risk Reward Index............................................................................................. 35Asia Pacific - Risk/Reward Index................................................................................................................35Table: Asia Pacific Food & Drink Risk/Reward Index Q115. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36Table: Asia Pacific Food & Drink Risk/Reward Sub-Factor Index Q115 - Selected Countries (scores out of 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40Philippines Risk/Reward Index...................................................................................................................41Market Overview............................................................................................................... 42Food.....................................................................................................................................................42Food Processing....................................................................................................................................42Agriculture...........................................................................................................................................43Drink....................................................................................................................................................44Hot Drinks............................................................................................................................................44Soft Drinks ............................................................................................................................................44Alcoholic Drinks....................................................................................................................................45Mass Grocery Retail................................................................................................................................46Philippines Food & Drink Report 2015 Business Monitor International Page 4Table: Structure Of Mass Grocery Retail Market By Estimated Number of Outlets (Philippines 2005-2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47Table: Mass Grocery Retail Sales By Format (Philippines 2005-2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47Table: Mass Grocery Retail Sales By Format (Philippines 2005-2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48Table: Table: Estimated Number Of Outlets In 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48Industry Trends And Developments................................................................................ 49Food.....................................................................................................................................................49Key Industry Trends And Developments ......................................................................................................49Drink....................................................................................................................................................56Key Industry Trends And Developments ......................................................................................................56Mass Grocery Retail................................................................................................................................63Key Industry Trends And Developments ......................................................................................................63Competitive Landscape.................................................................................................... 67Table: Key Players In The Philippine Food Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67Table: Key Players In The Philippine Drink Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67Table: Key Players In The Philippine Mass Grocery Retail Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68Company Profile................................................................................................................ 70LT Group...............................................................................................................................................70Alaska Milk Corporation ...........................................................................................................................73Universal Robina Corp.............................................................................................................................76San Miguel Brewery.................................................................................................................................79SM Investments.......................................................................................................................................81Philippine Seven Corp..............................................................................................................................83Global Industry Overview .................................................................................................. 86Table: Dollar General And Family Dollar Historic Quarterly Same-Store Sales Growth (% Change Y-O-Y) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90Table: Selected US And Global Spirits Companies - Historical Financial Indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93Table: Select US Beverage Companies - Historic Eva Spread. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95Table: Food and Drink Team's Core Views. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96Demographic Forecast..................................................................................................... 98Table: Population Headline Indicators (Philippines 1990-2025). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99Table: Key Population Ratios (Philippines 1990-2025). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99Table: Urban/Rural Population & Life Expectancy (Philippines 1990-2025). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100Table: Population By Age Group (Philippines 1990-2025). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100Table: Population By Age Group % (Philippines 1990-2025). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101Glossary........................................................................................................................... 103Food & Drink ......................................................................................................................................103Mass Grocery Retail.............................................................................................................................103Methodology.................................................................................................................... 105Industry Forecast Methodology..............................................................................................................105Sector-Specific Methodology..................................................................................................................106Sources..............................................................................................................................................106Risk/Reward Index Methodology.............................................................................................................107Philippines Food & Drink Report 2015 Business Monitor International Page 5Table: Food & Drink Risk/Reward Index Indicators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108Table: Weighting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109Philippines Food & Drink Report 2015 Business Monitor International Page 6BMI Industry ViewBMI View: While the Philippine economy continues to expand at a healthy rate and despite its expandingbase of young consumers, we believe that the country offers limited potential in its grocery and food anddrink markets. Multinational investment has been slow to penetrate the market, which in itself continues topresent numerous challenges to players in the sectors. Issues such as widespread poverty, highly unevenincome distribution, under-developed mass grocery retail networks and high levels of unemployment willcontinue to weigh on the consumer outlook.Headline Industry Data (local currency)2014 per capita food consumption = +4.68%; compound annual growth rate (CAGR) forecast 2013 to2018 = +4.46%2014 alcoholic drinks value sales = +7.97%; CAGR growth forecast 2013 to 2018 = +7.03%2014 soft drinks value sales = +7.89%; CAGR growth forecast 2013 to 2018 = +7.89%2014 mass grocery retail sales = +7.39%; CAGR growth forecast 2013 to 2018 = +7.03%Industry DevelopmentsDel Monte Pacific Enters New Joint Venture And Proposes Share Sale: Philippine food and beveragecompany Del Monte Pacific Limited (DMPL) disclosed in December 2014 that it was to enter into a jointventure (JV) with two Europe based companies. The JV will result in the construction of a facility in thePhilippines that will preserve the quality and shelf life of fruit and vegetables. Spain based Nice Fruit SLwill provide the technology that preserves the nutrients and integrity of the produce handled at the plant.Nice Fruit SL will be the majority stakeholder in the JV with 51% and DMPL will have a 35% stake. UKbased Ferville Ltd, while being a minority financial investor, was instrumental to developing the JV andwill hold a 14% interest.Century Pacific Completes Successful IPO: The initial public offering (IPO) of Philippines-based foodcompany Century Pacific was oversubscribed by 3.5 times the base offering and raised PHP3.2bn in freshcapital, reported the Manila Bulletin in December 2014. The price range for the IPO was originally set atPHP12.50-14.50 (USD0.28-0.32) a share and in the end 230mn shares were sold at PHP13.75 each. Thefunds generated from the sale will be used for the firm's expansion. The listing was completed on May 6and later declared the Philippines' 2014 Deal of the Year at the Assets Triple A Awards.Philippines Food & Drink Report 2015 Business Monitor International Page 7Pepsi-Cola Products Philippines To Invest PHP650mn In New Facility: US-based food and drinkcompany PepsiCo's Philippines division, Pepsi-Cola Products Philippines (PCPPI), announced inSeptember 2014 that it was investing PHP650mn (USD14.57mn) to establish a snack food manufacturingfacility in the Philippines. The company plans to build a local manufacturing facility, which would allow itto produce, sell and distribute snack foods in the country. 