MANILA, Philippines — Just a little over 10 years ago, franchising was virtually unheard of in the Philippines.
For the few who were familiar with it, they thought it was a business expansion strategy limited to the big foreign food companies, such as McDonald’s, Shakey’s and Pizza Hut.
Franchising in the Philippines has definitely gone a long way since then, and the industry is showing no signs of slowing down, just of speeding up.
The latest data from the Philippine Franchising Association (PFA), the biggest and oldest franchising group in the Philippines, show that there are close to 900 franchises operating in the country from just 50 in 1995 and 64 percent of these are homegrown. These are largely in food, service and retail.
Franchising has thus become a major force in the economy, accounting for an estimated 15 percent of the annual retail sales of roughly $5 billion.
“Franchising has become the fastest growing sector in the country today and will continue to be a major sector in the near future,” according to the book, “A Guide to Franchising in the Philippines,” produced by the PFA.
Alegria Sibal-Limjoco, chairperson of the 12-year-old PFA, says in an interview that the franchising industry continues to grow in the Philippines, partly because more Filipinos are planning to put up their own businesses, especially among the youth.
Perhaps due to growing exposure to success stories of entrepreneurs who have either acquired a franchise or have become franchisors themselves, many from among the Filipino youth are willing to risk putting their money in a franchise.
“Many of these young people go to our trade shows and I like them because they are brave and are willing to try out new things and go into a business, even if they are also employed at the moment,” Limjoco explained.
She added that with more Filipinos below 30 becoming more exposed to new trends in food or fashion through the Internet and travels abroad, they get to experiment new ideas in the market place.
There is always that possibility that some of these new ideas will become the next Jollibee or Bench — two of the biggest names in the Philippine franchising industry.
The industry is also expected to become a major dollar earner because of the royalty paid collected by Filipino brands now operating in foreign markets.
These include Jollibee (food), Chowking (food), Islands Souvenirs (novelty goods), Hotshots (food), Reyes Haircutters (salon services), Figaro Coffee (food), Video City (video sales and rentals), Crystal Clear (purified water), Kamiseta (apparel) and Netopia Internet Café (Internet services).
Armando Bartolome, one of the Philippines’ leading franchise consultants, expects more Filipino companies to become franchisors outside the Philippines as part of their expansion strategy.
“Franchising is definitely a growing market,” Bartolome says. “Every month, there are entrepreneurs starting to expand via franchising. More and more Philippine companies that are franchising here are now inspired to expand beyond the shores like within the ASEAN region, Middle East and North America. I could see that within the next decade, almost all businesses will be into franchising.”
This entails some tweaking of the concepts to suit foreign markets, says Pacita U. Juan, CEO of Figaro Coffee Corp., which has branches in China.
Juan, an officer of the Association of Filipino Franchisers Inc., says gone are the days when franchise companies used a cookie-cutter approach to franchising, which means one system will work for all territories.
With competition, she says more franchisors have learned to adapt their operations to suit the market where they operate.
Figaro, for instance, had to modify its dessert offerings to go with the coffee in China because the Chinese have a lower tolerance for sweets compared to Filipinos.
Foreign franchises have adopted the same approach in the Philippines.
McDonald’s, for instance, has had to expand its fried chicken line because Filipinos buy more fried chicken than hamburgers.
Bartolome says the composition of the franchising industry changed over the past decade.
“Before, when one speaks of franchising, what comes to the mind of many would be food. Everybody wanted to jump into the bandwagon of getting a food franchise,” he says, “What I find emerging is the service industry, the likes of salons, preschools, tutorials, spas, laundry shops. The population is now looking for convenience.”
The PFA’s Limjoco offers the same view and sees bright prospects in the services sector, especially those concepts related to tourism and business process outsourcing.
Limjoco says that as the Philippine government succeeds in its campaign to bring in more tourists to the Philippines, new franchise opportunities would necessarily crop up, such as new budget hotel concepts and souvenir shops.
The business process outsourcing sector is another sunshine industry in the Philippines and it has spawned related businesses, such as schools put up to train Filipinos to speak better English so they can get a high-paying job in a call center.
“I see big opportunities in the BPO sector because it is expected to grow by 300 percent by 2010. As such, the sector offers very good franchising prospects not just in training but in other areas as well,” Limjoco says.
She also expects great potential in franchises within the health and wellness sectors, such as spas, salons and restaurants and food outlets catering to the more health conscious individuals.
Of course, the traditional food, fashion and “fun” sectors will always remain a major force in the franchising industry, but other concepts are getting their fair share of the market.
Aside from the change in the composition of the franchising industry, experts also see some changes in the value of the franchise concepts in the market.
There was a time when only franchise investment packages worth at least P1 million were available to entrepreneurs, whether foreign or Filipino.
Today, franchise concepts are offered by successful small and medium-scale enterprises (SMEs) for below P50,000, such as water-refilling stations, beauty salons and food businesses in kiosks, carts and stalls.
The PFA says in its book that due to standards, modern technology and better management systems, franchising has helped improve the productivity of SMEs, enabling them to expand more rapidly.
This is proven by the boom in the number of franchises in the form of kiosks or stalls, which have also expanded outside the capital of Metro Manila to take advantage of opportunities in the provinces.
But perhaps the main reason behind the success and growth of the franchising sector in the Philippines is the great profit potential.
This was true when franchising came to the Philippines in 1910 when Singer Sewing Machine offered distribution licenses or produce distributorships, and it remains true today.
It does not matter if the franchise is small or large. It has long been proven that riding on a proven business concept is still less risky than putting up a business from scratch.
As PFA said in its book, franchising in the Philippines has been enjoying a high success rate of 90 percent, which is far better the general retailing industry’s success rate of just 25 percent.
Not all franchise concepts, however, are created equal. Some are definitely better than others. It is the potential franchisee’s job to do his homework and really study the business.
In short, investigate before investing. In this way, the future of the franchising industry in the Philippines will become even more robust than it already is today.