industr y updates and ana l y ses f or sound business p l annin g

A publication of the School of Economics, University of Asia & the Pacific, Philippines

In this issue
Feature

2 The Philippine Alcoholic Beverage

Industry (Part 4):
Not So ‘Sin-ful’ After All

Dr. Cid L. Terosa

Emilio Mar Antonio
Marcella Maria Karaan
Julian Lorenzo Martinez
Ivy Zuñiga

Industry statistics

11 Gross value added in Construction

12 Gross value added in Real Estate,

Renting and Business Activities

Industry statistics
12 Gross value added in manufacturing
by industry group

issn 0117– 1798

december The industry monitor is a monthly publication of the School of Economics of the University of Asia and the Pacific •
Pearl Drive, Ortigas Center, Pasig City, Metro Manila, Philippines 1605  •  Telephone: 637-0912 to 26; Telefax: 632-7968.
The comments and views expressed in these papers are solely the responsibility of the authors and do not represent any
 2 0 1 4 position held by UA&P. These papers may not be distributed in full or in part without prior written authorization.
Acknowledgements: Editing  Karen N. Atienza •  Layout  Rommel B. Casipit • Design  Art & Copy Communication Design
Inc.  •  Printing Inkwell Publishing Co. Inc.
 december 2014  F E A T U R E

The Philippine Alcoholic Beverage Industry (Part IV)

Not So ‘Sin-ful’ After All

This paper describes the barriers to entry into this competitive industry. It provides details on the distribution
industry monitor

channels behind the success of the industry’s major players, and the cost structures followed by manufacturers of
different types of beverages.

Dr. Cid L. Terosa

Associate Professor
School of Economics, UA&P

and

Emilio Mar Antonio

Marcella Maria Karaan
Julian Lorenzo Martinez
Ivy Zuñiga
Industrial Economics Program
School of Economics, UA&P

P
rospective participants in the alcoholic beverage industry can expect significant
barriers to entry as a result of intense competition as well as financial and legal
challenges. The fourth part of our study presents these barriers and explains the
importance of sales and distribution outlets in this industry, as well as the cost structure
followed by beverage manufacturers.

Barriers to Entry
There may be high barriers to entry to the alcoholic
beverage industry because evidently, only large enterprises
with product labels already existing for hundreds of years
are able to thrive in the market. This reality is due to the
highly competitive environment, major business risks, and
complicated legal framework that serve as barriers to entry
to this industry.
Capital requirements for both the long- and short-term
are very high for entrants to the alcoholic beverage industry
to keep up with the existing tight oligopoly. Table 2 shows
that for the top five players in the industry, current assets
could range from 4 billion pesos up to 17 billion pesos,
while total assets amount from more than 5 billion pesos
to more than 80 billion pesos.

Table 1 • Summary of Barriers to Entry

Industry Attractiveness
Determinants of entry
barriers
Very Unattractive Neutral Attractive Highly

Capital requirements Low X High

Brand loyalty Weak X Strong

Economies
Disadvantage X Advantage
of Scale
Access to technology
Easy X Difficult
or distribution channels
F E A T U R E 

Table 2 • Current and Total Assets of the Top 5 Philippine
Alcoholic Beverage Companies
Company
Current Assets Total Assets
Name
SMBI 17,112,000,000 80,660,000,000
GSMI 11,045,577,000 17,560,727,000
TDI 4,669,221,014 11,721,902,653
EDI 4,038,985,876 5,594,536,396
ABI 4,248,791,399 14,347,334,443
The significant factors that increase the costs of entering
the alcoholic beverage industry are the highly competitive
environment, major business risks, and complicated
legal framework. Competition is intensified by the price
differentiation as well as the strong brand loyalty and
product recognition of consumers. Major business risks
include the unpredictability of the prices of raw materials,
and the diverse distribution network. The legal framework
through the imposition of excise taxes could be another
source of strategic competitive pricing, which complicates
the industry structure.
Among these, the most crucial is the distribution
channels. A source from smbi claimed that “distribution is
the strength of the company. Each and every outlet must
be directly served by a San Miguel sales person. With this,
concerns are immediately addressed and goodwill to our
trade partners is enhanced”. In Tables 3 and 4, Canadean
enumerates the distribution trends in the Philippine
beer market in particular; it surmises that “in 2011,
manufacturers strengthened their ties anew, with sari-sari
stores being the biggest channel in terms of number and
market reach.” However, as testified by our source from
San Miguel, sari-sari stores may constitute a large share
of their distribution channels, but difficulty arises in
ensuring that the suggested retail price is strictly upheld
by sari-sari stores. This requires additional effort and
manpower on the part of the sales and distribution teams
of the alcoholic beverage companies. For the on-premise
channels, an example of other on-premise channels is San
Miguel’s Oktoberfest, which significantly contributed to
the company’s and the industry’s performance.
In 2011, convenience stores gained significance as a
distribution channel. According to Canadean, this fact
could be attributed to the increase in consumers from the
business process outsourcing and call center industry. In
Metro Manila and other urban areas, only these outlets
are open round-the-clock, and call center agents can buy
beer or other alcoholic beverages to drink after their shift.
The significant share of convenience store chains such as
7-Eleven and Ministop can be seen in Table 5.
Almost all the leading players in the alcoholic beverage
industry recognize the following factors as the basis
of the competitive edge: strong brand equity, diverse
utilization of marketing channels, and an established sales
and distribution network. These are all capital-intensive
activities that require substantial capital expenditures.
Brand equity requires the registration of patents and
trademarks that are often equivalent to large sums of
money. Such trademarks and proprietary rights serve as
a company’s license to enhance its brand reputation, as
well as its intellectual property rights (ipr) to prepare,
package, advertise, distribute, and sell its products.
The use of these brand names and related ipr is key to
maintaining distinctive corporate and market identities.
Furthermore, upon the establishment of a brand name,
this label can only be strengthened by popular acceptance
and widespread availability of the product. To facilitate
this, a larger size and scale of operations is required to

