Philippines. US Wines Maintain Stronghold in Philippine Market Jan. 13, 2015
The U.S. has long been the leading supplier of wines to the Philippines and, since 2009, the Philippines has been the largest U.S. wine market in Southeast Asia in terms of volume. In 2013, U.S. wine exports to the Philippines reached 2.8 million liters, and $8.3 million, up 10 and 3 percent respectively over the previous year. FAS Manila estimates 2014 exports will reach a record 3.1 million liters, and $9 million. Prospects for growth are exceptionally bright, despite distribution challenges, and tariffs and taxes that inflate the final price by roughly 30 percent. The country’s continued economic growth, wine’s increasing popularity, the widespread trust and acceptance of U.S. products, a young population, and wine comprising less than one percent of current alcohol consumption create an extraordinary profile that makes the Philippines one of the most exciting potential wine markets in the world.
Overview of the Philippine Wine Market
Wine exports to the Philippines picked up dramatically in the late 1990’s when New World wine producing regions began shipping full-containers of value-priced wines with labels that were straightforward and less intimidating. At the same time, upscale hotels, restaurants, and retail outlets proliferated throughout the country, while importers improved their distribution capacity and invested in brand-building efforts. These developments led to more visibility for wines and spurred consumer interest.
From 2000 to 2013, the volume of total wine exports to the Philippines more than doubled to 9 million liters (1 million cases), while the value more than tripled to $36.8 million. In 2012, importers stocked up at the end of the year in anticipation of price increases in 2013 resulting in a slightly higher volume recorded in 2012 vs. 2013.
After witnessing strong demand, importers forecasted at least 30 percent growth in 2014. However, congestion at the port of Manila since February 2014 has resulted in delays and out-of-stock situations. As a result, forecast for total wine exports to the Philippines in 2014 was trimmed to 10 million liters (1.1 million cases), and $41 million, exceeding 2013 sales by a projected 11 percent in both volume and value. Despite distribution challenges, and tariffs and taxes that inflate the final price by roughly 30 percent, the country’s continued economic growth, wine’s increasing popularity, widespread trust and acceptance of U.S. products, a young population (40 percent of the country’s 105 million people under 20 years old), and wine comprising less than one percent of the estimated 2.5 billion liters* of alcoholic drinks consumed annually create an extraordinary profile that makes the Philippines one of the most exciting potential wine markets in the world.
1. For accuracy, this report uses “exports to” statistics reported by countries of origin, rather than Philippine import statistics.
2. Full-year figures from exporting countries are usually available in March of the following year.
3. *Derived from interviews with trade associations and retailers. However, wine sales comprise a significantly larger percentage of total alcohol sales in upper end hotels, supermarkets, and other outlets.
4. One case (12 bottles x 750 ml per bottle) = 9 liters
U.S. Wine Exports to the Philippines
Leading Supplier of Wines
The U.S. has long been the leading supplier of wines to the Philippines, surpassing France in 2000. While the volume doubled from 2000 to 2013, the value quadrupled. In 2013, the U.S. held a 33 percent market share by volume, and a 22 percent market share by value. Due to the strong presence of U.S. brands and the promising growth, FAS Manila expects U.S. wine exports will reach a record 3.1 million liters (344,444 cases), and $9 million by the end of the year.
Growth Expected Across All Price Ranges
While the trade reports that 80 percent of “value-priced” wines (below $65.00 FOB price per case, according to industry) marketed in the Philippines are from the U.S., growth is taking place across all price ranges. In 2013, the average FOB price of U.S. wines exported to the Philippines was $2.90 per liter. The trade estimates that a combination of higher prices and increased sales in mid-priced and premium wines will raise the average price by 20 to 30 percent in the coming years. At the same time, brisk sales of entry-level, value-priced U.S. wines are expected to continue as more consumers become interested in wines.
Market Facts, Trends and Opportunities
Largest Market in Southeast Asia for U.S. Wines
The Philippines has been the largest market for U.S. wines in Southeast Asia by volume since 2009, surpassing even major transshipment destinations in the region such as Vietnam and Singapore. The likelihood of growth in wine consumption is underscored by the country’s young, fast-growing and highly urbanized population, and the presence of 10-15 million potential customers with sufficient income to purchase wine occasionally. FAS Manila predicts the Philippines will remain the largest market in Southeast Asia for U.S. wines in the foreseeable future, and is poised to be one of the most exciting wine markets in the world.
