Fried-chicken king to chase McDon­ald's

The Jakarta Post - - BUSINESS - Ian Sayson and Ster­ling Wong

Jol­libee Foods Corp., the fast­food chain that con­trols more than half of the Philip­pines’ US$4 bil­lion mar­ket with its sig­na­ture fried chicken, is look­ing for ac­qui­si­tions to ac­cel­er­ate am­bi­tious ex­pan­sion plans in the United States and China.

The tar­gets could be other fast­food chains as well as fast-ca­sual restau­rants like Smash­burger, the US fran­chise in which Jol­libee owns 40 per­cent, Pres­i­dent Ernesto Tan­man­tiong said in an in­ter­view.

“We are look­ing at the world arena,” he said. “The ac­qui­si­tion of new busi­nesses is part of our growth strat­egy and, over the last few years, we have been en­ter­tain­ing op­por­tu­ni­ties.”

Pasig City-based Jol­libee is on track to meet its goal of dou­bling profit in the five years through 2019, and Tan­man­tiong now wants it to be one of the five big­gest restau­rant chains by mar­ket cap­i­tal­iza­tion glob­ally. Its cur­rent mar­ket value is about $5.2 bil­lion.

The stock rose as much as 1.4 per­cent to­day in Manila, poised for its high­est close in two weeks. In com­par­i­son, the Philip­pines bench­mark in­dex gained 0.3 per­cent.

The com­pany’s shares have risen 27 per­cent so far this year, out­per­form­ing the Philip­pine Stock Ex­change In­dex.

Jol­libee, which had about 14 bil­lion pe­sos (US$272 mil­lion) in cash and equiv­a­lents as of June 30, op­er­ates more than 3,500 stores glob­ally, ac­cord­ing to its sec­ond-quar­ter earn­ings state­ment. Its best-sell­ing item is called Chick­en­joy.

Three-quar­ters of those out­lets are in the Philip­pines, where the com­pany is cap­i­tal­iz­ing on an econ­omy that’s grown by at least 6 per­cent for nine straight quar­ters. The World Bank projects that streak to con­tinue through 2019 as con­sumer spend­ing in­creases and the pop­u­la­tion grows at a faster rate than the global av­er­age.

“Jol­libee is well po­si­tioned for growth given its di­ver­si­fied port­fo­lio," said Noel Reyes, who helps man­age $1 bil­lion as chief in­vest­ment of­fi­cer at Se­cu­rity Bank Corp. “Its Philip­pine op­er­a­tions will gain from in­creased con­sumer pur­chas­ing power while its over­seas ex­pan­sion has huge op­por­tu­ni­ties. It’s not just a chicken and burger stock any­more."

Re­tail­ers, restau­rant op­er­a­tors among big­gest gain­ers from Pres­i­dent Ro­drigo Duterte’s plan to cut per­sonal in­come tax: read more.

Jol­libee gen­er­ated 21 per­cent of its 113.9 bil­lion pe­sos in rev­enue over­seas last year, ac­cord­ing to data com­piled by Bloomberg. In­ter­na­tional sales in­clud­ing Smash­burger would bring that pro­por­tion to 30 per­cent, ac­cord­ing to the com­pany.

“We are op­ti­mistic with the fu­ture of the Philip­pine mar­ket,” said Tan­man­tiong, 59. “Ma­jor pil­lars will still be the Philip­pines, China and US, al­though we don’t close our door to op­por­tu­ni­ties in other geographic ar­eas.”

Its ex­pan­sion plans fo­cus on over­seas lo­ca­tions with a con­cen­tra­tion of Filipinos, such as Florida, Cal­i­for­nia, Hawaii and Guam in the US. The chain opened its first Florida store in Jack­sonville in March, mak­ing it the 36th out­let in the US.

In 2015, Jol­libee spent $100 mil­lion for its stake in Smash­burger, which had 362 stores in the US as of June 30. The Philip­pines com­pany has com­pleted 12 deals val­ued at about $301 mil­lion since 2010, ac­cord­ing to data com­piled by Bloomberg.

The com­pany has con­sid­ered about 20 po­ten­tial ac­qui­si­tions dur­ing the last two years. Lo­cal and in­ter­na­tional me­dia have re­ported that Jol­libee is con­sid­er­ing a bid for Pret A Manger Ltd. that val­ues the United King­dom-based sand­wich maker at more than $1 bil­lion.

When asked about those re­ports dur­ing the Oct. 11 in­ter­view, Tan­man­tiong would only say the com­pany hasn’t made any bids in re­cent months.

“We are pri­or­i­tiz­ing the mar­kets with big­ger Filipino com­mu­ni­ties,” said Tan­man­tiong, who be­came pres­i­dent and chief ex­ec­u­tive of­fi­cer in 2014. His older brother, Tony Tan Cak­tiong, founded the chain as an ice cream par­lor in Que­zon City in 1975.

Jol­libee’s Chi­nese op­er­a­tions in­clude Jol­libee and Hard Rock Cafe out­lets in Hong Kong and brands on the main­land that in­clude Dunkin’ Donuts, noo­dle chain Yonghe King and con­gee out­let Hong Zhuang Yuan.

“China is now one of the high­est growth ar­eas in our busi­ness,” he said.

The com­pany wants half of its sales to come from over­seas in five to seven years, with China and the US be­ing key mar­kets, Tan­man­tiong said. Yet those plans may be com­pli­cated by ter­ri­to­rial dis­putes with China over is­lands in the South China Sea.

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