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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 3):
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 financial


intermediation

12 Gross value added in electricity,


gas, and water supply

Industry statistics
12 Gross value added in manufacturing
by industry group

issn 0117– 1798

november 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.
november 2014  F E A T U R E

The Philippine Alcoholic Beverage Industry (Part IiI)

Not So ‘Sin-ful’ After All


This paper presents further details on the industry, including companies’ investment requirements and the
industry monitor

strategies to ensure steady supply and distribution of high-quality products.

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

T
he third part of our study discusses the supply conditions of the alcoholic beverage
industry and introduces the strategic forces that govern the industry.

Supply Joe White Maltings Pty. Ltd.


Raw Material Sourcing Malteurop SA
The players in the alcoholic beverage industry categorize the MalteriesSoufflet
raw materials that they use into two: the ingredients used in Barrett Burston Malting Co. Pty. Ltd.
concocting their products and the materials used in packaging. Cofco Malt (Dalian) Co. Ltd.
Their main strategies in obtaining these materials include Guangzhou Malting Co. Ltd.
forging partnerships and signing contracts with a number Malteurop (Baoding) Malting Co. Ltd.
of local and foreign companies, as well as acquiring wholly- QitaiChunlei Malting Co. Ltd.
owned or partly-owned subsidiaries for the production and ShandanRuiyuan Beer Materials Co. Ltd.
storage of raw materials. Maintaining both types of strategies Taiwan Hon Chuan Enterprise Co. Ltd.
is beneficial for the said companies because it reduces their Gansu Tianma Hops Co. Ltd.
dependence on only one supplier while ensuring the lowest Guangzhou Yonglitai Tetrahops Co. Ltd.
possible cost. Strict monitoring of supply needs, control of HVG Hopfenverwertungsgenossenschaf
inventories, and regular evaluation of contracts also shield the Jiuquan Steiner Trading Company
companies from any volatility of market prices or unexpected Joh. Barth & Sohn Gmbh & Co. KG
decrease in supply that may result from natural calamities or John Haas Inc.
other forces. Shenzhen Kaersai Hops Oil Co. Ltd.
For instance, smbi imports the main ingredient for its Simon H. Steiner Hopfen GmbH
products. The malt and hops used in fermenting smbi’s Zhuhai Steiner Hops Oil Co. Ltd.
beer products are sourced from North America, Australia,
and Europe. For their international operations, however, However, smbi turns to the local industries for adjuncts or
companies in the respective country of operation, such as other grains added into the malt to improve its taste. Grains
China, are also considered as possible sources. The following that enhance flavor include corn grits, tapioca, rice, sugar,
is a list of smbi’s foreign providers of malted grains, both for and starch. Adjuncts are usually sourced from the particular
the Philippine and international operations: country of operation, depending on the desired taste for the
F E A T U R E 

brands particular to that location. The following list includes and Absolut Distillers Inc. (adi). Their 2012 Annual Report
companies that provide grains in countries where smbi has states that “the acquisition of aac and adi was designed to
production facilities: control alcohol cost and minimize the chances of shortage in
supply.” Despite this, tdi maintains relations with some local
BinhPhuoc General Import Export Joint Stock Co. and foreign alcohol suppliers.
Cagayan Corn Products Corporation For the sourcing of other crucial ingredients such as
Capital Glucose water, and for the bottling and transferring of the finished
Chaodee Trading Co. Ltd. alcoholic products into containers, these industry giants turn
Corson to their own subsidiaries. For example, the smb Beer Group
Costimex SA sources most of its packaging materials from San Miguel
CP Food Store Co. Ltd. Yamamura Packaging Corporation, a subsidiary of smc,
Daesang Corporation and its subsidiaries, which manufacture new glass bottles,
DNTN Toan Dao aluminum cans, crowns, plastic cases and carton boxes,
Dongguan Fengpu Sugar Co. among other packaging products. Since tdi is also affiliated
Dongguan Jinxianfeng Sugar Co. with Asia Brewery Inc. (abi), a conglomerate that is highly
Fococev involved in the market for various alcoholic and non-alcoholic
FoshanGuangming Food Manufacture Co. Ltd. beverages, glass bottles for tdi’s rum and other products are
FoshanQiaobo Sugar Co. easily sourced.
Guangzhou Fangdao Crystallization Fructose Co. Moreover, for the packaging of alcoholic products, a
HebeiHaiyu Foodstuff Co. Ltd. common practice among Filipino competitors is using reusable
Hefei Longjie Rice Co. Ltd. glass bottles. Each manufacturer has an efficient returnable
Heindrich Trading Corporation bottle system. tdi maintains a network of secondhand bottle
K.C. Rung Ruang Rice Mill Co. Ltd. dealers across the nation who retrieve the bottles from the
KCP Keangcharoen Co. Ltd. market and sell them back to tdi. Meanwhile, smbi keeps an
KhanhHoa JSC agreement with retail outlets selling its products to collect
Limketkai Manufacturing Corporation deposits on bottles when consumers buy alcoholic beverages
My Tuong JS Co. and return the deposit when the bottles are returned.
NinhHoa JSC According to the smbi Annual Report for 2012, the returnable
Ninh Tuan Ltd. glass bottle is by far the most popular packaging for beer in
RJJ Enterprises the Philippines, accounting for 99% of the company’s sales.
Shandong Zhonggu Starch Sugar Co. Ltd. These bottles have an average usage of 60 cycles in 10 years,
Shunpingzhuoya Starch Product Co. Ltd. greatly reducing their cost and vulnerability to price increases
Shunde Sheng Yu MiYeGaomin Rice in raw materials and fuel. According to tdi’s annual report,
SinarPematangMulia “the cost of the secondhand bottles, including cleaning, is
SinarUnigrain 50% lower than the cost of purchasing new bottles”.
SuizhouJifengNongmao Co. Ltd. The lone wine producer featured in this paper, Bel Mondo
Taikoo Sugar Ltd. Italia Corporation (bmic), also stated that majority of its raw
TonghuaBuayai (1994) Co. Ltd. materials and ingredients are imported, even some of its
Wan Shun Da laborers. According to Vicente Quimbo, one of the owners
ZhaoqingHuanfa Preserved Fruit Syrup Co. of bmic, the grape concentrate they use for making the wines
are imported from Chile, California, and Spain because the
Although the main ingredients for beer fermentation are local grapes are scarce and would not pass the standards of
UNIVERSITY OF ASIA & THE PACIFIC