'The snack food investment will allow thecompany to further build and expand its business and markets venturing into a product line that iscomplementary to its existing beverage business,' the company said. The firm is planning to implement itssnack food facility by H215.Japanese FamilyMart Adds Franchising To Its Philippine Expansion Plans: In September 2014, Japan-based FamilyMart confirmed its intention to use franchising packages to accelerate its expansion in thePhilippines. The minimum cost of a franchise was set at PHP4mn, with finance packages available throughthe Bank of the Philippine Islands. The company is also looking to raise capital through an IPO. At the timeof writing, there were 65 Family Mart stores in the Philippines and the number was expected that to grow to100 by the end of 2014. The company has a target of opening a total of 500 stores in the country by 2018.Philippines Seven Continues Its Expansion Drive: Philippines-based retailer Philippines Seven plans todouble its 2014 spending to open 300 new stores and refurbish another 100 existing stores, Bloombergreported in August 2014. This follows the major investments in expansion and refurbishment of its storenetwork over the previous two years, which cemented its position as the Philippines' largest convenience-store chain with more than 1,100 stores.Emperador Distillers Confirms Whyte And Mackay Acquisition: Emperador Distillers, a Philippines-basedsubsidiary of Alliance Global Group, signed an agreement in May 2014 to acquire the UK-based Whyteand Mackay spirits business from United Spirits for GBP430mn (USD729mn). As part of theacquisition, Emperador will take on a global portfolio of Scotch whisky, malt and grain distilleries andbrands that include Dalmore and Tamnavulin. Emperador will also supply United Spirits with anunspecified amount of Scotch whisky over the coming three years.Philippines Food & Drink Report 2015 Business Monitor International Page 8SWOTFoodSWOT Analysis StrengthsAgricultural output is increasing, with the government and the Development Bank ofthe Philippines allocating funds to help small and medium-sized processors improvetheir output levels and production processes.Government trying to reform some of the most vulnerable food processing sectorsahead of implementation of the ASEAN Economic Community.The industry is home to one of the region's leading food and drink conglomerates,San Miguel Corporation (SMC), thus enhancing its reputation considerably and aidingthe early establishment of industry best practices.SMC's scale and widespread distribution has helped establish demand for processedfoodstuffs in the country; more so than in other similarly developed economies.WeaknessesThe food processing industry suffers from various structural problems includinglimited domestic input, inefficient post-harvest and storage facilities and inadequatedistribution links.Only a limited number of large companies have been able to modernise theirproduction processes, with a significant number of manufacturers still relying onmanual processes.Per capita income remains low, and unemployment levels continue to be a majorconcern, with a large segment of the population unable to afford processed foodproducts.SMC has a huge amount of dominance, since its interests incorporate almost all ofthe profitable food and beverage sub-sectors. It does, therefore, represent anintimidating competitor.Philippines Food & Drink Report 2015 Business Monitor International Page 9SWOT Analysis - ContinuedOpportunitiesConsumption levels are increasing, assisted by rising disposable incomes amongmiddle- and upper-class consumer groups, which should spur growth in theprocessed food sector.Western influences are strong in the country, ensuring a receptive audience for newWestern products and consumption methods.Investment in the country's agribusiness industry is desperately needed and,accordingly, investors in this sector are likely to encounter favourable terms.New initiatives in place to assist small and medium-sized enterprises should improvecompetitiveness in the food and drink sectors and further stimulate domesticdemand.The ongoing development of mass grocery retail in the country will mean improveddistribution opportunities for food manufacturers.SMC's diversification into heavy industries could create opportunities for itscompetitors with the industry giant's focus now firmly elsewhere.ThreatsWeaker-than-expected remittance growth amid global economic uncertainty couldhave a severe impact on sales of non-essential consumer goods products.Slow development of the mass grocery retail network in rural areas to negativelyimpact both volume and value sales of foodstuffs in general.Most foreign direct investment is likely to be invested in more promising regionalmarkets, such as China, over the Philippines.Implementation of the ASEAN Economic Community will expose the Philippines toheightened competition from food processors in other ASEAN countries.Philippines Food & Drink Report 2015 Business Monitor International Page 10DrinkSWOT Analysis StrengthsThe country's soft drinks and alcohol sectors are hugely profitable since they are ableto capitalise on a young consumer base with a strong interest in Western brands andconsumption preferences.Alcohol consumption is widespread, and the industry is well established.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 ofindustry best practices.WeaknessesOnly a limited number of large companies have been able to modernise theirproduction processes, with a significant number of manufacturers still relying onmanual processes.Per capita income remains low, and unemployment levels continue to be a majorconcern, with a large segment of the population unable to afford branded food anddrink items.SMC enjoys huge dominance, since its interests incorporate almost all of theprofitable food and beverage sub-sectors. It does, therefore, represent an intimidatingcompetitor; its share of the beer market stands at 95%.Leaving aside SMC, soft drink competition is fierce with multinational firms Coca-Colaand PepsiCo dominating the sector and continuing to expand aggressively.OpportunitiesConsumption levels are increasing, assisted by rising disposable incomes amongmiddle- and upper-class consumer groups and lower interest rates, which shouldspur growth in the processed food and beverage sectors.Western influences are strong in the country, ensuring a receptive audience for newWestern products and consumption methods.A large youthful population adds dynamism to the domestic soft drinks market.Philippines Food & Drink Report 2015 Business Monitor International Page 11SWOT Analysis - ContinuedNew initiatives in place to assist small and medium enterprises should improvecompetitiveness in the food and drink sectors and further stimulate domesticdemand.The return to growth of the tourism industry provides a useful top-up to domesticsales of soft and alcoholic drinks.The local soft drinks industry is highly dynamic, creating opportunities for growth ininnovative categories; for example energy drinks.The ongoing development of mass grocery retail in the country will mean improveddistribution opportunities for beverage manufacturers.ThreatsWeaker-than-expected remittance growth amid global economic uncertainty couldhave a severe impact on sales of non-essential consumer goods products.Slow development of the mass grocery retail network in rural areas to negativelyimpact both volume and value sales of premium beverages in particular.Most foreign direct investment is likely to be invested in more promising regionalmarkets, such as China, over the Philippines.Government proposals to impose a 10% tax on soft drinks would impact negativelyon sales.Philippines Food & Drink Report 2015 Business Monitor International Page 12Mass Grocery RetailSWOT Analysis StrengthsMarket liberalisation in the retail sector has encouraged domestic and foreign retailersto expand their store networks, with the former expanding to secure their marketposition before the arrival of any of the major global players.Local operators have proved effective at combining aspects of modern retail withlocal traditions, tastes and customs, in order to encourage more consumers to makethe switch.Metro Manila has proved an effective testing ground for modern retail conceptsbefore they roll out nationwide.WeaknessesTraditional markets and sari-sari stores still account for around 79% of retail foodsales, although their market share is declining.Under-developed distribution infrastructure continues to make supplying retail outlets,particularly with fresh produce, inefficient and often costly.Even allowing for the low prices that result from multinational retail involvement,modern retail formats are often still too expensive