How Big is the Traditional Store Market in the Philippines & in Southeast Asia?

By Lam Zhi Liang
SukiPlus Intern
Student – Singapore Management University

A region endowed with an abundance of natural resources, Southeast Asia’s most valuable resource is, in fact, its people. 

As both young consumers and pioneering businesspeople, the fastest growing economies of Southeast Asia are at a tipping point. The transition of several countries towards a digital economy and emerging market status presents an unprecedented opportunity for investors. In 2 main aspects, investors can get in on the action.

  1. Traditional stores

First, we take a look at traditional stores. Stradled across the region, serving generations of both rural and urban consumers, these trusty stores are the bedrock of the communities that populate the varied economies of the region. Bearing different names such as warung, mamak, sari-sari or cử a hàng tạp hóa (pronounced ker-hung-tup-hwa), these stores serve a similar purpose; their communities daily needs.

Southeast Asia may be a hugely varied region, but the spirit of entrepreneurship is common and shared. Tens of thousands of such stores operate in every nation, with the growth centres of Philippines, Vietnam and Indonesia having a particularly large population of such stores. It is no coincidence that these nations are also highly dominated by traditional stores. The three countries stretch across multiple centres of economic activity, with Indonesia and Philippines being archeipalagos themselves and Vietnam having 2 distinct growth centres of Hanoi and Ho Chi Minh City.

 

The key characteristics that makes traditional stores such a success are that they are ubiquitous, self-owned and low capital. First, being ubiquitous ensures that they serve the needs of many, developing good communal relationships that has been the cemented the trust of generations of communities.

Next, being self-owned ensures that a sense of ownership (that so many large companies struggle to imbue) is present and strong. 

Last but not least, being low-capital means that investors can expect to earn returns with little exposure and yet, be of a great aid in ensuring shops tide through boom-bust cycles.

  1. Banking the unbanked

The second aspect that investors should take close note of is the huge untapped population that have insufficient access to financial services. In 2019, Bain&Company, Google and Temasek published their findings that a majority, 202 million, of the 400 million adult population in the region were unbanked or underbanked.

 

Bringing such a huge demographic into the system is a huge feat, no doubt, but the benefits will be enormous. The Asian Development Bank stated in 2018 that the effect of banking the unbanked through digitalization, could boost annual GDP growth by 2-3 percent in markets such as Indonesia and the Philippines, and up to 6 percent in Cambodia.

 

The study found that as much as four in five small retailers had a need to borrow but did not, largely due to high interest rates and a troublesome loaning process. Indeed, with the help of local fintech firms that understand the market, investors could enter to ease this shortage of capital.

A look at the Philippines demonstrates plenty of such traits. Divided by geography, the archeipalago of 106 million consumers is home to 1.1 million sari-sari stores, that 60-70% of the market (depending on definition).

Investors would do well to ensure that such local shops contiue to succeed in this space, reaching more consumers than any other channel. Fintech firms like SukiPlus help to link firms to financial institutions. This would be vital in ensuring traditional stores operate and expand with the help of loan capital.

In light of COVID

Any analysis right now would be blindsided if they do not address the elephant in the room. In light of the anticipated recovery and resumption of activity and travel, sari-sari stores may be uniquely placed to reap the fruits of re-opening. Their small nature ensures that there simply is no crowding of within the premises of such stores. Next, the ubiquitous nature of these stores ensure that they can serve communities with a minimal need for travel (that is likely still going to be restricted post-lockdown). 

The small businesses that characterise the native trade and local entrepreneurship dominate the region for good reason; people work better when they feel the sense of ownership. The gains from empowering local communities are plentiful, but none more so than now. 

When the lockdowns ease, communities will first turn to their trusted local businesses, the people they know and trust. When this pandemic ends, the investors who see and involve themselves in the recovery of relationships and profits will the winners.

The Asian Development Bank stated in 2018 that the effect of banking the unbanked by through digitalization, could boost GDP by 2-3 percent in markets such as Indonesia and the Philippines, and up to 6 percent in Cambodia.

 

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