the grains used, the primary raw material for other spirits international quality wines. Also, since special bottles are
is sugar, or the juice from sugar cane, otherwise known as used for wines, they are also imported by the company from
molasses. Tanduay Distillery Inc. (tdi), the leading producer Italy. Lastly, unlike any other manufacturing company, bmic
of rum in the Philippines, avails of molasses from major local ensures its laborers’ quality of work to be the leader in wine
suppliers such as Victorias Milling Co., Binalbagan Sugar making in the Philippines. “Our winemakers come from the
Company, and Tate & Lyle Corp. Part of tdi’s strategy was to wine making industry of Italy, from a generation of wine
buy a 7.4% share in Victorias Milling Company Inc. (vmci), makers,” said Mr. Quimbo.
the largest sugar producer in the Philippines, to ensure a 
Cahiles-Magkilat, Bernie. “Manila Economic and Cultural
constant supply of their primary ingredient. The molasses are Office - Local Winemaker Expanding Its Operations.” Manila
Economic and Cultural Office - Home. http://meco.ph/mecog/index.
then fermented to become alcohol, and later on distilled in the php?option=com_content&task= view&id=999&Itemid=155 (accessed
facilities of tdi’s two subsidiaries: Asian Alcohol Corp. (aac) October 13, 2013).
november 2014  F E A T U R E

Investment Requirements
Figure 1 • Organizational Structure of smbi
The capital required for a potential entrant to the industry
could be based on the current assets of the alcoholic
beverage industry’s giants: smbi for beer, and tdi for rum.
The obvious strategies that worked for both industry leaders
industry monitor

are (1) the acquisition or ownership of other companies


that play a crucial role in the process of producing
alcoholic beverages, and (2) the expansion of operations by
establishing a number of production facilities in different
parts of the country and abroad.
These strategies could be observed in the organizational
structure of smbi (see Figure 1). Majority (51%) of smbi’s
shares are owned by San Miguel Corporation, which in
turn also owns shares in related companies such as the
San Miguel Yamamura Packaging Group for packaging;
Petron Corporation for fuel supply; Ginebra San Miguel
Inc., which could help ease production costs by providing
excess capacities; and smc Shipping and Lighterage
Corporation for shipment of the products to different
outlets nationwide. This is an advantage for smbi because
it would mean a cost reduction as well as a more efficient Source: smbi Annual Report 2012
and effective means of production and distribution.
With regard to the vertical relationship of smbi with the are responsible for bottling operations. Moreover, gsmi also
other companies illustrated in the figure, the distribution operates in Thailand and exports its products all over the
of properties is also delineated among the subsidiaries world.
directly under smbi. While smbi, which serves as the main As for tdi, it is a wholly owned subsidiary of Lucio Tan
company, retains ownership of all plants and equipment Group Inc. (ltg), which in turn owns other companies related
used in the domestic beer business, the brand assets such to alcoholic and non-alcoholic beverage manufacturing (Figure
as trademarks, copyrights, patents, and other intellectual 12). Directly under tdi are two majority-owned subsidiaries:
property are under the supervision of Iconic Beverages Asian Alcohol Corporation (aac) by 95% and Absolut Distillers
Inc. (ici). Other land assets, including the company’s Inc. (adi) by 96%. aac has a 10-hectare plant strategically
production facilities and sales offices, are supervised by located in Pulupandan, Negros Occidental, near the center
Brewery Landholdings Inc. (bli), a direct subsidiary of of the country’s sugar industry. It has a daily rated distillation
Brewery Properties Inc. (bpi). capacity of 130,000 liters of ethyl alcohol. The property
Meanwhile, San Miguel Brewing International includes aging facilities, a modern wastewater treatment plant,
Limited (smbil) manages all international operations, and a methane gas capture system, all of which play a huge role
which accounted for 19% of smbi’s total revenues as of in maintaining economies of scale in production. Meanwhile,
2012. smbil has a plant in Indonesia, which it owns by adi has a nine-hectare distilling plant in Lian, Batangas, and is
58.33%; another in Thailand, which it owns by 49%, capable of the same functions as tdi for producing a daily rated
and is still different from a marketing firm that it owns distillation capacity of 175,000 liters.
by 100%; a plant in Vietnam, which is 100% owned and tdi’s brand assets, such as trademarks, copyrights, patents,
managed by smbil; and a total of four plants in China. and other intellectual property are managed by Tanduay
Operations are divided into two: North China, where the Brands International Inc. (tbi), another company owned by
plant in Baoding is wholly-owned by smbil; and South ltg. In addition, another affiliate of ltg, Asia Brewery Inc.
China based in Hong Kong, which is 65.78% owned and (abi), has a two-way relationship with tdi. abi provides tdi with
is further divided into two subsidiaries: Guangzhou (70%) water, one of the primary raw materials for the production of
and Guangdong (100%). rum. The rum produced by tdi is also a primary raw material
Ginebra San Miguel Inc. (gsmi) is also a subsidiary of for the production of some of the flavored mixes of alcoholic
smc, where the company has a 77.36% stake (also shown in beverages manufactured by abi.
Figure 1). Although its headquarters are still based in Manila, With regard to the wine section, the major requirements
its production facility in Bago City, Negros Occidental, is for Mr. Quimbo to start bmic were property, plant, and
responsible for distilling operations and its plants in Mandaue equipment. In an interview with Manila Bulletin, Mr.
City (Cebu), Santa Barbara (Laguna), and Cabuyao (Laguna) Quimbo noted that the new 1.3-hectare winery his company
F E A T U R E 

