The sari-sari store: informal retailing in the Philippines.

The pattern of development in Third World countries has resulted in a splitting of the labor force. One portion works in the formal, structured sector of the urban economy which is characterized by high wages, relatively good working conditions, job security, and an opportunity for advancement;

The Philippine economy offers little exception to this pattern. The magnitude of economic crisis that is confronting the country today has led to an increased role played by the informal sector, which appears to function basically as a coping mechanism. Referring to those working in this sector, Gatchalian et al. (1986) state:

Their income generating activities enable them to subsist in an economy which can virtually no longer support them.... They respond directly to the needs of those who make up the large impoverished sector of the urban society... In effect, though highly informal, they have an efficient, inexpensive network of commerce and trade for the urban poor (p. 22).

The Philippine informal sector is characterized by a large number of small-scale production and service activities that are individually or family-owned and use labor-intensive and simple technology. The self-employed workers in this sector have little formal education, are generally unskilled, and lack capital resources. As a result, worker productivity and income tend to be lower in the informal sector than in the formal sector. Moreover, workers in the informal sector do not enjoy the measure of protection afforded in the formal sector in terms of job security, decent working conditions, and old-age pensions. Most workers entering this sector are recent migrants from rural areas unable to find employment in the formal sector. Their motivation is usually to obtain sufficient income for survival purposes rather than to achieve any great profit, relying on their own indigenous resources to create work. As many members of the household as possible are involved in income-generating activities, including women and children, and they often work very long hours. Most inhabit shacks they themselves have built in slums and squatter settlements, which generally lack minimal public services such as electricity, water, drainage, transportation, and educational and health services (Farolan 1995). Against this backdrop, a coping mechanism know as the sari-sari store has evolved.

The Sari-Sari Store

In textbook parlance, the sari-sari store is a retailing operation, In the Philippine situation, however, customers perceive it as the primary source of consumer items in exactly the needed amounts. Sari-sari stores cluster in the interior parts of the metropolis to provide goods for their urban poor customers. Typically the store is operated from a portion of the owner's house dedicated to that purpose. The average size of a store is two by four meters. Crammed into this area are the display, stock room, and a small work place that also serves as an office. Transactions take place through a wide window, with the customer staying outside the store. Some stores add a carinderia, or small restaurant, to their sari-sari store.

Methodology

In a preliminary effort to investigate the characteristics of sari-sari stores, sampling approaches were applied to these stores in metro Manila. The sampling frame included the areas of the city which were busiest in terms of underground employment. The sampling units were randomly-selected persons engaged in operating a sari-sari store in these areas. Allocations of number of respondents to be selected per chosen area were based on the area's population.

Results

Bustling trade and manufacturing activities in the formal sector serve to attract "squatter" businesses that ply their sari-sari store wares on these sites. Specifically, most sari-sari stores (72.4 percent) were observed to cluster in front of or beside formal establishments, usually along the sidewalks or on the sides of main streets that crisscross the area. Several were also established in the interior parts of the "squatter" colony along its major alley (17.6 percent). Only a minimal 10 percent had established their units separate from their domicile. Only the stores located in highly visible areas had bothered to obtain a mayor's permit, which legalizes their operations. Practically all the stores sampled (98.7 percent) were either family or individually owned. The remaining 1.3 percent were partnerships, and in 87 percent of these, the partners were in some way related by blood or had come from the same provincial town.

Members of the owner's immediate family normally served as the sari-sari store's personnel. Female workers dominate the labor force, which contains a high concentration of workers outside the prime working age groups. Most employees are unskilled workers who have not completed primary education. The members of this work force that did receive compensation usually received wages substantially below the stipulated minimum wage, despite long hours of work. The majority (92 percent) do not report their economic activities to the state and as a consequence lose lawful privileges and benefits.

A sari-sari store's capitalization ranges from P5,000 to P50,000 (1P=US$0.0388 as of 9/10/96) with an average of P23,573. In terms of source, 36.7 percent of the stores indicated savings as their main source of capital, 52.2 percent indicated borrowed money, and 11.1 percent used a combination of both savings and borrowed money. A telling revelation is that most of those who borrowed money (71.4 percent) got their needed financing not from the normal legal channels but from other sources, particularly from the popularly know "5-6 operation" of foreign money lenders which requires neither collateral nor documentation and relies on palabra de honor (word of honor) for enforcement. The average sari-sari store's financial profile consists of 23 percent accounts payable, 27 percent inventory, 33.4 percent accounts receivable, and 16.6 percent cash.

The store's main source of merchandise (56 percent) is through the bagsakan system. A bagsakan is one of the officials of the community or a member of the informal sector that usually commands respect in the area and has access to financing. He normally does not own any sari-sari stores and does not distribute goods to the sari-sari store. He operates instead as a sort of wholesaler whose business is usually located near or within the sari-sari store's area of operation. Big companies usually drop their products here on a direct purchase basis or on consignment, and the sari-sari store owners come to pick up the goods for which they pay either in cash or on a credit basis (Asprer 1995).