to allow full participation.OpportunitiesModern retail formats are chiefly concentrated in Metro Manila and other large urbanareas, leaving room for significant expansion into other provinces; a number ofretailers have already announced expansion plans.The under-developed hypermarket and convenience sectors allow considerable roomfor further development, with increased sales of higher-value non-food items inparticular a strong opportunity for growth.In the long term, the discount retail sector should flourish in the Philippines,combining the dual demands of modern retail and low prices.Private labelling should prove popular in the country, provided the notion of productsas good value, rather than just cheap, can be established.Philippines Food & Drink Report 2015 Business Monitor International Page 13SWOT Analysis - ContinuedInnovative added-value in-store products and services should provide a fillip to saleswithout the need for aggressive new store openings.ThreatsOnly a handful of modern retailers boast the scale to accommodate rising operatingcosts internally; for others, higher prices could result in a loss of sales.Limited and sometimes sub-standard food and agricultural production in the countrymeans that retailers must rely on costlier imports for high-end Western goods.The possible entrance of multinational mass grocery retailers would pose a major riskto the market share of existing local players.Philippines Food & Drink Report 2015 Business Monitor International Page 14Industry ForecastConsumer OutlookIndustry Forecast ScenarioThe Philippine economy continues to perform welland we are forecasting real GDP growth to come inat 6.3% in 2014. However, tighter monetary policyin 2015 is likely to cause real GDP growth to ease to6.0%.Private consumption has largely been helped alongby solid remittance inflows, which, comprisingapproximately 10% of GDP, account for asignificant portion of household income. Whileprivate consumption growth has been retreating inrecent quarters we expect it to remain well supportedby continued robust remittance inflows during 2015.More specifically, we continue to believe that theFilipino consumer will be bolstered by a combination of record low interest rates, low leverage and risingincomes, as well as continued solid remittances from abroad.Nevertheless, a number of issues will continue to weigh on the performance of the country's food, drink andmass grocery retail market, and also on its political stability. These include widespread poverty, with percapita GDP at around USD2,526 in 2012, highly uneven income distribution and high levels ofunemployment. Additionally, the Philippines' rapid population growth means that per capita GDP increasesless rapidly than in countries with lower birth rates. Around 54% of the Philippines' population is youngerthan 25, with a high proportion of young people linked to political instability. The inability to create enoughnew jobs has led to 'brain drain', with around 10% of the population working abroad, although theremittances remain a substantial contributor to domestic demand.Despite healthy real GDP growth, the Philippine economy has been struggling to create enough jobs to tamethe country's unemployment rate. However, overall unemployment fell to 6.7% in July 2014, animprovement on the 7.3% rate recorded a year earlier. Overall, we believe that the underwhelming jobsDurable Domestic EconomyPhilippines - Real GDP By Expenditure,Contribution To Growth (pp)Source: BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 15figures are indicative of the fact that the Philippines' nascent economic boom has yet to translate intosustainable results.Playing Catch- UpPhilippines - Total Population, 15-64 & Total Employed PersonsSource: BMI, NSOFrom a longer-term perspective, the biggest draw of the Philippine consumer story is arguably itsfavourable demographic makeup. The Philippines is home to one of the largest populations in the AsiaPacific region and has a huge youthful consumer base, representing a massive opportunity for consumergoods investors in the country. Rising consumer incomes over the coming years should also translate intogreater dynamism in the mass market. In 10 years, GDP per capita in the Philippines is forecast to morethan double from around USD2,500 in 2011.Philippines Food & Drink Report 2015 Business Monitor International Page 16Backed By Youthful DemographicsSource: World Bank, BMI estimatePhilippines Food & Drink Report 2015 Business Monitor International Page 17FoodFood ConsumptionHeadline food consumption compound annualgrowth in local currency 2013 to 2018: +6.21%.Per capita food consumption compound annualgrowth in local currency to 2018: +4.46%.While we forecast strong real GDP growth to 2018,widespread inequality, along with slowingremittance growth, is expected to put a dampener onconsumer purchasing power over the coming years.We are expecting food consumption growth to trendlower in the forecast period, with year-on-year (y-o-y) growth to 2018 coming in lower than to 2012.Nevertheless, over the medium-to-longer term,sustained economic growth will increaseconsumption among middle- and upper-incomegroups, particularly in the country's growing urban centres, where the continued spread of mass groceryretailers (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 capitafood consumption remains very low relative to many South East Asian economies). However, a gradualtrading up process - and local food manufacturers' efforts to cater for this process - will supportconsumption growth in value terms.Food Consumption(2009-2018)Food consumption PHPbn (LHS)Food consumption, PHP, % y-o-y (RHS)20092010201120122013e2014f2015f2016f2017f2018f01,0002,0003,00068104e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 18Table: Food Consumption Indicators - Historical Data & Forecasts (Philippines 2011-2018)2011 2012 2013e 2014f 2015f 2016f 2017f 2018fFood consumption PHPbn 1,549.5 1,668.0 1,760.9 1,875.2 2,001.1 2,118.9 2,245.0 2,379.7Food consumption, PHP, % y-o-y 9.3 7.6 5.6 6.5 6.7 5.9 5.9 6.0Food consumption, PHP percapita16,301.5 17,248.0 17,896.8 18,734.3 19,656.2 20,471.0 21,336.2 22,253.8Food consumption, USDbn 35.8 39.5 41.7 44.1 48.5 52.7 56.6 60.4Food consumption, USD percapita376.5 408.7 423.6 440.8 476.5 509.2 537.5 564.9e/f = BMI estimate/forecast. Source: National Sources, BMIConfectioneryConfectionery value sales compound annualgrowth in local currency 2013 to 2018: +5.74%.Confectionery volume sales compound annualgrowth 2013 to 2018: +3.02%.Chocolate confectionery value sales compoundannual growth in local currency 2013 to 2018:+5.11%.Sugar confectionery value sales compound annualgrowth in local currency 2013 to 2018: +6.10%.Gum value sales compound annual growth in localcurrency 2013 to 2018: +6.51%.Chocolate is the largest form of confectionaryconsumed in the Philippines and will likely stay thisway for the long term. Multinational firms such asHershey's and Nestl 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 notsubstantially. Gum value sales are set to be the sector's outperformer; however, this is coming from a verylow base.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, growingincomes over the coming years will clearly serve as a major impetus behind confectionery demand.Confectionery(2009-2018)Confectionery sales, tonnes (LHS)Confectionery sales, tonnes, % y-o-y (RHS)20092010201120122013e2014f2015f2016f2017f2018f050,000100,000150,00022.533.5e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 19Rising purchasing power is expected to fuel purchases of higher-value confectionery products such aschocolate, although we stress that price will remain a key purchasing determinant for local consumersgiven that incomes remain relatively low.Sustained Sector Investments: Investment by industry players such as Universal Robina Corporation(URC), Petra Foods and Nestl will remain integral towards supporting sector growth. As a case in point,Swiss food major Nestl invested in a new facility in the Philippines, as it looks to cater to rising demandfor its Bear Brand milk and Coffee-mate non-dairy creamer. Nestl also plans to continue investing in itsfour 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 intonew product categories such as packaged cakes. These investments will imbue the sector with greaterdynamism to support growth.Growing Health Awareness: As confectionery producers expand their portfolio to include healthieralternatives such as low-fat choices to cater to an increasingly health-conscious consumer base, this willprovide another impetus to value sales growth given that these products typically carry higher price tags.Spread Of Mass Grocery Retail: The proliferation of organised grocery retail such as supermarkets andhypermarkets will provide more distribution channels for domestic confectionery producers to reach theend-consumer market. We are expecting the proportional contribution of organised grocery retail toincrease from a forecast 21% in 2012 to 27% in 2022.These dynamics are factored into our growth forecast of 5.74%, in compound annual average growthterms, in confectionery value sales to 2018. Notably, the sugar confectionery and gum sub-sectors will bethe growth outperformers over our forecast period, thanks to greater sector dynamism.Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018)2011 2012 2013e 2014f 2015f 2016f 2017f 2018fConfectionery sales,PHPmn19,499.50 20,621.52 21,661.14 22,825.22 24,164.69 25,534.57 27,014.86 28,628.96Confectionery sales,PHP per capita205.1 213.2 220.1 228.0 237.4 246.7 256.8 267.7Confectionery sales,USDmn450.3 488.7 512.7 537.0 585.8 635.2 680.5 726.7Confectionery sales,tonnes111,129.0 113,518.3 117,227.5 120,999.2 124,895.4 128,442.1 132,148.5 136,021.8Chocolate sales,PHPmn7,669.1 8,058.6 8,417.9 8,815.7 9,274.2 9,744.0 10,250.3 10,801.4Chocolate sales,USDmn177.12 190.96 199.24 207.42 224.81 242.39 258.22 274.16Gum sales, PHPmn 740.92 790.03 835.77 887.57 947.07 1,007.78 1,073.57 1,145.43Gum sales, PHP percapita7.8 8.2 8.5 8.9 9.3 9.7 10.2 10.7Gum sales, USDmn 17.11 18.72 19.78 20.88 22.96 25.07 27.04 29.07e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 20DairyPer capita dairy consumption levels across Asia have been rising in recent years. In the Philippines, officialfigures currently put per capita consumption at around 20kg per year, up from 16kg in 2002. Localproducers mostly meet domestic demand, although they import most of the materials such as powdered milkrequired for processing. In fact, in terms of domestic liquid milk consumption, only around 5% is metthrough local production. Processed dairy products currently account for a small proportion of the total, butfactors such as improved refrigeration, logistics and grocery distribution networks will contribute to futuregrowth of the sector's volumes.According to government figures, dairy products represent the second largest agricultural import, afterwheat. In 2010, the Philippines imported some USD600 worth of dairy products, up by 29% y-o-y. Around80% of imports are accounted for by milk in powdered form. Major importers include New Zealand, theUS, Australia and France. The country has around 13 dairy importers/processors, some 26 importers/tradersand in the region of 145 dairy producers, which are assisted by the National Dairy Industry.In recognition of the sector's longer-term potential, especially given the increased demand created throughspecialist coffee shops and the tourist establishments in general, the Philippines' Department of Agriculturehas created a Dairy Development Plant (2008-2030). The demand is also being boosted by the localgovernments, which run milk feeding programmes for local populations.Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018)2011 2012 2013e 2014f 2015f 2016f 2017f 2018fProcessed liquid milk production,tonnes16,660.6 17,751.3 18,932.1 20,025.7 21,071.1 22,005.8 22,963.4 23,983.9Processed liquid milk sales,tonnes63,790.1 65,947.1 67,873.3 69,831.5 71,854.7 73,696.5 75,621.2 77,632.5Butter sales, tonnes 11,264.5 11,285.0 11,303.2 11,321.8 11,341.0 11,358.5 11,376.8 11,395.9Cheese production, tonnes 1,020.1 1,127.4 1,289.9 1,440.3 1,584.1 1,712.7 1,844.4 1,984.9Cheese sales, tonnes 15,578.4 17,142.4 18,539.1 19,959.0 21,426.0 22,761.6 24,157.2 25,615.6e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 21DrinkHot DrinksCoffee value sales compound annual growth in local currency 2013 to 2018: +5.94%.Tea value sales compound annual growth in local currency 2013 to 2018: +5.66%.Both tea and coffee sectors are reasonably mature but have not yet been inundated with the range ofpremium and healthy brands that have fuelled growth over long periods in other markets in the region. Itwill most likely be the introduction of such products that will drive growth in these sectors to 2017.However, the industries will suffer adversely from a preference for soft drink consumption in the countryand the strength of both the soft drink and alcoholic beverage industries, which will prevent premiumisationfuelling 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 thepopulation remain the largest barrier to growth. Currently, there exist around 200 stores, and there exist nosignificant expansion plans. This is primarily the case for tea and coffee outlets across the country. Whilethere is a trade, most of the population do not earn sufficiently for such luxuries. Rather, growth in both thetea and coffee sector will come from brew-at-home sales from retailers.Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018)2011 2012 2013e 2014f 2015f 2016f 2017f 2018fCoffee sales, PHPmn 29,835.3 31,476.0 33,462.3 35,501.7 37,777.9 39,922.6 42,210.4 44,658.1Coffee sales, USDmn 689.0 745.9 792.0 835.3 915.8 993.1 1,063.3 1,133.5Tea sales, PHPmn 7,860.2 8,246.9 8,721.2 9,292.4 9,837.1 10,348.8 10,896.2 11,482.9Tea sales, PHP per capita 82.7 85.3 88.6 92.8 96.6 100.0 103.6 107.4e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 22Soft DrinksSoft drinks value sales compound annual growthin local currency 2013 to 2018: +7.89%.The Philippine soft drinks industry is, and willremain, one of the country's most dynamic food andbeverage sub-sectors. Levels of investment in theindustry remain huge, as does multinational interest,both of which have been demonstrated by the eventssurrounding PepsiCo and The Coca-Cola Companyin the Philippines over the recent years. Bothcompanies will be looking to consolidate theirnumber one and two positions, ahead of domesticrivals such as Cosmos and Zest-O.Beyond simple expansion, innovative new productdevelopment will be a key sales growth driver. Theleading players are already looking beyond carbonates into higher-value, more innovative productcategories to cater to the country's youthful and increasingly affluent consumers, and these launches arebeing backed up by substantial promotional and marketing investments.We do not publish volume sales data for the Philippine soft drinks market and yet, owing to this innovationand steady premiumisation trend that is in evidence, we would expect our value sales growth forecast tocomfortably surpass any volume sales growth outlook.Table: Soft Drinks Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018)2011 2012 2013e 2014f 2015f 2016f 2017f 2018fSoft drink sales,PHPmn55,484.46 60,830.44 65,589.68 70,767.02 76,922.09 82,521.41 89,330.92 95,895.29Soft drink sales, PHPper capita583.7 629.0 666.6 707.0 755.6 797.2 849.0 896.8Soft drink sales,USDmn1,281.4 1,441.5 1,552.4 1,665.1 1,864.7 2,052.8 2,250.4 2,434.0e/f = BMI estimate/forecast. Source: National Sources, BMISoft Drinks(2011-2018)Soft drink sales, PHPmn (LHS)Soft drink sales, PHP, % y-o-y (RHS)201120122013e2014f2015f2016f2017f2018f050,000100,000150,0007891011e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 23Alcoholic DrinksAlcoholic drinks value sales compound annualgrowth in local currency 2013 to 2018: +7.03%.Alcoholic drinks volume sales compound annualgrowth 2013 to 2018: +2.98%.Beer volume sales compound annual growth 2013to 2018: +2.61%.Wine volume sales compound annual growth2013 to 2018: +8.74%.Spirits volume sales compound annual growth2013 to 2018: +3.49%.As is the case with the country's soft drinks industry,the Philippine alcoholic drinks industry is dynamic,attractive and high-growth. Alcohol consumption iswidespread, and the industry is well established. Inline with domestic income growth, consumers arelikely to gradually trade up to more expensivebrands and variants, creating a significant opportunity for investors and explaining our expectations forvalue sales to outperform volume sales.Beer will continue to dominate alcohol sales in the country by some distance, continuing to account formore than 66% of total volume sales by 2018 in spite of the explosive growth expected for the wine market.Wine will remain the reserve of higher-income consumers only; and yet owing to a very low base, growth isexpected to be strong, thanks to the country's sustained economic development. Hikes in taxes on alcoholicdrinks are expected to have a marginal impact on volumes.Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018)2011 2012 2013e 2014f 2015f 2016f 2017f 2018fAlcoholic drinks sales, mn litres 2,225.8 2,272.7 2,349.8 2,426.4 2,504.6 2,574.7 2,646.9 2,721.4Alcoholic drinks sales, litres percapita23.4 23.5 23.9 24.2 24.6 24.9 25.2 25.4Alcoholic drink sales, PHPmn 26,141.1 27,492.6 29,469.2 31,817.3 34,137.0 36,381.8 38,795.9 41,398.9Alcoholic drinks sales, USDmn 603.7 651.5 697.5 748.6 827.5 905.0 977.3 1,050.8Beer sales, mn litres 1,507.9 1,538.1 1,584.8 1,630.5 1,676.8 1,717.9 1,759.7 1,802.5Alcoholic Drinks(2011-2018)Alcoholic drink sales, PHPmn (LHS)Alcoholic drink sales, PHP, % y-o-y (RHS)201120122013e2014f2015f2016f2017f2018f020,00040,00060,00056789e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 24Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Philippines 2011-2018) - Continued2011 2012 2013e 2014f 2015f 2016f 2017f 2018fBeer sales, litres per capita 15.9 15.9 16.1 16.3 16.5 16.6 16.7 16.9Wine sales, mn litres 26.0 28.4 31.6 34.9 38.4 41.5 44.7 48.1Wine sales, litres per capita 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4Spirits sales, litres per capita 7.3 7.3 7.5 7.6 7.8 7.9 8.0 8.1e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 25Mass Grocery RetailMass grocery retail (MGR) value sales compoundannual growth in local currency 2013 to 2018:+7.03%.Supermarket sector value sales compound annualgrowth in local currency 2013 to 2018: +6.68%.Hypermarket sector value sales compound annualgrowth in local currency 2013 to 2018: +9.75%.Convenience sector value sales compound annualgrowth in local currency 2013 to 2018: +7.98%.Although the Philippine organised grocery retailsector is relatively under-developed compared toregional peers such as Thailand and Malaysia, thesector does not boast the same exciting growthappeal as that of the other under-developed retailmarkets in the region owing to the lack of foreigncapital in the sector. Nonetheless, sector growth willremain reasonably strong over our forecast period. Inparticular, we expect the outperformance of thehypermarket sector to 2018, although the supermarket format will continue to dominate, accounting for over81% of total MGR sales in 2018.Remittance is typically viewed as a key pillar supporting domestic demand conditions in the Philippines asaround 