Table 3 • Distribution Channels of Beer Companies by Number of Outlets and % Share

Number of Outlets % Share

TYPE OF OUTLET 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011

OFF-PREMISE 351,594 351,685 401,805 471,954 518,133 100% 100% 100% 100% 100%

Convenience Stores 1,020 1,058 1,089 1,105 1,935 0.3% 0.3% 0.3% 0.2% 0.4%
UNIVERSITY OF ASIA & THE PACIFIC

Supermarkets 84 98 132 218 431 0.0% 0.0% 0.0% 0.0% 0.0%

Warehouse Clubs 30 34 36 36 58 0.0% 0.0% 0.0% 0.0% 0.0%

Gas Stations 220 245 273 315 361 0.1% 0.1% 0.1% 0.1% 0.1%

Sari-Sari Stores 350,000 350,000 400,000 470,000 515,000 99.5% 99.5% 99.6% 99.6% 99.4%

Other Retail Outlets 240 250 275 280 348 0.1% 0.1% 0.1% 0.1% 0.1%

ON-PREMISE 88,659 88,941 89,495 95,120 99,449 100% 100% 100% 100% 100%

Hotels 3,659 3,661 3,670 3,788 4,496 4.1% 4.1% 4.1% 4.0% 4.5%
Restaurants, Cafes,
68,500 68,630 68,995 74,420 77,641 77.3% 77.2% 77.1% 78.2% 78.1%
and Fast Food Outlets
Clubs, Kiosks, Others 16,500 16,650 16,830 16,912 17,312 18.6% 18.7% 18.8% 17.8% 17.4%
Source: Trade Statistics, Canadean 2012
 december 2014  F E A T U R E

Table 4 • Distribution Channels of Beer Companies by Turnover Value and % Share

Value (PhP million) % Share

TYPE OF OUTLET 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011
industry monitor

OFF-PREMISE 45,407 50,490 56,249 62,565 70,547 100% 100% 100% 100% 100%

Modern Retail 8,634 9,692 10,817 11,682 12,912 19% 19% 19% 19% 18%

Traditional retail 36,773 40,798 45,432 50,863 57,635 81% 81% 81% 81% 82%

ON-PREMISE 44,165 47,287 50,928 54,260 59,581 100% 100% 100% 100% 100%

EDA 16,035 17,148 18,503 19,890 21,669 36% 36% 36% 37% 36%

Other on-premise 28,130 30,139 32,425 34,370 37,912 64% 64% 64% 63% 64%
Source: Trade Statistics, Canadean 2012

