‘Pasalubong’ power in the Philippines

by Dermot Davitt |

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The scale and dynamism of Duty Free Philippines’ confectionery business really has to be seen to be believed. After yesterday’s tour of flagship outlet Fiesta Mall – as part of our visit to the Philippines this week – today we returned to get an insight into the retailer’s largest category (above), and the drivers behind it.

The key driver, if we had to sum it up in one word, is ‘pasalubong’, which means ‘gift’ in Filipino. The power of the ‘pasalubong’ pack – basically a multi-pack of an individual brand priced at between US$32 and US$34 – is as follows: this format generates almost 90% of Duty Free Philippines confectionery sales, which were a whopping US$63 million in 2009.

And yet all this occurs in a market where, we’re told, brand loyalty plays only a limited role in the purchase decision. The key here is often not which ‘pasalubong’ pack you buy – the top six brands Kraft, Hershey, Cadbury, Mars, Nestlé and Lindt each offer one – it’s which promotional item you offer with the purchase.

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So for example, the purchase of three ‘pasalubong’ packs of Cadbury will get you a free electrical fan (pictured above), while the equivalent Hershey purchase will land you a new water cooler. The consumers who come here – the vast majority for this category are the families of returning overseas workers – are buying confectionery according to the household item they covet most from the gwp selection.

Not surprisingly, we understand, many brand owners, especially at the luxury end, struggled to understand just how vital the ‘pasalubong’ effect was on the business – until they came and saw the vast numbers of families with full shopping trolleys for themselves. Now, no major brand house is without its own multi-purchase bag.

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There are other factors too of course. Unlike in most airport duty free stores, children are part of the purchasing process here, simply because so many families choose to make a visit to Fiesta Mall a day out. So attract the children, and the parents will lean towards certain purchases. Today we saw the M&Ms dispenser (free with two ‘pasalubong’ bags, above) doing a roaring trade with families during our visit.

The front-of-store promotional launchpad area is also a critical factor. In March and April Hershey has dominated the eye-catching zone, while Nestlé and Mars are next up in May with their promotions. With the benefit of the launchpad, brands should expect to boost their sales (versus the comparable prior year period) by at least +20%, we hear.

There’s little or no business to foreigners here, so there may be an opportunity to attract tour groups, notably from the growing influx of Chinese travellers, to this store. Then again, they are well served by the airport Departure shops. Here, the Koreans and Japanese dominate, and brands such as Lindt, Godiva and Guylian punch well above their weight compared to their share among Filipinos at Fiesta Mall.

As we noted yesterday, duty free in the Philippines is a rich, diverse and often unusual business, compared to other markets. And nowhere is that diversity and that difference clearer than in the dominant category, confectionery.