8mn Filipinos rely heavily on them as a source of income. Given our expectations of slowerremittance growth on the back of continued headwinds in the US and the EU, we believe domestic demandconditions are unlikely to hold up strongly in the near term. With consumers watching their purse stringsmore closely in the near future, we are expecting retail sales year-on-year (y-o-y) growth of less than 8% in2015.While the longer-term outlook for the Philippine organised grocery retail sector is more positive than itsnear-term outlook, we stress that the growth prospects of the Philippine organised grocery retail sectornonetheless pale in comparison with the developing regional retail markets in spite of the sector's under-developed nature. Organised retail makes up only 20% 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 lowdisposable incomes and the fact that large sections of the Philippine population remain beyond the reach ofMass Grocery Retail Sales(2011-2018)Total mass grocery retail sales, PHPbn (LHS)Total mass grocery retail sales, PHP, % y-o-y (RHS)201120122013e2014f2015f2016f2017f2018f02505007501,000681012e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 26organised retailers in price terms. Furthermore, although the Philippine economy is expanding at a sizeablerate, such growth is not adequate to reduce the jobless 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 theemerging markets, which can be largely attributed to the fact that there is no major multinationalinvolvement in the sector. As has been witnessed elsewhere in the region, the arrival of a cash-richexpansionary multinational typically gives a massive boost to growth both due to that firm's entry andexpansion plans and due to the preparatory expansion efforts of existing retailers as they seek to protecttheir market share ahead of increased competition. Walmart has long been linked with entry to the countryand yet this rumour has circulated for some time without ever bearing fruit.Nonetheless, we are expecting reasonably strong growth in the Philippine retail sector to 2018. We areforecasting total MGR sales to grow at a compound annual average rate of 7.03% to 2018. This outlook isunderpinned by sustained income growth and ongoing expansionary efforts of the country's retail players.Market leader SM Investments will continue with its plans to set up 20 new retail outlets annually between2012 and 2015, and domestic convenience retailer Philippine Seven will maintain its historic paceexpansion . These investments will imbue the sector with greater dynamism, in turn bolstering sales growth.Meanwhile, as the increasingly affluent consumers become increasingly familiar with the concept ofmodern retail in the coming years, they will look to trade up to new varieties which cater better for theirnew lifestyle needs - namely the need for convenience.Over our forecast period, the hypermarket retail sector is expected to witness the most robust growth, thanksto continued expansions of SM Investments. With few stores yet established in the country and with eachoutlet boasting enormous spending power, it will only need the opening of a few more stores to provide amassive boost to sales.Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Philippines 2011-2018)2011 2012 2013e 2014f 2015f 2016f 2017f 2018fTotal mass grocery retail sales, PHPbn 533.5 579.7 620.2 666.1 718.2 767.0 817.6 871.0Total mass grocery retail sales, PHP percapita5,612.3 5,994.1 6,303.5 6,654.3 7,055.1 7,409.6 7,770.8 8,145.0Total mass grocery retail sales, USDbn 12.3 13.7 14.7 15.7 17.4 19.1 20.6 22.1Supermarket sales, PHPbn 440.3 479.3 510.7 546.2 586.7 624.6 664.0 705.5Supermarket sales, USDbn 10.2 11.4 12.1 12.9 14.2 15.5 16.7 17.9Hypermarket sales, PHPbn 31.0 33.9 37.5 41.8 46.4 50.7 55.1 59.7Hypermarket sales, USDbn 0.7 0.8 0.9 1.0 1.1 1.3 1.4 1.5Philippines Food & Drink Report 2015 Business Monitor International Page 27Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Philippines 2011-2018) - Continued2011 2012 2013e 2014f 2015f 2016f 2017f 2018fConvenience store sales, PHPbn 62.1 66.4 72.0 78.1 85.1 91.7 98.5 105.7Convenience store sales, USDbn 1.4 1.6 1.7 1.8 2.1 2.3 2.5 2.7e/f = BMI estimate/forecast. Source: National Sources, BMITable: Sales Breakdown By Retail Format Type2012 2022fOrganised/MGR 21 27Non-organised/Independent 79 73e/f = BMI estimate/forecast. Source: BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 28TradeExport value compound annual growth in USdollar terms 2013 to 2018 = +6.10%Import value compound annual growth in USdollar terms 2013 to 2018 = +8.26%Food & drink balance of trade deficit compoundannual growth in US dollar terms 2013 to 2018 =+13.80%In 2015, we expect a return to strong demand fromfood and drink imports, following better results tothe plus side between 2011 and 2013. With the foodand drink balance of trade deficit growing by a littleless than we originally forecast for 2014 (at10.87%), we forecast that the deficit will grow by15.80% in 2015.The Philippines remains a net food importer despitethe fact it is increasing food production capacity. Ina government report, the Bureau of AgriculturalStatistics revealed that, despite reducing the country's import dependency for some products in 2011, thePhilippines continues to import major ingredients such as coffee, garlic and peanuts, as well as livestockand poultry.A report by the Foreign Agricultural Service of the United States Department of Agriculture indicates thatthe Philippines was the largest South East Asian market for food and beverages from the US in 2011. Salesof US food and drink shot up 27% year-on-year in the country to USD761mn in 2011.Owing to inherent problems in the Philippine agricultural sector that prevent food self-sufficiency, foodprocessors in the country rely on imports for raw ingredients. This import dependency pushes up the priceof processed food, thus putting it out of the reach of many. Agricultural reforms should gradually improveself-sufficiency; however, over the medium-term a growing food processing industry will negate thepotential export benefits of agricultural reform by pushing up demand for food imports.Our forecasts suggest that the Philippine food and drink trade deficit will get progressively worse to 2018.Trade(2009-2018)Exports of food and drink, USDmn (LHS)Imports of food and drink, USDmn (LHS)Food and drink trade balance USDmn (RHS)20092010201120122013e2014f2015f2016f2017f2018f02,5005,0007,500-2,000-1,500-1,000-2,500-500e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 29Table: Trade Balance - Historical Data & Forecasts (Philippines 2011-2018)2011 2012 2013e 2014f 2015f 2016f 2017f 2018fExports of food and drink, USDmn 2,915 3,033 3,014 3,143 3,350 3,570 3,803 4,051Imports of food and drink, USDmn 4,121 4,055 4,038 4,278 4,665 5,079 5,530 6,006Food and drink trade balance USDmn -1,206.6 -1,021.3 -1,024.1 -1,135.4 -1,314.7 -1,508.3 -1,726.6 -1,954.5e/f = BMI estimate/forecast. Source: National Sources, BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 30Macroeconomic ForecastsEconomic AnalysisBMI View: We believe that the Philippines will sustain relatively robust growth momentum over the comingquarters, as we expect stronger investment performance going forward, while private consumption and netexport growth should remain robust. We maintain our forecast for real GDP to grow 6.3% in 2014 and6.0% in 2015.Chiming with our positive growth outlook, the Philippine economy staged a strong rebound in Q214, withreal GDP growth accelerating to 6.4% year-on-year (y-o-y) from the revised 5.6% y-o-y print in theprevious quarter. The Q214 headline expansion exceeded Bloomberg consensus estimate of 6.1% andbrought real GDP growth to 6.0% in H114. The major thrust behind the real GDP bounce came mainly froma combination of solid growth in private consumption and net exports, which grew by 5.3% y-o-y (whichcontributed 3.6 percentage points [pp] to the 6.4% headline number) and a massive 176.1% y-o-y (whichcontributed 4.2pp to the headline figure) respectively.Sustained Growth On The CardsPhilippines - Real GDP, % chg y-o-y & Subcomponents, pp contributionSource: BMI, NSCBPhilippines Food & Drink Report 2015 Business Monitor International Page 31Meanwhile, on the production side, the manufacturing sector was a major growth contributor, racking upgrowth of 10.8% y-o-y in Q214 from 6.9% in the previous quarter, led by a strong outturn in the foodmanufacturing sub-sector. While services sector growth slowed to 6.0% in Q214 from 6.8% in Q114, itnevertheless remains supportive of the economy. The smaller agriculture, hunting, forestry and fishingcategory meanwhile accelerated from 0.9% y-o-y in Q114 to 3.6% y-o-y in Q214, a sign that thedevastating impact of Typhoon Yolanda on the sector appears to be waning.Fervent Foreign InterestPhilippines - FDI Inflows, USDmn (LHS) & % chg y-o-y (RHS)Source: BMI, BSP* As of end-May 2014Expecting Stronger Investment PerformanceThese headline numbers, however, have glossed over the fact that investment has continued to slow. Indeed,gross capital formation (GCF) growth contracted by 2.4% y-o-y in Q214 from 9.5% in Q114, shaving 0.4ppfrom the 6.4% headline figure. This marks the first contraction since Q212, when GCF growth printed-7.7% y-o-y.Philippines Food & Drink Report 2015 Business Monitor International Page 32That said, we remain optimistic that investment growth will pick up amid still-strong growth in privateconsumption and exports. We believe that the fall in GCF growth could be due to a drawdown in inventorystocks, which we believe would be a positive for the economy when firms start to expand their production.In addition, the improvement in the