Wine Events and Education
In an effort to demystify wine and make it more accessible to many, marketers conduct a mix of wine tastings and educational programs. FAS Manila joins the trade in hosting regular events to expose hotels, restaurants, retailers, culinary professionals and consumers to high-value U.S. food and beverage products, including wines. At wine events, it is common to pair wine with Filipino and other mainstream cuisines to encourage more wine consumption at home. The popularity of wine is also boosted by the growing number of culinary organizations and private groups of wine connoisseurs whose regular wine and food gatherings often appear in the press.
Importers have capitalized on the growing health-awareness among Filipino consumers by emphasizing the reported health benefits of moderate wine consumption through flyers, wine tags and advertorials. The industry is reporting the beginnings of shift in consumer preference from beer and spirits to wine. While the Philippines produces almost no wine, it is a major producer of relatively inexpensive beer and spirits.
Taste, Varietal and Labeling Preferences
• Although the Philippine climate is tropical, about 65 percent of wines sold in the market are red. Aside from its perceived health benefits, importers report that consumers who have shifted from hard liquor prefer red wines because of its robust and oaky taste profile. Despite the general preference for reds, FAS Manila projects strong growth in both red and white wines.
• All common U.S. wine varietals have found acceptance in the Philippine market.
o Reds: Pinot Noir, Merlot, Cabernet Sauvignon, Shiraz and Zinfandel
o Whites: Chardonnay, Sauvignon Blanc, Pinot Grigio, Chenin Blanc, Riesling and Gewürztraminer
o Rosés: White Zinfandel and White Merlot
There is room for other varietals to gain acceptance and popularity as Filipino consumers are always willing to try something new.
• While Filipinos generally have a sweet palate, the trade reports the market for drier wines is expanding rapidly as tastes mature.
• Hotels and restaurants report that consumers find New World “sparkling wines” as acceptable as Champagne.
• According to retailers, consumers generally prefer wines with varietal labels. Some Old World wineries have started shipping wines with varietal labels to gain wider acceptance in the Philippine market. That said, other labels have found success with nothing more than “red” or “white.”
Ready Market for U.S. Wines
• Filipinos have a high awareness & strong preference for U.S. food and beverage products.
• Travel agents report visits to wineries in California are extremely popular.
• More and more U.S. wines are earning international recognition and awards.
• Only one percent of total alcohol consumption is comprised of wine.
• The young population and growing income is adding more than 1 million potential customers per year.
• While most wine importers already have a broad portfolio of wineries, there are seasoned importers of various food and beverage products that would like to venture into the wine business. In addition, new importers are being drawn into the growing market.
• Importers report interest in sourcing wines from all over the U.S.
• Some wine aficionados who passionately collect wines have ventured into the wine importation business as a serious hobby. High-end wines are often pre-sold to a network of wine consumers even before the shipment arrives.
• The Philippines is a market where wines and other products are subject to trends. For example, in early to mid-2013, wine importers report the sudden and unprecedented popularity of White Zinfandels.
• Traders report an untapped potential for medium and premium wines, as well as boxed wines, dessert wines, and private label wines.
• Wine is becoming increasingly popular among many Filipino consumers, along with a strong interest to learn more about pairing wines with local and foreign cuisines.
Possible Limiting Factors
• While income is growing, wine is still considered a luxury product by most Filipino consumers. Locally produced beer and spirits enjoy a strong price advantage.
• Cold chain facilities are limited in some parts of the Philippines, as is knowledge of proper storage conditions for wine.
• Supermarkets and foodservice establishments typically require marketing support funds.
General Business Practices
• Filipino businessmen value trust and personal relations. They like to maintain close contact with their principals and appreciate regular market visits.
• Exclusive distributorship agreements are preferred by Philippine importers.
• U.S. exporters may want to use secure payment facilities (i.e., letters of credit) especially for initial transactions. Credit terms may be extended to the importer after conducting a thorough background and credit investigation, and after payment habits have been established.
Most trade customers require importers/distributors to extend credit terms varying from 30-90 days.
o A majority of supermarkets sell wines on consignment. Importers collect payment 30 days after the wine is sold. Supermarkets that purchase wines outright require a credit term of 60 to 90 days.
o Most hotels and restaurants require a credit term of up to 60 days.
• Some Philippine importers maintain buying offices in the U.S. and prefer to consolidate their shipments through third-party consolidators on the West Coast.
Distribution and Marketing
• There are more than 25 wine importers in the Philippines. Some already represent well-known wineries from California, the Pacific Northwest and other regions around the world, while others are on the look-out for big brands to represent.
• Most of the importers are based in Metro Manila and manage their own distribution, though others appoint independent distributors to cover key provincial areas. The trade estimates 70 percent of total wine sales take place in Metro Manila.
• Importers distribute wines to supermarkets, convenience stores, liquor/gourmet shops, hotels, restaurants and directly to consumers. There are some importers that operate their own liquor/gourmet shop, on-line shop and wine club.
