JOLLIBEE FOODS CORPORATION: INTERNATIONAL EXPANSION

A CASE STUDY BY GROUP 4

CASE BACKGROUND

Jollibee Foods Corporation (JFC) is the most successful fast food chain in the Philippines.
It started out as an ice cream parlor owned by the Tan family, headed by Tony Tan
Caktiong (TTC) as President. Brought about by oil crisis which doubled the price of ice
cream, JFC diversified into hamburgers in the year 1977. Jollibee’s philosophy is
epitomized by “Five Fs” – Friendliness, Flavorful food, Fun atmosphere, Flexibility in
serving customer needs, and Focus on families. Though it began as a family business,
eventually, it went public in 1993. JFC expanded its business through acquisition of other
food chains but Jollibee stores remained the bread and butter of the parent company,
contributing 85% of total revenues. Jollibee had grown quickly having a total of 223
stores worldwide by the end of year 1997.
Jollibee ventured into overseas expansion attempts since 1985 but were mostly
unsuccessful due to location and partner issues. In 1993, TTC hired an Australian national
Tony Kitchner (who was the former VP for International Operations in Pizza Hut for 14
years), to lead JFC International Division in order to push its international presence at full
throttle. Tony Kitchner initiated many drastic changes in the division from modifying
office design and dress code to pushing aggressive expansion strategies and
rebranding Jollibee’s image offshore. Kitchner’s bold strategies strained the
International Division’s relations with the Philippine-based operations.
After Kitchner left in 1997, a new head of the International Division—Manolo P. Tingzon,
has been appointed by TTC. Apparently, Tingzon has to deal with the international
 JOLLIBEE FOODS CORPORATION: INTERNATIONAL EXPANSION
A Case Study by Group 4

expansion problems passed on by his predecessor. Of the various issues he has to

resolve, he identifies three immediate growth opportunities which will certainly lay out
the International Division’s future direction.

PROBLEM STATEMENT

How shall the International Division General Manager capitalize on the imminent
overseas expansion opportunities using Jollibee’s existing capabilities in order to
achieve 50% of JFC’s Total Sales in 10 years?

SWOT ANALYSIS

Strengths:

1. NO. 1 FOOD CHAIN IN THE COUNTRY

• Jollibee has remained the top food chain in the Philippines, beating McDonald’s.
It is primarily attributed to the preferred taste of Filipinos and Jollibee’s appeal to
families particularly children. It continuously conforms to its philosophy - the “5 Fs”
(Friendliness, Fun, Flexibility and Family-focused).
• Its success and popularity in the Philippines encourages potential foreign business
partners to invest in their country of origin.

2. MODERN EQUIPMENT AND COOKING METHODS IN THE USA

• A successful venture in Guam, USA, gave rise to development of more efficient

operating methods in order to keep up with the cost-intensive environment.

3. SUPPORTIVE FSMs

• Franchise Services Managers gave their all-out support and assistance to store
managers of newly opened stores overseas. They are willing to transfer their
management expertise to them in order to facilitate new outlets in becoming self-
sufficient and profitable.
 JOLLIBEE FOODS CORPORATION: INTERNATIONAL EXPANSION
A Case Study by Group 4

Strengths: (Continued...)

4. POSITIVE LEGACY OF TONY KITCHER

• One of the good things that the previous International Division Head left was the
ideation of “Jollimeal”. It was typically a rice-based meal with a customized topping
depending on each country’s popular local food. This product though accounting
only 5% of international sales, gives a feel of “localized” Jollibee image in a
particular country.
• Moreover, it was Kitchner’s idea to target first the enormous number of expatriate
Filipinos all over the world as an initial base of support and eventually expand
Jollibee’s appeal to local people in every foreign country.

5. EXTENSIVE NETWORK OF ACQUAINTANCES OF THE JFC OWNER

• The vast network of Tan family makes it more advantageous for the International
Division to take steps in international expansion. Knowing from a successful
associate would trigger curiosity among elites on the kind of business the Tan Family
are up to.

