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Chapter 1 INTRODUCTION

1.1 COMPANY BACKGROUND The advent of one-stop shopping convenience business of Puregold Price Club Inc.,began in September 8, 1998 when said company opened its first branch along Shaw Blvd. in Mandaluyong City. The store offered a wide array of goods from groceries, apparel, household accessories and furniture at very affordable prices. During that time, the one-stop shopping philosophy was still a novel idea to consumers but with the excellent service and quality products that Puregold had provided, it did not take long for the company to make its mark in the retail industry. From only one store in 1998, now counting to over a hundred by the end of 2011, Puregold had obviously gone larger as it continues the huge store roll outs in different parts of Metro Manila and nearby provinces like Pampanga, Laguna, Cavite, Bulacan, and Rizal, focusing on two major customer segments: retail customers and re-sellers. In fact, from 2002 up to 2006, it launched an average of 3 new stores every year and expanded operations in the said North and South Luzon areas. Puregold Price Club, Inc. engages wholesale and retail of sale of food and non-food products in the Philippines. It offers food products, such as dairy products, meat and meat products, vegetables, and fruits; and non-food products, including cosmetics, clothing, shoes, household chemicals, appliances and household goods, toys, and sport items. The company conducts its operations through three store brands and its business model formats namely: Puregold Price Club (Hypermarkets), Puregold Junior (Supermarkets), and Puregold Extra (Discounters). Each of which is strategically located to target distinct price points and demographics. The Companys majority of operations are primarily through the Hypermarket format. These hypermarkets are mostly located in major commercial centers and near transportation hubs. Puregold Price Club offers a broad variety of food and non-food products, and generally caters to both retail customers and resellers such as members of the Companys pioneering Tindahan ni Aling Puring (TNAP) loyalty/marketing program. This format consumes an average net selling space of 3000 sqm which offers 30,000 50,000 stock-keeping units (SKU).
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For the Supermarket format, the Company has a supermarket chain known as Puregold Junior, operated by its wholly-owned subsidiary, Puregold Junior Super Market, Inc. starting year 2008. In June 2010, Puregold Junior Super Market, Inc. became a subsidiary of the Company as the part of a reorganization of companies owned and controlled by the Co Family. The Companys supermarkets mostly located in residential areas and offer a high proportion of food to non-food products compared to the Companys hypermarkets. The supermarkets have a store layout similar to the Companys hypermarkets but on a smaller scale. Puregold Junior stores generally cater to retail consumers. The average net selling space of the Puregold Junior supermarket is around 900sqm, with SKUs of product assortment that ranges from 8,000 to 10,000. While as for the discounters, the company have Puregold Extra which is the Companys discount store format launched in 2010 that offers a more limited number of goods, comprising the Companys top-selling SKUs ranging from 1,500 to 2,000. The average net selling space of these stores is 400sqm. In 2001, the Company launched its loyalty program and renamed it as Tindahan ni Aling Puring (TNAP) in 2004, which has been quite successful, for 30% of the companys sales are accounted from TNAP members. In 2008, the Company got brand recognition by Readers Digest as Most Trusted Brands. By mid2009, it gained market leadership being the second largest hypermarket and supermarket retailer in the Philippines in terms of net sales. 2011 saw the highest number of store openings in Puregolds history with the launch of 38 new stores making its number of stores to a total of 100. As of first quarter of current year 2012, it operated 62 hypermarkets, 28 supermarkets, and 11 discount stores in cities and municipalities of Manila and Luzon Island, generating 10,740.4million net sales and 1,741.3million gross profit for the quarter. For the year ending 2011, the Company has approximately 3,084 directly hired employees (1,815 of which are regular employees), and it anticipates that it will have approximately 1,000 employees within the next 12 months. The company believes that its relations with its employees are generally good. The Company has experienced no material work stoppages or strikes in the past five years, and currently has no labor union nor any collective bargaining agreement with any group of employees. Since the incorporation of Puregold, it has never been subjected to nor has been involved in any bankruptcy, receivership or similar proceedings. Puregold is currently the countrys second largest retail among hypermarkets, supermarkets, and cash and carries based on gross sales. The company showed attractive growth prospects, but despite of that, some believe that the valuations of current shares are unattractive, as held at the research made by CitisecOnline Research on February 10, 2012 about Puregold. In the Companys listing on October 5, 2011 with SEC, its shares in the PSE was traded utmost at Php12.50, utmost Php17.10 on November, while utmost
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Php18.90 on December. And in current year 2012, it is at Php20.90 per share, the stock is trading at 17.8 times in projected year 2012 P/E, which is slightly above the 17.0 times average P/E multiple of peers. According to CitisecOnline, it would be viewed as an opportunity to buy for more interested individuals if it pulls back the prices below Php18.00 per share. As per the public ownership report of Puregold issued on March 31, 2012, there are a total of 2,000,000,000 shares listed, issued and outstanding wherein 33% of which is being owned by the public. The other 67% is owned by the directors and key officers. In addition, there is a 27% Foreign Ownership of the Company as of the said date. Puregold Price Club Inc., with its competent employees, is incessantly serving customers through its effective customer service programs and competitive price scheme together with valuable corporate social responsibility having its head office at 3rd floor Tabacalera Bldg., 900 D, Romualdez St., Ermita, Manila, led by Mr. Lucio L. Co as Director and Chairman of the Company, Mrs. Susan P. Co as Director and Vice Chairman and Treasurer, Mr. Leonardo B. Dayao, as Director and President. The mentioned Directors have been servicing the Company since on its incorporation on September 1998.

