ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Asia300

Dairy Farm, Gokongwei Group tie-up aims to rule Philippine food retail

Robinsons Retail to acquire Rustan grocery outlets in $346m share-swap deal

A newly-opened Rustan's outlet in Metro Manila.

MANILA -- Robinsons Retail Holdings, the Philippines' third largest retailer by sales, and London-listed Dairy Farm International Holdings are joining forces to build a leading food retailer in the Southeast Asian nation.

Gokongwei Group-owned Robinsons Retail will acquire 100% of Rustan Supercenters from a unit of Dairy Farm through an 18 billion peso ($346 million) share-swap deal, the two parties announced on March 23.

In exchange, Dairy Farm, a pan-Asian retailer which manages its business from Hong Kong, will hold an 18.25% stake in Robinson Retail, by acquiring shares from members of the founding Gokongwei family. The family will keep a 51% controlling stake.

The deal, which requires approval from Robinsons Retail shareholders and antitrust authorities, is expected to be completed within six months. After this, Dairy Farm can nominate two directors in Robinson Retail's board.

Through the tie-up with Robinsons Retail -- which is an affiliate of JG Summit Holdings, the Philippines' third-largest conglomerate with ventures in the food and beverage, airlines, petrochemical and real estate sectors -- Dairy Farm will be able to deepen its presence in one of Asia's fastest-growing economies.

For Robinson Retail, the deal will give it access to Rustan's high-end grocery outlets and other food retail formats amid a rise in affluence in Metro Manila and increasing urbanization beyond the capital.

The Philippine retail sector is dominated by informal mom-and-pop shops, but major retailers have competed fiercely to modernize the sector through organic expansion as well as mergers and acquisitions. Last year, sales from grocery retailers, which mostly sell food and beverage products, stood at 2.14 trillion pesos. This was a rise of 22.3% from 1.75 trillion pesos in 2013, according to Euromonitor International.

A boom in consumer spending on the back of a fast-growing economy is expected to fuel further growth in the food retail segment, which Robinsons Retail and Dairy Farm hope to capture. Currently, about 45% of Robinsons Retail sales are derived from its supermarket operations, with the remainder coming from drugstores, convenience stores and specialty shops.

Rustan operates 12 hypermarkets and 61 supermarkets, which will be added to the 154 supermarkets owned by Robinsons Retail. The deal could catapult Robinsons Retail into the position of the Philippines' second largest retailer.

Rustan recorded 22 billion pesos of sales in 2017, while Robinsons Retail booked 115.2 billion pesos. Their combined sales could surpass that of supermarket operator Puregold Price Club, which has yet to release official earnings for last year, but, based on its average compounded annual growth rate of 15.4% from 2013-2016, could post around 130 billion pesos of sales for 2017. Last year, retail leader SM Investments, which also runs the country's biggest chain of shopping centers, logged 297.4 billion pesos in sales.

However, it would take three years before Rustan starts contributing to Robinsons Retail's earnings, said Justin Cheng, an analyst from COL Financial.

The brokerage said Rustan posted losses of 200 million pesos in 2017, largely due to elevated operating expenses. "Robinsons Retail wants to turn the business around through synergies and cost-efficiency measures," Cheng said.

Still, the additon of Rustan would be a long-term boost to Robinsons Retail at time of intensifying competition in the retail sector, Cheng said. 

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends April 19th

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media