country's macroeconomic fundamentals over recent years, owing tofervent efforts by the Aquino administration to implement a slew of economic reforms, has led to strongforeign interest in the archipelago. As shown in the accompanying chart, foreign direct investment (FDI)inflows to the country have been increasing rapidly over recent years. This strong uptrend has also remainedintact in the first five months of 2014, with cumulative FDI inflows rising markedly by 33.9% y-o-y toUSD2.9bn as compared to the same period in 2013. We also expect the manufacturing sector to providefurther impetus for growth. The volume of production index (VoPI) and value of production index (VaPI)for the manufacturing sector have both exhibited an uptrend, a sign of sustainable economic expansion overthe coming quarters. Meanwhile, the high capacity utilization rate of more than 80% in the sector could alsoincentivise firms to start expanding their production capacity.Stronger Manufacturing Sector Growth AheadPhilippines - VoPI (LHS) & VaPI, % chg y-o-y & 12mmaSource: BMI, BloombergExport Rebound To Gain MomentumFurther informing our constructive outlook for the economy is our projection for export growth to gainfurther traction going into 2015. The gradual recovery in developed markets, the likely successfulPhilippines Food & Drink Report 2015 Business Monitor International Page 33application of the European Union (EU) Generalised System of Preference-Plus (GSP+) status and anongoing diversification of its export base away from an overreliance on electronics shipments shouldprovide strength for the export sector (see 'Export Recovery To Gain Momentum In 2015", July 22). We areforecasting for real export growth to come in at 5.1% in 2014, ahead of an acceleration to 5.4% in 2015.Strong Remittances Supportive of Private ConsumptionIn addition, private consumption growth will also be well supported by continued robust remittance inflows.Indeed, remittances increased by 5.8% y-o-y to USD11.4bn in H114. The strong growth seen in the autossector, with July sales growing by 32.1% y-o-y, further supports our view that private consumption growthwill remain strong (see 'Surging Demand Belies Policy Woes", August 21).Risks To OutlookA salient risk to our positive growth outlook for the economy comes from the potential for an escalation ofthe country's maritime dispute with China. This raises the prospects of trade sanctions being imposed byBeijing on the Philippines, posing downside risk to our real GDP growth forecast of 6.3% in 2014 and 6.0%in 2015.Table: Economic Activity (Philippines 2009-2018)2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018fNominal GDP, USDbn 168.8 199.7 224.2 250.4 267.3 287.5 323.4 362.5 400.6 440.9Real GDP growth, % y-o-y 1.1 7.6 3.6 6.8 7.2 6.3 6.0 5.0 4.9 5.0GDP per capita, USD 1,837 2,137 2,358 2,588 2,716 2,872 3,176 3,501 3,806 4,122Population, mn 91.9 93.4 95.1 96.7 98.4 100.1 101.8 103.5 105.2 106.9Unemployment, % of labour force, eop 7.1 7.1 6.4 6.8 6.5 6.5 6.3 6.3 6.2 6.2f = BMI forecast. Source: National Sources/BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 34Industry Risk Reward IndexAsia Pacific - Risk/Reward IndexBMI's Food & Drink Risk/Reward Index assess a market's attractiveness to industry investors incomparison with its peers. The reward part of the rating takes into account market size, current consumptionlevels, future industry growth prospects (based on our five-year industry forecasts), market fragmentation(with greater fragmentation indicating higher opportunities) and the size of the youth population.Meanwhile, the risk part of the rating takes into account the legislative environment, the level ofdevelopment of the organised retail sector (with higher development leading to lower risks), as well asrelevant aspects of the economic and political environment.Japan remains in first place in our Q115 Food & Drink Risk/Reward index for Asia, closely followed byChina. The two countries lead our ranking with very different risk profiles. Japan maintains its moreadvantageous risk score thanks to higher food consumption per capita, better distributed wealth, moreefficient administration and better infrastructure. Although its reward score has been downgraded over thepast quarters due to slowing economic growth and tightening credit conditions, China is still the onlygrowth-positioned market in the top six. In fact, the country has a much better risk profile than many of theemerging markets (EMs) covered in the region, while its reward score is similar to the ones of Pakistan andIndonesia. Positions three to six are filled by comparatively mature and, by extension, well-developed foodand drink markets: Australia, Singapore, South Korea and Hong Kong.Even though our index are designed to be biased towards growth, with the reward component accountingfor 60% of the overall score, countries like Indonesia, Vietnam and India (ranked 7th-9th) are not yet in aposition to break the mature market (top six) axis, except China. Weak risk scores and the discrepancy inscores between the higher ranked markets and the chasing markets ultimately outweighs the impact of thehigher reward scores. Pushing up risk scores would require improvements in areas like mass grocery retailpenetration and regulatory environment. Thanks to high per capita GDP and food consumption, Australiaand Japan continue to have relatively strong reward profiles compared with the other mature markets, whichmeans it will be difficult for other countries to catch them. However, countries such as Singapore, HongKong and South Korea are more at risk from the likes of India, Vietnam and Indonesia in the future.With the exception of Pakistan, growth opportunities are limited for countries at the bottom of our ranking,which will make it difficult for them to improve their overall Risk/Reward scores. Thailand scores poorlyon the industry reward component, due to low GDP per capita and an ageing population. The Philippinesand Malaysia are handicapped by lower consolidation prospects compared to their peers with similarPhilippines Food & Drink Report 2015 Business Monitor International Page 35income and food consumption levels. In addition, Malaysia's opportunities are constrained by low foodconsumption compared to the country's income level. Due to low mass grocery retail (MGR) penetration,the risk score does not offset limited room for expansion.Negative Linear Correlation ApparentAsia Pacific Risk/Reward Index Q115Source: BMITable: Asia Pacific Food & Drink Risk/Reward Index Q115 RewardIndustryRewardCountryReward RiskIndustryRiskCountryRiskFood &DrinkRating RankingJapan 46.3 32.0 60.7 77.3 80.0 74.5 58.7 1China 58.3 62.0 54.7 57.8 55.0 60.7 58.1 2Australia 44.2 36.0 52.3 75.7 75.0 76.3 56.8 3Singapore 35.7 30.0 41.3 84.0 80.0 88.0 55.0 4SouthKorea 39.3 38.0 40.7 76.0 80.0 71.9 54.0 5Hong Kong 38.8 40.0 37.7 75.2 75.0 75.4 53.4 6Indonesia 60.2 60.0 60.3 39.5 25.0 53.9 51.9 7Philippines Food & Drink Report 2015 Business Monitor International Page 36Asia Pacific Food & Drink Risk/Reward Index Q115- ContinuedRewardIndustryRewardCountryReward RiskIndustryRiskCountryRiskFood &DrinkRating RankingVietnam 55.0 68.0 42.0 45.6 30.0 61.2 51.2 8India 59.0 54.0 64.0 38.3 20.0 56.7 50.7 9Thailand 47.7 58.0 37.3 53.1 40.0 66.2 49.8 10Taiwan 40.3 40.0 40.7 63.5 50.0 76.9 49.6 11Pakistan 62.2 64.0 60.3 29.8 10.0 49.6 49.2 12Philippines 49.2 38.0 60.3 45.3 30.0 60.6 47.6 13Malaysia 43.2 40.0 46.3 53.9 40.0 67.8 47.5 14Scores out of 100, with 100 highest. The Food & Drink Risk/Reward Rating is the principal rating. It comprises two sub-index, 'reward' and 'risk', which have a 60% and 40% weighting respectively. In turn, the 'reward' rating comprises'industry reward' and 'country reward', which have equal weighting and are based upon growth/size of food/alcohol andsoft drinks industry (market) and the broader economic/socio-demographic environment (country). The 'risk' ratingcomprises 'industry risk' and 'country risk', which both have 20% weightings and are based on a subjective evaluation ofindustry regulatory and competitive issues (market) and the industry's broader country risk exposure (country), which isbased on BMI's proprietary Country Risk Index. Source: BMIThe six factors that make up the reward score in our index are: food consumption per capita, marketfragmentation, per capita food consumption (five-year compound annual growth), population size, GDP percapita, and youth population.The first indicator, food consumption per capita, reflects the existing spending power of the Japaneseconsumer (the country scores 10 out of 10 on this metric), with South Korea, Australia, Singapore, HongKong and Taiwan also achieving high scores. Although these countries show high levels of spending, theperformance of other countries is markedly different, pointing to a clear division between regional peers.China, for example, scores only 5, indicating scope for income growth. India has the lowest score of 1 whilePakistan and Vietnam have a score of 2, highlighting even more potential for acceleration despite thecurrent low reward marking.Our second indicator, market fragmentation, assesses how relatively developed (less fragmented) orunderdeveloped (more fragmented) a market is. Whereas the first indicator confers strong scores for highexisting spending, the second indicator rewards countries where the long-term scope for growth is thegreatest. These are typically markets where there is significant room for growth, innovation anddevelopment. Unsurprisingly, Japan, with a highly developed, saturated mass grocery retail (MGR) sector,is comfortably outscored by India, China and almost all the EMs rated.Philippines Food & Drink