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Mr Tan

By sengsengsengseng Apr 15, 2013 2340 Words
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THE LITTLE BEE THAT COULD: JOLLIBEE OF THE PHILIPPINES V. MCDONALD’S Charles Rarick, Purdue University Calumet Gideon Falk, Purdue University Calumet Casimir Barczyk, Purdue University Calumet CASE DESCRIPTION The primary subject matter of this case concerns the growth of a Filipino fast food chain. It started from a single ice cream store, which later moved into hamburgers, Filipino style. Over the years Jollibee, a multi-national corporation in the restaurant industry, expanded its operation both in the Philippines and in neighboring countries. At the end of 2010 it operated 2316 stores in eight countries including the Philippines, China, Brunei, Vietnam, Spain, Indonesia, Dubai and the United States. It is now facing increased competition and a dilemma as to what direction it should go. A secondary issue examined in this case is Jollibee’s unique business strategies. The case is written at a difficulty level of three, appropriate for junior level courses. The case is designed to be taught in one class hour and is expected to require 2-3 hours of outside preparation by students. CASE SYNOPSIS The Filipino Company, Jollibee, is imitating McDonald’s in some ways but has its own twist on offering unique products that emphasize local spices and local taste preferences. This fast growing restaurant chain has benefited from the increased demand for fast food in Southeast Asia and has developed a unique business strategy. This case examines Jollibee’s success and how the company is successfully competing with McDonald’s. With its rapid growth, the company is now ready to expand with new concept restaurant to the rest of the world. INTRODUCTION Jollibee Foods Corporation (JFC), known distinctively by its red and yellow bumble bee mascot, operates a number of concept restaurants in the Philippines and beyond. From its core business, a McDonald's-like restaurant, Jollibee has expanded into a pizza chain, fast food Chinese restaurants, bakeries, breakfast bars, and a tea house. The company competes well with multinationals in the Philippines, and has begun a large expansion into the international market,

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including China and the United States. Jollibee, the original flagship brand, together with its additional product concepts, dreams of becoming a global powerhouse in the restaurant industry. Jolibee’s dreams will be challenging given the economic uncertainties that surfaced in 2009 and the 0.6% contraction in the world economy. With sound planning and leadership, however, the company is taking active steps to effectively manage its business. JFC’s systemwide sales grew by 9.6% amidst weakened consumer spending in the Philippines and throughout most of the world. In 2009 Jollibee opened 168 new stores worldwide and even more impressively, opened 434 in 2010. THE PHILIPPINES The Republic of the Philippines is a country in Southeast Asia consisting of over 7,000 islands. The Philippines was “discovered” by Ferdinand Magellan in 1521, who claimed the islands for Spain. While Magellan met his death soon after arriving in the Philippines, the country was under Spanish control for almost 400 hundred years. The Philippines came under the rule of the United States in 1898 when Admiral Dewey defeated the Spanish and Spain ceded the islands under the Treaty of Paris. While Tagalog, or Filipino, is the official language of the Philippines, English is widely spoken, especially among educated Filipinos. In 1935 the US government decided that the Philippines should become a self-governing commonwealth and the country gained complete independence in 1946. After a number of different political administrations, strongman Ferdinand Marcos ruled the country from 1965 to 1986, maintaining close ties with the United States. With increasing discontent among Filipinos over its government, citizens in the opposition movement organized a “people's revolution” in 1986, and Marcos was forced to leave the country. Political instability ensued for a short time, but democracy quickly took a firm hold in the Philippines. The newly-formed democracy could be described as somewhat fragile, having been forced to endure the stresses of political corruption and attempted coups. The population of the Philippines is approximately 98 million, with an estimated population growth rate of slightly less than 2% per year. The Filipino people have a rich ancestral heritage that can be traced to populations from Malaysia, Indonesia, Spain, and China. The ethnic Chinese have been very influential in the Filipino economy. Filipino culture is rooted in Asian, Spanish, and American values. Total GDP for the Philippines in 2009 was $161.2 billion, with a growth rate of 1.1%, as compared with the U.S. GDP growth rate of -2.4% for the same period. In 2010 the estimated GDP for the Philippines was $189.1 billion with a growth rate of 7.0%, as compared with an estimated U.S. GDP growth rate of 2.7%. Per capita GDP was $1886 in 2009 and $2077 in 2010. The currency of the Philippines is the peso (PHP), trading at 43.9 PHP in December 2010 and ranging between 40 and 53 PHP per U.S. dollar over the past five years.