6. NEWLY HIRED HEAD OF INTERNATIONAL DIVISION

• As a Filipino national, Mr. Noli Tingzon has an inherent point of view about Filipino
work culture. He has the ability to listen and weigh things between the Domestic
and the International Division issues. He can bridge the gap and settle differences
between these two groups. Tingzon needs the support from the different
departments in both the Domestic side and the International Division in order to
succeed in the international arena.
 JOLLIBEE FOODS CORPORATION: INTERNATIONAL EXPANSION
A Case Study by Group 4

Weaknesses:

1. NEWLY HIRED HEAD OF INTERNATIONAL DIVISION

• On the side of the coin, Mr. Noli Tingzon has just assumed the Head of International
Division position for a few weeks; thus, he needs some time to learn the in and out
of the company before he can fully function.
• Moreover, though he was one of the most experienced managers in the industry;
needless to say, he had spent his entire career within the Philippines only. He has
built his career helping foreign fast food chains to break in the Philippine market. On
the contrary, his new position in JFC requires him to do the other way -- to crack
offshore markets which he may not be very familiar with. The fact is, the Philippine
market is not the same with other foreign markets because every market has its own
attributes such as brand perception and taste preference.

2. DISUNITY AMONG THE INTERNATIONAL DIVISION AND DOMESTIC OPERATIONS

• Soliciting cooperation from the Philippine-based departments may be difficult due

to strained relationships created by the previous administration of the International
Division. The International Division was seen by their domestic counterparts as lavish
spenders and unorthodox yet inexperienced newcomers.
• The International Division was given a hard time getting some assistance and
support from Philippine-based departments particularly the R&D department due to
slow and bureaucratic procedures.
• Overall, the present internal conflict between the two divisions is a hurdle in a plan
for an international expansion.

3. UNKNOWN OR UNESTABLISHED BRAND NAME OVERSEAS

• Jollibee had trouble getting access to strategic locations as well as selecting the
right partners in foreign countries due to its limited options brought about by its
unestablished reputation and unknown branch name.
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A Case Study by Group 4

Weaknesses: (Continued...)

4. RIGIDITY OVER MENU OFFERINGS IN MOST JOLLIBEE OUTLETS

• In Hongkong and other countries, Jollibee’s menu was less appealing to local
customers. There is a necessity to “localize” some of the food choices in order to
tailor Jollibee’s products to customers’ needs.

5. LOW LIQUIDITY RATIO

• Resources of the company were fully utilized, to the extent that they were not able
to meet their short term liabilities during the year 1993. Comparison of the years
shows that there was an improvement from 1992 to 1993; apparently, it was
decreasing in the subsequent years.
• Even without the inventory, liquidity of the company dropped since 1993 up to 1996.
For the latest year presented they can only pay 65% of their short term liabilities.
• There was a drastic decline in liquidity ratio for the last three years of operation. This
means that currently, JFC has no sufficient funds to support expansion.

6. HIGH COST OF SALES AND DECREASED NET INCOME GROWTH

• Although JFC was making sales throughout the period from 1992 to 1996, the profit
margin was not substantial to say that Jollibee has been very profitable. In fact, the
sales and net income growth rate was declining for the last 5 years. In addition, the
cost of sales accounted for 64-70% of the sales for 5 years, meaning they are
spending more on the value of the goods being sold.

7. NEGATIVE NET WORKING CAPITAL

• The current assets of the company is not enough to cover its short term liabilities,
with the negative ratio on the latest year it seems that the activities they are doing
are not generating enough revenue to cover the expenses.
 JOLLIBEE FOODS CORPORATION: INTERNATIONAL EXPANSION
A Case Study by Group 4

Weaknesses: (Continued...)

8. SIGNIFICANT INVESTMENT ON FIXED ASSETS

• JFC has a fixed asset of about 40% of the total assets, which cannot be easily used
in a short term basis.

Opportunities:

1. GLOBAL PRESENCE OF FILIPINO EXPATRIATES

• The large number of Filipino expatriates in most countries abroad will ease the entry
of Jollibee overseas by having as strong initial base of support during the early
stage.
• With happy Filipino customers spreading the good news to the international market
will serve as a convenient marketing tool for JFC. Filipinos abroad have a chance to
directly mingle with foreign friends and provide free advertising for Jollibee by word
of mouth.

2. UNTAPPED MARKET IN PAPUA NEW GUINEA

• The country has only one poorly managed fast food chain. Besides a would-be
franchisee was very interested to invest a significant capital to support the target
critical market mass of 20 stores and was planning to negotiate with a major
petroleum retailer to open stores in a number of service stations around the country.