Report 2015 Business Monitor International Page 37The third indicator within the reward breakdown of our index system is per capita food consumptiongrowth (five-year compound annual growth). Paired with market fragmentation, this is the joint highestweighted indicator within our reward score framework. Since our index are designed to be forward-looking,this indicator is one of the main ways we gauge growth and, in combination with some of the other high-weight indicators we look at, informs our preferences for certain markets. Despite lower scores than inprevious quarters, countries such as China, India and Vietnam outscore Japan and Australia, demonstratingthe future promise of these Asian markets in challenging Japan's lead. One notable high scorer is SouthKorea, which is forecast to increase per capita food consumption at a similar rate to many emergingmarkets. Such growth could see the country move higher up the rankings in the near future.Population size is the fourth indicator, and China and India unsurprisingly score well, as does Japan, withits population of nearly 130mn. Paired with our fifth indicator, GDP per capita, large populations andstrong spending power have reinforced Japan's continued dominance in our index this quarter. ThoughSingapore possesses one of the highest per capita income expenditures and a very good risk score, thelimited size of the market means that the country loses ground on this metric.The final reward indicator, youth population, was introduced as a way to factor in a more comprehensivedemographic angle to our index. Here, Pakistan, Vietnam and the Philippines stand out, with high scoresrewarding the growth potential associated with young populations and poor scores for Japan and Australiapointing to the restraints that can be presented by ageing populations. Thailand is also handicapped by itsageing population.The seven factors that make up the risk score are: mass grocery retail (MGR) penetration, regulatoryenvironment, short-term economic risk rating, income distribution, lack of bureaucracy, market orientation,and physical infrastructure.Our first risk indicator is MGR penetration, which assesses how relatively developed the overall consumersector is. Very low MGR scores reflect the ongoing predominance of informal retail, comprised of kiosksand markets with weak centralised distribution mechanisms. Many of the more mature and developedmarkets score well here, including Australia, Singapore and Japan. India, which has very recently initiatedefforts to open up its food retailing sector to multinationals, scores very poorly (1/10). Conversely, China ismuch further along in the development of organised retailing channels when compared with other lowscorers such as Vietnam and Malaysia.Philippines Food & Drink Report 2015 Business Monitor International Page 38The second factor, regulatory environment, evaluates the complexity of regulations such as labelling andnutrition requirements. It can also be used to gauge the state of the overall business environment. The moredeveloped and mature markets usually score better here, and that is once again the case in Q115, withPakistan, India and Vietnam scoring poorly, highlighting persisting food regulatory hurdles, particularly fornon-domestic producers. Notably, however, China and the Philippines score fairly impressively in thismetric, hinting that future growth will be encouraged by both of these countries' strong regulatoryenvironments.The third factor, short-term economic risk rating, assesses the degree to which the country approximatesthe ideal of non-inflationary growth with falling unemployment, contained fiscal and external deficits andmanageable debt ratios. It is principally the candidates towards the top of our index that do well on thiscriterion, underlining the link between economic stability and the overall attractiveness of the consumermarket. Pakistan's position as the lowest scorer across the region points to continued investor concern, withits score failing to increase over recent quarters. Again, South Korea posts a very favourable rating here.The fourth factor, income distribution, is measured by the proportion of private consumption accounted forby the middle 60% of earners. Unsurprisingly, countries such as Japan, Singapore and South Korea lead thepack, though developing markets also score relatively well in this regard.Lack of bureaucracy, our fifth indicator, is a measure of the hurdles that any producer is likely to face inareas such as starting and closing businesses, paying taxes, dealing with licences and registering property.Here India continues to score poorly, with its draconian bureaucracy highlighted in the press regardingmultinational grocery retailers. This is paired with our sixth factor, market orientation, which measureshow business-orientated an economy is and measures the level of foreign direct investment protectionism,tax rates and the level of government intervention. Another low score for India points to the continueddifficulties facing investors looking to enter this market in particular.Our final risk factor, physical infrastructure, measures the ease and cost of operating in a market from aninfrastructure perspective. Some of our favourite regional economies have a lot of work to do here, with thereward profiles of high-growth markets such as China and Indonesia facing poor scores. Paired with factorssuch as market orientation, regulatory environment and MGR penetration, countries will have to performwell here if they are to challenge the continuing index dominance of Japan.Philippines Food & Drink Report 2015 Business Monitor International Page 39Table: Asia Pacific Food & Drink Risk/Reward Sub-Factor Index Q115 - Selected Countries (scores out of 10) Reward China Japan India PhilippinesFood consumption per capita 5.0 10.0 1.0 3.0Market fragmentation 8.0 1.0 9.0 5.0Per capita food consumption,five-year compound annualgrowth5.0 2.0 4.0 3.0Population size 10.0 8.0 10.0 7.0GDP per capita, US$ 4.0 9.0 2.0 2.0Youth population, % 2.0 2.0 6.0 8.0RiskMGR penetration 5.0 9.0 1.0 1.0Regulatory environment 6.0 7.0 3.0 5.0Short-term economic riskrating9.0 7.0 6.2 7.4Income distribution 7.0 9.0 7.0 7.0Lack of bureaucracy 5.0 8.0 4.2 3.9Market orientation 4.0 5.6 4.3 6.0Physical infrastructure 5.5 8.0 6.6 6.1Source: BMIPhilippines Food & Drink Report 2015 Business Monitor International Page 40Philippines Risk/Reward IndexThe Philippines remains viewed as one of the least promising food and drink markets in the Asia Pacificregion. In fact, neither its risks nor rewards indicators are particularly impressive. We do not envisage thePhilippines moving up the rankings in the coming year.The Philippine market is characterised by low food and drink spending levels, which generally imply lowerscope for premiumisation growth, at least in the near-to-medium term. Interestingly, while low consumptionlevels in developing markets typically translate into massive room for future growth given thatconsumerism is not as yet entrenched as elsewhere in the developed world, this is not the case in thePhilippines. Due to sector crowding and the presence of industry majors such as the San MiguelCorporation which already dominate a sizeable market share, foreign industry players have found itdifficult to make significant headway in the market. This inability to pull in foreign capital has clearlyweighed on the growth prospects of the Philippine consumer-facing sectors.Nonetheless, the Philippine market does have a strong point, which is its enticing demographic profile. ThePhilippines has one of the largest populations in the region and has a favourable demographic makeup aswell. The country's youth population makes up 57% of its overall population, and this should translate intoconsiderable dynamism in the mass market.The overall food and drink score is further dragged down by its weak risks score. Lacking the pull offoreign capital in its mass grocery retail sector, the organised grocery retail sector remains fairlyunderdeveloped in the Philippines as compared with other markets such as Singapore and Japan. Theabsence of a developed organised grocery retail system to facilitate the distribution of consumer goods tothe end-consumer market will remain a deterrent to foreign investors. Other factors such as under-developedphysical infrastructure and excessive bureaucratic regulations continue to blight the Philippines' investmentappeal.Philippines Food & Drink Report 2015 Business Monitor International Page 41Market OverviewFoodFood ProcessingAgricultural 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. Onlylarger companies have been able to modernise and upgrade their facilities, and a significant number ofmanufacturers, 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 increasinglyinfluenced by Western branding and consumption habits. Busy lifestyles, particularly in urban areas whereWestern influences are at their strongest, have fuelled an interest in packaged and convenience foodsspurring on growth in this sector. This trend has no doubt also been helped by the presence of regionalindustry behemoth San Miguel Corporation (SMC). Its marketing and distribution efforts havesubstantially increased exposure to branded foodstuffs in the country, causing the sector to develop at afaster pace than that witnessed in other comparable economies.Again perhaps aided by SMC and its influence on industry best practices in the region, local foodmanufacturers have focused on developing products that address the issue of inherent consumer pricesensitivity but which meet 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 are using inexpensive packaging materials, of which