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HISTORY AND MISSION OF JOLLIBEE What would eventually become Jollibee Foods was once an ice cream parlor named Magnolia, started by Tony Tan in 1975 as a family-based business in the Philippines. Over time the company began offering hot meals and sandwiches. From this humble operation the concept of a fast food hamburger business was developed and Jollibee has expanded in terms of revenue and concentric diversification. In 1978 the company began a bakery and by 1986 it was operating its first international eatery in Taiwan. With the acquisition and development of additional restaurant concepts, Jollibee catapulted itself into an array of food service businesses including pizzerias, breakfast cafes, Chinese fast food chains, and a teahouse. Much of this diversification has come in recent years. While mostly known for its Jollibee hamburger franchise, the company has ventured into many additional fast food areas, significantly expanding its number of outlets and geographical coverage. The mission of Jollibee Foods is simple: To serve great tasting food, bringing the joy of eating to everyone. Jollibee has a vision statement that expresses not only its values, but also its aspirations. VISION We are the best QSR... The most endearing brand ... that has ever been ... We will lead in product taste at all times ... We will provide FSC excellence in every encounter Happiness in every moment ... By year 2020, with over 4,000 stores worldwide, Jollibee is truly a GLOBAL BRAND

Jollibee has strategically established its brand by focusing on quality and customer service. It is committed to sustainability as a quality requirement, making Forest Stewardship Council (FSC) excellence a corporate priority. Its vision statement positions the company to be the best quick service restaurant (QSR) that has ever existed. JFC is concerned with consumer perceptions and actively manages them through extensive advertising, hiring of celebrity endorsers with wholesome images, and engagement in charitable works. STRATEGIC BUSINESS UNITS AND EXPANSION Jollibee Foods Corporation (JFC) consists of a number of SBUs that cut across different food groups. Its system-wide retail sales for 2010 were 70.3 billion PHP ($1.6 billion USD), Journal of the International Academy for Case Studies, Volume 18, Number 3, 2012

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representing a 10.2% increase over 2009. Net income in 2010 was 3.1 billion PHP ($70.6 million USD), which grew by 16.3% over 2009 income. At the core of JFC is Jollibee, the McDonald's-like hamburger restaurant. The unit sells a standard fare of lunch and breakfast items, but adds a local touch with products such as the Amazing Aloha Burger (slice of pineapple on top of a burger), the Jolly Hotdog Taco Style, Chickjoy with Rice, and Palabok (noodles with a spicy sauce, boiled egg, shrimp, and ground pork). Jollibee competes with McDonald's on the basis of price, local product offerings, and national identity. JFC also owns Chow King, a Chinese fast food restaurant chain with operations in a number of countries. The firm has a pizza restaurant chain called Greenwich and a bakery chain called Red Ribbon.

Ta ble 1 Fina ncia l Summ ary 20 07 - 20 10 J ollibee Foods Co rporation 200 7 G ross reven ue N et income Retu rn on eq uity 3 8, 69 3,6 62 2, 38 8,3 58 1 8.9 % 2 00 8 43, 891 ,55 9 2, 321 ,81 7 1 6.4 % 2 00 9 4 7, 957 ,69 3 2, 666 ,90 0 1 6.4 % 20 10 5 3,3 52 ,87 0 3,1 00 ,62 9 18 .1 %

(Ab ov e amoun ts are in PHP 0 00 , excep t for return on equ ity) Number of Stores by Chain 200 7 J ollib ee Ch owk in g G reen wich Red Ribb on Y ong he K in g D elifran ce Ch un Sh ui Tan g M ano ng Pepe’s H ong Zh uan Yu an Caffé Ti-Amo M ang Inas al Tota l 65 2 40 2 24 5 21 2 99 26 1 2 1,6 39 2 00 8 70 0 41 8 23 1 23 9 14 1 26 2 9 38 1, 80 4 2 00 9 74 3 43 1 22 6 24 2 16 0 24 15 41 1 ,88 2 20 10 7 84 4 38 2 23 2 59 2 00 12 52 3 34 5 2, 31 6

Source: Jollibee Annual Report, 2009, page 34 and Jollibee 4th quarter 2010 report.