built in Calamba already cost PHP 100 million. Equipment Republic Act (RA) No. 7394, Consumer Act of the Philippines
and machines are still excluded from this expense. However, This law encompasses the entirety of products circulating in
he emphasized that given the new plant and technology the market. The essence of this law could be summed up in
acquired by his company, production is expected to increase Article 2, which states the following objectives:
three times more than the original volume. Thus, bmic would a) Protection against hazards to health and safety;
be able to satisfy the growing demand from Vietnam and the b) Protection against deceptive, unfair and
Middle East. The company is also targeting countries with a unconscionable sales acts and practices;
large population of overseas Filipino workers (ofws) because c) Provision of information and education to facilitate
bmic’s sweet wines are said to be suited to the Filipino taste. sound choice and the proper exercise of rights by the
Of course, suppliers of raw materials such as grape extract and consumer;
bottles are also needed for the company to be able to produce d) Provision of adequate rights and means of redress; and
wines. e) Involvement of consumer representatives in the
formulation of social and economic policies.
Figure 2 • Organizational Structure of Tangent Holdings This law could be considered as the parent legal framework
Corporation
of all industries, including that of alcoholic beverages,
because it cites all the rights of consumers with regard to their
interaction in buying goods in the market. The adherence of
industry players to the Consumer Act should be immediate
because the law itself reflects the prioritization of the market:
consumers first. The law provides a detailed account of
what consumer rights are, as well as the nuances and the
proper approach to conforming to the law. As with any law,
violations will result in penalties (see Annex B for a copy of
the document).

Food and Agricultural Import Regulations and Standards


These regulations and standards outline how the Philippine
government accepts imports into the local market. In general,
these standards are classified into eight sections: (1) Food Laws;
(2) Labeling Requirements; (3) Packaging and Container
Source: abi Annual Report
Regulations; (4) Food Additives Regulation; (5) Pesticides
and Other Contaminants, and (6) Other Regulations and
Legal Framework for the Philippine Alcoholic Beverage Requirements. In the case of alcoholic beverages, the section of
Industry interest is Section VI, which highlights the need for imported
The alcoholic beverage industry in the Philippines alcoholic beverages to be registered under the Bureau of
operates within certain legal boundaries. Laws, ordinances, Food and Drugs (bfad). Imported alcoholic beverages, which
regulations, and policies affect numerous dimensions of the are defined under Category II of Section VI, are subject
industry players. Possible implications could be directed to numerous tests and approvals by the bfad before these
towards consumption, production, and distribution. For products are made available to the Philippine market.
further analysis, the paper will present several significant legal The regulations set by the bfad with regard to imported
mandates that shape the alcoholic beverage industry. alcoholic beverages creates a standard for industry players
The legal framework for the alcoholic beverage industry to consider when introducing imported products to local
UNIVERSITY OF ASIA & THE PACIFIC

mainly targets two groups: consumers and producers. consumers. These regulations may entail business implications
Consumer laws are those that indirectly affect a firm’s such as a preliminary screening of products before having it
operations, while producer laws are those that directly approved by bfad, preliminary market research on risks and
influence industry players. In reality, a producer has a returns regarding the import of new alcoholic beverages, and
responsibility to aid in enforcing the laws for the protection the like. These standards may cause difficulty for foreign
of the consumer. Some laws have absolute power over the brands to enter the market, but also provide an incentive for
entire production environment, whereas others specifically high-quality goods to be distributed.
target the alcoholic beverage industry. To illustrate this
point further, the following are some of the laws that have House Bill (HB) No. 5101, Anti-Underage Drinking Act of
significant effects on the industry. 2011: An Act Prohibiting the Access of Minors to Alcohol and
 Ibid. Penalizing Establishments that Furnish Alcohol to Minors
november 2014  F E A T U R E

