* Jollibee targets further growth in U.S. and China
* Smashburger, Coffee Bean & Tea Leaf acquisitions hurting
shares
* Owns 16 brands or franchises globally
By Neil Jerome Morales and Martin Petty
MANILA, Sept 13 (Reuters) - Jollibee Foods Corp JFC.PS ,
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 M&A.
Helped by the purchase of California-based Coffee Bean & Tea
Leaf in July and having taken full control of Denver-based
Smashburger in 2018, it wants to earn 30% of its revenue in the
United States in a decade's time, executives told Reuters.
It is also aiming to lift revenue in China to 30% of overall
sales, while the Philippines would fall to 30%.
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% of sales in the "medium term".
Prior to its acquisition of Coffee Bean, the Philippines
accounted for 73% of sales while the United States represented
15% and China 12%.
"We want to spread our portfolio and risk," Jollibee CEO
Ernesto Tanmantiong said in an interview. "There's huge
opportunity out there."
Jollibee, which is valued at $4.8 billion and has 16 brands
or franchises to its name, aims to have six brands each in the
United States and China, just as it does in the Philippines.
In the U.S. 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 and
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.
TRUSTING ONE'S GUT
Jollibee likes to acquire quite 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's Tony Tan Caktiong 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 Erwin Elechicon, former chief of Jollibee's
international operations.
That was the case with Tortas Frontera. Tan, also founder of
the company and brother of CEO 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 Coffee Bean - both loss-making and bigger
than Jollibee's usual acquisitions with $210 million spent on
Smashburger and Coffee Bean costing $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 ($51 million) due to losses at Smashburger and
deliveries problems with its Red Ribbon Bakeshop. Its stock has
lost 18% since late July when it announced its purchase of
Coffee Bean.
"It would be better for them not to do another acquisition
at least of this scale until Smashburger and CBTL become
profitable," said 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 SBUX.O .
"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."
He noted that Coffee Bean had a strong presence in Southeast
Asia and the Middle East, regions where coffee culture still
has a lot of room to grow and that its Highlands Coffee stores
in Vietnam logged revenue growth of around 32% last year.
It has also taken on big chains before.
Not long after Jollibee, originally an ice cream parlour,
started selling burgers in 1978, friends advised Tan Caktiong
and his brothers to quit, warning the imminent arrival of U.S.
giant McDonald's MCD.N in 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 U.S
firm's sales by counting trash outside its branches. Since 1984,
Jollibee has outsold McDonald's domestically.
Outside the Philippines, Jollibee restaurant locations tend
to be in areas with large expat Filipino populations. But
executives point to its growing popularity with non-Filipinos,
particularly in Vietnam, Singapore and Hong Kong.
It also has big plans to expand the Jollibee chain in North
America, aiming for 150 U.S. stores and 100 in Canada over five
years, up from 37 and 4 respectively.
($1 = 52.0400 Philippine pesos)
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Jollibee: The little bee that could https://tmsnrt.rs/2zqOmGr
Jollibee and McDonald's in the Philippines https://tmsnrt.rs/2zsoz0H
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