• There is only one Philippine company that blends and bottles wines locally.
• Most hotels and restaurants request a “marketing support fund” before agreeing to list new wines. According to the trade, the fund typically ranges from $1,000 to $3,000 and is often used to defray the cost of promotional materials and wine events. The importer/distributor incorporates the marketing support fund into the wholesale price. In return, the establishment will promote the wine extensively (e.g., as the “Wine of the Month”). During promotions, top establishments sell 30-45 cases for reds and 15-30 cases for whites.
Preferred pricing is offered by the importer/ distributor for establishments that do not require a marketing support fund.
• Distributors encourage the wait staff of establishments to actively suggest wines by offering incentives. A common monetary incentive is commonly referred to as a “cork incentive” that ranges from $0.50 to $0.70 for every bottle of wine sold. Other distributors offer small giveaways such as caps, shirts and pens to more premium prizes such as cellular phones, small appliances, watches and all-expense-paid educational trips to wineries. Incentives are woven into innovative mechanics including the accumulation of points in exchange for rewards.
• Most supermarkets charge a one-time shelving fee of about $120.00 per stock-keeping unit (SKU) + a year-round marketing support fund that ranges between $1,000 to $3,000 per annum.
A. Pricing Categories
In general, there are three wine pricing categories: value-priced or house, mid-priced and premium.
B. Pricing Structure
One case (12 bottles) of wine with a CIF Price of $120.00 will usually be priced in supermarkets at around $215.00 per case (inclusive of duties, taxes, fees and mark-ups).
Import Duty, Taxes and Strip Stamp Fee
Import duty and taxes are assessed in Philippine pesos and will vary depending on the exchange rate. The total duty, taxes and fee on strip stamps for one case (12 bottles) of wine with a CIF price of $120.00 will amount to $29.42*.
The import duty payable is calculated based on the CIF price In addition to duty, wine imports are subject to excise tax and “Value-Added Tax” (VAT) levied on the sale of wines. Importers also have to pay a fee to obtain strip stamps which are to be affixed on the primary (bottle) and secondary (case/box) packaging as proof that excise taxes have been paid.
A. Import Duty
The import duty rate for wines is 7 percent of CIF Price.
B. Excise Tax
There are excise tax rates for sparkling and still wines under the new tax system which took effect on January 1, 2013. Excise taxes on sparkling and still wines will increase by four percent effective on January 1, 2016, and every year thereafter. Fortified wines containing more than twenty-five percent (25%) alcohol by volume shall be taxed as distilled spirits.
C. Value-Added Tax
Wines imported into the Philippines are subject to VAT at the uniform rate of 12 percent of the CIF Price. VAT is an indirect tax levied on the importation, sale, barter or exchange of goods in the Philippines, which may be passed on to the end-buyer.
D. Stamp Fee
The Philippine Bureau of Internal Revenue requires strip stamps to be affixed on the primary packaging (bottle) and secondary packaging (case/box) as proof that excise taxes have been paid. The fee is 8.15 Pesos for one case/box containing 12 bottles, computed as follows:
1. Primary Packaging: 12 bottles x 0.616 Pesos per bottle
= 7.39 Pesos for 12 bottles
2. Secondary Packaging: 1 box x P0.756 per case/box
= 0.756 Pesos for 1 case/box
Total: 8.148 Pesos or 8.15 Pesos for one case/box containing 12 bottles
CIF Price of one case (12 bottles)
= $120.00 or 5,040.00 Pesos per case (at the exchange rate of $1.00=42.00 Pesos)
Volume of one case (12 bottles x 750 ml per bottle)
= 9 liters
A. Import Duty
= 5,040.00 Pesos per case x 7% duty rate
= 352.80 Pesos per case
B. Excise Tax
Excise tax on still wines containing 14% alcohol by volume or less is 30.00 Pesos per liter
One case = 9 liters
= 9 liters per case x 30.00 Pesos per liter
= 270.00 Pesos per case
C. Value-Added Tax
VAT for wines is 12% of CIF price
= 5,040 Pesos per case x 12% VAT
= 604.80 Pesos
D. Stamp Fee
The strip stamp fee is 8.15 Pesos for one case/box containing 12 bottles.
Grand Total (CIF Price + Duties, Taxes and Strip Stamps Fee): $149.42 or 6,275.75 Pesos per case/box
A Philippine importer needs to secure a License to Operate (LTO) from the Philippine Food and Drug Administration (FDA) prior to the importation of wines. A checklist of requirements is posted on the Philippine FDA website.
