Franchising, SMEs, cheap power, RH & Charter change for progress

Upon the invitation of the leaders of the Philippine Franchise Association (PFA), Philippine STAR had an interview with their 45-year-old vice president for ethical standards and good governance Victor Pardo Paterno to discuss their Franchise Asia event at SMX from July 25 to 29. Paterno is also the president and chief executive officer of Philippine Seven Corp., the country’s largest convenience store chain with 7-Eleven. He graduated from Lehigh University in USA with a degree in mechanical engineering, magna cum laude honors.

Victor Paterno is son of Harvard-educated, former Trade & Industry Minister and Senator Vicente “Ting” Paterno, and nephew of former Trade & Industry and Finance Secretary Jose Pardo. One of his forebears was the 19th-century ilustrado statesman, poet and first Filipino novelist Pedro Paterno.

Philippine STAR: How are you related to respected investment banker and former DBP President Simon “Mon” Paterno?

Victor Paterno: He’s my second cousin. Mon’s grandfather, Simon, and my grandfather, Jose, were brothers.

So they’re the brothers of the entrepreneurial Susana Paterno Madrigal, wife of tycoon Vicente Madrigal? Through her, you’re related to the wife of Bank of the Philippine Islands (BPI) president Gigi Montinola, Atty. Gizela “Ging” Madrigal Gonzalez-Montinola?

Yes, Ging Montinola is also our second cousin. That’s definitely the richer side of our family.

Why is she and her Madrigal kin not on Forbes magazine’s Philippine wealthiest list?

I think the Forbes list is more skewed for those people with publicly-listed companies.

Your 7-Eleven business is a publicly-listed firm, owned by your Paterno family with partners?

Yes, 7-Eleven in the Philippines was started by my father Vicente “Ting” Paterno, my mother’s brother uncle Jose “Titoy” Pardo and Frankie Sibal whose family formerly owned Alemar’s bookstore chain. Sibal sold his stake soon after and was replaced by Nene Araneta.

Nene? Is he related to the owners of Araneta Coliseum, Gateway Mall and the Cubao lands?

Yes, Nene is the nickname of Jorge Araneta. He’s the uncle of Mar Araneta Roxas.

Jorge Araneta is also one of those billionaires missed by the incomplete Forbes list of the Philippines’ richest. You also have Taiwanese partners in 7-Eleven here, the the President Group?

Yes, in 2000, we brought in Taiwan’s President Group to invest in our company, they’re the San Miguel Corp. of Taiwan.

How big is the stake of the President, your Paterno family, and others?

The president has 57 percent, while the rest of the three families have about 10 percent shareholdings each. My father invested P1million pesos in this 7-Eleven venture in 1983, now our company’s market capitalization is P20 billion.

How did 7-Eleven become the biggest in convenience stores here, while similar ventures by talented entrepreneurs Tony Tan Caktiong of Jollibee and Fred Yao of Zesto fizzled out?

First, I think we benefited from our franchisor’s support. Bingo chain was a joint venture of Jollibee’s Tan with SM, we actually bought them in 2003.

How many outlets did Bingo have then?

They had 35 outlets. Bingo was started by Jollibee, then when they were having difficulty, they invited SM to invest. Convenience stores are different from supermarkets: the systems, the people, the locations, the inventory schedules. It’s not as easy, it’s just different. I wouldn’t say it’s more difficult than supermarkets, it’s just different.

How many 7-Eleven outlets do you have now nationwide, and how about your nearest competitor John Gokongwei’s Mini Stop chain?

We have 750 outlets, but we’re not nationwide yet, mostly in Luzon. We just opened two outlets in Cebu. We’ll go nationwide if we’ve figured out the other islands, the logistics model. Mini Stop has about 33 outlets; it used to be run by Gokongwei’s nephew Bobby Go, but is now run by his daughter Robina Gokongwei-Pe.

How does 7-Eleven rank worldwide among convenience stores?

We’re the largest in the world with about 40,000 stores. The licensor is owned by Japan.

Aside from Gokongwei’s Mini Stop, do you have other serious competitors?

Among the growing ones, there is the Finds convenience store chain owned by Senator Manny Villar. I think they have 50 outlets now, but they’re different because of their much smaller format and lower costs.

Your firm is part of Franchise Asia Philippines event next week. You have franchises too?

Yes, 60 percent of our outlets are franchisees, while 40 percent are company-owned. I believe franchising is one way to help Philippine economic growth and to encourage more entrepreneurship, so I hope The Philippine STAR, through your column, can help spread the word about Asia’s biggest 4-in-1 franchise event from July 25 to 29 at SMX Convention Center. There will be an international franchise expo, a conference, a certified franchise executive program, plus a series of seminars.

Why are franchises popular in the Philippines?

Franchising is popular because we love fastfood brands and we have a lot of malls. Franchising is a good and safer way to start one’s business.

You’re vice-president of Philippine Franchise Association, this is totally different from the Association of Filipino Franchisers (AFFI) which will have its own franchising show in October at World Trade Center?

