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Strategic Management Paper On Puregold
Strategic Management Paper On Puregold
Submitted to:
Prof. Ric Palo, CPA, MBA
Submitted by:
SANTOS, Arantxa Stefi L.
1
TABLE OF CONTENTS
Executive Summary
I. Introduction 1
3. Social/Cultural Aspects
4. Technological Advances
V. Company Analysis 39
1. Internal Environment Analysis
2. Internal Factor Evaluation Matrix
2
4. GRAND Strategy Matrix
5. Summary of Strategies
6. Quantitative Strategic Planning Matrix
VIII. Appendices 78
1. Puregold Financial Statements
3
STRATEGIC MANAGEMENT PAPER
EXECUTIVE SUMMARY
The companys vision and mission is very commendable and a proposal for
change is herein established to hopefully help in developing the company
I. INTRODUCTION
Puregold Price Club, Inc. is a chain of supermarkets which offers a wide variety
of general merchandise and a full-service supermarket with wholesale. Unlike other
Puregold stores, Puregold Price Club offers wholesale in merchandise. Puregold has
Puregold Jr., which is a neighborhood store which offers targeted consumers items and
limited variety of general merchandise, without the wholesale operations. On the other
hand, Puregold Extra offers a very limited number of Stock Keeping Units at discounted
prices., provides consumers with a discount on time, not just on the price.
4
This chain of supermarkets in the Philippines was established way back in 1998.
In the year 1998, Puregold opened its first ever branch in the City of Mandaluyong. And
presently, they have grown into a big retail chain and they now have 180 stores in the
country. Amazingly, they did this for only 14 years. The company launched a loyalty
program in 2001; renamed as Tindahan ni Aling Puring in 2004. In between the years of
2002 and 2006, they have launched an average of 3 stores per year and have
expanded their operations in the Northern and Southern part of Luzon.
In 2008, Puregold was branded in Readers Digest Asias Most Trusted Brands
and have introduced a new store format, Puregold Jr. In 2009-2010, Puregold became
the 2nd largest hypermarket and supermarket retailer in the Philippines as regards to
the net sales, in this period of time, they have introduced the Puregold Extra, a new
store format.
In 2011, Puregold Price Club went public and inaugurated as listing on the
Philippine Stocks Exchange. They had a rapid expansion via organic new Puregold
stores roll-out and acquisitions other than that they have made history by having had
acquired the highest number of new store openings ever, opening 38 new Puregold
stores.
In 2012, Puregold opened 31 new Puregold outlet stores and acquired Kareila
Management Corp., which owns S&R Warehouse Membership Shopping Club with 6
stores and Parco Supermarkets with 19 stores. And those 19 operating outlets were
purchased and converted to Puregold. The shareholders of the retail chain Puregold
have approved the merger of the other two operating units into the parent company,
consolidating Puregold's supermarket businesses under the publicly listed supermarket
operator.
5
Currently, Puregold is continuing new stores roll-out via organic geographic
expansion and acquisitions. They are targeting to open 25 more Puregold stores and 1
S&R store.
Nature of Business
6
7
From the previous years, Puregold has an uptrend revenue. The revenues
generated each year comes from the different store formats: Puregold Price Club, Extra,
Jr. And S&R stores.
8
Consolidated net sales grew by 49.8%; Puregold and Parco stores sales
increased by 18.2%; S&R contributed 16.4% and Company E accounted for 1.0% of
9
total consolidated net sales. Gross profit grew by 62.8%; with gross profit margin
improving to 17.6%; S&R accounted for 22.4% of the realized gross profit. Operating
income increased by 88.5%; with operating margin shooting up to 7.4%; S&R
contributed 42.3% of the recorded operating margin. Consolidated NIAT expanded
105.3%; Puregold and Parco stores NIAT swelled 30.1%; S&R added 36.4% to the
consolidated NIAT. Net profit margin chalked-up at 6.0%.
Number of Employees
Puregold supermarkets houses more than 30000 employees. With its competent
employees, Puregold is serving its valued customers through its effective customer
service program and competitive price scheme.
Puregold was featured in Readers Digest Asias Most Trusted Brands. They
became the 2nd largest hypermarket and supermarket retailer in the Philippines in
10
terms of net sales. They made history for opening as much as 38 new Puregold stores.
They maintain the quality of their products and the competitiveness of their strategies so
they have already opened 156 stores in just the period of 14 years.
The data used in this research came from various internet sources, journals,
newsletters, news articles, blogs, books, law books, and different government agency
sites. Some on=f the personally visited websites are referred by other researchers who
have conducted a research with the same company nature and background. Some of
the sites visited are as follows: National Statistics Coordination Board (NSCB), National
Statistics Office (NSO), Asian Development Bank, Bangko Sentral ng Pilipinas,
Department of Labor and Employment (DOLE), and Philippine Overseas Employment
Administration (POEA). Official websites of Philippine Securities and Exchange
Commission (SEC), World Bank, creditcard.com, Business World, Business Mirror,
Development Bank of the Philippines (DBP), Euromonitor International, Philippine Star,
Department of Budget Management (DBM), Department of Foreign Affairs, Commission
on Filipinos Overseas and Asia Pacific Economic Cooperation (APEC). These sites
were used as primary source of data to be used in this study.
Most of the data used are from the site of the company whose data is visible to
the pubic. The financial statements used herein came from the Securities and Exchange
Commission. The data in this research came from these sources. The data used for the
competitor companies came from the sites of the latter and the financial statements
readily available on the internet. The assessment of the company as regards to its
competitors is supported by data that came from the companies websites.