Drafted in 2011 by Representatives Diosdado Macapagal look out for the welfare of the youth. It is only enforced for
Arroyo and Gloria Macapagal Arroyo, this law aims to ban both consumers and producers to act in conformity with the
the consumption and distribution of alcoholic beverages moral and ethical standards set for the Philippines. However,
to individuals below the legal drinking age of 18 years. if one were to disregard this specific law and focus solely on
Distributors of alcoholic beverages (e.g., bars, supermarkets, the number of potential buyers of alcoholic beverages, minors
industry monitor

restaurants, and hotels) are restricted from engaging in included, firms would reap significantly more profits than they
transactions with under-aged patrons. Individuals below the do now. In 2001, the World Health Organization recorded
age of 18 are also prohibited from consuming any form of that 24.3% of the total population were drinkers aged 15-
alcoholic beverage. Should any of the involved parties violate 19 years old (42.4% males, 11.1% females). This number
the said law, corresponding penalties will be handed out (see could translate to increased unrestricted profit. However, this
Annex C). law calls for moral and social responsibility over economic
This law generally looks out for the welfare of the youth profit.
by regulating the consumption of alcoholic beverages to those
of legal drinking age. However, a certain segment of the Senate Bill No. (SBN) 1783, Alcoholic Beverage Labeling Act
population is already removed as potential buyers. From a of 2007: An Act Requiring that Alcoholic Beverages Carry
strictly sales-oriented perspective, HB 5101 effectively removes Health Warnings on their Containers
almost half of the total population, as shown in Figure 11. Senator Miriam Santiago drafted this law as a means to
Figure 13 shows the 2010 Philippine population with ages provide consumers with the proper information regarding
18 years and above. According to the official 2010 census of the the effects of alcoholic beverage consumption. As stated in
National Statistics Office (nso), out of the total 92,097,978 the bill, it aims to “protect and promote the right to health
million household population in that year, 55.5 million or of the people and instill health consciousness among them.”
60.3% of the entire population were of the voting age or Generally, it requires all manufacturers of alcoholic beverages
18 years old and above. Of this number, 27.6 million were to place proper labelling on their products. These labels
male and 27.9 million were female. If this same percentage is should indicate the following:
carried over to the 2012 population of 103,775,002 million,
almost 62.58 million would rather be the potential market of “GOVERNMENT WARNING (1) Women should not
the alcoholic beverage industry under hb 5101. A potential drink alcoholic beverages during pregnancy because of the risk
market of more than 60% of the Philippine population can of birth defects. (2) Consumption of alcoholic beverages impairs
be considered as a good figure for the players in the industry your ability to drive a car or operate machinery, and may cause
knowing that the said hb is necessary to protect the industry health problems.”
and, at the same time, the portion of the population who
are minors. This hb prevents any more unfortunate cases of Failure to comply with the said law will entail correspond-
health risks, accidents, and violence among the youth, which ing penalties, as well as a possible ban from distributing alco-
helps the alcoholic beverage industry to exist in a more secure holic beverages in the market (see Annex D).
market environment. This law creates minor business implications but major
social effects because it calls for the transparency of industry
Figure 3 • 18 Years Old and Above of the 2010 Philippine
players towards their consumers. The imposition of health
Population
risk warnings creates the impression of social responsibility
Philippine Population: 18 years and above, 2010
from the producers as well as an atmosphere of trust between
27.6 27.9
customers and manufacturers. There are no significant
additional costs to the manufacturer in terms of adding such
warnings on their labels because it requires no new label to be
attached to their products. This translates to low production
Millions

cost impact or no cost at all.

RA No. 10351, Sin Tax Law: An Act Restructuring the Excise


Tax on Alcohol and Tobacco Products
Male Female Being one of the most heatedly debated bills in recent times,
Source: NSO 2010 Census, http://www.census.gov.ph/content/age-and-sex-structure- ra 10351 (more commonly known as the Sin Tax Law)
philippine-population-facts-2010-census
aimed to restructure the taxation on alcoholic beverages and
As mentioned, this law does not cause any conflicts tobacco products. Over the next five years, there will be a
between policymakers and industry players, because it is gradual increase in taxes generated from these products, as
only part of the companies’ corporate social responsibility to shown in Table 1.
F E A T U R E 