Based on the checklist, there are certain documents that an importer needs to obtain from each wine supplier, as follows:
One of the following documents from each supplier—
• Foreign Agency Agreement/Certificate of Distributorship/Appointment Letter duly
notarized/authenticated by the Philippine Consulate in the country of origin
• Proforma Invoice
One of the following documents issued by the government regulatory agency or health authority of the country of origin—
• Certificate of Registration of Manufacturer and its conformity with good manufacturing practices from a regulatory/health authority or its equivalent
• Certificate of Free Sale issued by the government regulatory agency or health authority of the country of origin stating that the product applied for registration are freely sold in the country of origin and fit for human consumption
1. U.S. exporters can obtain a Certificate of Free Sale from the U.S. Food and Drug Administration.
2. The original Certificate of Free Sale is required when the importer applies for product registration. Refer to Section V – Product Registration Requirements.
Licensing Fee: The application fee for the initial License to Operate is 4,000.00 Pesos or $95.23 and is valid for one year. The cost of renewal (valid for two 2 years) is 8,000.00 Pesos or $190.47. Note: The exchange rate used is $1.00=42.00 Pesos.
Product Registration Requirements
Only wines with a valid Certificate of Product Registration from the Philippine FDA will be allowed for retail sale in the Philippines. The application for product registration can only be undertaken by a Philippine entity, although some documentation and samples need to be provided by the exporter. Below is a checklist of the requirements:
A. Notarized application letter from the importer/distributor
B. Valid License to Operate (LTO) as an importer/distributor issued by the Philippine FDA
C. Product Information
• List of ingredients in decreasing order of proportion. For additives with prescribed limit, the amount added must be indicated;
• Safety Certificate from flavor supplier
• Finished product specification (physical, chemical and microbiological)
D. One sample of the product in its commercial presentation for laboratory analysis
E. Loose labels and labeling materials
F. Certificate of analysis indicating the analytical method used
G. Brief description/flow diagram of the method of manufacture, packaging and quality control
H. A packaging certification of suitability
I. Estimated shelf-life, parameters used and methods for determining shelf-life with the following:
• Product name, batch number, production date and dates of analyses
• Tabulated date and results in terms of physical, chemical and microbiological
• Conclusion as to the shelf-life of the product
• Name and signature of the QA Analyst and QA Manager
J. Justification of label claim(s), if applicable
K. Previous Certificate of Registration (for renewal only)
L. Original copy of the Certificate of Free Sale (CFS) issued by the government regulatory agency or health authority of the country of origin stating that the product applied for registration are freely sold in the country of origin and fit for human consumption
A checklist of requirements is posted on the Philippine FDA website.
Lead-time: Importers report that the product registration process takes about 6 months.
Registration Fee: The application fee for the initial Certificate of Product Registration is 250.00 Pesos or $5.95 and is valid for one year. The cost of renewal (valid for five years) is 1,250.00 Pesos or $29.76. Note: The exchange rate used is $1.00=42.00 Pesos.
X. Labeling Requirements
The Philippine FDA requires importers to present the actual wine label when applying for a Certificate of Product Registration. Following are the wine labeling requirements of the Philippines, which are similar to those of the United States:
• The “Principal Display Panel” or PDP of the label shall be that part which is present or shown to
the consumer under customary conditions of display for retail trade. The “Information Panel” or IP of the label shall be that part immediately contiguous to the PDP.
• A complete list of ingredients (including additives, flavorings and preservatives used) shall be declared in descending order of proportion on either the PDP or IP.
• The net volume shall be declared using the metric system of measurement also known as the International System of Units (SI) on either the PDP or IP.
• The alcohol content in terms of percentages or proof units shall be indicated on the PDP.
• The language used for all information on the label shall be English, Filipino or any major Philippine dialect, or a combination thereof. Labels wherein the information is declared in other foreign languages must carry the corresponding English translation.
• The name and address of the manufacturer shall be declared on the PDP or IP. The country of origin must be indicated.
• The name and address of the importer or local distributor shall be declared on the PDP or IP.
Note: If the name and address of the importer or local distributor cannot be printed on the label, stickers can be used and attached by the importer onto the IP when the wines arrive in the country
No labeling for biotechnology or organic products is currently required by the Philippine government.
Additives must comply with the Philippine Food Act and the regulations established by the Philippine FDA. Additives are broadly defined by the Philippine FDA as any substance that becomes a component part or otherwise affects the characteristics of the food or beverage product. As such, they include any substance which has a direct or indirect impact on the food as a result of its use in producing, manufacturing, processing and preparing the product, and in packing, treating, packaging, transporting, and/or holding the product.
The current list of permissible food additives is posted on the Philippine FDA website