Other data and information came from the textbook prescribed by the professor
which is The Introduction to Strategic Management 12 th edition (2009) by Fred David.
The textbook was used as a reference material for data and computations.
The formulas, implications, different strategies, different strategy formulation,
strategy formulation tools, and the step-by-step process and guide used in this research
11
was adapted from the textbook and sample thesis papers and research papers
available in the San Beda College of Arts and Sciences Library.
General Environment
Economic factors
Economic Advancement
Both developed and emerging markets of Asia are seen to grow faster than the
Euro area and North America. Expected to have the fastest growth in 2013 and 2014
are China (7.7 and 7.3 percent, respectively), the Philippines (7 and 6.7 percent), India
(4.9 and 6 percent), Indonesia (5.6 and 5.5 percent) and Vietnam (5.5 and 5.6 percent).
12
All fast-growers in Asia have big populations upward of 90 million. The banks polled
recognize that a larger population means more entrepreneurs and workers, more
producers and consumers.1
1
http://www.interaksyon.com/business/77802/fat-free-economics--happy-2014-for-philippine-economy
2
The Economist, December 21, 2013
13
The Economist for
easier comparison of projections. 3
3
http://www.economist.com%2Fnews%2Feconomic-and-financial-indicators%2F21591899-output-prices-
and-jobs&sa=D&sntz=1&usg=AFQjCNEwA8Sta9dv-OpGsEqjuVTtONQEbw
14
Source: IMF, World Economic Outlook Database
Belgium, Italy, Netherlands and Spain are among Europe's biggest economies,
and they are either crawling or backsliding. The US and Canada are performing better
than those in Europe but their expansion not fast enough to compensate for sluggish
growth on the other side of the Atlantic Ocean. 4
Asian economies -- led by China, Japan, India and South Korea, plus the other
tiger and emerging markets of the continent -- continue to hum and push the world
economy to modest growth. The Philippines is projected to be second to China in pace
of growth this year and next year.5
15
investment. While we forecast an uptick in headline inflation this year as a result of
natural calamities in 4Q13, we expect it to ease by 2H14 as supply shocks recede.
Indeed, January headline inflation of 4.2% is still low versus a 10-year average of 4.7%
(Figure 16). Similarly, interest rates are low with the benchmark 91-day Treasury bill
currently below 1.0% compared with a 10-year average of 3.8% (Figure 17). This
virtuous cycle enhances domestic growth prospects that ultimately result in rising
incomes. In addition, stability in personal spending is supported by a large number of
overseas Filipino workers who regularly remit supplemental income to their families and
the rise of the business process outsourcing (BPO) industry.
Relevance:
16
The economy of the Philippines has been continuously growing, but with it grows
too, the economy of other countries. The economic crisis has surely affected the
financial status and buying power of the consumers. Decision to buy or not, what to do
with their money and whatnot is greatly affected by these changes. The companys
target market is the general public, with the data collected and stated above, we can
say that this is good news, thus, an opportunity for the company. With a growing
economy, more consumers would have more money to spend. Products offered by the
company are staple to households.
17
Young and expanding population
18
19
20
Steady Growth in Personal Consumption
21
expected to open up from which Puregold will eventually benefit through sales in all its
store formats.
Global Competitiveness
22
The Philippines ranked 65th (out of 144 countries) in the 2012-2013 Global
Competitiveness Report.6 This year, the country improved by leaping to number 59. As
noted in a previous post in this blog, competitiveness is relative. The overall ranking
does not really matter much. What is more significant is to compare the Philippines
against its neighbors in Southeast Asia. This time, the World Economic Forum makes it
easier to see this comparison. The new report, 2013-2014 Global Competitiveness
Report7 has the following table and figure:
6
World Economic Forum
7
http://philbasiceducation.blogspot.com/2013/09/philippines-global-competitiveness.html
23
Source: 2013-2014 Global Competitiveness Report
In this table and figure, it is much clearer where the Philippines really stands.
Infrastructure, health and education remain very weak especially when compared
against its real competition, the other members of the Association of Southeast Asian
Nations (ASEAN).8
Relevance:
If the Philippines is globally competitive, the company would most probably have
more opportunities to establish new market schemes or maybe a new store format. The
idea is to expand the business to other countries and build an exclusive market among
Filipino citizens abroad, as well as other prospective customers.
Unemployment Rates
Jobless rate rose to 7.5 percent, up from 6.5 percent in the previous period and
7.1 percent a year ago. There were nearly 3 million unemployed in the Philippines, up
8
World Economic Forum, The Global Competitiveness Report
24
from 2.8 million in January 2013.
Among the unemployed persons, 63.9 percent were males. Of the total
unemployed, the age group 15 to 24 years comprised 48.2 percent, while the age group
25 to 34, 29.9 percent. By educational attainment, about one-fifth (19.8 percent) of the
unemployed were college graduates, 13.3 percent were college undergraduates, and
34.0 percent were high school graduates.9
The employment rate is estimated at 92.5 percent. Workers in the services sector
continued to comprise the largest proportion of the population who are employed. These
workers made up 54.1 percent of the total employed in January 2014. Employed in
agriculture sector comprised the second largest group making up 30.0 percent, while
workers in the industry sector made up the smallest group registering 15.9 percent.