Table 5 • Retail Groups that Sell Beer Products

Number of Outlets at Year End % Share

RETAIL GROUP 2008 2009 2010 2011 2008 2009 2010 2011

TOTAL 816 987 1,125 1,219 100% 100% 100% 100%

SM 39 78 92 132 3.7% 8.7% 8.2% 10.8%

Rustan’s/Shopwise 21 18 20 32 2.6% 2.0% 1.8% 2.6%

Robinsons 31 49 62 72 3.8% 5.5% 5.5% 5.9%

Landmark 2 2 2 2 0.2% 0.2% 0.2% 0.2%

7-Eleven 362 386 392 403 44.4% 43.0% 34.8% 37.9%

Ministop 340 300 435 462 41.7% 33.4% 38.7% 37.9%

Super 8 10 12 12 6 1.2% 1.3% 1.1% 0.5%

Pricesmart 4 3 3 2 0.5% 0.3% 0.3% 0.2%

Makro 15 14 18 0 1.8% 1.6% 1.6% 0.0%

Cost-U-Less 1 1 3 6 0.1% 0.1% 0.3% 0.5%

Puregold 34 86 102 0.0% 3.8% 7.6% 8.4%

Source: Canadean 2012

provide significant economies of scale in production.
Research and development would also help strengthen
brand loyalty and expansion of market base. To ensure that
the product reaches a wider segment of the population,
diverse marketing channels have to be utilized, along with
established sales and distribution networks.
Major business risks include possible problems that
may arise from changes in raw material supply or consumer
demand. For major raw materials, the players in the alcoholic
beverage industry are dependent on third parties, which
means that they would have limited power over the pricing
decisions and quantity supplied for these raw materials.
Although the processing of these intermediate products to
be transformed into usable goods is already held in the
production facilities of the manufacturers, other factors
may still adversely affect raw material sourcing, such as
changes in global supply and demand and foreign exchange
fluctuations, especially for imported products, and weather
conditions and governmental controls especially for locally
sourced products. Both the quality and quantity of raw
materials are easily affected by these factors.
To survive in the market for alcoholic beverages, key
industry players have to actively monitor the availability
and prices of raw materials. They also sign contracts with
producers of raw materials to assure both parties of profit
gains from transactions that would take place within a
longer time frame. This is a major risk because only large
companies have the capital and the capability to make such
arrangements with partner industries, especially because any
additional cost that may be incurred from changes in raw
material prices could not be easily passed on to consumers.
The demand for alcoholic beverage in the Philippines is
believed to be highly inelastic, as proven by the considerable
growth of the consumption on low-priced beer from less
than 40% in 1994 to more than 70% in 2010, as cited by
the Republic of the Philippines Official Gazette. Canadean
states that despite the lack of promotional activity on
discount beer, it continues to gain popularity especially in
the rural areas where its main competitors are not other
beer brands but local gin, brandy, whisky, or traditional

“Sin Tax” http://www.gov.ph/sin-tax/ (accessed September 9,
2013).
F E A T U R E
alcoholic drinks such as lambanog and basi. Interestingly,
smbi’s Bond Prospectus observes that during periods of
economic uncertainty or recession, instead of turning to
beer, consumers opt for hard liquor or do not purchase
alcoholic beverages at all. With a huge market base in the
lower socioeconomic classes, industry players and potential
entrants need to be ready and willing to keep discount beer
as the strongest brand in their portfolio, despite the fact
that it has to be priced 15% to 30% lower than usual.
The recent economic growth of the Philippines, as
reflected by the 7.5% gdp growth in the second quarter,
should have been a good sign for most consumer goods
as more Filipinos gain greater purchasing power because
of higher disposable income. However, this may not be
the case for the alcoholic beverage industry where new
excise taxes threaten to raise prices even of the products
in the discount price segment. The passing of the Sin
Tax Bill, which is aimed at discouraging consumption of
sin products, marked reforms that would negatively hit
the competitive pricing strategy of many alcoholic drink
manufacturers.
An example of a price increase that led to a decline in
sales was presented in the Bond Prospectus of smbi. On
March 1, 2006, smbi raised the selling prices of its beer
products by an average of 9% in response to higher costs
of raw materials such as fuel and a 20% increase in excise
tax on beer that was implemented on January 1, 2005. As
a result, volume sales (in case equivalents) declined by 9%
from 2005 to 2006, and net sales decreased by 1% in the
same year. When smbi again raised its price on April 1,
2008 by another 9%, the growth in volume sales slowed
from a higher rate in 2007 to just approximately 4.2%
in 2008. These experiences can be limiting for companies
that want to increase the prices of their products because
of excise taxes and raw material prices.
To adapt to such price constraints, alcoholic drink
manufacturers launch new products to tap new markets.
The acceptance of new products is still highly dependent
on the preference and purchasing power of consumers.
Therefore, changes in demographic and social trends or
changes in leisure activity patterns are crucial factors to
examine. In the past years, alcoholic beverage producers
have targeted the younger population; the difficulty arises
in the absence of loyalty among younger consumers, and
thus the unpredictability of their taste and preference.
The buzz over the Sin Tax, which has led to numerous
articles that sum up the negative health effects of excessive
alcohol consumption, may also adversely affect industry
performance.
Cost Structure
For the cost structure, the Input-Output Table of 2000
as prepared by the National Statistics Coordination

Board, divides the alcoholic beverage industry into two:
(1) alcoholic liquors and wine and (2) malt liquors and
malt. This is due to the significant differences in the cost
structures of the manufacturers of each type of drink. In
terms of both input and output, the malt liquors and malt
industry generates more with a total of Php 33 billion
compared to the Php 7 billion generated by the alcoholic
liquors and wine.
Alcoholic Liquors and Wine
Production
The alcoholic liquors and wine industry is mainly an
intermediate input industry, as shown by the 65% share
of total intermediate input to the industry’s total input
as compared to the contribution of total primary input
which is only at 35% (see Table 6). Being an intermediate
input industry signifies that the industry has numerous
direct backward linkages. As mentioned, among the risks
involved in investing in the alcoholic beverage industry
is its dependence on third parties for the procurement of
raw materials. Dependence on other industries for raw
materials means that it would be difficult for the alcoholic
liquors and wine industry to set its own price because it
will be easily affected by any change in the supply and
demand of the raw materials that it uses.
Table 6 • General Input Structure for Alcoholic Liquors
and Wines
Amount of
Percentage
Contribution
Total Intermediate Input (TII) 4,914,276 65%
Total Primary Input (TPI) 2,597,536 35%
Total Input (TI) 7,511,812 100%
Source: 2000 IO Table 240x240, NSCB
Intermediate Input Structure
The most important ingredient in the production of
alcoholic liquor and fermented wine is sugar, which
accounts for 18.539% of the total intermediate input (tii)
for the industry (see Table 7). The processing of sugar for
its transformation into distilled spirits and wine involves
the use of basic industrial chemicals and petroleum, which
UNIVERSITY OF ASIA & THE PACIFIC
represent 10.484% and 6.152% of tii, respectively. To
enhance the taste of the distilled or fermented sugar, other
fruits and nuts (which account for 3.362% of tii) and
coconut products (2.832%) are also added. The industries
involved in the packaging of alcoholic liquors and wine
are glass container manufacturing (14.429%), paper and
paperboard container manufacturing (5.471%), and metal
container manufacturing (2.757%). Since the alcoholic
liquor and wine industry is also highly dependent on
marketing and promotion, advertising is among the top
10 industry sources of input, comprising 2.354% of tii.
 december 2014  F E A T U R E