Table 1 • Effect of Sin Tax on Prices of Tobacco and of the misuse of its products may increase consumer trust
Liquor and recognition. The passage of this law also entails that
2013 2014 2015 2016 2017 consumers may be more cautious in consuming excessive
Tobacco (per pack) amounts of alcohol, which may lead to a reduced volume
Less than
Php12.00 Php 17.00 Php 21.00 Php 25.00 Php 30.00 of sales of alcoholic beverages. The effect remains to be seen
Php 11.50
in the coming months, as the law is still at an early state of
Php 11.50
25.00 27.00 28.00 29.00 30.00 implementation and the available data may not be conclusive
and more
Fermented Liquor (per liter) in affirming this assumption.
Less than
15.00 17.00 19.00 21.00 23.50
Php 50.60
Industry Structure
Php 50.60
and more
20.00 21.00 22.00 23.00 23.50 Market Structure
Distilled Spirits (specific per proof liter + ad valorem per proof) The market structure of the industry illustrates the selling
NRP per Php 20.00 Php 20.00 Php 20.00 Php 21.80 Php 21.63
environment of firms and how firms are organized in the
proof + 15% + 15% + 20% + 20% + 20% market. There are four commonly known market structures in
Source: Briefer on the Sin Tax Law, see Annex E economics: monopoly, oligopoly, monopolistic competition,
and perfect competition. These four classifications are further
This restructuring aims to achieve the following defined based on four criteria: number of sellers, number
objectives: “(1) Annual indexation of excise tax; (2) World of buyers, ease of entry and exit in the market, and degree
Trade Organization (wto) compliance on distilled spirits; of product differentiation. Table 3 shows that the industry
(3) Generation of more revenues for the government; (4) is composed of only a few firms, some of which contribute
Additional funding for tobacco farmers’ livelihood support; majority of the sales of the industry while others contribute
(5) Higher health care spending; and (6) Reduction of tobacco very little; thus, the alcoholic beverage industry can be
and alcohol consumption for better health outcomes” (see classified as an oligopoly.
Annex E for a detailed explanation). In an oligopoly, only a small number of large sellers compete
Given that the law was signed on December 20, 2012 and with one another. We have seen this in Table 3 where only
became effective on January 1, 2013, it is not yet evident five selected domestically-based firms were observed to be
how significant the effects of the law will be on the alcoholic visible and performing well in sales. These firms target a large
beverage industry. However, given the available data for sales number of consumers in the market especially those who are
of alcohol in the country for the past years, we can forecast the already in the legal drinking age. Given the number of laws
possible business implications of the Sin Tax Law on industry and policies governing the industry, there is also a relatively
players in the coming years. These forecasts will be presented difficult time of firm entry and exit in the industry. Lastly,
later on in the research paper. tight competition can be observed among the firms because
they produce only one kind of product, which are alcoholic
RA No. 10586, Anti-Drunk and Drugged Driving Act of drinks. It can be, however, further qualified that these firms
2013: An Act Penalizing Persons Driving Under the Influence produce a wide variety of types of alcoholic beverage such as
of Alcohol, Dangerous Drugs, and Similar Substances, and for beer, wines, and spirits that would differentiate them from
Other Purposes one another.
Passed into law on May 30, 2013, the Anti-Drunk and Given that only a few firms dominate the alcoholic
Drugged Driving Act seeks to reduce cases of accident- beverage market, a high concentration is formed. Market
prone driving by imposing strict measures to prevent such concentration refers to the degree of concentration of sales
incidents. Drivers taking up the licensure exam are subject of the four top firms in the overall sales of the industry.
to education on the effects of alcohol and drugs on driving With this, the relative position of the firms in the industry
UNIVERSITY OF ASIA & THE PACIFIC

skills, and the hazards associated with alcohol and drug use. is known. This ratio identifies the market power of the firms
Moreover, all parties involved in any vehicular accident are over the rest.
required to undergo sobriety tests to determine if they are One measure of market concentration is the Hirschman-
under the influence of any alcoholic substance or drugs. Herfindahl Index (hhi), which is computed by totaling the
Punishment ranges from a maximum of P500,000 and even squared market shares of all the companies. To obtain the
the revocation of one’s driver’s license. market share, a company’s sales or volume of sales over the
Again, laws such as these call for an individual’s responsible period is divided by the total sales or sales volume of the
consumption of alcohol, as well as the social responsibility of industry over the same period.
an alcoholic beverage company to inform its customers of the The hhi is influenced by both the number of firms in
hazardous effects of driving under the influence. An evident the market and the market share of each company in the
consciousness of an industry player of the social repercussions industry. When the number of firms in an industry increases,
november 2014  F E A T U R E

the hhi falls; thus, a negative relationship exists between the volume. Therefore, the data prove that the concentration
two. Meanwhile, if the market share of the top companies ratio for the top four firms would be more than 91% of the
increases, the hhi also increases; thus, a positive correlation total volume of alcoholic drinks distributed and sold to the
exists between the two. The hhi is also a definite value that market. The data is consistent with the computed hhi of
has a direct interpretation. If the hhi is 1.0, the market the alcoholic beverage industry.
industry monitor

