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Chocolate
and coffee, anyone? Anxiety and stress often haunt change, as was recently experienced by the young general manager of Duty Free Philippines when he started introducing radical alterations that would bring Duty Free Philippines up to speed with the new realities of operating in a borderless world. Michael Kho assumed as DFP’s top boss in February 2001; his first mandate was to salvage the damage wrought by four successive years of losses starting in 1997 when the duty free operations suffered its first loss since its establishment in 1987. At that time, the Asian financial crisis caused the significant depreciation of the peso. Part of the painful package was immediately halting the operations of non-profitable DFP outlets and scaling down of the personnel complement from 4,000 to a more manageable number of 800. The huge inventory of merchandise – including massage chairs, US mailboxes, Venetian blinds, and other slow-moving items – was also reduced to bring down operating costs. All these initiatives enabled duty free operations to slowly turn in profits and pare down borrowings to just about P300 million this year (from the over P1-billion debt burden), as well as remit over P750 million in earnings to government last year. CHOCOLATE REVIEW. This year, DFP also started improving its merchandise procurement contracts. The first one reviewed was the confectionery and snacks concession, better known as the chocolates business that accounted for the more brisk and popular sales of the duty free shop. As is common in government service, a good performing official cannot rest easy particularly if some of the initiatives would affect entrenched businesses. Such is the case with Kho when DFP management, with the approval of the Philippine Tourism Authority (PTA) board, terminated a long standing chocolate supply contract and awarded to Eastern Duty Free the business under new terms and conditions. According to Kho, the government stands to earn an additional P280 million from the new contract as well as a one-time buy-off of current inventories worth about $6 million. Eastern’s package also includes an annual minimum guaranteed income of $8 million based on minimum annual guaranteed sales of $40 million. Operating costs including inventory maintenance would also be shouldered by Eastern. From a purely business perspective, Kho claims that the Eastern offer was more favorable than the previous contract. But just the same, Kho and the DFP will face congressional inquiry in aid of legislation. Next up for review would be the remaining four other major procurement contracts – liquor, tobacco, fashion, and perfumes and cosmetics. And I wouldn’t be surprised if threats of congressional hearings to investigate the new contracts will again be raised. Lobbyists of suppliers that will be displaced will be active trying to discredit the new arrangements as previous suppliers fight tooth and nail to keep their business going. Coffee Clarification From chocolates, let us move to coffee, another favorite topic of mine. Guillermo Luz, executive director of the Makati Business Club and member of the National Coffee Development Board, sent me an e-mail reacting to an earlier column. Here is part of his letter: "Thank you for your interest in the coffee industry. I write to clarify a few items in your column of Aug. 16 entitled ‘Waiting for coffee to brew.’ First, there is no argument ongoing on the NCDB (where I sit as an active member) regarding the roadmap for the industry. "Our basic objective has always been to promote more production of coffee coupled with greater consumption of Philippine coffee. Over the long run, we would like to be self-sufficient in coffee and return back to the export market." "Our programs are two-fold. The first aspect involves technical assistance, training, and credit programs for farmers. In this regard, farmers are taught how to rehabilitate and take better care of their coffee trees to get more production out of them. At their option, they may also tap into agricultural financing through Quedancorp. "The second aspect involves a promotion campaign called Kape Isla to make the public more aware of Philippine coffees. To date, we have almost two dozen coffee chains as members. "Over the last year, coffee production has increased from 23,000 metric tons to 28,000 metric tons this year. However, we are importing close to 35,000 metric tons of coffee, most of it from Vietnam. We have studied how to make production catch up with consumption and have concluded that it cannot be done in four years as you stated. "We estimate that we need 10 years of continuous growth to make production catch up with consumption. We also feel that it will take a combination of small farms and large plantations in order to get the job done. Local conditions and land availability will obviously be a factor here. "Overall, our goal is to get new plantings on 42,000 hectares and to push productivity well beyond one ton per hectare. As you correctly pointed out, there are no overnight solutions. Thus, we have been working these past two years to slowly put into place that we hope will put the Philippines back on the coffee map." As they say, the proof of the pudding is in the eating. We will watch whether the Coffee Board will really act as one to promote the coffee sector. It is a pity if we continue spending precious dollars to bring in coffee from other countries when we have the resources to grow and consume our own. ‘Breaking Barriers’ With Pagcor president Rafael Francisco ‘Breaking Barriers’ on IBC-TV13 (11 p.m. every Wednesday) will feature Philippine Gaming Corp. (Pagcor) president Rafael "Butch" Francisco on Wednesday, 29th September 2004. The shocking news report that high-stakes gambling has invaded schools provided the impetus for church leaders, some legislators and some NGOs, to renew their call for the abolition of Pagcor. For them, Pagcor is responsible for the proliferation of gambling places and for creating an environment that is conducive or encourages gambling throughout the country. Others, however, contend that with or without Pagcor, gambling will flourish, it being part of Filipinos’ psyche and culture. With Pagcor, games are regulated, players are protected, and more importantly, substantial revenues are raised for the government. What does Pagcor contribute to the Philippine economy and to society in general? Is it the cause for the proliferation of gambling or gaming in the country? Is Pagcor a scourge or a blessing? Watch it. Pagcor On TV ‘Isyung Kalakalan at Iba Pa’ on IBC-TV 13 News (5 p.m., Monday to Friday) ends today with its discussion of the role of the Philippine Amusement and Gaming Corp. or Pagcor in trying to regulate gambling in the country. In recent months, illegal gambling had invaded the student population in a big and dangerous way. Is there a rolePagcor can play to mitigate this situation? Or is Pagcor the reason for the youth’s receptiveness to gambling? Watch it. Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.
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