EXTERNAL ANALYSIS

SUBMITTED BY:

PALOMA, Angelica Kristine M.

4-ALM

SUBMITTED TO:

Prof. De Guia

26 February 2019
III. EXTERNAL ANALYSIS

3.1 General Environment

This chapter focuses on the external situation of Shakey’s Pizza Asia Ventures Inc. thru

PESTEL Analysis. This analysis is divided into five categories that affect the industry and the

company. The six categories are: Political, Economic, Social, Technological, Environmental, and

Legal.

3.1.1 Political

[Link]. The Creation of a Philippine platform for consumer health, diet and physical

exercise

An increase emphasis on consumer health as a result of nutrition are high on the agenda.

The European Chamber of Commerce of the Philippines Food and Beverage Committee is

cooperating closely with relevant government bodies, including the Food and Drug

Administration (FDA). In the past years, they have jointly worked towards a mutual process and

policy framework governing food and beverages in a constructive public-private partnership. In

May 2016, the FDA applied a new application process for the license to operate with the

issuance of the circular “Procedure on the Use of the New Application Form for License to

Operate (LTO) thru the FDA Electronic Portal”. In addition, e-registration was expanded to

applicants for CRP for medium and high-risk products by the FDA in the first half of 2016. This

is to address the lack of coordination between government agencies and serve as an effective tool

to align the BOC and key government agencies including but not limited to FDA and BIR.

Reference: [Link]

beverage
[Link]. An Act Strengthening the Meat Inspection System in the Philippines (Republic Act

9296)

Protection and promotion of the right to health of the people (Section 15, Article II) and

protection of consumers from trade malpractices from substandard or hazardous products

(Section 9, Article XVI) are State’s obligations stipulated in the Philippine Constitution of 1987.

In July 2003, Republic Act No. 9296 ordained the ‘Meat Inspection Code of the Philippines’ to

strengthen the country’s meat inspection system to assure safety and quality of meat and meat

products for human consumption both in the domestic and international markets.

Section 2 of R.A. No. 9296 states that it is the policy of the State:

a) to promulgate specific policies and procedures governing the flow of food animals,

meat and meat products through the various stages of marketing and the proper

preservation and inspection of such products;

b) to ensure food security and provide safety and quality standards for consumer products

related to agriculture to assure the protection of the public against unreasonable risks of

injury and hazards to health;

c) to support local government units in their endeavor to be self - reliant and to continue

exercising the powers and discharging the duties and functions currently vested upon

them;

d) to strengthen and harmonize various issuances on meat establishment operations and

meat inspection and at the same time create a favorable climate of investment to

encourage the meat and poultry industry to put up world class meat establishments;
e) to promote the application of risk analysis based on accepted scientific methodology

on applied food safety standards so as to assure a safe and wholesome meat supply.

f) to support the development of the livestock and poultry industry and promote animal

health by preventing the entry of disease - carrying animals, and surveillance of zoonotic

and reportable diseases in meat establishments; and

g) to strengthen existing rules and regulations governing meat importation to make them

comprehensive, clear and transparent and ensure the safety and quality of imported meat

and meat products through inspection and documentation.

The provisions of the Act applies to all meat establishments such as slaughterhouses,

poultry dressing plants, meat cutting plants, meat processing plants, cold storages, meat shops,

meat markets and other outlets engaged in domestic and international trade. Only meat control

and inspector officers duly appointed and designated by the National Meat Inspection Services

(NMIS) or local government units are authorized to conduct meat inspection work. NMIS has the

responsibility to ensure, and to enforce, that meat establishments operate in accordance with

humane slaughter and hygienic requirements.

Reference: [Link]

Relevance

The above-mentioned political factors are both opportunities for the food industry. The

creation of a platform for consumer health, diet, and physical exercise makes it more accessible

for aspiring restaurant or food chain owners to register their future businesses. Through the e-

portal created, the process of obtaining a license to operate becomes one step easier.
Republic Act No. 9296 is an opportunity because the food industry can make sure that the

products that they put out in the market are of good quality which will satisfy the consumers and

can later on gain the latter’s loyalty.

3.1.2 Economic

[Link]. Increase of Inflation Rate in the Philippines

The Philippines' annual inflation rate eased to a 10-month low of 4.4 percent in January

of 2019 from 5.1 percent in the previous month. The latest reading was slightly below market

estimates of 4.5 percent, amid a marked slowdown in cost of food and transport. On a monthly

basis, consumer prices rose by 0.1 percent in January, after a 0.4 percent fall in December 2018.

It marked the first monthly increase in three months. Inflation Rate in Philippines averaged 8.39

percent from 1958 until 2019, reaching an all-time high of 62.80 percent in September of 1984

and a record low of -2.10 percent in January of 1959.