structure of that industry is a monopoly. If the hhi is between


0.5 and 1.0, the market structure becomes a “dominant firm” Table 3 • Company Shares of Alcoholic Drinks, % Total
industry. For both a tight oligopoly and loose oligopoly, on Volume 2008-2012
one hand, the hhi must be between 0.2 and 0.5 (the two only 2008 2009 2010 2011 2012
differ in the concentration ratio). Monopolistic competition
San Miguel Brewery Inc. - 75.9 75.2 71.8 71.1
occurs if the hhi is between 0.1 and 0.2, and lastly, perfect
Alliance Global Group Inc. 4.9 4.5 5.9 9.8 10.7
competition occurs if the hhi is less than 0.1.
Tanduay Distillers Inc. 6.6 6.5 6.5 6.5 6.4
In the case of the alcoholic beverage industry, we can see
SABMiller Plc. 4.1 4.0 3.8 3.8 3.7
from the hhi column of Table 2 that the industry has a value of
Asia Brewery Inc. 4.2 4.2 3.7 3.4 3.3
0.4569, which indicates that the alcoholic beverage industry in
London Birmingham Distillers
the country is a tight oligopoly. This interpretation, however, Ltd.
0.3 0.3 0.4 0.3 0.3

differed from its computed concentration ratio, which is only Bel Mondo Italia Corp. 0.1 0.1 0.1 0.1 0.1
29.36% and did not fit into the 60%-90% concentration Destilería Limtuaco & Co. Inc. 0.2 0.2 0.2 0.1 0.1
ratio requirement for a tight oligopoly. E & J Gallo Winery Inc. 0.1 0.1 0.1 0.1 0.1
Beam Inc. - - - 0.1 0.1
Table 2 • Computation of the hhi of the Top 9 Firms in the Others 79.6 4.2 4.2 4.0 3.9
Alcoholic Beverage Industry
Total 100.0 100.0 100.0 100.0 100.0
(with available sales data from sec)
Source: Euromonitor International from official statistics, trade associations, trade press,
Selected Firms in the 2010 Sales in Market Market company research, store checks, trade interviews, trade sources
Alcoholic Beverage Industry PhP Share Share2

1. San Miguel Brewery Inc. (smbi) 55,835,000,000 17.46% 0.0305


Degree of Rivalry
2. Ginebra San Miguel (gsmi) 21,170,276,000 6.62% 0.0044
According to Porter’s Five Forces, among the indicators used
3. Tanduay Distillers Inc. (tdi) 8,955,884,182 2.80% 0.0008
to determine the degree of rivalry in an industry are the number
4. Emperador Distillers Inc. (edi) 7,960,845,070 2.49% 0.0006
of players, growth of the industry, life cycle of the products,
5. Asia Brewery Incorporated (abi) 6,856,593,463 2.14% 0.0005
cycle of the industry, capacity to increase, importance of
6. Distileria Bago, Philippines (dbp) 1,019,541,700 0.32% 0.0000
reputation, degree of integration of competitors, and brand
7. Diageo Philippines Inc. (dpi) 1,388,011,619 0.43% 0.0000
loyalty.
8. Destileria Limtuaco (dl) 196,829,155 0.06% 0.0000
For the number of players, according to a summary and
9. Bel Mondo Italia Corp. (bmic) 258,272,878 0.08% 0.0000
interpretation of Porter’s Five Forces by Prof. Tony Lima,
10. Others** 216,213,545,933 67.60% 0.4569
“an industry in which a few firms supply most of the output
Total Industry Sales 319,854,800,000 100% -- is likely to not be very competitive because the large firms
HHI (Total Market Share ) 2
0.4937 will control the market”. True enough, in the Philippine
Concentration Ratio (cr) 0.2936 alcoholic beverage industry, competition may not be as high
Note: *2008 Data of Tanduay, 2010 not available
** These are composed of other firms, mostly foreign, that contribute largely to the
because of its oligopolistic nature. An article on distilled
industry but do not have sales data from the Securities and Exchange Commission. The
inconsistency was checked by using the percent volume shares of each company.
spirits in the Food and Agribusiness Monitor mentioned
Source: Securities and Exchange Commission, i-Report – i-View, https://ireport.sec.gov. that 26 establishments were involved in the manufacture of
ph/iview/login.jsp
alcoholic beverages.
However, according to the hhi column in Table 29, more
This inconsistency caused by lack of sales data was than 31% of the total shares in the alcoholic beverage market
then resolved by obtaining the percentage share from the are shared by the top five players in the industry. smbi ranked
total volume of the companies given by the Euromonitor first with 17.54%, followed by gsmi with 6.62%, tdi with
International from 2008-2012 (see Table 3). It can be 2.80%, edi with 2.49%, and abi with 2.14%. However, with
observed that more than 70% of the total volume of smbi and gsmi both being under San Miguel Corporation, and
alcoholic drinks came from smbi. It was then followed
by tdi with a 6.5% share in the total volume; Alliance 
Lima, Tony. “Michael Porter’s ‘Five Forces’ Model: Summary and
Global Group Inc., which produces Emperador products Interpretation.” February 25, 2006.
as the third largest with a 5.9% share; and SABMiller Plc, 
Orzales, Joy Kristel L. “The Philippine Spirits Industry.” Food
and Agribusiness Monitor. Center for Food and Agribusiness, University
a foreign market player with a 3.8% share in the total of Asia and the Pacific, November 2011.
F E A T U R E 

Table 4 • Summary of Rivalry Determinants The players in the beer industry compete not only with
each other but also with producers of other products in the
Industry Attractiveness
alcoholic beverage market, especially the distilled spirits
market. Similar to smbi and abi, the players in the distilled spirits