Among the major occupation groups, the laborers and unskilled workers remained the
largest group making up 31.3 percent of the total employed. 10
Relevance:
Job layoffs are brought about by bad economic status. With a bigger
unemployment rate, the employees of the companies may have decreased and could
lead to less efficiency and effectivity both in service and productivity. Also, the
consumers would probably be affected too and less income means less spending and
this would gravely affect sales records of the company for the year.
9
http://www.philstar.com/headlines/2014/03/12/1299885/unemployment-rises-p7.5-january
10
http://www.tradingeconomics.com/philippines/unemployment-rate
25
Manila City Ordinance 8282, once implemented, will ban the use of plastic bags
for dry goods and regulate their use for wet goods, and altogether bans polystyrene
(Styrofoam) as container for food, produce and other products. 11 To date, at least 90
cities and towns have passed ordinances banning or regulating the use of plastic bags,
with several more local government units (LGUs) poised to follow suit before the end of
the year, according to EcoWaste Coalition.12
Relevance:
The Senate Bill No. 2579 or the Total Plastic Bag Ban aims to prohibit the use of
plastic bags in establishments. The company has been using plastic bags to package
the customers purchases. It is both a threat and opportunity for the company. One bad
thing this would do to the company is how the company would dispose of the remaining
plastic bags unused prior to the passed laws. Also, the source of new manufacturers for
their paper bags or ecobags. Although the law only covers some cities, it still affects the
company because most cities covered by the law are in the NCR. Most branches of
Puregold are within this area and surely there would be drastic measures to be taken to
surpass this. The good side is they can minimize garbage wastes. This is an opportunity
for the company to inculcate new marketing schemes to increase profit.
Technological development
11
http://ecowastecoalition.blogspot.com/2013/07/supporting-manilas-plastic-bag-ban.html
12
http://newsinfo.inquirer.net/438011/environmentalists-seek-nationwide-plastic-ban
13
http://lorenlegarda.com.ph/senate-bill-no-2759-total-plastic-bag-ban/
26
Credit Card trends
Relevance:
This trend is a great opportunity for the company. Most consumers would use
cash as a medium of exchange but with the rapid development of technology, and if this
trend would expand to more and more Filipinos, transactions would go faster and
relatively could increase sales due to the faster service.
2013 was certainly not a shrinking violet in terms of card skimming and
associated card fraud scams. With 2013 card compromise data in hand, I thought Id
share the latest year-over-year trend breakdowns and offer a few predictions for the
year ahead (an update to my post last year on ATM fraud trends).
14
http://www.euromonitor.com/financial-cards-and-payments-in-the-philippines/report
27
The chart above reflects ATM points of compromise within the United States that
were analyzed by FICO Card Alert Service. Looking at overall volume of activity, we
instantly see a continued increase in card skimming at bank-owned ATMs over the past
couple years. As this segment increases each year, point-of-sale (POS) card and PIN
skimming has somewhat diminished in comparison.
You might wonder: How is it possible that POS is contributing less towards card
and PIN skimming when we are staring down on one of the largest retail data breaches
in history? Keep in mind that the data used to create this chart is reflective of fraud
spend at ATMs only. Most of the recent publicized data intrusions did not develop into
wide-scale PIN fraud, aside from some isolated social engineering scams that may have
netted criminals access to consumer PIN data.
In 2014, increasingly, risk on payment cards will develop in two phases. Fraud
spend may initially be signature-based, and then, after a significant time has elapsed,
the same group of affected cards could see PIN fraud develop on cards that were not
previously reissued. This criminal strategy points out the danger when we focus only on
28
the risk at-hand without considering the potential exposure of other data elements, like
PIN numbers, that might have previously been ignored.
Another growing threat: Carders will continue to sell and purchase cards based
on bank identification number or BIN. This will dilute the detection of data breaches by
making the fraud appear to be specific to a certain financial brand. 15
Relevance:
The rising number if credit card scams and frauds is a threat to the companys
operations. The payment of those defrauded cards could possibly be refunded and
could decrease the income and profit of the company.
Online Marketing
15
http://bankinganalyticsblog.fico.com/2013/02/card-fraud-trends-and-predictions.html
16
http://www.webopedia.com/TERM/I/internet_marketing.html
29
advertising and marketing (including viral marketing) efforts via social networking sites
like Facebook, Twitter, YouTube and Digg.17
Relevance:
Online marketing is very much helpful nowadays. Filipinos are using the internet
for averaging from 4-8 hours a day, give or take. The internet is an inexpensive way of
promoting business and increasing profitability.
Online Shopping
The Nielsen report found that among consumers who engaged in e-commerce
activities, 72 percent of online consumers in the Philippines indicated using the Internet
for grocery shopping research over the past month.18
The study also showed that online Filipino consumers were also the most active
in Asia-Pacific to search online for deals. Sixty-one percent of Filipino consumers have,
in fact, done online deal searches during the past month, compared to only 39 percent
in the Asia-Pacific.
The study exposed the Achilles heel of Filipino online consumers, however,
showing that when it comes to online purchase conversion, only 34 percent have made
purchases online in the past month compared to 62 percent in the Asia-Pacific and 49
percent globally.