Reference: [Link]

[Link]. High consumption of meat in the Philippines

According to the Philippine Statistics Authority (PSA), a total of about 4,958 metric tons,

or nearly 5 million kilograms of meat was produced in 2016. Pork is consistently the most

produced meat, followed by chicken, chicken eggs, cattle, and carabao. In 2015, San Miguel

Pure Foods agro-industrial business segment saw revenues of about P70 billion. This included

sales from company brands Magnolia and Monterey, which cater to the company’s poultry, fresh

meats (pork and beef), and animal feeds business.

According to Business Insider, a good, less processed and healthy foods will make the

millennials happy. 53% of the group goes out to eat once a week, compared with 43% for the
general population. Nowadays, a lot of Filipino people, particularly millennials, demand to start

eating healthy foods. There has been a shift in the dietary pattern of Filipinos, and this will have

a great effect in the food and beverage industry due to the buying capacity of the millennials.

Reference: [Link]

consumers-say-experts

Relevance

Both economic factors are opportunities because these inure to the benefit of the food

industry. A higher inflation rate means a higher price for all the essential products, which means

that members of the industry will have an opportunity to increase their prices as well.

The Philippines being one of the highest consumers of meat means that members of the

food industry will benefit from such high consumption.

3.1.3 Social

[Link]. Filipinos are becoming more health conscious

According to Philippine Star, The Philippines is still one of the unhealthiest countries in

Asia. The score remained static that 63 in 2011 and 61 in the 2013 survey. According to Ted

Torres, 80% of adults in the Philippines are not really satisfied with their health. 40% of adults

are overweight because they lack food habits and insufficient exercise, but only 25 percent

would like to lose weight. 74% of adults claim to exercise regularly. But on average, they only

exercise 2.1 hours in a week, and it is a lower than the regional average of 3 hours of

recommended hours of exercise needed. Also, according to the Food and Nutrition Research

Institute (FNRI) data, overweight and obesity prevalence has been steadily increasing in the last
two decades. They said that the reason why there is a high prevalence of cardiovascular diseases,

various forms of cancer, musculoskeletal disorders like arthritis and type 2 diabetes is because

we tend to eat more fatty and sugary foods like meats and eggs than fruits and vegetables.

According to Health and Wellness in the Philippines’ report of Euromonitor indicated

that Filipinos are now starting to demand healthy food. Another report was found in 2015 by

Nielsen, that there were products that is applicable for a healthy lifestyle (including a proper diet

and good daily exercise) and products made of natural ingredients. 68% of the ABC class is

more concerned about their health and tend to avoid having illnesses. According to the latest

Pulse Asia of December 6-11 last year most of the Filipinos tend to stay healthy and avoid illness

that garnered an overall 63% rating.

Reference: [Link]

[Link]. Health risks in consuming processed food

According to Rafael Castillo from Inquirer net and his colleagues, that modern man is

eating a lot of processed foods. Our body system needs to digest more natural and raw food to

lower the risks of countless disease and regain more of our health. Filipino people need to avoid

the “processed garbage food” Instead, we should eat nutritious fruits and vegetables. Consumers

should prefer the natural, whole, nutrient dense alternatives. If they give more effort in putting

awareness with their health; the health-conscious market will grow and lower the incidence of

lifestyle related diseases to occur. There are negative effects of eating processed food. Lifestyle-

related illnesses include coronary heart disease, stroke, influenza or pneumonia, tuberculosis,

diabetes and cancers. According to the Department of Health, cancer, stroke, and Ischaemic heart
attack are the leading causes of death among Filipinos. Colon cancer, on the other hand is on the

rise among Filipino males.

Reference: [Link]

[Link]. Consumers’ Strong Propensity to Spend

The growth and boost of the income of the consumers resulted to an increase in the

household consumption expenditure by 7.3% in 2016. The emerging middle class has shown

willingness to spend on higher-quality and fulfilling meals. The customers enjoy higher and

better value for their money. Business Monitor International analysts said household spending

will likely expand by an average of 9.3% from 2017 to 2021. Consumption growth will likely be

“modest” over the next five years, with Filipino families likely to spend the bulk of their funds

on essentials such as food, utilities, and transportation, which would likely account for 75% of

household spending. In particular, spending on food, drink, and tobacco products is expected to

account for over a third of total spending according to a BMI research.

Relevance

The first two social factors are both threats because as Filipinos are becoming more

health-conscious and as the risks in the intake of processed food are getting higher, the consumer

market then becomes more picky of what they buy and consume. This is a threat to the food

industry because the consumers might look into what they are consuming from these restaurants

more and the former might be willing to ditch the usual offered products for something much

fitting to their new diets.

