March 19, 2018
Chris Urbano – Wines in the Burgeoning Middle Class Market in the Philippines
March 19, 2018
In this episode, Derek is joined by Chris Urbano for the second time. They will talk about Winery Philippines Company which is Chris’ company. The episode will give us fantastic insight into Chris’s knowledge of e-commerce and building businesses in Southeast Asia.
- Derek and Chris talked about Winery Philippines. They also talked about Chris’ insights about the market and his commercial experience.
- Chris is the Managing Director of Winery Philippines. Winery Philippines officially incorporated in 2015 and it’s the first wine e-commerce curated marketplace in the Philippines.
- Chris and Derek mentioned their observations regarding the burgeoning middle class in the Philippines. According to Derek, the Philippines is getting more cash, spending more on discretionary products, and is adopting Western tastes.
- Chris said that industry reports on the Philippines and the growth rates in wine importation had an excess of 10 up to 15 percent annually in the wine category. When he analyzed it, he noted that the growth was price-led.
- Chris compared their operations to a metaphor, which is “We’re a little bit like a swan cruising along on the lake where on the surface we look very slick in a clean interface and easy to use for our customers but underneath is we’re kicking like mad to keep the operation going because that’s where we actually have to deal with the Philippine business operating environment”.
- The challenge that Winery Philippines is experiencing in the Philippines is that it is quite hard to have a slick e-commerce model in the Philippines wherein the infrastructure isn’t quite there to support it as opposed to a country like Australia wherein everything is already a “plug and play”.
- According to Chris, the Philippines is a beer and spirits country.
- According to Derek, the soft commodities follows the hard commodities.
- According to Derek, eight to nine years ago, a cashless way of dealing with things didn’t exist in the Philippines which was quite common across a lot of developing economies.
- Chris aims for a slick interface but then they compensate for that behind the scenes because they have to integrate with the kind of manual interfaces that the rest of the society is still dealing with.
Derek: Hi and welcome to another episode of the outsourced accelerator podcast. This is episode number 131 and my name is Derek Gallimore. So today we are joined again by Chris Urbano of Winery Philippines. We had an introduction to Chris in episode 128. He’s a fascinating guy. He was raised pretty much in Indonesia, has family background from Australia and has an incredible insight into Southeast Asia and the Philippines. Today we talk to him about his Winery Philippines Company which he is building himself. Now Winery isn’t so much aligned to what we talk about here in Outsourced Accelerator but it’s a fantastic insight into Chris’s knowledge of commerce but also building businesses in Southeast Asia and it offers a lot of insight into business here in the Philippines and the opportunities and some of the downsides to it. So it’s a really interesting listen I’m sure you’ll get a lot from it. If you want to get in touch with Chris or know any more about this episode than go to outsourceaccelerator.com/131. Enjoy.
Derek: Hi and welcome back everybody. Happy to be joined by Chris Urbano again of Winery Philippines. Hi Chris, how are you?
Chris: Good. How are you doing?
Derek: Fantastic! Fantastic. We have had Chris on previously to discuss his vast experience in Southeast Asia and the Philippines and his kind of commercial interests here. I wanted to get Chris back to talk about his major commercial interests which is Winery Philippines and his insights into the market and commercial experience as a result of that. So I suppose initially Chris can you just introduce yourself and briefly your journey to this point?
Chris: Sure. So I’m Chris Urbano the CEO and Managing Director of Winery Philippines. We started Winery officially incorporated in late 2015 and it’s the first wine e-commerce curated marketplace of the Philippines. So what we mean by that is we take wines from around the world typically direct sourced by ourselves or by some select important partners, we curate those in a way that suits the local Philippine market, and we make them available the best possible prices and convenience by putting out pretty much every middle man in the supply chain. So it’s been a popular model so far that customers like. So why did I go into this line of work? I mean I had a broad in the Philippines in Southeast Asia opportunity for many years. I’m an economist and Asian studies specialist by training and spent a lot of time in the region in my high school and university days. And I was I guess an escapee from the Australian rat race, former management consultant had two or three years of doing that and decided that the golden handcuffs were not for me. So I decided to start a business in South East Asia instead and I began by looking at what I thought were the big macro trends in the region and one of the things that’s always stuck with me from my previous consulting work is this notion that you know hard commodity booms are usually followed by soft commodity boom. So we’ve seen a massive hard commodity boom in broadly Asia including South-East Asia in that boom dominated I think by China and North East Asia. But what you see after that is some onshore wealth is created from the manufacturing sectors and people start to have the money in Asia to afford soft commodities things in things like you know premium foods, more dairy, more meat, more vegetables in their diets and things like wine consumption start to go up as well. And that trend is being led in North east Asia and you’re now starting to see Southeast Asia move into this soft commodity boom as well where milk, meat, wine is really growing out of control at the moment across the region. So I started looking at that macro trend. And then I started to look at what Australia was good at. You know, what are their, if you like, competitive advantage of Australia. In a nutshell, the things Australia is really good is, we’ve got Tier 1 resource assets. We’ve got a Tier 1 agricultural sector. And we’re very good in education, very good in professional services and we’re very good in tourism. And if you run through those five things, you find that in mining you need a billion dollars or you can’t even get into it any more, it’s a global scale industry now. Tourism is an onshore industry for Australia so you could sell tour packages in Asia. But, you know, it’s something that is inherently delivered in Australia and not up in South-East Asia. Education is also fairly scale business and a little bit hard to do as a start up. Professional services is what I was already doing as a management consultant and I still do a little bit of that on the side here to pay the bills while I put company up and the last one F&B is something that you can go after even if you have fairly meagre amounts of capital behind you. So you can start, you know food and beverages is, can have industry structures that we describe as monopolistic competition where you can sort of dominate in a very small niche or segment of the market in terms of either the range of products you have that there could be a high level of differentiation even within the wine market with a particular portfolio you carry all the type of customers that you seek to service. So when I look at all of those I thought F&B is at the nexus of these broad macro trends in Asia. It’s something that Australia has never had an advantage in supplying and that I, as an Australian, have access to those products. And I think the last thing of course is having a passion for the category. So when I look at F&B I was like all wine it’s something that my family’s produced in Australia and New South Wales. So I’ve got some experience with the product. I love drinking the product. And when I sort of thought, okay let’s combine good business sense with, you know, with macro opportunity, competitive advantage, and passion, that seemed like a logical fit for me to have a go at.
Derek: Fantastic and as you say in the soft commodities follows the hard commodities and primarily, I suppose I’m describing the same thing here, but it’s as a result of discretionary spending, and as a result of a burgeoning now middle class where previously there wasn’t, and people’s tastes expanding and kind of taken on tastes and value associations with kind of Western products. Have you seen are you seeing all of that happening in the Philippines? Is it kind of following that path where the Philippines is getting a bit more cash, it’s spending a bit more on discretionary products, and that adopting very Western tastes?
Chris: Yeah definitely. I mean I think when I first moved up in sort of I was interested in getting in to this area people would still say to me, oh you know the Philippines is a beer and spirits country you know people drink local rum and the local beers and you know I would say that you know walk down the best history tour through greenbelt at the moment in Makati City and those assumptions would be very quickly shaken. I think when you go and see what’s happening in sort of restaurant menus. The explosion I think of a more cosmopolitan dining options and a part of that is obviously what’s going on in demand for wine. So certainly when I moved up here we were seeing some industry reports on the Philippines and growth in wine importation was you know, growth rates in excess of 10 up to 15 per cent year on year in the wine category. And interestingly that growth when I analyze was price-led. And so the volumes are growing you know well in line with GDP at about 6 percent year on year but the values were also going up, the price going up by about 6 per cent year on year. So when you combine those two forces you’re seeing a very quick growth in the overall wine sales value in the Philippines, combination of new wine drinkers but also people moving up the value curve as their knowledge of wine increases and as they start to experiment more with different styles and moved from drinking you know the yellow tail, and the hearties, five dollar specials, to two slightly more boutique and high quality options.
Derek: This is an observation about the Philippines but generally of commercial interest you know I assume you realize as well, it’s good to be an early player, very good to be the first big player, but also you don’t want to enter a market where it’s not yet ready to receive things. How do you see that you don’t want to be too early because then there’s no market there or interest there to support you. How do you see that delicate balance of not wanting to be too early into a market that isn’t quite ready to receive you?
Chris: Yeah I mean I would say that even now I think where we’re probably operating you know 1, 1, 2, 3 years ahead of the curve. And certainly when I started this it felt like there was some demand there but largely in expat quarters who are a bit more familiar with I guess both wine but knowing the difference between good and bad wine and also being comfortable and familiar with online shopping itself right? So there’s a couple of things that kind of need to happen to enable a strong consumer demand for wine e-commerce model and one is actually understanding the difference knowing enough about wine to make informed choices or even seek information about how to make an informed choice. But the second is what’s going on in e-commerce more broadly in terms of infrastructure that supports it so things like you know fulfillment payment options and so forth and I think if you try this business model out about five years ago, it would very much be, you’d be on the bleeding edge. I would say we feel that we’re not on a bleeding edge but we are at the leading edge of the trend of e-commerce in wine certainly. And you know the thing is, if you don’t get in early you know you’re going to end up basically being a follower. And certainly when it comes to e-commerce and digital marketing you know, Google’s only got 10 results on the first page if you come very late to the party you pretty much already lost the organic search race it’s very hard to recover that. So we’re sort of come to where we’re at. But what we are seeing already in the Philippines right now on sort of the generic international brands of beer, wine, and spirits there’s a number of players they’re just mushrooming right now who are simply putting up a simple Facebook page and a very simple e-commerce website. They’re using 3PL logistic services to fulfill and they’re just basically grabbing stock from like a Diageo or Moet Hennessy and just slapping it online. And those players are increasing very quickly so there’s actually very few barriers to entry in that kind of model. Our key differentiation is we’re a lot more like what you see in Australia or the US with a highly curated model, deep customer loyalty, you know building a digital wide community around the product and we are leading edge in that. But you know I wouldn’t want to wait another year or two to get into the Philippine market in e-commerce for sure.
Derek: Yeah, it’s interesting you mention the e-commerce infrastructure and again you know whether a market is ready to consume your product but also it’s important that there’s sufficient infrastructure there to build your infrastructure on top of. And I think people get very surprised in developing economies when they come here and suddenly when I came here the first time about eight-nine years ago you know any of the kind of Western standards of paying for things by a debit card you know having kind of a cashless society not needing receipts. None of that really exists in the Philippines and it’s quite common across a lot of developing economies. So your Winery Philippines is a very modern, very slick, very kind of minimalist and very e-commerce approach to things. But do you find it, and I assume then it’s a lot harder to build out a slick e-commerce model in the Philippines where the infrastructure isn’t quite there to support it versus in Australia where everything is already a plug and play.
Chris: Yeah Oh I think you were while you were speaking just then the metaphor I had in mind is that we’re a little bit like a swan cruising along on the lake where on the surface we look very slick in a clean interface and easy to use for our customers but underneath is we’re kicking like mad to keep the operation going because that’s where we actually have to deal with the Philippine business operating environment.
Derek: So you, for the consumer, you want a very slick interface but then you almost compensate for that behind the scenes because you have to then integrate with the kind of manual interfaces that the rest of the society is still dealing with.
Chris: Yeah. Correct. So what I mean is that, our front end order management system and our backend accounting is all world class e-commerce. For anyone interested in the subject, we use Shopify at the frontier inventory in the OMS and Xero is our backend. And you know our ability, if somebody orders on our site and pays with a credit card, I mean, we have instantaneous, you know, order raised, sales invoice raised, collection of payment is instantaneous, and all of it’s come straight through to my phone. I can see end to end in it that order has been successfully processed and all we have to do is dispatch the stock. So that that is where e-commerce is easy in the Philippines. But the challenge then is how do you interface that very slick system there to the Philippines BIR In terms of your tax compliance and reporting and generating stuff in the standards that they expect. You need to print and you know, plug that system into printing, you know, receipts out on a dot matrix printer. So you’ve got a sort of triplicate dot matrix printing and you just sort of think this is crazy. I mean we can’t just print an invoice and send it over it. It’s got to be on this archaic systems so you end up having to sort of customize your slick e-commerce templates to fit the parameters of a 1980s era printer which is quite amusing and customers don’t really see that. And certainly when we started we were still, you know, doing pen and paper sales invoices so customers instantaneously orders and the first that you do is to write with a pen and paper they wrote it down on a BIR receipt. So it’s very interesting to see that how do you blend 21st century technology with the Philippine regulatory system that just hasn’t evolved for 30 or 40 years.
Derek: Yeah. It’s something that I always I always kind of I’m interested in because you know I’m setting up a business which is operated from here but effectively serving people in the West. And there’s more friction to doing business here and there’s, you know, different kinds of hurdles. But having said that then your cost base is unequivocally lower. So there’s different contrasts and I have sort of I kind of think of the McDonald’s index where the McDonald’s Index is an economist index and it tracks the cost of producing a big mac in various countries and kind of anti-intuitive for whatever. It’s more expensive to make a big mac in India versus a big Mac in the U.S. because India doesn’t have the infrastructure, the volumes. And it’s an interesting kind of index paradox here as well it in that you know to make an enterprise level ecommerce structure there’s many more points of friction sort of thing isn’t there. But and that’s why then I think that you’re getting all these people springing up on Facebook that just opt to go the easy route, they sell within their community. If they sell five bottles a month they’re probably happy because they don’t have any overhead costs. But then that unfortunately keeps the society down to like little small sole trader kind of existence this year. There’s a strange paradox there isn’t?