Relevance:
This trend would be a big opportunity for the company to establish a store format
on the internet. Filipinos nowadays are very fond of buying stuff from the internet. It is
17
http://www.smallbusinesscomputing.com/emarketing/article.php/3939561/10-Inexpensive-Ways-to-
Advertise-Your-Small-Business.htm
18
http://technology.inquirer.net/16152/filipinos-top-in-online-shopping-research-but-lag-in-
purchases#ixzz30C4ZbgEb
30
very convenient for the consumer and there is less hassle in transacting especially most
online shopping sites have payment methods through online banking, Paypal, and
whatnot. The main point here is to be the first online supermarket to cater to all states of
life in the Philippines. Another aim is to sell products and deliver them to the
convenience of the customers doorsteps.
Filipinos are venturing into the healthy living lifestyles. People are spending more
on gym memberships, organic food, and the like. Organically-grown vegetables are only
available in select stores. Since more and more people are getting into this new kind of
diet, people tend to rush to organic hippie groceries and only buy their food there.
Or from the side effects of packaging. Let me add this, I am a fanatic when it
comes to food storage, I buy every kind of storage container and baggie (my father was
the co inventor of a lot of canning and packaging like the plastic ham can and zip lock
baggies), but I feel this article has hit the nail on the head with packaging deriving
chemical reactions to things like acid from canned tomatoes leeching the polymers from
the inside of tin cans into the product. I am not used to the markets here keeping foods
unrefrigerated or in the open for creatures to land on like flies and the like and I have a
fit when our kids put food in the refrigerator uncovered but I honestly feel my health
improvements may just be related to these primitive actions as well as having almost all
of my foods organic, without the high price tag I might add.
I love it here in the Philippines, it isnt paradise, its dirty, in some places its
dangerous. Its not where Im from but I have come to see what our esteemed editor in
chief along with a myriad of others have come to love about Living in the Philippines19
Relevance:
The new lifestyles of Filipinos are inspired by their local celebrity idols who have
been promoting healthy living and healthy diet plans to get a better physique and to stay
19
http://liveinthephilippines.com/content/healthy-living/
31
healthy. This factor is a threat to the company because some products of the company
are now being substituted by a few products offered by specialty stores. Although only a
few percentage of the companys market are following this trend, it is still important to
look at all the factors that would affect the company.
Market Segments
PUREGOLD Price Club Inc. plans to double its grocery and hypermarket chain
over five years as it challenges its only bigger rival, SM Investments Co., by targeting
low-income shoppers and neighborhood stores. The nations second-biggest
supermarket operator plans to spend P10 billion to boost the network to 200 stores by
2016, its chairman, Lucio Co, said in an interview. 20
The outlets will target market segments that the existing players arent serving,
Co said. We want to be everywhere. The retailer plans to have 150 stores by 2013 as
it intends to lure customers from the hyper markets and groceries in billionaire Henry
Sys 163-outlet SM retail chain, which includes 41 department stores.
Co has already doubled the number of stores since last year as a rebate of as
much as 3 percent on purchases and a program offering to improve the stores of top
buyers with signage and merchandising jars attracted low-income shoppers and owners
of so- called sari-sari stores, aka variety or convenience stores. 21
Pricing
Puregold Price Club, Inc. (PGOLD) is engaged in the business of buying, selling,
distributing, and marketing wholesale or retail goods and commodities throughout the
20
http://businessmirror.com.ph
21
Puregold Plans To Invest P10B to Double Branches / IAN SAYSON / BLOOMBERG NEWS
32
Philippines. Unlike its top competitors, Shopwise and SM Investments, Co., Puregolds
prices are far more economical and for the mass.
Especially to the members of the club in the company, the prices are discounted
and members are more privileged. The companys membership is called the Aling
Puring membership. What are the benefits of this membership? AP members earn up to
3% rebate through points accumulation in his/her Aling Puring card whenever he/she
shops at any Puregold Branch (excluding Puregold Jr.) Points earned are equivalent to
rebates which can be redeemed at any Puregold Branch (excluding for Puregold Jr) and
can be used as tender in shopping.
The company advertises itself through its online website, general and local
publications and through social networking sites. They are currently in partnership with
a noon time show television program aired through GMA 7. There are also printed ads.
SM though, has a bigger advertising scheme. The Co-owned corporation is very
advanced in this aspect.
Unlike Shopwise and SM, Puregold has more promotions and antics. They have
been introducing more and more promotions like raffles, packages, discount items,
freebies, and the like. Also, they do not only give out free stuff but they also give out
medical check-ups for free.
22
http://puregold.com.ph/aling_puring.do?id=7772
33
The advertising and promotions department of Puregold is very much good but
they could develop more, on so many levels.
PGOLD is the second largest modern grocery retailer in the Philippines by sales.
Its estimated market share was 11.7% in 2013, according to Euromonitor. It operates
hypermarkets, supermarkets and discounters carrying the flagship Puregold brand. Its
target markets are low and middle income consumers, and resellers that operate
traditional neighbourhood outlets known as sari-sari stores. PGOLD also operates S&R
Membership Shopping stores, the only warehouse membership club in the Philippines
that services middle to higher income consumers.
34
LOW
LOW
LOW
LOW
MODERATE
MODERATE
HIGH
HIGH
LOW
LOW
35
Puregold offers a wide variety of products and mainly composes of basic
household grocery items and staple household needs. The development of substitute
products does not affect the company much because Puregold is very flexible when it
comes to adapting to sudden changes in the new products being introduced in the
market. Since most products are not exclusive to only one hypermarket, the possibility
of one company having a monopoly of hat certain product is very vague, though
feasible, it still doesnt affect the firm much.