The consumers’ strong propensity to spend is an opportunity for the food industry

because as the consumers are accustomed to spending a certain portion of their income on certain

restaurants, then the higher income there is for the members of the food industry.

3.1.4 Technology

[Link] Increase in Electricity Rates

Meralco increase a generation charge this April and it will be bad for the Filipinos. The

rates will be at P 9.89 per kilowatt-hour (kWh), after the P 0.23 increase. This means a

household which consumes 200 to 500 kWh per month will have to pay additional P 45.24 to P

113.10. According to Meralco the reason why they increase the rate for electricity is mostly due

to the low dispatch of some power producers and the higher demand for electricity and the

upward movement in the generation charge. Contributing to the increase is the increase in the

cost of power sourced from the Independent Power Producers (IPPs) and Wholesale Electricity

Spot Market (WESM). According to the Philippine Independent Power Producers Association

(PIPPA) There are at least 28 IPPs in the Philippines which generate 83 percent of the power

grid nationwide.

[Link] Increasing brand awareness, gaining customers insight and monitoring competitors

through social media

According to Hootsuite Blog, internet particularly social media plays a big role in

revolutionizing today's food industry. As of 2016, there are over 3 billion internet users- and over

2 billion of them have active social media accounts. The increasing numbers of internet users

provides an opportunity to many businesses to connect and engaged with their customers. Social
media is an effective way to increase brand awareness, monitor competitors and gain valuable

customers insight.

Social platforms such as Facebook, Instagram, Twitter etc. make it easier for customers

to discover and connect with the business, and vice-versa. As a result, customer retention and

loyalty increase. Studies shows that customers who follow brands on social media tends to be

more loyal to those brands.

The involvement of social media in businesses is an opportunity to gain information and

monitor competitors’ strategic business decisions. It would be beneficial in such a way that

businesses, based on the information they gathered about their competitors, can improve or

enhance their products or services ahead of the competitors.

Lastly, social media generates huge amount of data about customers. Through this,

business owners can easily gather relevant information, such as what the customers wants, how

they feel about your brand etc., that would help them in making smarter business decisions.

Relevance

The technological factors presented are both a threat and an opportunity. The increase

rate in electricity is a threat because every time its rate increases, it will mean that the companies

in the food industry will have higher expenses in order for them to maintain their businesses—

they will be forced to spend more without having to increase their food prices.

Brand awareness through social media is an opportunity for almost all kinds of

industries nowadays because almost all of the consumers are on social media. It is now becoming

a routine for people to check their social media accounts every day, so once a business is made

known through social media, it creates a big impact on the consumers.

3.1.5 Environment

[Link]. Climate Impacts on Food Security

According to the World Food Programme, changes in climatic conditions have already

affected the production of some staple crops, and future climate change threatens to exacerbate

this. Higher temperatures will have an impact on yields while changes in rainfall could affect

both crop quality and quantity. Climate change could increase the prices of major crops in some

regions. For the most vulnerable people, lower agricultural output means lower incomes. Under

these conditions, the poorest people — who already use most of their income on food —

sacrifice additional income and other assets to meet their nutritional requirements, or resort to

poor coping strategies. The climatic variability produced by more frequent and intense weather

events can upset the stability of individuals’ and government food security strategies, creating

fluctuations in food availability, access and utilization.

Reference: [Link]

Relevance

The aforementioned environmental factor is a threat because as there are often changes

in climatic conditions, the supply of raw materials that are usually used in the food industry is

lessened which means that they would have to seek for substitutes which may not always be an

effective solution.

3.1.6 Legal

[Link]. House Bill 6152: Four-day workweek law

The House Representatives has recently approved the House Bill 6152 that will allow

employees to have a four-day work week. The chamber said House Bill 6152 will institutionalize

a compressed work week policy "to promote business competitiveness, work efficiency and labor

productivity." It added that this “optional” scheme could be used to maximize and enhance

employees’ performance. The bill will allow the employees to work four days in a week, but they

must render up to 12 hours of labor per day. In addition, the employees to up to three days off

(Delon Porcalla, 2017). According to Mark Go, these kinds of arrangements will give employers

and employees flexibility in fixing hours of work compatible with business requirements and the

employee's’ need for a balanced work-life.

Relevance

However benefitting the four-day workweek law is to the employees, it is still

considered as a threat to the owners of restaurants in the industry because they will have to look

for more employees to cover for the shifts of the other employees and it might take a while for

the companies to adjust because they will have to train the new employees to meet their standard

of service to fulfill their promise to the consumers.

