Numbers Don’t Lie

The food service industry in the Philippines is growing at a phenomenal rate and everyone wants a part of it.

For those unaware, the food service industry is composed of all forms of food retail. This includes fast-food chains, food kiosks, cafes, bars, take-out and delivery stores, and full-service restaurants.

The Philippine food service industry, in 2016, generated P535.9 billion in revenues on the back of 84,503 food outlets operating in the country. This year, revenues are seen to top P616 billion with 3,126 more food service establishments in operation than there were in 2016.

The insatiable demand for food comes from our enormous population of 106.5 million whose median age of 24.3 years old is the prime age for eating out. There are 4,875 newborn Filipinos added every day.

The food service industry is seen to expand in tandem with the growing population and rising incomes. For the year 2020 and 2021, revenues are seen to reach P637.3 billion and P656.5, respectively.

No surprise, then, that everyone wants to put up a restaurant, be it fledgling entrepreneurs or established businessmen looking for a cash cow on the side. To many, the food business seems like an easy way to make money.

I have been in the food industry for more than 30 years and I can tell you that it is more complicated than it appears to be. The rate of closures is nearly just as high as the rate of new openings. To be successful, one must have the basics in place. These include a strong concept, a good value proposal (food quality in relation to price), a favorable location, an efficient supply chain, tight cash and inventory controls, and enough competitive advantages to compete with the established players in the industry.

It is equally important to understand the trends in the market. Being cognizant of trends and leveraging on them is like swimming along with the tide, not against it. In many cases, it could spell the difference between success and failure.

More foreign competition. Local companies will bring in more food establishments from abroad rather than build their own brands from the ground up. Although doing so will require payment of steep franchise and royalty fees, it is justified by the instant recognition of the brand, immediate market acceptance, a tried and proven business model, and savings on recipe development. A big incentive too is that foreign brands are more likely to secure prime retail spaces as opposed to their local counterparts.

Not only from the US. Unlike in decades past where only food establishments from the US were immediately recognizable and accepted, the market today is more open to brands coming from Japan, South Korea, Taiwan, ASEAN, Australia, and the European Union. This is due to the democratization of travel among Filipinos and their exposure to global food retailers. There is still an element of distrust from brands emanating from China.

Filipino food will evolve. The influx of foreign brands will compel homegrown Filipino concepts to up their game not only in food quality and dining experience but also in terms of recipes and presentation. In other words, Filipino cuisine will evolve quickly. For example, it will not be not far-fetched for some Filipino restaurants to serve fried chicken using the same caramel breading used by BonChon, or local kare-kare presented in the manner of Spanish cocido. New cooking techniques like sous-viding, smoking, and the use of foam will also find their way into local dishes. Evolution of the cuisine will be how retailers of Filipino food will remain competitive amid stiff competition and an environment where the standards of quality are constantly on the rise.

Online platforms are here to stay. To reach a younger demographic and to overcome the logistical barrier of traffic and parking, online delivery services such as Foodpanda, Honestbee (which temporarily halted Philippine operations in April), and GrabFood will play a more important role in every restaurant’s marketing strategy.

An emerging trend too is for Filipinos abroad to order food for their loved ones during special occasions. These online platform makes this possible.

Filipinos have also adopted the habit of making prior reservations before visiting full-service restaurants. This makes apps like Zomato, Eatigo, and Booky indispensable marketing tools in this category.

Customized food delivery. The increasing demand for niche cuisine like halal, keto, pure organic, and vegan will compel many restaurants and private chefs to offer these options by way of online delivery platforms.

Alternative locations will emerge. Due to the high rental costs and market cannibalization among malls and commercial centers, restaurateurs will begin mushrooming in uncustomary sites. These include food trucks in high-traffic areas, residential villages, commercial spaces in the upper floors of buildings and even home dining rooms. We will also see a new wave of expansion of casual dining restaurants in secondary places such as CALABARZON, Central Luzon, and Greater Cebu and Palawan.

Judged by the wine list. The Philippines is one of the fastest growing markets for wines with imports seen to top $121 million this year. While the A and Upper B classes have become discerning about wines, the broad B and C markets are beginning to follow suit given their rising incomes and evolving taste. Thus, restaurants with the wider range of wines of various grapes, origins, and price points will have the advantage. The wine list will become an important deciding factor as to whether an establishment is patronized or not. This applies to both fine-dining and casual-dining restaurants.

Cuisine curiosity and authenticity. A recent market study done by De La Salle University revealed that Filipinos are only willing to patronize a restaurant offering non-mainstream cuisine (e.g. Latin American, European, or Caribbean) if the chef, proprietor, or face of the brand hails from that country. Skepticism is high toward Filipino restaurateurs offering exotic menus.

Increasing popularity of artisanal coffee and gastropubs. Demand for artisanal coffee such as those offered by Toby’s Estate and Single Origin will continue to rise given their superior value proposition. The same is true for gastropubs or establishments that offer high quality food along with specialty alcoholic options like craft beer and gin bars. Artisanal coffee joints and gastropubs outperformed their traditional counterparts by 12% last year in terms of revenue per square meter. So strong is this category that even Starbucks, Krispy Kreme, J.CO Donuts, and Tim Hortons are now offering premium or reserve coffee options to grab a piece of the market.

Asian restaurants will rule. Independent players dominate the full-service restaurant category with only 25% of them operated by mega-chains like the Max’s Group, the Bistro Group, and Shakey’s. The rest are independently owned. Asian themed restaurants (Chinese, Japanese, and Filipino) account for 67% of some 19,000 full-service restaurants in operation today, the balance is comprised of European, American, and Middle Eastern concepts. Asian restaurants will continue to dominate this category in terms of market share and customer preference.

No stopping fast-food growth. The fast-food category will posts the highest growth rate in the years to come expanding by 12% year on year. Interestingly, fast-food sales inside convenience stores will grow at a more phenomenal rate of 32%, thanks to their improving quality and democratic price. Fast-food chains are seen to expand their product offerings to sustain demand even if it encroaches on other food concepts. For instance, we will soon see burger chains offering pizza, chicken chains offering salads, and pizza chains offering rice meals.

Slow growth for food kiosks. Growth in the food kiosk category will not exceed 5% due to market saturation. In this category, the name of the game is novelty and low prices. Those that enter the food kiosk scene selling dimsum, shawarma, popcorn, and Jamaican patties will be clobbered by mega-chains who have carved their own army of loyal customers. The more ingenious, innovative, and affordable the product offerings are, the higher the chances of success.

The food service industry will continue to show tremendous growth over the next few years on the back of our strong, consumer lead economy. Those who wish to take part of it should not make the mistake of oversimplifying it. The industry is in fact akin to a high stakes poker game where those who understand its nuances and play with a well thought-out strategy will win.


Andrew J. Masigan is an economist.