1.2 PAPER DESIGN AND METHODOLOGY This strategic management paper is geared towards the formulation of strategies and its probable implementation and evaluation by the management of the Puregold Price Club Inc. that would be useful in the long-run and give the company a competitive advantage over its competitors in the fierce market of the retail industry. The strategies that would be formulated in this paper will surely be anchored on the companys missions namely: a.) commit to profitable growth and results stockholders b.) provisions of products, services and business opportunities to every Filipino family c.) establishment of lasting relationships with suppliers and business partners d.) promotion of personal and professional development of employees Puregold Price Club Inc., the second largest retail store in the country, continuously strives to be the best in the market lead by the SM dynasty of hypermarkets and supermarket. In line with this, carefully planned strategies should be formulated and such, valuable pieces of information are very much of a requisite. Hence, this paper had primarily gathered relevant information and details pertaining to Puregold Price Inc., its direct competitors and the blooming retail industry of the Philippines coming from wide array of databases namely official websites of the Puregold and its competitors, on line reviews by respected sites of the retail trends and
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said market competition, reports coming from the Philippine Retail Association (PRA), special report analysis of some investor-third-party companies, most recent reports and presentations from the HSBC 2nd ASEAN Conference-ASEAN Tigers on May 22-23, 2012. Moreover, information pertaining to the annual reports covering four years of business operations of Puregold and its competitors has been gathered from the official website Securities and Exchange Commission as well as from the Philippine Stock Exchange. Most of these pool of information resources were available on line an in the virtual information sharing sites. Nonetheless, in addition to these, some information were also provided by local newspapers, business journals and magazines and strategic management cases from internationally authored and published books made available in the school libraries reference sections. All of the relevant information gathered herein is being subjected to rigorous tests and analysis using different marketing and financial tools (discussed exhaustively in latter chapter of this paper) in order to project and assess a financial projection of the strategies formulated, implemented and evaluated.

1.3 SCOPE AND DELIMITATION

This strategic management paper focuses only the formulation of strategies that would further enhance the current business operations of Puregold based on its business objectives and missions. The implementation and evaluation of these strategies shall rest upon the discretion of the management. In addition, the effects of these plans shall be covering and reflected only in a 5-year financial statement projection based on Puregolds 4 most recent years of business activities. Hence, the latest four year financial statements being considered herein are for the years 2009 up to 2012. When it comes to the information being considered, this paper does not include primary or firsthand information for the reason that researchers cannot get hold of confidential information within the company. Nonetheless, some of the second hand information used in this paper is being made available by the companies thru public dissemination found on line. The researchers had also selected only two direct competitors that Puregold considers and based on the industry analysis as well. These are the SM hypermarket, supermarket and the Rustans (Shopwise). Lastly, the strategies being formulated are only good for operations of the retail business venture of Puregold and do not include strategies to some investing or portfolio management functions.

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