PORTER’S FIVE FORCES
Potential Entry of New Competitor LOW
Bargaining Power of Suppliers MODERATE
Potential Development of Substitute Products HIGH
Bargaining Power of Consumers MODERATE
Rivalry among Competing Firms MODERATE

Potential Entry of New Competitor

In Porters five forces, threat of new entrants refers to the threat new competitors pose to

existing competitors in an industry. Therefore, a profitable industry will attract more competitors

looking to achieve profits. If it is easy for these new entrants to enter the market – if entry

barriers are low – then this poses a threat to the firms already competing in that market. More

competition – or increased production capacity without concurrent increase in consumer demand

– means less profit to go around.

In the food industry, the potential entry of new competitors is low because although it is

easy to create a business in the said industry, those new businesses do not necessarily offer what

the companies with established names and reputations have to offer. Simply put, although these

businesses all serve food, they do not necessarily cater to all types of consumers and the products

are often different than the usual businesses.

Reference: [Link]

Bargaining Power of Suppliers

The bargaining power of suppliers is one of the five factors that control the amount of

competition in a particular industry. Players in the food industry depend on their respective

suppliers for items such as food products and items needed for packaging. Suppliers may work

with multiple buyers in the same area, giving them leverage in contract negotiations with an

individual restaurant. Restaurant owners should consider the bargaining power of suppliers when

deciding whether to enter the industry. If the suppliers have heavy influence on the market,

income projections may need to be adjusted to account for increased supply prices.

As suppliers gain bargaining power, they drive down the potential profits for the industry

as a whole. A group of suppliers can threaten to reduce the quality of products or raise prices,

which makes it hard for restaurants to make up for cost increases by raising their own prices.

However, such power is can also be decreased by the competition between suppliers. Restaurants

can choose another vendor if there are multiple options for purchasing the same product. To

combat this, an individual supplier must offer something special to stand out from the crowd,
such as a lower price, faster delivery time, more flexible credit terms, higher product quality or

volume discounts. 

Reference: [Link]

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HaJo3jRS1yo6YObuuSeiis

Potential Development of Substitute Products

A substitute product is one that may offer the same or similar benefits to a company as a

product from another industry. The threat of a substitute is the level of risk that a company faces

from replacement by its substitutes. The existence of substitute product offers customers

different choices and allows them options within the industry and beyond it to products that may

fulfill a similar need.

In the food industry, the potential development of substitute products is high as opposed

to the first force which is the potential entry of new competitors because there are a lot of other

food products that can satisfy the wants and needs of consumers right away.

Reference: [Link]

Bargaining Power of Consumers

Buyers have bargaining power when they are strong enough to be able to put collective

pressure on the companies producing a product or a service. This power is highest when buyers

are able to gather together and amount for a large percentage of the producer’s sales revenue or

when there is a number of suppliers providing the same type of product.

When a strong group of buyers is present in the market, it can significantly impact a

company’s product and selling decisions. The strongest power that buyers can exert is to lower

prices, which in turn impacts the profit potential. Buyers can also demand higher quality of

services or products, and increase competitiveness by forcing different companies into price

wars.

In the food industry, the bargaining power of consumers is moderate because most of the

time, consumers in the food industry simply comply with the prices that are given to them by the

companies in the industry. An example is when there are promos presented by restaurants and it

becomes a success, it usually becomes a trend which makes the other competitors in the food

industry to come up with better promos for consumers to patronize their products.

Reference: [Link]

Rivalry among Competing Firms

The intensity of rivalry among competitors in an industry refers to the extent to which firms

within an industry put pressure on one another and limit each other’s profit potential. If rivalry is

fierce, then competitors are trying to steal profit and market share from one another. As a result,

this reduces profit potential for all firms within the industry.

The intensity of the rivalry among competing firms in the food industry is moderate because

although there are a lot of businesses that are being established, there are also highly

differentiated products which means that although other firms become more competitive, not all

of those competitors are being patronized by the consumers overtime because the latter still stick

to the companies that they have known for a longer time.

Reference: [Link]

EXTERNAL FACTOR EVALUATION

Key External Factors Weight Rating Weighted

Score
Opportunities
An Act Strengthening the Meat Inspection System in the

Philippines
Increase of Inflation Rate in the Philippines
High consumption of meat in the Philippines
Consumers’ strong propensity to spend
Increasing brand awareness, gaining customers insight and

monitoring competitors through social media

Threats
Filipinos are becoming more health conscious
Health risks in consuming processed food
Increase in Electricity Rate
Climate Impacts on Food Security
House Bill 6152: Four-day workweek law

Total 1

Analysis:

COMPETITIVE PROFILE MATRIX

   

Critical Success
Weight Rating Score Rating Score Rating Score
Factor

  1      

ANALYSIS: