In a previous post titled The Philippines Sar-Sari Store, I explained what a Sari-Sari store is and how they have evolved into an integral part of the eco-system of Filipino society. Over many years, I have come to know many locals and foreigners alike who either own a sari-sari store or who have attempted to operate one. While locals might be more adept at living on very little income, most of the foreigners I know that have ventured into a family sari-sari store have failed to achieve their desired results.
Today I ran across a facebook post in a fb group that was posed as the question… “Does anyone have any idea how much PROFITS a small SARI SARI would make on a NOT TOO BUSY Barangay Street A MONTH?” This is basically the same question that asks “Should I open a sari-sari store?” Another way to phrase this question would be: “How fast can I lose my business investment in the Philippines?” My answer to him was straight forward and simple – DON’T do it!
This is where I will now attempt to dissuade anyone who has even a vague notion of operating a sari-sari store in order to generate an income to survive in the Philippines. In the past I would simply offer up some simple advice to the age-old complicated question: “How to make a small fortune in the Philippines?” My answer: “Start with a big one!” The sari-sari store is the quickest way I know to watch your hard-earned savings dwindle to almost nothing – and if that interests you, go for it.
Ever heard that term? According to the Tagalog dictionary, the meaning of “Utang” is”
• n. debt. v. umutang (-um-); to owe somebody a debt or an account, to borrow, to ask for a loan. Umutang ka kay Fina. To borrow money.
While there are variations in dialect of the long term, from Bisayan to Cebuano, the word “utang” itself stands alone… “Credit!” Not many people can operate a sari-sari store without it.
If that doesn’t worry you and You’re Still Here, then…
According to Entrepreneur Philippines, the Philippines Association of Stores and Carinderia (food stall) Owners, there estimated to be 1.3 million sari-sari stores in neighborhoods across the Philippines. These stores are visited by 94 percent of all shoppers (Nielsen 2015 study), making it no surprise that this traditional retail idea is the most common entry point for entrepreneurs wishing to get into retailing. And while retail is one of the economy’s fastest growing sectors, sari-sari – with affordable capitalization requirements – is relatively easy to set up as a storefront or an open stall at the public market.
However, a recent Nielsen’s Shopper Trends Survey released in July of 2018, should give entrepreneurs wishing to open a sari-sari store or a market stall some pause. According to the study, the sari-sari store count nationwide fell by one percent in 2017 from the year before (after rising by one percent in 2016). That equates to a loss of approximately 13,000 stores in one year! Now in addition to those identified store closures, think about all the stores that are just barely surviving or are teetering on failure. Even worse, the number of market stalls fell three percent in 2017.
If this is not enough information to paint the dismal picture of prosperity that is the sari-sari store venture, then I can add more to the mix. While it can be safely estimated that the average net return on goods sold (for the average sari-sari store) can approximate P5,676 per week based upon the following assumptions:
40% of the items are being replenished every week
Mark-up of 20% per item
80% of total goods are considered sold per month
20% of the goods remain in the inventory per month
This net income number does not take into consideration “Utang,” a necessity in smaller neighborhood stores. Deny one neighbor a simple line of credit and see how often they DON’T visit your store in the future. Many store owners loose money because they extended credit to people who cannot pay them back. Credit and credit losses can really cut into that “net income” number above. One store to whom we give some of our business is still around because they cannot afford to close and retire… way too much credit extended that they would never get back if they closed.
One large expense to consider is the cost of electricity. Because you operate your store out of your house, your utility provider will eventually take notice and re-assess and place your meter under a “commercial rate.” That’s because the charge for business and residential areas are different and having a store does not fall under residential. Are you going to offer cold drinks? Naturally you would want to. How many refrigeration units will you employ? Considering that commercial electric rates are higher than residential rates, this can really cut into your profits. Then, if you are retailing perishables (more refrigeration), you need to be concerned about back-up power (and the costs thereof), in the case of extended brown-outs (which can be frequent in many provincial areas). I know of a store close-by us that looses an entire chest-freezer unit of ice cream whenever we have an extended brown-out. But it is their loss leader and ice cream pulls in the customers. This store is located along a highway (transportation transfer hub) intersection and does allot of volume so they can easily offset these losses.
Think about all expenses when considering profitability such as:
- Water and electricity
- Labor (you gotta pay yourself!)
- Transportation (some goods just don’t show up by themselves)
- Miscellaneous expenses to include:
- Permitting and licenses
- GRT taxes (BIR)
- Spoilage and product loss
- Credit losses
- Re-stocking issues
- Inclement weather
Then of course there is family. How can you even think of saying NO! Family is probably one of the biggest loss-leaders in sari-sari retailing. A 1/4 kilo of rice here, a couple three eggs there, a pack of shampoo or a pack of smokes… oh, and a bottle of Emperador here and there… and there goes your weekly profit. And even though you lost money on the week, you will still be expected to pay your family employees!
Another draw back to having a family run store – there are really no rest days. You operate your store 7 days per week with long hours. You might as well anchor yourself with a short chain because unless you can trust someone in the family to run the store in your extended absence… well, you get the gist.
Wholesale vs. Retail.
One thing to consider is where you will get your product. There are a million wholesalers out there, all wanting to be your vendor of choice. But just because you have a suki (regular customer or provider) does not mean that you should get all your merchandise from them. Look for other suppliers and don’t stop searching for the best bargains. I see many sari-sari store owners shopping at major retail outlets like Robinsons or Super Metro or S&R for better pricing, and depending on volume, they might get decent (not great!) discounts on products. Large scale stores are attempting to complete with wholesalers that deliver, sometimes offering incentives and savings and other times not. All store owners must continuously practice due dilligence to find the best product deals.
Will it be Worth All the Effort?
That all depends on your income expectations and desired lifestyle. Personally, being tied to a ref full of not so cold San Miguel or Red Horse, or selling P1 candy to kids all day, is not my idea of good lifestyle. To each their own I suppose! One definitely should not expect to live a lavish lifestyle as a sari-sari store owner/operator, unless you have a special niche… and then it must be a very special niche! One of the big problems with running a business in the Philippines is competition. Once someone (everyone) perceives that you are doing well (in whatever venture you operate), you can expect others to notice. It won’t take long before that niche is completely saturated! If you have ever travelled along Rt. 2 from Manila northward into Pampanga, not only will you observe the fact that some entrepreneur once decided to open up an outdoor landcaping nursery, but you will also notice the success of that entrepreneur. Why? Because now there are a long string of nurseries and landscape centers along that one stretch of highway. My best guess is probably around 30! It’s a form of “Talangka” (crab mentality) working it’s magic! This is applicable to just about all entrepreneurial successes found in the Philippines. Have you ever seen more than one sari-sari store on the same block? Of course you have! In some cases, you’ll even see some stores adjoining each other.
Take our small fishing village where we live in Samar for example – there are approximately 700 total residents (not households) in our small barangay, yet we have around 15 sari-sari stores! That equates to approximately 46.6 men/woman/kids & babies for each store. Now ask yourself – how many of those customers can actually make a purchase… without using Utang!
Now if I decided to open yet another store in my already crowded village marketplace, how long could I survive? How much business would we get without offering credit? How would my “foreigner” presence be perceived if my store forces others to close? Would I even want to be in any of those situations? Nope.
My Best Advice!
While it might seem like an exciting and adventurous thing to do…
Don’t Do It!
… and if you do, know this – you just might have to use that phrase that you hate so much:
“sa labas ng stock” (out of stock).
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