Chris: Yeah and I mean you know in a way for the market you know these little players that are popping up a lot of them sort of just doing relationship based selling. So they’ll tell all of their friends in social media that they’re now selling this product. But the thing is because they’re subscale and don’t have any means of really differentiating their business doing any kind of you know differentiate marketing or even having a differentiated product range by being able to import effectively the people who are making the money is you know the big importer distributor who brings in you know Johnnie Walker and Jack Daniels. And you know all of the brand name because they’re actually the ones who make money. And all of these smaller entrance pop up end up basically race to the bottom on price because none of them have any means of differentiation. So this one this example will be familiar to anyone in the Philippines if you drive up to Tagaytay for the weekend, you’ll always go past this stretch of road where they sell the Japanese white corn to passing motorists. And you know the Philippines is just full of markets like this where there’s a single product which is typically controlled by the elite and it’s a commodity product. And then they allow small Filipinos to sell their product. But they all basically are selling exactly the same thing. None whatsoever. So the only differentiator becomes how vigorously you flap your arms at passing motorists to make a sale. And that’s pretty much what we’re seeing happening now in kind of small time Philippine e-commerce is it just the extent to which you heat up your friends on Facebook or Instagram and how aggressive you are in in your daily posting that will get you more or less sales but you are pretty much selling a commodified product. The Ardshiel and Mellet Hennessy making all the money and you’re getting just enough to basically warrant doing your posts and then putting it on the back of a motorbike to send the product to somebody.
Derek: Yeah it’s kind of a subsistence income isn’t it which then never has potential to scale because as you say there’s not the margins and there’s not the differentiators involved. But talk to me about Winery Philippine s because of course we do have a listenership here in the Philippines. You know you like wine is absolutely kind of blowing up around the world and especially in the newer markets and also wine tech is also exploding and you’re obviously savvy enough to see that that coming. By the way, do you call it “Vin-tech”, I mean, what’s it referred to?
Chris: Take the wine fridges you mean?
Derek: No the wine technology like vintec is.
Chris: Okay. So I just wonder which direction whether it’s I don’t I’m not I’ve not heard the term Wine Tech or Vintec. T-A-C-H right around.
Derek: But I mean it is burgeoning isn’t it? And because there’s the Vigneault obviously making quite an impact on the wine world. But anyway so you’re in this space now and you know it’s kind of a burgeoning tech space within a burgeoning sort of sector of consumable goods. But so what do you see your kind of strengths is with Winery Philippines and where you work. What sort of products are you launching on top of this?
Chris: Yes I mean I think when you look at the developed wine markets the moment the big focus is around personalization and curation of product selection. So wine is a market that you know far more so than beer or spirits, there’s incredible differentiation even between vintages same wines. Any credible numbers of labels that are available to choose from styles and the quality and the extent that you like the product is quite opaque until you actually open it, pay your money, and put it into a glass and taste it. So that really lends itself to then how do you provide consumers with or how do you risk the purchase for consumers by giving them a very high degree of certainty through things like curation and increasingly curation is being done through algorithmic approaches either explicit taste based curation or you know collecting data from thousands of users and comparing clusters of taste palettes effectively between a large population you could start to make recommendations. So that’s the big takeaway that I’m seeing in developed countries and I think the other one is on the supply chain in on premise accounts restaurants and minimising stock outs and so on through a smart ordering and predictive analytics and so far on wide portfolios. Now funnily enough those kind of Vintec plays I don’t think yet are as applicable in emerging wine markets because they sort of presuppose that consumers know enough about the product to know what they like or it presupposes that restaurants actually have the technology themselves to interface with a slick you know wine portal or something to order their products. Both of those assumptions would be I would say incorrect to make about the Philippines and largely Asia wine market at this point. You know people are still very much ordering with cell phones and pen and paper and emails and consumers I think don’t really know what they’re looking for. So we think that the application of technology here is a far more fundamental – how do we improve the channel. The biggest problem we see in the Philippines is in consumers accessing good wine is actually corruption in the wine supply chain. Now that’s a bold statement. But let me explain it for a moment. At the moment if you want to get a wine listed in a Filipino supermarket or a you know a major hotel, you normally have to pay and they use a euphemism of marketing support or M.S. And that’s often a very large sum of money and usually paid directly in cash to a purchasing officer or procurement manager of sorts in order to have your products listed. And when you have to pay large amounts of marketing support to somebody to get listed that inherently means that