Table 7 • Important Industry Sources of Input of Alcoholic Table 9 • General Output Structure of Alcoholic Liquors
Liquors and Wines and Wines
Percent Share Amount
Percentage
Amount of in Total Contribution
Intermediate Source of Input
Contribution Intermediate
Total Intermediate Demand (TID) 2,818,441 38%
industry monitor

Input

Wholesale and retail trade 959,951 19.534% Total Final Demand (TFD) 4,693,371 62%

Sugar milling and refining 911,081 18.539% Total Output(TO) 7,511,812 100%

Manufacture of glass container 709,081 14.429% Source: 2000 IO Table 240x240, NSCB

Manufacture of basic industrial

515,212 10.484%
chemicals
Intermediate Demand Structure
Petroleum refineries including LPG 302,331 6.152% Most alcoholic liquor and wine products go to restaurants,
Manufacture of paper and
268,840 5.471% bars, canteens, and other eating and drinking places
paperboard containers
(52.724% of tid) and to supermarkets and convenience
Other fruits and nuts 165,225 3.362%
stores by way of wholesale and retail trade (16.907%) (see
Coconut including copra making
in the farm
139,191 2.832% Table 10). Some 13.27% also go to the malt liquors and
malt industry, which uses alcoholic liquor as additive for
Manufacture of metal containers 135,472 2.757%
their new product line called alco-mix or flavored malt
Advertising activities 115,692 2.354%
beverage.
Source: 2000 IO Table 240x240, NSCB

Table 10 • Important Industry Destinations of Output of

Value-Added or Primary Input Structure Alcoholic Liquors and Wines
Most of the capital invested on the alcoholic liquor and
Percent Share
wine industry goes to taxes, comprising 47.3% of primary Intermediate Destination of Amount of in Total
input (see Table 8). This is primarily because of the high Output Contribution Intermediate
Demand
excise taxes imposed by the government on the products of
Restaurants, bars, canteens
what is considered to be a sin industry with negative effects and other eating and drinking
1,486,006 52.724%
on consumers’ health. It may also be derived from the places

industry’s primary input structure that it is more financial Wholesale and retail trade 476,510 16.907%
capital- and labor-intensive than physical capital intensive, Malt liquors and malt 374,124 13.274%
as operating surplus is 31.2% of Total Primary Input (tpi) Source: 2000 IO Table 240x240, NSCB
and compensation is 21.2%, while depreciation is only
0.3% of tpi.
Final Demand Structure
Sales of alcoholic liquor and wine products are mostly from
Table 8 • Value-Added or Primary Input Structure of
personal consumption expenditure (118% of tfd), given
Alcoholic Liquors and Wines
that they are primarily final goods sold for consumption
Primary Source of Amount of Percent Share in
Input Contribution Total Primary Input (see Table 11). Exports are more than offset by imports at
Compensation 550,591 21.2%
4% and -38%, respectively, because many of the special
Depreciation 6,960 0.3%
ingredients used for the concoction of alcoholic liquors
and wine are mainly bought abroad.
Indirect Taxes-Subsidies 1,228,448 47.3%

Operating Surplus 811,535 31.2%

Table 11 • Final Demand Structure of Alcoholic Liquors
Total Primary Inputs 2,597,535 100.0%
and Wines
Source: 2000 IO Table 240x240, NSCB
Percent Share
Amount of
Final Destination of Output in Total Final
Contribution
Demand
Distribution
As a producer of consumer goods, the players in the Personal Consumption Expenditure 5,554,933 118%

alcoholic liquor and wine industry have to ensure that Change in Stocks 766,864 16%
they can reach a wider market base through an extensive Exports 170,221 4%
distribution network. Being a final demand industry, 62% Imports (1,798,646) -38%
of output are sold as final goods while only 38% go to
Total Final Demand 4,693,371 100.0%
other industries by way of direct forward linkages (see
Source: 2000 IO Table 240x240, NSCB
Table 9).
F E A T U R E 

Malt Liquors and Malt Table 13 • Important Industry Sources of Input of Malt
Production Liquors and Malt
Unlike the alcoholic liquor and wine industry, which is Percentage
an intermediate input industry, the malt liquors and malt Important Source of Input
Amount of Share in Total
Contribution Intermediate
industry is more of a primary input industry, given the Input
57% share of tpi in the total input (see Table 12). In fact, Other agricultural crops (wheat,
67.829% of tii comes from its own industry (see Table milled oats, cereal crops, spice
222,762 1.556%
crops and construction related
13), which means that compared to the players of the crops)
alcoholic liquor and wine industry, the manufacturers of
Water 203,267 1.420%
malt liquors and malt in the Philippines are less dependent
on other Philippine industries for raw materials. Source: 2000 IO Table 240x240, NSCB