Very Unattractive

Highly Attractive
Unattractive
Intensity of industry compete on the basis of price, product quality, brand

Attractive
Neutral
rivalry
determinants awareness and loyalty (through advertising and promotion),
distribution coverage, and the ability to respond effectively to
shifting consumer tastes and preferences (see Figure 5).
Number of players Many X Few
Figure 5 • Extent of Competition Faced by Key Players of
Growth of industry Low X High Alcoholic Beverage Industry
Product life cycle Short X Long

Industry cycle Mature X Young

Capacity increases High X Low

Importance of
High X Low
reputation

Degree of
integration High X Low
of competitors

Brand loyalty High X Low

both tdi and abi managed by the Lucio Tan Group, while edi
is under the Alliance Global group, we can surmise that only
three large corporations are controlling the entire alcoholic
beverage industry.
The alcoholic beverage industry in general has a highly
competitive environment. Manufacturers of each type
of alcoholic drink compete with one another. There is
competition within the malted liquors and beer industry,
within the fermented liquor industry, and within the distilled
spirits industry. Moreover, the different types of alcoholic Source: Consolidated disclosures of TDI, SMBI, EDI, and Canadean, 2012

beverages also compete with one another, not to mention with


both local and foreign competitors in the alcoholic beverage The main producers of distilled spirits are edi, tdi, and
market. Additionally, the alcoholic beverage industry as a gsmi. These three manufacturers already account for 99%
whole competes with other consumer goods such as other of the Philippine distilled spirits market by sales volume.
food and beverage products. According to Nielsen, as of December 31, 2012 as cited
For the beer industry, smbi admitted in its Bond by tdi’s financial disclosure, most consumers of distilled
Prospectus 2008 that although it has the largest market spirits consume brandy, which accounts for 42.2% of the
share, this position is threatened by abi, another domestic market, while rum and gin account for 27.6% and 24.7%,
producer of beer. Both smbi and abi sell their own portfolios respectively. Another notable observation regarding the
of brands along with a number of international brands for degree of rivalry within the distilled spirits industry is its
which they have the license to sell. For each price segment in basis on geography. The disclosure by edi in 2012 reveals
the beer market (discount, mainstream, premium, and super that the popularity of locally-produced spirits is strangely
UNIVERSITY OF ASIA & THE PACIFIC

premium), both smbi and abi have a corresponding product delineated geographically, with gin more widely patronized
to fit the preference of each consumer set. Both companies by the northern provinces, rum by those in the Visayas and
are quick to respond to the growing needs of the current Mindanao areas, and brandy by city dwellers, especially in
market and are both aggressive in tapping new segments of Metro Manila.
the population. This behavior is evident in the release of Although all three players have diversified their
new products that are aimed specifically at health- and diet- portfolios to include the other distilled spirits, edi is still
conscious consumers, as well as those who prefer lighter best known for brandy, tdi for rum, and gsmi for gin.
alcohol content or weaker alcohol flavor. The increased brandy consumption in the past years
encouraged tdi and gsmi to introduce their own brandy

San Miguel Brewery Bond Prospectus. San Miguel Brewery.
http://www.sanmiguelbrewery.com.ph/SMB_Bond_Prospectus.pdf products to the market. Shifts in consumer preferences
(accessed September 10, 2013). also prompted players of the distilled spirits industry to
november 2014 10 F E A T U R E

launch new products in the presence of flavored spirits. for their regular products. In fact, Table 5 shows that the
edi introduced The BaR, tdi introduced Boracay, and leading beer products for 2009 continue to dominate the
gsmi introduced Flavors. These products, however, vary in market in 2011. Also, most of the brands (Red Horse,
the percent alcohol content. The disclosure by tdi further Gold Eagle, Colt 45, Beer na Beer, and Coors) posted
stated that internationally-produced rum and other spirits, modest growth, except for two brands, which showed a
industry monitor

such as vodka and scotch whiskey, are more expensive and moderate decline (San Miguel Pale Pilsen, Lone Star). The
are not able to reach a significant number of consumers brand that showed the highest growth from 2009 to 2012
because of minimal distribution channels. The smbi Bond is Colt 45. The increase in volume sales of Colt 45 shows
Prospectus also said that imported brands account for how much effort was exerted by abi in its promotion to
only 0.1% of the Philippine beer market because they are keep up with its rival, Red Horse, which continues to lead
usually found only in high-end bars and hotels and upscale the competition in the beer industry.
supermarkets.
The growth of the alcoholic beverage industry could Table 5 • Top Beer Brands by Volume from 2009 to 2011
be attributed to the effort of the key players to tap various
segments of the market by introducing new products. Proof 000 HL (Thousand Hectoliters)
of this is the creation of flavored drinks and mixes, which Manufacturer
Brand (or Local 2009 2010 2011
features the addition of other types of drinks to the typical Operator)
alcoholic beverage. Examples of these are the fruit-flavored Red Horse SMBI 7,958.0 8,745.0 8,895.9
beers introduced by San Miguel under the brands San Mig San Miguel Pale
SMBI 4,711.0 4,384.5 4,338.3
Lemon and San Mig Apple, as well as the different flavors Pilsen
and mixes of Tanduay Ice. Manufacturers of distilled Gold Eagle SMBI 998.0 1,237.0 1,324.6
spirits also started adding flavors to their normal drinks: Colt 45 (ABI) 286.4 785.1 829.8
edi introduced The Bar, tdi introduced Boracay, and
Beer na Beer ABI 528.0 690.0 774.5
gsmi introduced Flavors. These products, however, vary
Lone Star (ABI) -- 24.1 22.6
in percent alcohol content. Each of the players also made
sure to adapt to new market trends, such as the increase in Coors (ABI) -- 12.1 12.2

health and diet consciousness of the consumers. Hence, Source: Trade Interviews; Canadean 2012

they launched “light” versions of many of their products.


