BOHOL BUSINESS FACES
TOUGH TIMES AHEADBohol Chronicle
June 18, 2008
Even Bohol businessmen are beginning to take punches on the face from the twin global scourge of food scarcity and high oil prices.
Fred Ong, top honcho of the Bohol Quality Group of Companies does not hide the fact that his retail business in the department store and supermarkets is showing signs of anemia in recent months. This is because prices of goods and food have gone high while the profit margins remain stationary.
In that scenario volume will decrease whose impact will have a more telling effect on net profit.
The Ateneo MBA graduate explained that especially the "postponable" items like garments, accessories and household items, a slowdown is experienced as money flows more into the more intrinsic things like rice and food items and healthcare like medicines.
Jose Mari Borres, on the other hand, who belongs to a deep sea fishing magnate family in Iloilo, bared the same lament that its operation's margins have been eroded since the business is 40% driven by the cost of fuel for the ships. The fishing group lands its catch in Roxas, Iloilo and at times in Bohol.
George Lim, who operates a bulk delivery trucking for Caltex, revealed that his transport business is 60% affected by the price of gasoline. The rising cost of fuel has likewise threatened to lower profits since the margins remain the same, regardless of its selling price.
Gasoline selling is a regulated industry where prices are decided by government. When the competitors narrow their profit margins, that's when the battle for customers get fierce.
That's partly the reason why gas stations have been selling snacks and grocery items to compensate for thinning profits.
Some specialized food lines like the Dunkin' Donuts franchise owned by Dennis Du, however, thrive due to expansive branch network (six branches) and a lot of promotional gimmicks. It appears that the antidote for lower purchasing power of the peso was already addressed in the past when the donut firm created the "Fun Size" types which cost only P10 per piece from the original P13 to P15 per piece variety.
The market seemed to have absorbed that kind of pricing although the rising cost of materials may force the successful donut franchise to raise prices by P1 per piece of donut soon.
The burgeoning tourist market, however, continues to provide the bright light in the dim horizon of business as the world braces for oil prices to approach the dreaded US$200 per barrel of oil.
Ong who runs a top of the line city hotel and a world-class resort is confident that over the medium term the tourist trade will be a profitable one. His enterprise has attracted Korean tourists and the local sales is perked by successful Food and Beverage operations buttressed by large-scale convention and seminar meetings of various organizations and "occasion parties."
Lim likewise reports brisk patronage of his pension house, confirming some firmness in that type of business in the city.
The CEO of the Bohol Quality Group is of course cautious about the impact of a steep oil price hike on the cost of travel that could affect tourism flow globally. However, Ong believes in economic cycles of boom and bust.
"It is important to survive the bust stage and be able to recoup on the boom stage in time," he explained. The crucial element there is the length of the bust cycle and how equipped a company is in battling the challenges during that period.
The tourism industry, while undoubtedly the flagship business of Bohol, is also being bothered by the lack of middle management talent and a fast turn over of clerical staff. Ong foresees a need for some sort of "university" in the city that will churn out yearly a steady supply of qualified Hotel and Restaurant management graduates.
On the other hand, retail stores are bucking the trend of dipping sales by continuing with their truck caravans to the towns on specific market days and relying on 50% of its sales on credit and installment to boost revenues - through the use of in-house credit cards.
The failure rate of this credit system has been less than 10% while the interest additional tag collected apparently already covers the cost of bank money.
Undoubtedly, the businessmen in Bohol will have to exact a deep excavation on its creative wealth of talents to meet head on the huge challenges posed by macroeconomic woes. For example, they are now scouting from sources of cheap goods in Asia - where their merchandising strategies include various trips to shopping Shangrilas in Malaysia, Bangkok and China.
Ong said he has not seen such a formidable challenge to business than today where rising prices is worsened by actual scarcity which cannot be remedied by the flow of goods of services into those who need them.
Doubtless, the next months will be Red Zone territory for business, not their comfort zones, by any means.
Consumers have given up "impulse buying" and now make a shopping list. Their brand-consciousness has disappeared and price is now a main consideration for buying.
Tough times ahead? You bet.
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