Philippine fast-food chain Jollibee hungry to expand in US, China

Jollibee Foods Corp chief executive Ernesto Tanmantiong and chief financial officer Ysmael Baysa (far left) outside a Jollibee branch in Pasig City, Metro Manila, Philippines, in July.
Jollibee Foods Corp chief executive Ernesto Tanmantiong and chief financial officer Ysmael Baysa (far left) outside a Jollibee branch in Pasig City, Metro Manila, Philippines, in July.PHOTO: REUTERS

MANILA • Jollibee Foods Corp, the Philippine fast-food specialist known for fried "Chickenjoy" and chopped hotdogs in sweet spaghetti sauce, is doubling down on expansion plans in the United States and China that are likely to include more mergers and acquisitions.

Helped by the purchase of California-based Coffee Bean & Tea Leaf (CBTL) in July and having taken full control of Denver-based Smashburger last year, it wants to earn 30 per cent of its revenue in the US in a decade's time, executives told Reuters.

It is also aiming to lift revenue in China to 30 per cent of overall sales, while the Philippines would fall to 30 per cent.

That would represent a major rejig of revenue streams for Jollibee, which ranks No. 4 among Asia's listed quick service restaurant firms, and would build upon plans to cut its reliance on its domestic market to 50 per cent of sales in the medium term.

Prior to its acquisition of CBTL, the Philippines accounted for 73 per cent of sales while the US represented 15 per cent and China 12 per cent.

"We want to spread our portfolio and risk," Jollibee chief executive Ernesto Tanmantiong said in an interview. "There's huge opportunity out there."

Jollibee, which is valued at US$4.8 billion (S$6.6 billion) and has 16 brands or franchises to its name, aims to have six brands each in the US and China, just as it does in the Philippines.

In the US market, it currently has five including its namesake Jollibee restaurant chain and a minority investment in Tortas Frontera, run by Michelin-starred chef Rick Bayless, which offers Mexican-inspired sandwiches at just three outlets in Chicago's O'Hare airport.

It has three brands in China - the Dunkin Donuts franchise, as well as the Yonghe King noodle and Hong Zhuang Yuan congee restaurant chains.

Jollibee likes to acquire fairly small, loss-making firms at low prices and turn them around.

It receives business proposals frequently but acquisitions are more often stumbled upon during one of chairman Tony Tan Caktiong's long food-tasting trips than sought out through bankers.

"Most of the acquisitions resulted from Tan Caktiong eating in a restaurant, liking the food and asking 'who runs the place?'," said Mr Erwin Elechicon, former chief of Jollibee's international operations.

That was the case with Tortas Frontera. Mr Tan, also founder of the company and brother of chief executive Tanmantiong, had eaten one of its sandwiches at the airport.

While noting they tend to buy small, Jollibee executives say they are open to any type of acquisition if the food is good.

But they acknowledge their immediate focus is on turning around Smashburger and CBTL - both loss-making and bigger than Jollibee's usual acquisitions with US$210 million spent on Smashburger and CBTL costing US$350 million including debt.

Investor concerns that Jollibee is overextended were exacerbated by first-half profit sliding by a third to 2.66 billion pesos (S$70 million) due to losses at Smashburger and deliveries problems with its Red Ribbon Bakeshop.

Its stock has lost 18 per cent since late July when it announced its purchase of CBTL.

"It would be better for them not to do another acquisition at least of this scale until Smashburger and CBTL become profitable," said Mr Renzo Louie Candano, analyst at DBP-Daiwa Capital Markets in Manila.

Jollibee believes, however, that it has not overreached.

Nor is it concerned that any of its targeted markets are saturated or that it might not be able to compete with the likes of Starbucks.

"Every restaurant in the Philippines has fried chicken, in Vietnam there are maybe 10 coffee shops on every block. In the midst of all of this competition, there's always a standout one or two," said chief financial officer Ysmael Baysa.

"How are you going to do it? Our formula is very simple: Offer the best tasting food at the right price and you're going to make it."

It has also taken on big chains before. Not long after Jollibee, originally an ice cream parlour, started selling burgers in 1978, friends advised Mr Tan and his brothers to quit, warning the imminent arrival of US giant McDonald's in the Philippines would decimate Jollibee's six branches.

Undeterred, the firm took on McDonald's by surrounding each big branch with smaller Jollibee outlets, and measuring the US giant's sales by counting trash outside its branches.

Since 1984, Jollibee has outsold McDonald's domestically.

It also has big plans to expand the Jollibee chain in North America, aiming for 150 US stores and 100 in Canada over five years, up from 37 and four respectively.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 16, 2019, with the headline 'Philippine fast-food chain Jollibee hungry to expand in US, China'. Print Edition | Subscribe