Developing good ties with their suppliers, the company is not prone to
suppliers haggling with regards to their product offers. Recently, Puregold has been
producing their own line of products just like what SM is doing. With these all said, the
bargaining power of their suppliers is only moderate and will only affect the profitability
and productivity of the company if PGOLD will not contain such shortcomings. SM
Hypermarkets is the leading competitor of Puregold. Bargaining with suppliers could be
at a strong factor if SM would try to buy the suppliers of Puregold.
It is evident that the general public is the target market of the company.
The bargaining powers of the latter are very low. A good subject to support this
36
statement is that the price of the commodities offered by the company is very
inexpensive. PGOLD offers affordable and quality products, other than that, they are
giving out numerous promotions, discounts, and the like for the consumers to have and
enjoy. The company sells at the suggested retail price or less, and this is because they
do not only sell in retail but also in wholesale (not applicable to Puregold Jr. And
Puregold Extra).
23
David, Fred
37
Critical Success Weight Robinson
Puregold SM Hypermarket
Factors (%) Supermarket
Price
.10 3.0 .30 4.0 .40 3.0 .30
Inventory
management .10 3.0 .30 4.0 .40 3.0 .30
Products: Variety
.20 4.0 .80 2.0 .40 2.0 .40
and Availability
Quality of Service
.15 4.0 .60 4.0 .60 3.0 .45
Facilities,
Equipment, etc. .15 3.0 .45 4.0 .60 2.0 .30
Accessibility to
market .20 3.0 .60 2.0 .40 2.0 .40
Number of
.10 3.0 .30 2.0 .20 2.0 .20
branches
38
Other factors are not given much weight for it does not contribute a major
percentage in the share of the profits. As interpreted in the matrix, the company has a
good rating because it is a good company if you look at the overall appearance and
appeal of the company to the general public.
Below are the identified major opportunities and threats which would affect the
industry of the company. The Weights, level of responsiveness, and Ratings to and/or
for the company are given.
Opportunities
Rating
We gave the company a rating of 4 because they are very much aware of such
new innovations. They are using social networking sites like Facebook to advertise their
products and services.
A weight of 20% is given to this external factor because this innovation is a very
inexpensive way of advertisement. Internet is being used by a huge majority of Filipinos
everyday. Advertisement and promotions in social-networking sites like Facebook and
24
http://www.webopedia.com/TERM/I/internet_marketing.html
39
Twitter would affect the companys profitability and could possibly generate more sales,
thus, more income.
Since the launch of the I am not Plastic bag movement, more and more
industries are starting to use reusable canvas tote bags for their shopping. In the
company store formats,you are more likely to bring your own reusable shopping bag
unless you want to pay for the plastic bags.This is part of the recently passed bills as
regards to the regulation and banning of plastic bags in certain cities and industries.
Rating
We give this a 3 rating because this moderately affects the company and the
company responds to this with various marketing approaches such as venturing into the
eco bag business and complying with the
A weight of 10% was given because this moderately affects the company.
Following the ongoing global movement to steer consumer culture away from excessive
plastic bag consumption (banning plastic bags in San Francisco, Hong Kong and
Melbourne) we are pleased to see reusable tote bag make big gains in popularity.
Weve covered eco-chic tote bags of all shapes and sizes (Envirosax, Trash Bags, Sea
Bags), but the hype and excitement surrounding Anya Hindmarchs trendy I am Not A
Plastic Bag design (which sold out of London stores just hours after being released) is
somewhat baffling, even if we are only too happy to see eco becoming trend. 25
Opportunity 3: Puregold Membership: Aling Puring Card gives out more benefits
than its competitors.
40
Points earned are equivalent to rebates which can be redeemed at any Puregold
Branch (excluding for Puregold Jr) and can be used as tender in shopping. Other
benefits are: Instant Ka-Asenso Welcome Kit, Points Rebate Redemption Program,
Free Delivery *with minimum purchase and distance requirement of store, Call Order
Pick-up Service via call/text/e-mail, Wireless and COD Transactions, Kitang-Kita
Packs and Kitang-Kita Case for added savings and points, Special Ka-Asenso events,
promos and text blast updates, Bi-annual Ka-Asenso Booklet with exclusive Kalendaryo
ni Aling Puring discount coupons.
On the otherhand, SM advantage card only offers Points rewards system and
New and renewing members will receive the Value Perks booklet filled with coupons
from our retail partners, fun partners, restaurants, boutiques, health & beauty
establishments and many more.26
Rating
We give this a 4 because the customers are benefiting from this marketing
scheme and the company responds to their needs with regards to the benefits and
privileges brought out by this membership card.
A 20% weight is given for only the company provides their members with such
benefits. The company has this as an advancement to its competitors.
Rating
26
http://www.smadvantage.com.ph/value-perks
27
https://www.facebook.com/puregold.shopping?sk=wall
41
We give this a rating of 4 because the company is pushing more projects inline
with this. Also, a 15% weight is given because its top competitors: SM and Shopwise,
do not conduct these kinds of promotions.
Though SM gives out free checkups as well, it is only conducted in their malls,not
in their hypermarkets.
Threats
Rating:
We give this a rating of 2. The company does not respond much to this because
most of its customers pay in cash. The weight of 15% is given to this matter. Although
they are not very much concerned with this issue, the company should focus on this too
since using credit cards is a becoming a big thing today in the Philippines from the good
offers of local and international banks.