3. A STRATEGIC LOCATION PROPOSED IN HONGKONG

• The General Manager in Hongkong proposed to open the fourth store in Kowloon,
one of the busiest districts in Hongkong. The site will provide the best opportunity for
Jollibee to gain visibility and branch recognition among Hongkong locals since the
store will reside in the heart of the city where traffic is high.
 JOLLIBEE FOODS CORPORATION: INTERNATIONAL EXPANSION
A Case Study by Group 4

Opportunities: (Continued...)

4. A LARGE CONCENTRATION OF FILIPINO EXPATRIATES IN CALIFORNIA

• San Francisco and Los Angeles areas are the most densely Filipino-populated
communities in the U.S. but with relatively low concentrations of fast food chains.
• Having Filipinos as the initial target market will provide a solid foundation for Jollibee
to succeed in the USA where fast food industry was originated. This opportunity will
open the door for Jollibee to claim prestige and publicity in mainland U.S.A..

5. AVAILABILITY OF INTERESTED INTERNATIONAL PARTNERS TO SUPPORT EXPANSION

• The success in the Philippines and extensive network of acquaintances of the Tan
Family will make way for the international expansion plans to materialize.

6. CHALLENGE TO APPEAL TO LOCAL PEOPLE IN FOREIGN LANDS

Appealing to local people in different countries is a major challenge as well as an
opportunity for the International Division to grab a slice of the international market.
This challenge will enable the division’s constituents to maximize its capability,
creativity, ingenuity, and available resources in order to tap this dormant yet
powerful market.

7. PRESENCE OF MAJOR INTERNATIONAL COMPETITORS

• Looking at the brighter side of having major competitors, it pushes Jollibee to excel
and raise the bar to a higher level. Jollibee will continue to find ways to improve the
quality of food and service it provides in order to enhance customer satisfaction
and to do better than the competitors.

8. OPEN MARKET

• Offering an array of food products that will bring curiosity to the public.
 JOLLIBEE FOODS CORPORATION: INTERNATIONAL EXPANSION
A Case Study by Group 4

Threats:

1. STIFF COMPETITION IN THE FAST FOOD CHAIN INDUSTRY

• It is undeniable that McDonald’s has the global brand name that gains advantage
over Jollibee’s relatively unknown name internationally.
• McDonald’s dominance worldwide except in the Philippines can make Jollibee’s
brand recognition weaker.
• Competition from small players like street vendors and cheap local fast food chains
particularly in Jakarta Indonesia struggle Jollibee franchise operations.

2. RACISM AND LANGUAGE BARRIERS

• Filipino dominant crew members will not give a good impression in countries abroad
particularly the Chinese. There is a need to hire local store workers to cater to
customers who could not speak English well to ease and make them feel
comfortable choosing the menu or giving orders.
• On the other hand, employing a local manager or crew members who are not
proficient in the English language can make communication difficult for Filipino
managers or staff.

3. RADICAL CUSTOMIZATION OF JOLLIBEE’S MENU MAY DESTROY ITS BRAND

COHERENCE
• Although customization of products to adapt to market’s taste helps Jollibee
appeal to local customers, it poses a risk of deteriorating the coherence or
uniformity of Jollibee brand.
• Loss of brand coherence on its core products can cause confusion in the market.
• Likewise, offering a wide array of menu items can make quality control more
difficult.
• Variation of food products also reduces economies of scale in raw materials
sourcing and marketing, increasing handling and shipping costs.
 JOLLIBEE FOODS CORPORATION: INTERNATIONAL EXPANSION
A Case Study by Group 4

Threats: (Continued...)

4. POSSIBILITY OF REPEATING BAD EXPERIENCES WITH INTERNATIONAL PARTNERS

• Because of the previous management’s bad experiences and failures, these might
affect the image of Jollibee to the public. Negative implication will be retained
instead of the good ones.

5. DIFFERENCES IN CUSTOMER TASTE PREFERENCE

• Different country, people and culture will equate to different taste preferences.

6. POLITICAL CRISIS
Some countries present unstable peace and order situation particularly in
countries affected by war, such as the Middle East.