JFC is looking internationally to increase sales and recently acquired Yonghe King, a "contemporary Chinese fast food" restaurant chain in China. It operates restaurants in the Philippines, China, Brunei, Vietnam, Saipan, Indonesia, Dubai, and the United States. The units in the U.S. are located in areas with large Filipino-American populations. JFC feels that Journal of the International Academy for Case Studies, Volume 18, Number 3, 2012

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international expansion is important not only to grow the company, but because it believes that “Being open to different cultures widens one's spectrum of tastes, style, and ways of seeing food." JFC’s management feels that international expansion provides for organizational learning, and the leveraging of this learning into new markets. JFC is always searching for new product concepts, including its new pilot store called Tio Pepe Karinderia. This new restaurant concept serves very low-priced typical Filipino dishes and seeks to compete with street vendors by offering a more hygienic and cost-efficient alternative. Financial data and the number of stores by chain are summarized in Table 1. LOOKING AHEAD As Jollibee looks to the future it seeks greater expansion opportunities. The company plans on opening more stores, and in more markets, including the Indian market. Jollibee has experienced great success in its relatively short history, but it now faces a number of challenges. Rising food and fuel costs are putting pressure on the company to raise prices. Consumer spending in the Philippines is starting to weaken, especially among lower income consumers as their disposable income has declined. In addition, the flagship brand is coming under attack from McDonald's as it continues to open more new stores in the Philippines. According to a 2007 report by Tony Lopez in the Manila Times, McDonald's beats Jollibee in revenue per store, and has been gaining ground through better customer service, better kid's meals, and better cost and supply chain management. Undeterred by these developments, Jollibee continues to look ahead by opening restaurant chains in new markets. In 2010 alone it opened 434 additional stores worldwide, representing a 23% increase over the number of stores in 2009. While JFC expands its profitable chains, it has eliminated some marginally performing, mostly aging stores. According to a February 2011 statement, JFC Chairman and CEO Tony Tan Caktiong said, “Practically all our brands in all countries where we operate achieved growth...We were able to preserve and even slightly improve our profit margins despite the fast rising cost of labor, power and raw materials….We look forward to continued robust sales and profit growth in the Philippines and abroad in the years ahead.” It appears that the same pioneering spirit that enabled Mr. Caktiong to establish the first ice cream shop in 1975 lives on. DISCUSSION QUESTIONS 1. 2. What advantages does a domestic firm have over a MNC in its local market? Can Jollibee Foods Corporation continue to successfully leverage its brands and products in other geographic markets, including the United States? Explain.

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3.

In what way should Jollibee expand? markets?

Which countries are likely to be profitable

4.

What strategic direction would you suggest for Jollibee Foods Corporation? REFERENCES

Chae, S. (2007). Jollibee serves up fast food, Filipino-style: Chicken, rice noodles a nice change. Tribune Business News, November 8. Cuevas-Miel, L. (2008). Fast-food giant plans new round of price hikes. Tribune Business News, May 15. Jollibee Foods Corporation Annual Report 2009. Lopez, T. (2007). Virtual Reality: McDo vs. Jollibee. The Manila Times, August 14. Rubio, R. (2007). Jollibee ventures into karinderia concept. BusinessWorld, July 25. http://finance.yahoo.com/currency/convert?from=USD&to=PHP&amt=1&t=5y. Retrieved December 10, 2010. http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/index.aspx. Retrieved February 28, 2011. http://www.jollibee.com.ph. Retrieved February 22, 2011. http://www.state.gov. Country Background Notes: Philippines. Retrieved February 25, 2011.

Journal of the International Academy for Case Studies, Volume 18, Number 3, 2012

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