GF Issue 54

INS IGHT 36 GLOBAL FRANCHISE | ISSUE 8.2 GOVERNMENT BACKING The Philippines is also very fortunate that its own Department of Trade and Industry is very supportive of the franchise sector, which contributes 7.8% to GDP and employs two million people both directly and indirectly. The government is keen to support various educational efforts as well as events that promote franchising and entrepreneurship, such as the recent Expo. At the same time, it has allowed franchising to flourish as a self- regulated model with no specific franchise requirements. The same rules that apply to corporate-owned stores are also applied to franchising businesses, meaning many overseas brands and investors may enjoy certain freedoms that they don’t elsewhere. Even better, as almost half of the population are Gen Z, they are consistently exposed to the latest global trends and brands. This builds on a long tradition of the Philippines playing a major role in international trade and its colonial history, meaning it already has a history of exposure to many different cultures and their products. Because of this, entrepreneurs are very open to foreign brands and keen to embrace opportunities which allow them to tap into consumer demand for new flavors and experiences. The nation’s geographic location also plays a very important role in its success. Located only about three hours’ flight time from a number of Southeast Asian capitals, the Philippines has great potential as an operational hub for anyone looking to access the 600 million inhabitants of the region. This not only means access to huge markets, but also as a training and development base for brands wanting to expand in the region. BOOMING BUSINESSES So, which sectors are currently performing well in the Philippines and make for a good investment? Well, there’s very little the people of the Philippines love more than food! Eating together is a huge part of their culture, and they often enjoy up to five small meals across the day. No surprise then that food and beverage franchises do extremely well in this region, making up 44% of the franchise industry. These range from large dine-in formats to smaller grab and go setups. Milk tea remains a big segment, but coffee is on the rise, with new coffee brands targeting more and more of the grab and go segment. Japanese, Korean and hotpot continue to be popular, and Thai food is slowly gaining ground too. Filipinos are always looking for new flavors and are willing to try new brands! With a very young population, there’s also been a rise in children’s playgrounds and education franchises, and beauty and wellness businesses are very much enjoying a resurgence. DO YOUR HOMEWORK For foreign franchises looking to expand into the region, or investors looking to local brands for the next big thing, what do you need to know to take full advantage of the country’s extraordinary potential? As always, it is critically important not to dive into any new market without being prepared, and certainly not without considering the unique characteristics and culture of the region. For example, franchise brokerage in Southeast Asia works in a very different way from almost anywhere else in the world, especially the UK and Europe. Brands and investors can also expect significant differences in how contracts are negotiated, and funds secured, from what they may be used to. Despite the self- regulatory freedoms of the local franchise scene, there are still many of the same pitfalls and obstacles to face when dealing with an entirely new region without a proper understanding of its unique characteristics. Another interesting factor is the size and format of those businesses which do well. Though franchises range from large outlets to small stores, the Philippines is a market where kiosks (ie 2-4 sqm- sized stores) are a major segment of the industry. Food, retail and some service brands use these small kiosk formats to reduce investment capital, allowing smaller entrepreneurs to invest in franchising and give brands further presence in more areas of the Philippines. It’s critical for brands to correctly size their business for the market, especially “The Philippines has a large talent pool for franchising, boasting the highest number of Certified Franchise Executives outside of the U.S.”