The employment rate is estimated at 92.5 percent. Workers in the services sector
continued to comprise the largest proportion of the population who are employed. These
workers made up 54.1 percent of the total employed in January 2014. Employed in
agriculture sector comprised the second largest group making up 30.0 percent, while
workers in the industry sector made up the smallest group registering 15.9 percent.
42
Among the major occupation groups, the laborers and unskilled workers remained the
largest group making up 31.3 percent of the total employed. 28
Rating:
We give this a 2 for the rating. The company is not much concerned of the effects
of unemployment because they have a good employment system. Employees are
always considered and are taken good care of the company. A 10% weight is given to
this because this only mildly affects the companys performance.
INTERNAL ANALYSIS
28
http://www.tradingeconomics.com/philippines/unemployment-rate
43
2013
Threats
44
rate as of January
2014.
V. COMPANY ANALYSIS
45
The company is majority-owned by the Co family through a 16% direct equity
stake and an effective 37% stake through Cosco Capital Incs (COSCO) 51% interest in
PGOLD. COSCO is the holding company of the Co family and is also engaged in liquor
distribution, real-estate development, and oil and mining exploration
46
PGOLD primarily conducts its operations through hypermarkets, supermarkets
and discounters carrying the flagship Puregold brand. Throughout the years the brand
has been associated with low prices and a wide assortment of value-for-money
offerings. Puregold focuses on two customer segments, namely retail consumers in the
low- and middle-income classes, and resellers who are small business owners.
The company has uniquely positioned itself against other grocery retailers by
specifically targeting resellers, mainly the sari-sari stores or mom-and-pop outlets
through its customer loyalty programme Tindahan ni Aling Puring. Resellers account for
around 35% of PGOLDs revenue. PGOLD also operates S&R Membership Shopping
stores, the only warehouse membership club in the Philippines, which services higher-
income consumers.
47
From only 34 stores at end-2009, PGOLD has since opened 117 new stores via
organic expansion as of 9M13 and acquired 50 others that were operating under four
different brands; namely Puregold Jr, Parco, S&R and Company E. In a span of less
than four years the company was able to almost triple total net selling space. PGOLDs
expansion strategy focused on both existing and new markets. Smaller store formats
were opened within the vicinity of the hypermarkets, which resulted in deeper
penetration of highly-populated areas. The companys store network also widened to
include other parts of Luzon, and last year, the Visayas and Mindanao regions.
48
The company acquired 19 Parco supermarkets in 2012 and 15 Company E stores in
2013, most of which have already been rebranded to Puregold stores. Last December,
wholly-owned subsidiary Entenso Equities bought a 49.34% stake in San Roque
supermarkets, operator of nine grocery stores in Metro Manila.
49
Weaknesses
50
Competition among Philippine modern grocery retailers has further intensified in
recent years as the industry consolidates. Key players are expanding their store
networks and acquiring or forming strategic partnerships with independent store chains.
They compete on the basis of price, product availability and quality, customer service
and store location, among others. Aggressive expansion, particularly in Metro Manila,
has contributed to softening SSSG over the past year. As retailers expand into areas
outside Metro Manila, securing key locations and opening new stores ahead of others
may also be the subject of competition.
Execution risk
The companys ability to deliver on its target number of store openings each year
depends on its success in securing prime store locations in a timely manner and on
favorable terms. Availability of sufficient cash flows to support capital expenditures is
another important factor in successfully executing its store network expansion plans.
51
target market
Branded as one of .13 4 .52
the leading
supermarket in the
Philippines
Leading .12 4 .48
distribution
channel of goods
to sari sari
stores/small
businesses
Numerous .13 4 .52
branches
WEAKNESSES
Outdated .12 3 .36
technology
Intensifying .13 3 .39
competition
among industry
players
Sensitivity to .11 4 .44
rising prices of
customers
TOTAL 1.00 3.63
SWOT Matrix
52
SO Strategies
Strengths
S1) Very Low Price
S2) Strategic Location due to accessibility to target market
S3) Branded as one of the leading supermarket in the Philippines
S4) Leading distribution channel of goods to sari sari stores/small
businesses
S5) Numerous branches
Opportunities
O1) 72 percent of online consumers in the Philippines indicated using the
.Internet
for grocery shopping
O2) Eco bags are in since the launch of the I am not a Plastic Bag
campaign
O3) Puregold Membership: Aling Puring Card gives out more benefits
.thanits competitors
O4) More promotions and Free check-ups at selected branches
O5) 6.7% increase in the Gross Domestic Product of the Philippines
53
SO2. Integrate free check-ups promotion in more branches (S2,S5,O4) -
Puregold should put more free check up booths in more stores. With the very
accessible locations of the stores, the company could reach out to more customers by
introducing new promotions to other branches and this is to hopefully help in increasing
sales.
SO3. Use eco bags to create more revenue (S1,S3,S4,O2,O3) - Since the
launch of the I am not a plastic bag movement, eco bags have been widely used in
various malls, supermarkets, boutiques, and the like. This is a good marketing scheme
to sell more products through inculcating the use of eco bags as freebie when reaching
a certain amount on a single purchase.
SO4. Strengthen the web presence more by finding more sites or social networking
sites, other than its current advertisers to advertise in. (S1,S3,O1,O3,O5) -
Puregold should strengthen its web presence more by utilizing other marketing
media channels and sites or social networking sites, other than the companys current
advertisers to advertise itself. It is a very good strategy because it is a very inexpensive
way of advertising the business.
WO Strategies
Weaknesses
W1) Outdated technology
W2) Intensifying competition among industry players
W3) Sensitivity to rising prices of customers
Opportunities
O1) 72 percent of online consumers in the Philippines indicated using the
54
.Internet
for grocery shopping
O2) Eco bags are in since the launch of the I am not a Plastic Bag
campaign
O3) Puregold Membership: Aling Puring Card gives out more benefits
.thanits competitors
O4) More promotions and Free check-ups at selected branches
O5) 6.7% increase in the Gross Domestic Product of the Philippines
ST Strategies
Strengths
S1) Very Low Price
S2) Strategic Location due to accessibility to target market
S3) Branded as one of the leading supermarket in the Philippines
55
S4) Leading distribution channel of goods to sari sari stores/small
businesses
S5) Numerous branches
Threats
T1) 10% increase in Credit card frauds as recorded by FICO Banking
Analytics Blog
T2) Unemployment rates are relatively rising. There is 7.5 % increase in
.the unemployment rate as of January 2014
ST1. Develop the system for the use of credit card machines (S1,S3,S4,T1) -
With Credit card frauds relatively rising, the company should be more cautious of
the credit cards. The target market of Puregold is the general public who most of the
times use cash to pay for their purchases.
WT Strategies
Weaknesses
W1) Outdated technology
W2) Intensifying competition among industry players
W3) Sensitivity to rising prices of customers
Threats
T1) 10% increase in Credit card frauds as recorded by FICO Banking
Analytics Blog
T2) Unemployment rates are relatively rising. There is 7.5 % increase in
.the unemployment rate as of January 2014
56
WT1. Invest on upgrading the internal system and machines (W1,W2,T1) - With
the increasing crime as regards to fraudulent use of credit cards, it is good for Puregold
to invest in a secure operational system to protect the company and its customers.
Market Penetration
Backward Integration
Market Development
Related Diversifications
Unrelated Diversifications
SPACE MATRIX
The researcher evaluates different variables and assigns them their weight
based on how important they are for the company. It is a matching tool which is an hour
quadrant framework that indicates whether aggressive, conservative, defensive, or
competitive strategies are the most appropriate for a give organization. 29 It analyzes four
area; two internals and two externals which will represent the quadrants in the graphic.
The purpose of SPACE matrix is to position the company in one of these quadrants to
determine which type of strategies is advisable for them.
SPACE MATRIX
FS
Conservative 9 Aggressive
8
Market Penetration 7 Backward, forward, horizontal int.
Market Development 6 Market Penetration
Puregold
Product Development 5 Market Development
29
David, Fred
57
Related Diversification 4 Product Development
3 Diversification (related/unrelated)
CA IS
-7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7
-1
Retrenchment -2 Backward, forward, horizontal int.
Divestiture -3 Market Penetration
Liquidation -4 Market Development
-5 Product Development
Defensive -9 Competitive
ES
According to the results from SPACE matrix, the company is in the agressive
quadrant. Thus, the organization is in an excellent position to use its internal strengths
face the firm; forward, backward and horizontal integration; market penetration; market
development; and product development are appropriate strategies for these divisions to
Net Income
(7)
The net income increased by 248.39%
Liquidity
(3)
The liquidity ratio increased by 0.6 .
58
Working Capital
(6)
The working capital increased by 192.20%
Cash Flow
(6)
The cash flow increased by 338.60%.
59
Barriers to Entry into Market
(-5)
Stability Position Average
(-4)
IE Matrix
60
TOTAL IFE WEIGHTED SCORE
61
BCG
62
GRAND STRATEGY MATRIX
63
penetration, product development, forward integration, backward integration, horizontal
integration, and related diversification.
SUMMARY OF STRATEGIES
SUMMARY OF STRATEGIES
Forward Integration X X X 3
Backward Integration X X X X 4
Horizontal Integration X X X 3
Market Penetration X X X X X 5
Market Development X X X X X 5
Product Development X X X X X 5
Concentric Diversification X X X 3
Conglomerate Diversification X X 2
64
KEY FACTORS WEIGHT MARKET MARKET PRODUCT
PENETRATION DEVELOPMENT DEVELOPMENT
65
needs
6 Inventory management 0.07 0 0 2 0.14 3 0.21
7 Lack of Bayad Centers 0.08 4 0.32 4 0.32 4 0.32
TOTAL ATTRACTIVENESS SCORE 2 6.17 6.84 6.36
Rating Score: 4=Most Acceptable, 3=Probably Acceptable, 2=Possibly Acceptable, 0=Not Acceptable
VISION
66
?Is it aspirational .3 Yes The vision very much
contains a meaning to lead
them to future
advancement. They aim to
be the most customer-
oriented supermarket and
to give the best value to
.their customers
VISION
67
Is it concise enough yet .2 Yes The Vision of the company
?inspirational is very much brief and
concise. The idea of
having such statement is
for everyone to
understand. The statement
mentions Sa Puregold,
always panalo. This is
inspirational to both
employees of Puregold
.and their customers
This is the proposed Vision statement for the company. As projected in the
table, the vision has complied with all the necessary factors for a more suitable, more
efficient and effective vision statement that will be the companys guide or medium for
its personal growth as regards to its financial and developmental progress.
MISSION
68
We Establish Lasting Relationship with Our Suppliers and Business
Partners.