The AFFI is a splinter group, but there are a lot of cross memberships like Potato Corner and I think Seaoil is also a member of both. Even we at 7-Eleven, we put up our exhibit in their show.

Isn’t it okay to have rival groups for dynamic competition?

No, I think it would be good for our franchising industry to present a united front.

Your comments on bad or dishonest franchisors who victimize franchisees?

People can complain with Department of Trade & Industry (DTI). The Philippine Franchise Association is also trying to act as a seal of good housekeeping. 

By the way, how are you exactly related to the famous historical figure Pedro Paterno?

Pedro Paterno was my great-grandfather’s first cousin; his father Maximo and my great-great grandfather Lucas were brothers –– they were second-generation Paternos. Maximo was the firstborn and principal heir, he expanded his father’s trading business. Not much is known about Lucas, but my great grandfather was not as business-minded as his forebears, but he loved to hunt, and put up a small karitela (horse carriage) leasing business to support his family. My grandfather, Jose P. Paterno, was put through medical school by his sister Susana Paterno, later Susana P. Madrigal.

Any stories about the famous Pedro Paterno?

Do you know he was the second prime minister of the revolutionary Philippine Republic, succeeding Mabini in Aguinaldo’s cabinet? But he was prime minister for only three months. Pedro was also patron of the arts. He had no children.

You know a lot about him, why?

I’ve researched a bit about Pedro, because he’s not well-regarded in the history books I read in school. A historian even called him “the first balimbing” of the Philippines.

Yes, they wrote he sided with the revolution of Aguinaldo, also with Spain and also with the invading Americans later. How do both you and your dad assess him in history?

My dad, I think he thinks the same way as I do about Pedro Paterno –– that he was a good guy on the wrong side of history. He was a well-intentioned guy.

Do you know that, like Jose Rizal, St. Lorenzo Ruiz, the Lopez clan of ABS-CBN and others, your Paterno clan was founded by a Chinese immigrant entrepreneur?

Yes, the first Paterno was originally from China, his name was Ming Mong Lo. There’s a painting of him in one of the national museums. Have you read that book Asian Godfathers on the overseas Chinese tycoons of Asia? It’s an excellent book.

Yes, Sharon Cuneta Pangilinan gifted me with a copy of that book, which she said was recommended to her by businessman Sabin Aboitiz. Going back to franchising, which concerns mostly small-and medium-scale enterprises, what reforms are needed in the Philippines to help the SMEs more?

I think the problem of SMEs is access to capital. I think the Bangko Sentral is doing a lot to push more loans for SMEs, but there’s P1.8 trillion sitting in banks as special deposit accounts or SDAs. We need to collectively improve as a whole society, it’s not just anybody’s fault. I believe it’s because we’re a low-trust society.

What do you mean by “low-trust society”?

In the book by Francis Fukuyama, he posited that the wealth of nations is related to the degree of trust within a society. If you’re always suspicious of one another or suing one another, you can’t work together. We in the Philippines just have to evolve. We’ve been around only 50 years –– a country like China has been there thousands of years –– and we’re also many islands.

Your views on our having Asia’s highest electricity costs and too high minimum wage?

For me, the root of such problems is still our being a low-trust society.

What other reforms are needed to help businesses?

Government should not over-regulate, there should be less bureaucratic red tape –– make it easier to get business permits.

Should we lower our seemingly high tax rates?

No need to lower tax rates, just make taxes simpler, so businesses cannot escape because the big firms like ours are at a disadvantage. We call that “dis-economies of scale” (laughs).

Do you agree our labor laws seem anti-investor, over-regulated and that our wages are too high compared to even our Asean neighbors?

Yeah. Look at Thailand, they have two and a half times our per capita GDP, but their new Prime Minister Yingluck only recently raised their minimum wage 30 percent to the same level as ours now, and to much controversy. I’m not saying people should do with less pay, but it’s economics only –– if you price something above market, there will always be a surplus like our high unemployment. Actually, what we have in the Philippines is high underemployment. Look at the many street vendors, do you think they’ll be there if they have jobs?

Are you also affected by our high electricity costs?

Yes, in fact, the outlets in the Philippines are the only ones who pay more for power than we do in rent compared to all 40,000 7-Eleven stores worldwide. Grabe!

Your 7-Eleven stores sell contraceptives. Does your family support the RH bill?

Yes, he supports family planning, that’s why my dad quit the Bishops-Businessmen’s Conference (BBC) as National Co-Chairman, and he’s a more devout Catholic than I am.

Do you agree with Senate President Juan Ponce Enrile and Speaker Sonny Belmonte that we need Charter change now to reform the restrictive economic provisions of our constitution?

Yeah, I agree. Foreign capital is important to progress. I don’t think any country has ever succeeded in regulating capital flows; regulating business, of course.

With all these need for many reforms, are you optimistic about the Philippine economy?

Yes, I am very optimistic.

Why are you optimistic?

I think the government is doing absolutely the right things and I hope they do reforms faster.

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