thecorresponding savings is being passed on to consumers.SMC operates a number of businesses across a diverse range of products, of which many dominate theirrespected markets. Monterey Foods Corporation, Philippines' largest pork and beef producer, is a fullyintegrated in its meat operations, indicating the type of scale SMC holds. SMC is also in a joint venture withThe 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 andmarkets 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 CoffeemixCompany.Around the Philippines, distribution and logistics networks are also improving. For example, in October2012, Philippine food distributor Island Merchants Corporation (IMC) opened a new logistics centre. ThePhilippines Food & Drink Report 2015 Business Monitor International Page 42facility is located on the National Road in Bacolod City. IMC CEO and President Manuel Parroco said thatthe new logistics centre would increase the company's ability to store and distribute products on behalf of itsclients, including Swiss consumer goods company Nestl.AgricultureDespite the Philippines' potential as a major agricultural producer, the country suffers from various majorstructural problems, such as a limited and unstable supply of domestic inputs, resulting in prices that can behigher than world market prices. Despite sustained growth in the country's major agricultural sub-sectors inrecent years - the product of continued government efforts - the industry remains blighted by inefficiency ornon-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 ameans of improving the country's trade balance - the country remains a major importer of manycommodities including high-value dairy products - and as a means of improving the financial situation ofthe rural poor. It is estimated that around 10mn people - just under half of the labour force - are employed inthe agricultural sector, and that the industry almost exclusively employs poorer rural workers. By enrichingthese communities, the government can stimulate the contribution this section of society can make to theeconomy in general, through increased consumption, and not just through production.However, government efforts are frequently criticised for failing to address real problems and for insteadfocusing on popular, but low financial return, crops such as rice. The country's high-value fisheries industryis largely overlooked, despite the contribution it could make to the economy, while certain agriculturalcrops that use around 90% of land available for harvesting return just 20% to the value of the industry. Thisinefficiency, coupled with problems concerning the convoluted process of deferring agriculturalresponsibilities to local government departments, has severely hampered the industry's potential and kept itscontribution to GDP below 20%.Organic FarmingStructural problems at the primary agricultural level have inhibited the potential of added-value sectors suchas organic food. However, with more than 500 certified farms already in existence, the sector could be animportant contributor to the country's agricultural economy in the future. While harnessing opportunitiessuch as these remains secondary to more pressing problems such as improving rural living standards andagricultural aid allocation, pursuing high-value prospects is just the sort of thing that the government willeventually need to do to transform an under-performing industry into a dynamic one.Philippines Food & Drink Report 2015 Business Monitor International Page 43DrinkHot DrinksHot drinks volumes remain driven by more affluent consumers, who use organised retail. However, higherraw materials and production prices in the past years have had an impact on the shape of the market, withconsumers now making more careful purchasing choices. US retailer Starbucks has operated in the regionfor some time now, yet only has around 160 stores open. Nevertheless, innovation (especially in regards to'healthier' alternatives), the development of specialty coffee and tea shops and marketing campaignsorganised by leading players - including Nestl Philippines - in the sector will continue to drive the marketforward.Nestl Philippines is a subsidiary of the Swiss food and beverage conglomerate. The company is especiallyprominent in coffee and other hot drinks segments in the Philippines. In the tea segment, anothermultinational, Unilever, is one of the key players, accounting for around a quarter of the retail market. Itsleading brand is the affordable Lipton, which covers a variety of teas, from green to herbal.Soft DrinksFilipinos are among the largest consumers of soft drinks in Asia. Carbonated soft drinks continue to be themost 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, isexperiencing strong growth rates, while powdered juice drinks remain popular. Bottled water producersinclude The Coca-Cola Company, Asia Brewery, Nestl and Filipinas Water Bottling Company.The market leader in the Philippine soft drinks sector is Coca-Cola Bottlers Philippines Inc (CCBPI),which used to be a 65:35 joint venture between San Miguel Corporation (SMC) and Coca-Cola but is nowwholly owned by Coca-Cola after the two firms fell out over their distribution and marketing strategies.CCBPI operates 23 production facilities throughout the country, producing carbonated soft drinks, sportsdrinks, juice and bottled water, together with 42 sales offices. The local Pepsi bottler is Pepsi ColaProducts Philippines, a stake in which was recently acquired by South Korea's Lotte Chilsung.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 specifictastes and lower budgets are also owned by the multinational players. Coca- Cola owns brands such as JazCola and Lift, and Sarsi through its subsidiary Cosmos Bottling Corp.Philippines Food & Drink Report 2015 Business Monitor International Page 44The soft drinks sub-sector in the Philippines is concerned that a proposed government bill to impose a 10%tax on soft drinks had gained further support during 2014. Cited as a pro-health measure, the BeverageIndustry Association of the Philippines has warned that not only would the measure fail to solve the nation'sobesity concerns but would have economic implications for the industry, which employs around 25,000people. The measures would also impact negatively on the country's sugar industry, as 60% to 70% oflocally produced sugar is used by the Philippine beverage industry.Alcoholic DrinksAs the Philippines' largest food and beverage company, and one of the largest firms in the Asia Pacificregion, SMC exerts significant industry influence, affecting local market forces such as price levels andshelf allocation. It is backed by considerable financial resources and an extensive distribution network, notto 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, onceagain, SMC, which operates Tanduay Distillers and the Ginebra San Miguel units respectively. A similarsituation exists in the beer market and the country's top brewers are 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 KirinBrewery holds a 48% stake in the recently spun-off brewing subsidiary San Miguel Brewery.Faced with the threat of consumption saturation in the country's beer and spirits markets, the two leadingbreweries - San Miguel Brewery and Asia Brewery - have committed significant resources to marketingbeer and spirits to females. Efforts have included re-branding and promotional campaigns, and San Miguelcan claim success, with sales of its San Miguel Light brand, which is aimed at female consumers, exceedingall expectations.In terms of the distribution of alcoholic drinks, around 75% goes through the off-trade, meaning it is soldthrough retail outlets as opposed to in bars and restaurants. In spite of price sensitivity in the Philippineeconomy, the country's alcoholic drinks market appears remarkably buoyant. The beer sector accounts foraround two thirds of volume sales, with cheaper standard and economy lagers accounting for 94% of thesebeer sales.Wine is a relatively small sub-sector of the alcoholic drinks market, although sales are accelerating rapidlyfrom their low starting point, with light red wine by far the best seller. In comparison with the country'sPhilippines Food & Drink Report 2015 Business Monitor International Page 45wine and beer segments, the spirits sector is fairly stagnant, with local favourites gin and rum continuing todominate the market.Nevertheless, Ginebra San Miguel has attempted to target the country's young market by introducing newflavours of gin. The company has released a new 50% proof sugarcane spirit called Cebu GSM Blue Light,which is believed to be the lightest gin in the market. In April 2012, GSMI also released 35% proofsugarcane alcohol flavours: mojito, apple, brown coffee and lychee.Mass Grocery RetailIn recent years, the development of the Philippine mass grocery retail (MGR) sector has been aided by thepassage of the 2002 retail trade liberalisation law, which allowed foreign retailers to operate independently.Since then the number of large-scale modern stores has increased. 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 otherrecently liberalised markets in the region.However, this onslaught has not yet occurred - with the country's retail potential not yet deemed strongenough to offset the economic risks that exist in the eyes of the major multinational retailers. While both ofthe aforementioned multinationals have been linked with the Philippines in the past, entry does not looklikely for some time, especially given Carrefour's and Tesco's scale back from international operations.Metro Manila presently accounts for more than 50% of the country's total retail sales. However, otherregions with u