Table 12 • General Input Structure of the Malt Primary Input Structure

Liquors and Malt Similar to the alcoholic liquor and wine industry, most
Amount of the income from the malt liquors and malt industry
Percentage
Contribution also goes to indirect taxes less subsidies (45.5% of tpi)
Total Intermediate Input (TII) 14,311,860 43% because that it is also one of the sin industries upon which
Total Primary Input (TPI) 19,163,650 57% the government has always imposed higher excise taxes
Total Input (TI) 33,475,510 100% (see Table 14). Other than the amount that goes to the
Source: 2000 IO Table 240x240, NSCB payment of government regulatory fees, expenses for the
beer industry mostly come from operating surplus. This
Intermediate Input Structure makes the beer industry financial-capital intensive, with an
The utilities expenditures needed in running the amount of Php 7 billion spent.
production facilities of smbi and abi mostly come from
the use of electricity (5.853%), petroleum (4.379%), Table 14 • Primary Source of Input of Alcoholic Liquors
and water (1.420%), while machinery and equipment and Wines
account for 1.796% of tii or Php 257 million (see Table Primary Source of
Amount Contribution Percentage
Input
13). Other agricultural crops, which comprise 1.556% of
Compensation 2,776,098 14.5%
tii, are sometimes used by smbi as adjuncts or additives
to the imported barley to enhance its taste. Meanwhile, Depreciation 247,679 1.3%

serving as flavor enhancers of the new alco-mix products Indirect Taxes-Subsidies 8,714,061 45.5%
introduced by abi are alcoholic liquors (2.614% of tii). Operating Surplus 7,425,812 38.7%
Beer producers also spend a total of 233 million or 1.63% Total Primary Input 19,163,650 100%
of tii on legal activities for the trademarks, patents, and
Source: 2000 IO Table 240x240, NSCB
other intellectual property rights that secure the brand
equity of each company.
Distribution
Table 13 • Important Industry Sources of Input of Malt
Beer is also considered more of a final good than an
Liquors and Malt intermediate good as shown by the 61% share of total final
Percentage
demand (tfd) in the industry’s total output compared to
Important Source of Input
Amount of Share in Total the 39% share of total intermediate demand (tid) (see
UNIVERSITY OF ASIA & THE PACIFIC

Contribution Intermediate
Input
Table 15).
Malt liquors and malt 9,707,650 67.829%

Electricity 837,621 5.853% Table 15 • General Output Structure of Malt Liquors

and Malt
Petroleum refineries including LPG 626,677 4.379%
Amount Contribution Percentage
Manufacture of glass container 426,042 2.977%

Alcoholic liquors and wine 374,124 2.614% Total Intermediate

13,185,497 39%
Demand
Wholesale and retail trade 281,793 1.969%
Total Final Demand 20,290,013 61%
Manufacture of electrical, 257,091 1.796%
industrial machinery and apparatus Total Output 33,475,510 100%

Legal activities 233,235 1.630% Source: 2000 IO Table 240x240, NSCB

 december 2014  F E A T U R E

Intermediate Demand Structure respectively. Notably, the imports of companies producing

Because beer manufacturers are more self-reliant than
dependent on other industries, an amount of Php 9
billion of total intermediate demand or 73.624% also
goes to the industry itself (see Table 16). The beer
industry monitor
alcoholic liquors and wine are more than the imports of
producers of malt liquors and malt, despite the fact that
the latter have a higher domestic demand. Domestic
demand is the total of total intermediate demand, personal

industry has few direct forward linkages other than to consumption expenditure, and change in stocks.
supermarkets and convenience stores through wholesale
and retail trade (13.122%); to restaurants, bars, canteens, Table 18 • Domestic Demand versus Imports of the
and other eating and drinking places (8.475%); and Alcoholic Liquors and Wine, and Malt Liquors and Malt
hotels and motels (3.823%). (in thousand pesos)
Alcoholic Liquors and Malt Liquors and
Wine Malt
Table 16 • Important Destinations of Output of Malt
Total Intermediate
Liquors and Malt Demand
2, 818,441 13, 185, 497

Percentage Share in
Important Destinations of Amount of Personal Consumption
Total Intermediate 5, 554,933 20, 668,585
Output Contribution Expenditure
Demand
Change in Stocks 766,864 547,579
Malt liquors and malt 9,707,650 73.624%
Exports 170,221 353,655
Wholesale and retail trade 1,730,151 13.122%
Imports 1,798,646 1,279,806
Restaurants, bars, canteens
1,117,518 8.475%
and other eating and drinking Import Coefficient 0.19678 0.0372
places
Self-sufficiency ratio 0.8 0.96
Hotels and motels 504,092 3.823%
Source: 240-Sector Input-Output Transaction Table, 2000
Source: 2000 IO Table 240x240, NSCB