69
business is concerned with
every age group. The term
every Filipino family coins
out that they are targeting
households as their
.primary market
70
self concept of being the
top 3 hypermarkets in the
Philippines despite being
the 2nd best hypermarket
.in the country
MISSION
71
Our Mission is to be the leading Hypermarket in the Philippines and
to Provide Products, Services and Business Opportunities to Every
Filipino Family in the aid of Innovation and Technology.
72
Markets .3 Yes The company operates
more than 150 stores
nationwide, mostly in
Luzon, its target market is
the general public. Their
business is concerned with
every age group. The term
every Filipino family coins
out that they are targeting
households as their
.primary market
73
aiming to be the leading
Hypermarket in the
.Philippines
FINANCIAL OBJECTIVES
We are aiming for the companys net income to go up 22% this year to PHP4.56b
after an estimated 37% rise in 2013 to PHP3.7b. In 2015F, earnings are expected to
grow 19% to PHP5.4b. This translates to a three-year profit CAGR of 26% from 2012 to
74
2015F to be driven by higher revenues from new store openings and improving
operating margins.
From an estimated 28% growth in 2013 revenues to PHP73.6b, total net sales
are likely to go up 18% this year to PHP87.1b and 14% in 2015F to PHP99b. Revenue
growth would come mainly from new store openings, which we aim, it would be 30
Puregold stores this year and 26 stores next year, comprising 25 Puregold stores and
one S&R warehouse club. From 213 stores as of end-2013, we are expecting PGOLDs
total store count to reach 243 by end-2014F and further grow to 269 by end-2015F. In
terms of net selling space, we forecast this would increase 9% this year and 7% next
year, or from an estimated 352,006 sqm as of end-2013 to 382,656 sqm by 2014F and
410,806 sqm by 2015F. Our forecasts have not factored in PGOLDs potential
acquisitions.
Puregold has still room to improve in terms of the operating margins because the
company reaps economies of scale from opening additional stores in areas outside
Metro Manila that have considerably lower rental, manpower and other operating costs.
Operating profit margin likely reached 7.2% in 2013 and we estimate this would further
improve to 7.4% in 2014F and 7.7% 2015F. Likewise, we forecast overall gross margins
to expand to 17.8% this year and 17.9% next year from our projected 17.4% gross
margin in 2013. This would be driven by the bigger contribution to sales from the higher-
margin S&R warehouse membership shopping business, which we estimate would
account for 22% of total revenues this year and 24% next year from our 19% estimate in
2013.
Operating cash flows to support capex requirements
75
One of the proposed objectives for the company is to make the total capex
allotted for new store openings to be PHP3.2b- 3.3b in 2014F and 2015F from our
PHP3.8b estimate for 2013. We believe PGOLDs operating cash flows of PHP5.4b-
6.5b in the next two years will be sufficient to support its expansion needs. The
company also has existing unused credit lines it may use in the case of additional
capital requirements.
STRATEGICAL OBJECTIVES
We expect PGOLD to remain a key player in the modern grocery retail business
through rapid store network expansion, especially in areas outside Metro Manila where
modern retail penetration is considerably lower. As competition in these areas is less
intense and operating costs are lower, we believe same-store-sales growth will improve
and overall margins widen. In the next 3-5 years PGOLD expects to open at least 25
Puregold stores, mostly in Luzon, and one S&R Membership Shopping store annually.
76
Traditional trade accounts for 73% of the countrys grocery retail industry. Given
the high level, we think traditional grocery retailing will remain a significant driver of
PGOLDs revenue growth for some time. PGOLD derives about 35% of its revenue from
approximately 300,000 reseller members of its loyalty programme out of more than 1m
traditional retail channels in the country. Traditional grocery retail is forecast to expand
8.1% CAGR in the next five years, while modern grocery retailing is projected at 8.9%
CAGR until 2018F.
We forecast PGOLDs net income to rise 26% CAGR in 2012 to 2015F, driven by
higher revenues from new store openings and improving operating margins. From 213
stores as of end-2013, we expect PGOLDs total store count to reach 243 by end-2014F
and further grow to 269 by end-2015F. In terms of net selling space, we forecast this will
increase 9% this year and 7% next year, or from an estimated 352,006 sqm as of end-
2013 to 382,656 sqm by 2014F and 410,806 sqm by 2015F. Our forecasts have not
factored in PGOLDs potential acquisitions.
RECOMMENDED STRATEGIES
Market Penetration
It is important to seek and achieve increase in market share for present products
or services in present markets through greater marketing efforts because the firm needs
to embrace its market to surpass the sustainable competitive advantage. By introducing
new marketing and sales promotion to entice customers to patronize the services of
Puregold by introducing discount cards to really show their mission-vision to provide low
cost in their products that are inside their establishments.
Market Development
77
It is important to introduce present products and services into new geographic
area because maximizing the stockholders investment through expansion will have a
greater chance of getting back the ROI and profit of the company. Moreover, by
reaching out to the sub urban areas by establishing Puregold or PuregoldJr branches
depending on the availability in the target area to capture the market.
Product Development
The company should develop their products and services into all their store
formats to increase sales and possibly attract new types of customers, thus, increasing
their scope of market. By doing so, they are not only creating diversity and offering a
wider variety of products but this also helps the company to lessen the chances of new
substitute products entering the markets which can affect the companys external and/or
internal environment
FINANCIAL PROJECTIONS
78
79
80
81
IX. APPENDICES
82
83
84
85
86