Groceries or supermarkets comprise 32 percent of sari-sari stores. In financial structure, this group of stores normally has capitalization above the average and has low accounts receivable. They normally sell more frequently for cash, so they can afford to pay their suppliers in cash, and therefore have a greater choice of suppliers.

Generally, sari-sari stores located in areas nearer to the main roads or in areas where both vehicular and human traffic are high have higher prices than those situated in squatter areas. Seventy-two percent of the stores priced using the prevailing 5-6 interest rate as the base markup. Of this group, 82.3 percent directly applied the mark-up on the cost of each item. If the goods required repackaging into smaller sizes, the price was first estimated on the whole original package and then divided by the number of smaller packages that could be produced from the original. An additional 2 percent was then added on to this estimated price. This system is commonly justified by reference to the expenses involved in paying tong. Tong is the grace money store owners pay for the protection of their operation.

Most sales in sari-sari stores are made on credit. All sari-sari stores maintain a listahan for each customer, an individual card whereon the cost of items taken on credit is logged. The individual's credit limit is highly dependent on the individual's palabra de honor and payment arrangements are usually on a weekly, bimonthly, or monthly basis depending on when the customer expects to receive a paycheck or other money. This credit-granting practice is reflected in the generally high level accounts receivable in these stores, and could be one of the reasons why high mark-ups are prevalent. The owners must cover not only the cost of 5-6 interest and other costs, but also the risk and opportunity lost while their money is in accounts receivable.

Sari-sari stores do not usually advertise or promote on their own. Only 15 percent of those sampled had put up their own store marquees, while 63 percent used marquees donated by one of the companies whose products they carry. Thus, it is not surprising to see plenty of sari-sari stores in one locale with the same marquee design and differing only in the name of the store. Product posters serve as decor on the walls of the store as well.

Flexibility is the name of the game in product mix, and product mix is always based on demand. Seldom is any large amount of stock purchased or kept in these stores. Stock for resale is usually purchased on a bi-weekly basis in order to maintain flexibility, with purchases highly reflective of expected demand. For example, during weekdays (Monday to Thursdays) the demand for beer is answered by offering small bottles, but on Fridays to Sunday, the demand shifts to the "Grande" bottles. Laundry soap is purchased in 1/4 bar sizes during weekdays but in bars or half-bars during weekends.

Interviews with the marketing officials of seven leading consumer food companies yielded a conflicted attitude toward the sari-sari store. Although all agreed that these stores are factors to be reckoned with, some officials preferred to deal with legitimate businesses rather than sari-sari stores. Five marketing managers admitted relaxing their policy in order to capitalize on the bagsakan system. According to them, the palpable result is a reduction in the routing and traffic problems in their distribution system and the faster collection of accounts receivable. Two managers further added that product movement was enhanced because of the predictable and appropriate mix of item sizes offered in these stores. All admitted that packaging their products in smaller sizes was driven by the market demand, particularly in the low income part of their target market. However, they refused to associate this action with the sari-sari store despite the fact that almost 71 percent of active outlets in the metropolis are the sari-sari stores.

Analysis showed that the amount of sales made by the seven participating consumer goods companies is directly related to the use of the bagsakan system and small packages. The degree of relationship increased when the data were aggregated by sales area. This tends to show that the relationship between sales and the two marketing practices is high dependent on the nature of the market segment involved.

Conclusions and Implications

The sari-sari stores' lack of legal standing prevents their official acceptance into the Philippine marketing distribution system. This does not mean, however, that they are not being used as part of that system. In the Philippines the sari-sari store has become an institution, officially recognized or not. It is an accepted form of retailing in the informal sector, and its proliferation is associated with the sector's survival mechanisms. As such, it will remain a medium of distribution as long as there are clusters of low-income Filipinos, operating in any locale as an informal sector. It is one of the mechanisms that tend to cushion the impact of high prices. Furthermore, its ability to offer retail items in quantities much smaller than the manufacturers' usual packaging addresses directly the needs of the low-income group. Thus, despite the informal operational and organizational set-up of these stores, marketing officials would be wise to integrate them into their company marketing system in order to tap a wider territory and a bigger segment of the market.

References

Asprer, Felix E. (1995). "Bagsakan System and the Sari-Sari Stores," Lecture Notes on Logistics Management, Pamantasan ng Lungsod ng Maynila, July.

Farolan, Ma. Martha (1996). The Philippine Informal Sector: Its Status as an Area of Scientific Research. Working paper, January.

Gatchalian, Jose C., Miflora M. Gatchalian, Carol J. Almeda, and Nenita O. Barranco (1986). The Nature, Consequences and Prospects of Underground Employment in the Four Major Cities of Metro Manila, December.

Kuang-Jung Chen National Open University Taipei, Taiwan