Industry Conduct
Final Demand Structure Pricing Policies
Only 2% or 353 million of the beer industry’s total Price determinants of alcoholic beverages vary in
final demand of Php 20 billion are exported. This is significance and occurrence. Some may be in the form of
more than offset by a -6% share of imports in the total market forces and others in the form of economic policies.
final demand because the primary raw material for beer In the Philippines, industry players in the alcohol business
manufacturing, malted barley, is exported by smbi and adhere to a certain framework on product pricing. Policies
abi from other countries. Both smbi and abi also have
such as excise taxes and tariffs, licenses for the sale, import,
license to import beer products from abroad to be sold and export of alcoholic beverages and the like have varying
in the Philippine market. effects on the prices set for these products. To understand
how prices for alcoholic beverages are actually set, this
Table 17 • Final Destination of Output of Malt Liquors paper presents various pricing policies that influence the
and Malt valuation of these alcoholic beverages.
Amount of
Percentage Share Legal policies affecting the prices of alcohol beverages
Final Destination of Output in Total Final
Contribution
Demand are usually in the form of taxes or tariffs. These are mainly
Personal Consumption taxes on exports, imports, value-added taxes, and excise
20,668,585 102%
Expenditure taxes. The Bureau of Internal Revenue (bir) defines several
Change in Stocks 547,579 3% taxation systems that apply to alcoholic beverages. Value-
Exports 353,655 2% added tax (vat) is imposed on all alcoholic products,
Imports (1,279,806) -6% defined by the bir as
Total Final Demand 20,290,013 100%
...business tax imposed and collected from the seller in the
Source: 2000 IO Table 240x240, NSCB
course of trade or business on every sale of properties (real
or personal) lease of goods or properties (real or personal)
Even though most of the raw materials used by local or vendors of services. It is an indirect tax, thus, it can be
manufacturers in producing alcoholic beverage come from passed on to the buyer (bir.gov.ph, 2004).
abroad, domestic demand still far exceeds the cost of the
imported materials. This is clearly shown in Table 18, The most important consideration for vat is its being
where alcoholic liquors and wine, as well as malt liquors an indirect tax. These taxes are usually added to the actual
and malt, have self-sufficiency ratios of 0.8 and 0.96, selling price of the product. These are usually at a rate of
F E A T U R E 

12% of the selling price to which the producer can add to
the price of the product, as the tax “can be passed on to
the buyer.”
Another tax to consider is the excise tax on alcoholic
beverages. The restructuring of this excise tax through
ra No. 10351 (as discussed in the section on the Legal
Framework of the Alcoholic Beverage Industry). Excise
taxes increase annually, with specific amounts assigned
to the type and price of alcoholic beverages. The tax on
fermented liquor are determined by the price (less than
or exceeding Php 50.60) and quantity (by liter). Table 19
In the Philippines, the ad valorem rate varies with
the type of imported alcoholic beverage. A study entitled
Alcohol Products Taxation: International Experiences and
Selected Practices in Asia by Dr. Somchai Richupan presents
data on how ad valorem rates are imposed on imports of
alcohol (see Table 20).
Table 20 • Ad Valorem Rates as a Percentage of Price on
Imported Alcoholic Beverages in the Philippines
HS Ad Valorem
Description
Code Rate

shows the taxation scheme. 2203 Beer from malt N/A

2204 Sparkling wine 5

Table 19 • Excise Taxes on Alcoholic Beverages from Other wines; grape must with fermentation
2013 to 2017 prevented or arrested by the addition of alcohol:

2013 2014 2015 2016 2017 • in containers holding 2L or less 5

Fermented Liquor [Beers and Wines] (per liter) • others 5

• other grape must 5

Less than
15.00 17.00 19.00 21.00 23.50
Php 50.60 Vermouth and other wines of fresh grapes
2205 N/A
flavored with plants or aromatic substances
Php 50.60
20.00 21.00 22.00 23.00 23.50
and more Other fermented beverages (for example, cider,
perry, mead); mixtures of fermented beverages
Distilled Spirits (specific per proof liter + ad valorem per proof) 2206 N/A
and non-alcoholic beverages, not elsewhere
specified or included
Php Php Php Php Php
NRP per
20.00 20.00 20.00 21.80 21.63 Undenatured ethyl alcohol of an alcoholic
proof
+ 15% + 15% + 20% + 20% + 20% 2207 15
strength by volume of 80% volume or higher
Source: Briefer on the Sin Tax Law, see Annex E
Ethyl alcohol and other spirits, denatured of any
15
strength

To distinguish both the vat and the excise tax, producers 2208
Spirits obtained by distilling grape wine or grape
15
marc
usually impose the net retail price on their products. The
• whiskies 15
bir defines the net retail price as the price of alcoholic
• rum and tafia 15
beverages from retail outlets outside the additional vat
and excise tax. This is the published price of alcoholic • gin and geneva 15

beverages from 10 major supermarkets in Metro Manila. • vodka 15

In summary, the pricing policy for locally produced and • liqueurs and cordials 15
distributed alcoholic beverages is • others 15

Source: Dr. Somchai Richupan, Alcohol Products Taxation: International Experiences and
Net-Retail Price + Value-Added Tax + Excise Tax = Selected Practices in Asia, 2005

Gross Selling Price of Alcoholic Beverages

In the case of imported alcoholic beverages, another
pricing policy is in place. The ad valorem rate is the
Exported alcoholic beverages are exempt from excise
taxes. The National Tax Research Center (ntrc) indicates
that locally produced alcoholic beverages exported to
other countries are not subject to the said taxes. The
UNIVERSITY OF ASIA & THE PACIFIC

percentage of the price of the alcoholic beverage imposed

by customs on imports. The Southern United States Trade ntrc defines the specific goods that are exempt from the
Association (susta) defines the ad valorem rate more excise tax in Chapter V of their research on taxation in
comprehensively as follows: the Philippines as follows:

An import duty rate determined “according to the
value” (ad valorem) of the commodity entering a country,
as opposed to the weight or other basis for calculation.
An ad valorem tariff is a tariff calculated as a percentage
of the value of the goods when clearing customs (Susta.
org, 2012).
Any excise tax paid on domestic products actually
exported in their original state or as ingredients or parts
of any manufactured goods is allowed to be credited or
refunded upon submission of proof of actual exportation
and upon receipt of the corresponding foreign exchange
payment (ntrc.gov.ph, n.d.).
 december 2014 10
They further specify the alcoholic beverages exempted
from excise taxes in the following paragraphs:
b. Cigars, cigarettes, distilled spirits and wines imported
by a government-owned and duty-free shop (e.g., Duty
industry monitor
Free Philippines), if such articles are labelled “Tax and
Duty Free” and “Not for Resale.
c. Sale or importation of an alcohol or tobacco product
to/by international airline/vessel in case there is a
provision under their charter or international treaties or
agreements to which the Philippines is a signatory that
exempts international airlines/vessels from excise tax on
alcohol or tobacco products.
d. Distilled spirits such as, but not limited to, ethyl
alcohol, removed from the place of production for
purposes of rectification by another establishment (ntrc.
gov.ph).
Advertising/Promotions
Consumers most often prefer high-quality products that
provide the best value for money. However, the colonial
mentality of Filipinos seems to bypass a rational consumer’s
frame of thinking. Instead of objectively determining the
quality of products, there is a tendency to equate imported
products with excellence. This case of colonial mentality
may apply to most industries in the market but somehow
occurs less in the alcoholic beverage industry. Foreign
brands such as Budweiser, Carlsberg, and Colt 45 were
not able to gain mainstream success compared with other
local brands. The reason is the relatively higher prices of
foreign beers. Thus, local breweries were able to prosper in
their business within the country. One assumption is that
an alcoholic firm will develop its revenues if its products
contain a high percentage of alcohol because Filipinos
are hard drinkers and love to drink during any special
occasion. TV commercials and advertisements in the
Philippines also contributed to increasing local demand
by having local celebrities like Manny Pacquiao and
Dingdong Dantes promote San Miguel Beer and Robin
Padilla endorse Asia Brewery’s Beer na Beer.
Aside from using TV commercials and advertisements
to attract consumers, industry players also sponsor events
to make their brands even more noticeable to those in the
lower-income brackets. Asia Brewery hosted events such
as Life Dance Wicked Summer, Pulp Summer Slam, Fun
Run, Sinulog, Thrill Music Festival, Dragonboat Regatta,
and more. San Miguel Corporation (smc) annually
holds the San Miguel Oktoberfest, which is a big hit for
beer lovers in the nation; smc sold beer at only PhP 12

Canadean. Beer Service Philippines Market Insights 2012 cycle.
(“Market Research Paper,” 2012; accessed July 20, 2013)

 “Events & Promos.” Asia Brewery Incorporated. http://
asiabrewery.com/events-promos/ (accessed August 11, 2013).
F E A T U R E
per cup in September 2012. The event provided tons of
entertainment that even featured the American hip-hop
group Black Eyed Peas.
They also made all the 11 San Miguel Brands in
Oktoberfest available, maximizing the beer selections
during the event. Other events of smc are the Red Horse
Muziklaban; Party Light Party White; Hangout Blowouts
Balibago, hs, and Malate; and Sarap Magbabad Taste of
Summer, among others. These events aim to involve the
companies’ loyal customers by expanding their market.
Moreover, the industry players want to entertain the
consumers while emphasizing the idea that their products
are best enjoyed during celebrations.
All commercial beverages, including alcohol and non-
alcoholic beverages, showed outstanding performance in
2010. However, in 2011, some of the industries lost a
part of their market. There was also a lack of promotional
campaigns by manufacturers. Only a few industry players
made an effort to address the situation, led by producers
of carbonated drinks, distilled drinks, and energy drinks.
Beer products were also affected by the market decline in
2011, posting a meager 2% growth compared to a 9%
increase in the previous year.
Since the top beer brands compete by their product’s
alcohol content, these industries promoted their beer
products with high alcohol content, namely Red Horse and
Colt 45, through promotional events and TV commercials.
Red Horse only gained heavy promotional efforts in 2010.
In 2011, San Miguel began to shift its brand line to an
upper-income market through their Lifestyle Brews, with
products such as San Miguel All-Malt, San Miguel Flavored
Beer, and Cerveza Negra. This strategy was done to satisfy
the demand of consumers who preferred flavored alcoholic
beverages to the traditional local rum and brandy.
The 2011 promotions and vast distribution of these
products through the large retail channels increased sales
turnover. Based on these three brands, the approach of San
Miguel was to develop its upscale market and compete with
imported brands. In the case of Asia Brewery, it focused on
promoting Colt 45. With activities such as “A Date with a
Sexy Actress in Boracay,” it launched numerous campaigns
to promote their high-alcohol beer. Asia Brewery also
introduced its all-malt beer, Manila Beer, to compete
against San Miguel All-Malt Premium Beer. (TO BE
CONTINUED)

“Welcome to San Miguel Brewery Inc.” San Miguel Brewery
Inc., http://sanmiguelbrewery.com.ph/news-sep2-2012.html (accessed
August 01, 2013).

