MANILA -- When Cheryl Santiago wants to restock her grocery cupboard she automatically heads to Dali, the no-frills discount store near her home in Rizal, a province on the outskirts of Metro Manila.
"They're mostly a primary stop for everyday essentials like snacks, pantry staples and personal care items," the 49-year-old teacher told Nikkei Asia as she loaded up her shopping trolley. "Because their prices are affordable and the store is convenient, I rely on them a lot to cover the basics without overspending."
A few streets away, equally enticing deals are on offer at a branch of O!Save, a similarly bland grocery store.
Both are what are known as hard discounters, a relatively new phenomenon in the Philippines, but well known in Europe through brands such as Aldi and Lidl.
Characterized by limited selections, a relentless focus on cost efficiency and noticeably lower prices than their competitors, they are disrupting the domestic grocery retail market, carving out a significant niche as they expand rapidly, and developing an intense rivalry.
In a market long-dominated by domestic chains such as the publicly listed Robinsons Supermarkets, SM Group and Puregold, Dali and O!Save are emerging at a time when cost-of-living pressures are straining many households' budgets.
But the size of the supermarket sector, which analysis company GourmetPro estimated to be worth $55 billion in 2023, is forecast to expand significantly over the next five years. World Data Lab, a consumer-focused analytics agency, estimates the Philippine consumer class -- defined as people spending at least $11 a day -- will grow from 41 million people, or 35% of the population, now to 79 million in 2030.
A Dali shop in Metro Manila. Like most outlets, it is in an area of high footfall that is not a prime location. (Photo by Ramon Royandoyan)
Dali Philippines, a subsidiary of the Switzerland-based Dali Hard Discount, was the first to introduce the hard discounter model to the Southeast Asian archipelago, in Metro Manila in 2020. It now has more than 900 outlets and will soon reach 1,000.
"To make it a little bit more Filipino, we played with the letters [of Aldi] because dali means fast [in Filipino]. And if you noticed, the checkout is quick," said Thirdie Icasas, a Dali board director.
Their success also stemmed from house brand dominance, streamlined operations, minimal marketing expenditure and strategically located stores in high-traffic, yet often less-prime, locations.
Dali's presence did not go unnoticed by established players. Recognizing the growing appeal of the hard discount model, local retail conglomerate Robinsons Retail Holdings partnered with Singapore incorporated HD Retail Holding to launch O!Save in 2022. Both Robinsons and HD Retail are owned by the Philippines' Gokongwei Group, a prominent business empire owned by the family of the same name.
While not directly mirroring Dali's European lineage, O!Save embodies the same principles of deep discounting and operational efficiency. The chain has opened some 500 stores across the main island of Luzon, often in direct competition with Dali shops. In 2023, it expanded to Indonesia, where it now has about 75 outlets.
There are also similarities in the branding. Dali's corporate color is fuchsia while O!Save has chosen red, and O!Save has mirrored Dali in incorporating an exclamation mark in its logo.
O!Save declined to be interviewed for this article but RRH executives told the Philippine Star last September that it plans to expand by 200 stores a year in the Philippines.
"It functions like stores in first world countries where you're encouraged to bring your own bags and pack them on your own," said Kristian Kountur, a 33-year-old sales executive in Manila, who shops regularly at an O!Save in Bulacan, a province on the outskirts of Metro Manila. The rapid proliferation of O!Save stores across urban areas underscores the apparent strong local appetite for this value-driven retail format.
"The rising cost of goods, as well as ... swings of local [gasoline] prices just keep pushing people to look for alternatives and O!Save is one of those," Kountur added.
John Paolo Rivera, senior research fellow at the state-backed 蝌蚪传媒, said the emergence of Dali and O!Save is a "market response" to the domestic economy's struggles. "They have carved out a niche by offering essential goods at consistently lower prices through efficient sourcing, limited assortments and low-cost operations," he said. "Their value proposition directly addresses the daily financial constraints of consumers, especially in lower- to middle-income segments."
The exteriors of O!Save shops share some similarities with their rival DALI. (Photo by Ramon Royandoyan)
Despite their rapid expansion, both companies are still booking losses. O!Save quickly scaled, reporting over 1 billion pesos ($18 million) in revenue in 2022, its first full year of operations. Its net loss, however, was 407.6 million pesos, despite generating 44 million pesos in gross profits.
The company's growth continued in 2023, with net sales surging to 6.02 billion pesos and gross profit reaching 363.1 million pesos. Yet, the net loss widened to 908.18 million pesos, underscoring its aggressive investment in scaling operations.
Dali implemented even more striking expansion, achieving exponential revenue growth from 416.1 million pesos in 2020 to 22.31 billion pesos in 2023. Despite these gains, Dali has consistently reported widening losses, deepening from 86.52 million pesos in 2020 to 1.82 billion pesos in 2023.
Dali insists these losses are in line with its business plan, which is to become profitable after its sixth year. "We're very, very close already to profitability," Icasas said.
No data exists on the hard discounters' share of the Philippines' grocery market, partly because "traditional grocery stores and wet markets still hold a significant share," according to GourmetPro, and partly because Robinsons, SM Holdings and Puregold do not breakdown their financial statements into that much detail.
But in terms of store numbers, according to GourmetPro, Robinsons Supermarkets had 300 stores at the end of 2023; SM Holdings had 270 hypermarkets, 250 supermarkets and 217 Savemore supermarkets; and Puregold had 100 supermarkets.
Victor Paterno, president Philippine Seven Corp, which operates 7-Eleven, the country's largest convenience store chain, views these hard discounters as significant disruptors to the nation's retail sector. "The question in my mind is, how many do you need to get to [a profitable] scale for private-label goods?" he told Nikkei.
The interior of a Dali shop. Thirdie Icasas, a Dali director, says hard discounters are "the future of retail." (Photo by Ramon Royandoyan)
Icasas explained that Dali's preference for private labels, or in-house manufacturing, provides it with "flexibility" on pricing. "So, for us now, as fast as we can do our own private labels, we can sell the products cheaper," he said.
"Everything is in-house. So the warehouse is leased. It's operated by our own people. Our trucks are ours," Icasas added. Dali Philippines' ownership of its distribution center and manufacturing site is a key cost-saving measure. "It's really part of the business plan to be aggressive. But five years ago, when we were presented with a business plan, if you see the growth from first year to fifth year, you will not believe it."
As it is, these hard discounters also compete on price and location, according to Damien Yeo, senior consumer and retail analyst at BMI, part of Fitch Solutions. "Location-wise, being the only mass grocery retail (MGR) in an area will greatly help the store in question. In terms of price, consumers are less likely to be loyal to a specific discounter if there are two or more in operation in the area because the core incentive for shopping at a discounter is lower prices," he said.
Steven Cua, the head of the Philippine Amalgamated Supermarkets Association, an industry group, said the typical consumer of hard discount grocery stores includes local residents, professionals and minimum wage workers.
"Consumers discover that they can buy things and products and commodities at much cheaper prices, although the brands are unknown. So eventually I'm sure they'll go all house brand," he said, referring to the strategies employed by the hard discounters.
Rafael Ongpin, executive director of the Makati Business Club, welcomed the hard discounters as being good for competition. "If they are able to pull prices down in the Philippines, then so be it. Let that be a problem for everyone because it's good for consumers," he said.
Own-brand drinks on display at a Dali shop in Manila. In order to save money, staff do not open the packaging for customers. (Photo by Ramon Royandoyan)
Still, their proliferation is not without controversy. NutriAsia, a food manufacturing giant in the Philippines, has sued Dali over intellectual property violations for allegedly copying the look and feel of their products. Dali has denied any wrongdoing.
The rise of hard discount stores presents challenges and implications for the broader retail landscape in the country, which remains dominated by operators like SM and Puregold. BMI's Yeo noted that hard discount chains in the Philippines must continue to develop their private-label offerings.
"If a following develops for their private labels, this can be a way for MGR players to strengthen their position in the market," Yeo said, referring to how they can bring in more of their own-brand products to counter the threat posed by the discounters.
Meanwhile, back in Rizal's Dali, customers find all sorts of benefits from shopping there. Allan Diaz, a Filipino overseas worker returning home for a vacation, said Dali's low prices somehow improve the flavors of the groceries. "Their alcohol offerings taste even better than the market mainstays; their beer is better because the price difference is noticeable."
