Prices are rising around the world, but while markets such as the US, UK and Australia are battling inflation rates of between six and eight per cent, consumers in the Philippines are paying as much as 15.62 per cent more than they did for certain items this time last year. That is according to recent research by software provider Packworks in collaboration with Fourthwall, a sociocultural research firm, which looked at prices for food items in sari-sari stores, the local term for neighbou
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bourhood stores that serve lower-middle-class communities.
Their finding was higher than the 11.2 per cent inflation rate reported by the Philippine Statistics Authority (PSA).
Sari-sari stores are essentially neighbourhood stores, which figure prominently in lower-middle-class locations in the Philippines. Typical sales figures of these stores can fluctuate wildly, ranging from 1500 pesos (US$27) per day or per month.
“These stores operate in what we call a sachet economy. Buyers normally come in to buy one small sachet of shampoo, or one cigarette stick. Each village in the Philippines has at least one of these stores,” Andres Montiel, head of data at Packworks, told Inside Retail.
John Brylle L Bae, research director at Fourthwall, explained that in a sociocultural context, inflation is the primary metric of poverty and economic performance. It is even more relevant in this context as Filipinos are economically worse off now.
“It is important to be aware of the discrepancies in the inflation figures, as the lower income class typically consume products that are cheap. The increased pressure of inflation has led to stores engaging in price mark-ups for better margins,” he told Inside Retail.
The role of sari-sari stores
Sari-sari stores play an important role in empowering consumers in these lower income areas. According to Montiel, there is a sense of camaraderie among the store owners and buyers, and this is something quite unique in this day and age.
“I live in a lower-middle class neighbourhood, and I can say that these stores serve as the grassroot centre of economic activity. Low income individuals go to these stores for their immediate needs, and larger corporations want to penetrate this market too,” he said.
Interestingly, Bae noted that according to his company’s research, consumer confidence in the Philippines is at 95 per cent, and he expects consumers from the middle class to also start buying products from these sari-sari stores as they start to feel the pinch.
“It is important to understand that amidst these high inflation rates, goods at these stores still remain to be the cheapest and most accessible products for ordinary Filipinos,” he noted.
He went on to say that these stores are still a coping mechanism, not just for the poor, but also for everyone else during the pandemic. He explained that these stores will remain central to the overall retail mix in the Philippines for the short to medium term.
One of the biggest challenges for these stores boils down to logistics. According to Montiel, with the rising costs of oil prices, it is having an impact on these stores as distributors or markets will charge a lot for transportation of goods. This of course leads to higher mark-ups.
“What we are seeing is a natural response of retailers to the ongoing macro supply and demand forces that are influencing the marketplace. Sari-sari stores have very little wiggle room to increase their profits, and this is the situation we find ourselves in,” he explained.
Montiel said that customers across the Philippines are tightening their belts by spending the same amount of money on cheaper brands to get more bang for their buck.
“We are also seeing companies introducing lower-priced brands for essentials, so there are some adjustments that are happening right now in the marketplace that are making it easier for Filipinos to get what they need at more affordable prices,” he noted.
Packworks offers technology for sari-sari store owners to manage their businesses via mobile app, as well as financial products to borrow capital at lower interest rates.
Oftentimes, store owners are saddled with debt from high interest loans, and this is a pain point the company is focusing on solving, Montiel said.
“We are now working with FMCG companies to provide promotions for these stores with hyper-personalised recommendations for consumers. This makes it easier for these stores to get more customers and the FMCG companies also get more sales,” he added.