“San Miguel Beer Website I Beer Brands of San Miguel
Corporation.” San Miguel Beer Website – I Beer Brands of San Miguel
Corporation. http://www.sanmiguelbeer.com.ph/home.php# (accessed
August 01, 2013).

Canadean. Beer Service Philippines Market Insights 2012 cycle
(“Market Research Paper”, 2012; accessed July 20, 2013).
statistics 11

Gross value added (GVA) in Construction

Q1 2012 to Q4 2014 (current prices)
Unit: P million

2012 2013 2014

Industry/Industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Public 41,764 80,312 39,224 69,657 59,274 105,714 48,059 62,781 70,722 94,165 46,256 67,524
Private 178,634 195,768 236,163 253,652 246,889 229,227 246,310 255,492 241,627 265,400 298,954 331,233

Gross value in Construction 220,398 276,080 275,388 323,310 306,163 334,941 294,369 318,273 312,349 359,564 345,209 398,757

GVA in Construction 128,028 164,459 155,907 184,672 174,275 201,126 165,710 181,600 181,340 210,795 194,937 227,034

GVA in Construction
Q1 2012 to Q4 2014 (constant prices)
Unit: P million

2012 2013 2014

Industry/Industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Public 18,268 35,358 17,758 32,169 24,959 44,731 21,153 28,121 28,934 38,918 19,752 29,549
Private 85,784 94,728 114,772 129,732 114,315 106,840 116,574 126,858 108,583 120,406 136,202 159,440

Gross value in Construction 104,052 130,086 132,530 161,901 139,275 151,571 137,727 154,979 137,517 159,324 155,954 188,989

GVA in Construction 67,760 89,095 86,503 104,904 88,850 103,908 89,479 99,419 89,069 105,170 100,170 119,849

GVA in Construction
Q1 2012 to Q4 2014
Implicit price index

2012 2013 2014

Industry/Industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Public 228.6 227.1 220.9 216.5 237.5 236.3 227.2 223.3 244.4 242.0 234.2 228.5
Private 208.2 206.7 205.8 195.5 216.0 214.6 211.3 201.4 222.5 220.4 219.5 207.7

Gross value in Construction 211.8 212.2 207.8 199.7 219.8 221.0 213.7 205.4 227.1 225.7 221.4 211.0
UNIVERSITY OF ASIA & THE PACIFIC

GVA in Construction 188.9 184.6 180.2 176.0 196.1 193.6 185.2 182.7 203.6 200.4 194.6 189.4

Source: Philippine Statistical Authority

 december 2014 12 statistics

Gross value added (GVA) in Real Estate, Renting and Business Activities
Q1 2012 to Q4 2014 (current prices)
Unit: P million
2012 2013 2014
industry monitor

Industry/Industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Real Estate 58,252 67,262 68,245 71,602 70,058 82,208 88,109 82,839 80,692 93,825 97,771 91,767

Renting and Other Business

Activities 119,567 140,777 140,579 144,279 129,630 158,489 164,322 169,766 161,458 187,430 188,685 199,700

Ownership of Dwellings 100,771 103,032 104,079 102,281 105,691 108,157 108,556 104,753 108,444 110,742 110,850 109,367

GVA in Real Estate, Renting

and Business Activities 278,590 311,071 312,903 318,162 305,379 348,853 360,987 357,358 350,594 391,997 397,306 400,834

GVA in Real Estate, Renting and Business Activities

Q1 2012 to Q4 2014 (constant prices)
Unit: P million
2012 2013 2014
Industry/Industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Real Estate 32,601 37,327 37,524 39,329 37,994 44,422 47,281 43,962 42,045 48,584 50,104 47,028

Renting and Other Business

Activities 56,743 71,737 68,192 68,136 58,879 79,878 76,808 76,314 70,000 91,766 85,766 87,072

Ownership of Dwellings 66,954 67,221 67,145 65,988 68,444 68,818 68,771 66,366 69,008 69,325 68,962 67,972

GVA in Real Estate, Renting

and Business Activities 156,299 176,286 172,861 173,453 165,317 193,118 192,860 186,643 181,053 209,675 204,832 202,072

GVA in Real Estate, Renting and Business Activities

Q1 2012 to Q4 2014
Implicit Price Index
2012 2013 2014
Industry/Industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Real Estate 178.7 180.2 181.9 182.1 184.4 185.1 186.4 188.4 191.9 193.1 195.1 195.1

Renting and Other Business

Activities 210.7 196.2 206.2 211.8 220.2 198.4 213.9 222.5 230.7 204.2 220.0 229.3

Ownership of Dwellings 150.5 153.3 155.0 155.0 154.4 157.2 157.9 157.8 157.1 159.7 160.7 160.9

GVA in Real Estate, Renting

and Business Activities 178.2 176.5 181.0 183.4 184.7 180.6 187.2 191.5 193.6 187.0 194.0 198.4

Source: Philippine Statistical Authority