The “sachet economy” in the Philippines and its hidden costs
Any resident of the Philippines can tell that a slice of Pinoy life guarantees an encounter with the ubiquitous sachet. There is just no avoiding it, and by all indications, the omnipresence of sachets doesn’t seem to raise eyebrows – not even the consumers.’
The following is an excerpt from the March 4, 2005 article from Brand Strategy, entitled BRAND PAPERS: A sachet economy.(in Philippines goods are sold in small quantities):
“Manufacturers in the US may be driven by the ‘super-sized’, bulk- obsessed consumer but in the Philippines, orders come bit by bit,” says Tina Arceo-Dumlao.
In the Philippines, big profits come in small packages – from cigarettes sold by the stick to little plastic packs of pepper. A recent Synovate Global Omnibus study revealed that nearly 90% of Filipinos buy items in sachet sizes, including non-food goods such as shampoo (90%), toothpaste (47%) and detergent powder (13%). This archipelago has become one of the world’s biggest markets for goods sold in small quantities, earning itself the nickname, the ‘sachet economy’.
But does it all add up? Surely logic dictates that buying individual aspirin is more expensive in the long run than buying a thousand in one go? Not so. The Soap and Detergent Association of the Philippines claims that the introduction of sachets, made possible by the use of composite materials, has made the quality products offering hygiene benefits, such as toothpaste and shampoo, accessible to the poorest part of the population.
Indeed, a sachet economy does make available a variety of necessities, perhaps even a few luxuries, albeit in small quantities, to Filipinos of the least spending power. Personal hygiene products, packaged food, and any other product that could be divided into usable portions, could be sold in small uniform packs that are conveniently suited for modest budgets.
From a potential first-time user’s standpoint, small quantities in sachets offer a chance for product trial without committing too much of a typical limited budget. The risk of picking a sub par product isn’t lessened by the existence of trial sizes, but that feeling of regret after spending some amount of money on what turns out to be a bad product is far less than it would have been had the purchase price been much higher because of the larger variant’s size.
Sometimes one might simply prefer to buy a large variety, or perhaps buy only a single sachet. Whether for an emergency or for travel, these very portable sachets (as opposed to inconvenient packs to lug around like an entire jar of coffee) may be availed of without queuing at the long lines of a supermarket since there are convenience stores and mom-and-pop stores dispensing products in small packs, single serves, and most certainly, sachets.
These are the obvious advantages of a sachet economy for consumers. It is a point of view that is so detached, and practically oblivious to the costs of having a sachet economy – costs that aren’t so obvious and hardly ever thought of or discussed.
The case for selling progressively smaller quantities of product in the Philippines is underpinned by the desire of consumers within the lowest income brackets for the same products available to the well off. Consumers belonging in socioeconomic class DE may be able to afford the same products that the middle class C enjoys, but in more limited quantities. The idea that is perpetuated almost sounds like a marketing textbook; marketing involves making available to customers their needs and wants, and peddling sachets is no different. From a manager’s or business owner’s perspective, that is perfectly fine. The problems become apparent when such perspective is set aside to consider the costs of a sachet-heavy economy.
First, in a sachet economy, the same quantity of product costs a poor individual more money than it does a wealthy individual, simply because buying piecemeal costs more than buying in bulk. It was already understood in the excerpt above saying “Surely logic dictates that buying individual aspirin is more expensive in the long run than buying a thousand in one go?” The optimistic, and (frankly) biased response that followed was “Not so,” but the next statement “The Soap and Detergent Association of the Philippines claims that the introduction of sachets… has made the quality products offering hygiene benefits… accessible to the poorest part of the population” fails to refute the assertion that buying in bulk is cheaper. Quite the non-sequitur that.
Second, since buying smaller quantities costs more per transaction than buying larger quantities, the sachet purchases tend to feed the profit motive of the manufacturer at the expense of the value added and total utility that the consumer should have enjoyed. In fact, the consumer is made to shoulder the cost of packaging, so more of the money the consumer spends goes into recouping the manufacturer’s packaging cost, not just the product contained. This might seem nearly unnecessary to mention, but dividing a vat of product into smaller packages creates the requirement that each separate package be given its own container, which costs money.
Third, retail display space costs a lot of money in Philippine supermarkets. Manufacturers and distributors spend money not only on strategically visible display locations inside stores on a rental basis, but also the most basic need of a product – to actually be carried by the store, also known as being listed. Getting listed requires a fee, if not some obligatory “support” from the manufacturer like participation in chain-wide promotions or seasonal push activities that drive up the stores’ consumer sales volume. All these cost more money, and these are factored into the price of the products that practically need to pay rent. The sachets may be the small ones, but in today’s competitive market, the displays of each brand’s sachet is made wider, more eye-catching, and display-dominant, for a fee. It takes money to get into the store, it takes more money to stay in the store, and the costs become included in the pricing of products including the sachets. The consumer unwittingly shoulders these costs. So if one wants to make the most of her money knowing that these additional costs went into the prices of her preferred products, she might as well pick the larger ones, if she could afford them.
Fourth, a sachet economy is in a self-perpetuating cycle that is most profitable where most of the population remains poor. The low income customer base stays large, especially since the poor tend to restrict reproduction a lot less than the affluent, so the base actually widens over time, creating even greater demand for sachets of everything. With a system that could be exploited this way, companies such as Unilever whose multi-billion peso sachet business represents more than two thirds of its gross annual revenue in the Philippines, almost look like they would prefer the system to stay that way.
Lastly, with so much demand for packaging material, a country stricken by a sachet economy would generate far more waste material for a given quantity of product than prosperous countries would. The consumption and waste-generating activity here has tremendous environmental impact, and costs Filipinos (1) their health when enduring pollution hazards, (2) their life savings in trying to regain their health, (3) even their homes in the aftermath of storms like Ondoy that combine excessive rainwater with local garbage to produce floods that take too long to drain.
With this broader perspective on what the implications are for a country stuck with a sachet economy, the costs that counterweigh the advantages should make it clear that this whole arrangement only benefits (1) the corporate entities that profit from the growing business of sachets and (2) the government’s tax coffers as direct result of the sachet businesses’ income, but sadly at the expense of the Filipino people, most especially the poor.