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Jollibee Foods, which began as an ice cream shop in the Philippines back in the 1970s, has now become a multi-billion dollar fast food enterprise with a global presence. Jollibee Foods Corporation (JFC) is planning to double its sales in the next five years by expanding its US and China businesses, the company’s president and CEO Ernesto Tanmantiong recently said in an interview with Nikkei Asia.
“Our ambition is to make JFC (Jollibee Foods Corporation), a Filipino company, into a truly global company with International sales should accounting for half of Jollibee revenues by 2027,” says Tanmantiong.
Business of Jollibee Foods Corporation
The fast-food company has had a spectacular ascent since its beginnings as an ice cream shop in 1975. Jollibee Foods Corporation evolved from a single brand into a restaurant group with 18 brands. The company operates over 6,300 stores in 34 countries, including the US, Canada, the UK, Saudi Arabia, Kuwait, Vietnam, Hong Kong, Brunei and Qatar.
The group’s core business now is the creation, management, and franchising of its quick-service restaurant (QRS) brands. The international expansion plan includes “strategic acquisition” in four major categories: chicken, burgers, Chinese food, and beverages. JFC aims to be one of the five most valuable fast-food chains in the world.
The expansion strategy of JFC since 2018 has contributed to making it one of the fastest-growing Asian companies with brands under its umbrella such as US-based Smashburger, The Coffee Bean, Tea Leaf and Taiwan-based Milk shop. The company is working on a two-pronged expansion strategy — brand acquisition and brand expansion. In the Philippines, the company has a wide network of 3,000 plus stores, however, has only been able to penetrate 10% of the country’s markets along with its subsidiaries, i.e., Greenwich, Red ribbon, Chow King, Mang Inasal, Burger King.
Outside the Philippines, JFC acquired 51% of Milk Shop, a Taiwanese bubble tea company, for $12.8 m in November 2021. “This allows JFC to participate in this fast-growing beverage category and together with Milkshop’s founder, grow the Milksha brand globally,” said Jollibee Foods Corporation in a statement.
The company has allocated $347 m for capital expenditure in 2022, after an increase in its 2021 Q4 profits.
The company reported a continuous profit increase of almost 200% in Q2 2022 as Covid restrictions around the globe started easing. “Sales were better than expected and have returned to pre-pandemic levels,” noted Tanmantiong in August 2022. JFC reported revenue of $888m for Q2 of 2022, an increase of 42% YOY. In the first half of 2022, system-wide sales which include transactions from all brands and both directly owned and franchised outlets, increased by 35.4% to $2.26 bn while net profit increased by 351.7%.
In 1993, Jollibee Group listed its shares on the Philippine Stock Exchange (JFC.PS). In recent years, the share price of Jollibee Foods Corporation has been stable with strong equity and low debt levels. The outlook for earnings per share (EPS) increased from 5.61 pesos to 8.59 pesos in 2022.
Having a market capitalization of over $4.5 bn, the company’s stock has declined more than 8% in the past 12 months, whereas the benchmark PSEi composite index is down over 14%.
The stock has a PE ratio of 28.12, and a forward PE ratio of 36.88. The current price-to-book ratio of the company is 3.77.
“With improved visibility in the return to normalcy in Jollibee’s core F&B retail operations in the Philippines and likely turnaround in operations of its overseas coffee chain business (Coffee Bean), expect the stock to rerate and trade at industry comparable valuations,” said analyst Devi Subhakesan of Investory who publishes on Smartkarma.
Outlook of Jollibee Foods
JFC’s acquisition of the struggling US fast-food chain Smashburger in 2019 was one of its biggest. The company made its first investment for a 40% stake in Smashburger in 2015 for $99.5m, later completely acquiring the US brand by 2020. The total deal post-full acquisition was estimated at $218 m, 12 % lower than the original valuation of $248 m in 2015. The deal was majorly funded by debt and equity and was seen as a platform to expand in the US, one of JCF’s biggest markets outside the Philippines, along with China. However, the global supply chain issues, rising input costs and the strong US dollar have been impacting JFC’s bottom line, especially when the majority of the company’s debt is in dollars.
In China, JFC’s sales fell by almost 30% in Q2 of 2022 due to the zero-Covid policy. “The lockdowns were quite severe and our business was badly affected,” said Tanmantiong. The company increased its stake in Titan Dining in September 2022, to fund the dim sum chain Tim Ho Wan’s expansion in China. The new funds will be used for the store expansion plans, working capital requirements and completion of projects.
Before investing in Tim Ho Wan in 2018, the company established other businesses in China, including Hong Zhuang Yuan and Yonghe King, a Taiwanese restaurant well-known for its freshly made soy milk. However, China had not been an easy market for JFC even before the pandemic, consequently it shut outlets and sold its stakes in a beef noodle restaurant chain in 2017.
Meanwhile, Jollibee announced that it is ending its Dunkin’ coffee venture in China. The franchise deal started in 2015 with the initial plan to open more than 1,400 shops across the country within 20 years. By now, the company only operates seven shops in China.
While problems have persisted, Jollibee Foods Corporation seems to have improved its business during the pandemic, as shown by the double-digit gains in revenue and profit over the past couple of quarters.