Despite the diversification of their product offerings, The next part of the series shall discuss barriers to entry
the companies did not fail to focus on increasing sales and present the results and conclusion. IM
statistics 11

Gross value added (GVA) in financial intermediation


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

Banking Institutions 89,295 86,315 82,862 81,538 105,763 94,256 99,617 92,842 118,292 105,725 111,787

Non-bank financial
intermediation 48,636 82,578 56,058 65,382 61,517 93,043 61,049 73,281 67,466 101,268 70,518
Insurance 30,185 29,127 34,488 33,980 38,004 36,201 38,435 40,751 40,289 40,677 44,503

Activities auxiliary to
financial intermediation 9,072 10,882 10,451 12,820 10,549 12,768 12,182 14,878 11,366 13,974 12,985

GVA in financial
intermediation 177,189 208,901 183,860 193,720 215,834 236,267 211,283 221,752 237,413 261,644 239,792

GVA in financial intermediation


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

Banking institutions 51,155 47,904 45,837 45,225 58,710 50,985 53,779 49,777 63,090 54,802 57,632

Non-bank financial
intermediation 27,519 46,296 31,220 36,164 33,714 50,834 33,177 39,180 35,525 53,019 36,597
Insurance 16,817 16,547 19,182 18,769 20,517 20,045 20,862 21,759 20,897 21,583 23,069

Activities auxiliary to
financial intermediation 5,150 6,074 5,816 7,113 5,803 6,946 6,616 7,979 6,007 7,285 6,735

GVA in financial
intermediation 100,641 116,821 102,054 107,271 118,743 128,810 114,434 118,696 125,519 136,690 124,033

GVA in financial intermediation


Q1 2012 to Q3 2014
Implicit price index
2012 2013 2014
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Banking institutions 174.6 180.2 180.8 180.3 180.1 184.9 185.2 186.5 187.5 192.9 194.0

Non-bank financial
intermediation 176.7 178.4 179.6 180.8 182.5 183.0 184.0 187.0 189.9 191.0 192.7
UNIVERSITY OF ASIA & THE PACIFIC

Insurance 179.5 176.0 179.8 181.0 185.2 180.6 184.2 187.3 192.8 188.5 192.9

Activities auxiliary to
financial intermediation 176.2 179.2 179.7 180.2 181.8 183.8 184.1 186.5 189.2 191.8 192.8

GVA in financial
intermediation 176.1 178.8 180.2 180.6 181.8 183.4 184.6 186.8 189.1 191.4 193.3

Source: Philippine Statistics Authority


november 2014 12 statistics

Gross value added (GVA) in electricity, gas, and water supply


Q1 2012 to Q3 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

Electricity 75,896 93,300 72,129 65,549 77,807 104,301 75,589 72,066 77,682 107,113 79,315

Steam 2,879 2,818 2,124 2,720 2,264 2,890 1,968 2,801 2,649 3,300 2,193

Water 14,117 15,601 12,184 15,212 14,715 16,787 12,805 16,241 16,217 17,371 13,704

GVA in electricity, gas,


and water supply 92,892 111,720 86,437 83,482 94,786 123,978 90,362 91,108 96,548 127,785 95,212

GVA in electricity, gas, and water supply


Q1 2012 to Q3 2014 (constant prices)
Unit: P million
2012 2013 2014

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

Electricity 43,614 47,754 50,579 43,621 43,923 51,236 55,181 44,950 43,794 52,512 56,558

Steam 2,540 2,615 2,194 2,667 2,443 2,700 2,262 2,577 2,605 2,940 2,403

Water 4,937 5,088 4,559 5,256 5,056 5,388 4,713 5,541 5,523 5,526 5,013

GVA in electricity, gas,


and water supply 51,091 55,457 57,331 51,544 51,422 59,324 62,157 53,067 51,923 60,978 63,975

GVA in electricity, gas, and water supply


Q1 2012 to Q3 2014
Implicit Price Index
2012 2013 2014

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

Electricity 174.02 195.38 142.61 150.27 177.15 203.57 136.98 160.33 177.38 203.98 140.24

Steam 113.31 107.76 96.81 101.99 92.67 107.05 87.01 108.71 101.66 112.27 91.25

Water 285.93 306.62 267.27 289.41 291.01 311.56 271.67 293.11 293.61 314.34 273.35

GVA in electricity, gas,


and water supply 181.82 201.45 150.77 161.96 184.33 208.98 145.38 171.68 185.95 209.56 148.83

Source: Philippine Statistics Authority