has to come out of the margins of the product. So it means that you’re either going to put in a really cheap nasty wine because you actually have to recoup that cost in terms of the marketing investment you’ve made or if you put in a decent wine the price of it is just absolutely sky high but the quality you’re paid to basically you know get clipped by these decision makers in the supply chain. So we think the big opportunity in technology in in the Philippine market is to just basically cut out all this nonsense in the supply chain of kickbacks and payments and marketing support through going direct to the consumer. And when you go direct to the consumer you know the things that they looking for is obviously quality, value for money, convenience, and reliability of the channel and that’s really what we’ve structured our e-commerce model around. And you know when you talk about products that we’re releasing so we see a big opportunity in the Philippines. I’m sort of discovering education not in sort of just putting up generic description of the wine and you might like. We think that empowering them in discovery through subscription models is actually a really smart move in this market where you say, trust this channel we won’t sell you a bad wine but let’s get you on a two or three or six bottle a month subscription program where we will just basically expose you to quality wines around the world and then after each of those monthly boxes delivered to you, you can come back to us with a you know which did you like which did you not like or run a special on those wines for the following months so you can buy them at a discount. The ones that you like the most and over time that’s way of course consumers are limiting their risk that they buy from a trusted channel that guarantees quality of its wine but regularly expose to different drops and having an ongoing relationship with a provider that sort of walk them through the wine journey. So we sort of see e-commerce as a means of enabling discovery, delivering a far higher quality of wine at a far better price for consumers than what’s currently available and obviously making the purchasing experience much more palatable. And it currently is in terms of you know the information available in supermarkets which is which is very limited.
Derek: It’s fantastic isn’t it’s good observation that you make if the wine appreciation market isn’t that mature here then then a lot of that sort of common information that you provide really isn’t so relevant and then you are countering that with the subscription model and generally I love subscription models. I think that the sort of a win win for both sides of the market but also then people are buying into your curated product line and that is part of your value added in the curation of the product which they then get through the subscription model. That’s fantastic. If people do want to know any more about Winery Philippines, if they if they want to sign up for a subscription or even talk to you, how can they do that Chris?
Chris: Yes well if I if I can give a blatant plug. It’s going to be called the Cabino program. Cabino is, like your fellow wine drinker in tagalog is how you translate that and we’re actually launching the program later this month in March. It’s been on soft launch very popular with the initial customers that we piloted with and those people joining the Cabino program we’ll be able to choose from two three or six bottles per month delivered to their door at price point starting at sort of 2000 pesos for the put-a-two bottle option. So that will that will be available later this month from Winery Philippine’s self-service or they can do an inquiry but you’ll be able to actually look and pay for a subscription fully online through winer.ph. And of course the many events that we run around the city are also good options for people to come in and get to know us and try the product and then you know talk to some of our wine educators or our sales representatives there to discuss if they’d like to get a subscription as well so online will come along to one of our events and have a chat to us.
Derek: Yes fantastic. And of course I have been to one of your events one of your wine and dine events and I really do recommend them they’re fantastic environment to learn about great wine but also food because you are very much a foodie yourself.
Chris: Yeah well I think if you’re a wine lover you tend to have an interest in cooking and food. And you know it almost just lends itself naturally to being a foodie right. I think more so than beer and spirits and I’m not saying they don’t at all pair and lend themselves to food but I think this incredible variation in in wine and and there’s a real pleasure in sort of when you get that perfect pair of exactly the right wine to exact right food and you had a little twist of fresh herbs from your garden and you had that bottle of wine that came from you know that particular winery that you love. And it was that particular vintage that you know was your favorite. When it comes together it’s just a really magical experience. One of life’s pleasures.
Derek: Perfect. So thank you so much Chris and I certainly encourage anyone to look into the subscription and or go to your wine evenings. If of course they’re in Manila or the Philippines but if you don’t want to get in touch you how can they do that?
Chris: So just drop me a line at firstname.lastname@example.org and you can always check out Winery Philippines at winery.ph the website.
Derek: Okay that was Chris Urbano of Winery Philippines. Of course if you to get in touch with him that is winery.ph and if you want to get in touch them or know any more about this thing go to our show notes at outsourceaccelerator.com/131. And as always if you want to ask us anything then just drop us an email to email@example.com. See you next time.