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Gutierrez 2021 J Olli Bee Foods Corporation
Gutierrez 2021 J Olli Bee Foods Corporation
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Prologue
Brothers Tony Tan Caktiong (Chairman) and Ernesto Tanmantiong
(Chief Executive Officer, CEO) are reviewing the materials to be
presented at the July 24, 2020 Annual Stockholders Meeting of
the Jollibee Foods Corporation (JFC). The corporation has seen
decreasing earnings and lower stock prices since its full acquisition
of two large US food companies, Smashburger and The Coffee
Bean and Tea Leaf (CBTL) in 2018 and 2019, respectively. More
seriously, severe losses have been experienced by the corporation
in the first half of 2020 following the closure of most of its stores
across the globe caused by the COVID-19 global pandemic.
These losses are unprecedented because they were the first
losses for Jollibee since it was established in 1978. Furthermore,
additional details of the ₱7 billion Business Transformation Plan
announced in May 2020 are needed to reassure the investors of
the recovery efforts of the corporation. The recovery program
must be accelerated to enable Jollibee to immediately return to
profitability.
JFC, a publicly listed Philippine foodservice company, and its
subsidiaries (the Jollibee Group) are engaged in the development,
operation, and franchise of quick service restaurants (QSRs) under
the trade names “Jollibee,” “Chowking,” “Greenwich,” “Red
Ribbon,” “Mang Inasal,” “Yong He King,” “Hong Zhuang Yuan,”
“Highlands Coffee,” “Pho24,” “Smashburger,” “The Coffee
*
This case was written by Ben Paul B. Gutierrez (Professor), Cesar E.A. Virata School of Business,
University of the Philippines, Diliman, Quezon City. The case is not designed to illustrate effective or
ineffective handling of managerial decisions. It is intended for classroom discussion only.
Copyright © 2021. Not to be reproduced without permission.
147
Bean & Tea Leaf,” “Burger King,” “Hard Rock Cafe,” “Dunkin’
Donuts,” “Tim Ho Wan,” “Panda Express,” “Tortas Frontera,”
and “Yoshinoya” within and outside the Philippines (Jollibee
Foods Corporation, 2019, p. 1; Jollibee Foods Corporation, 2021,
February 15). It has outlets in at least 34 countries, the largest of
which in terms of contribution to system-wide sales are in the
Philippines, the United States (US)/Canada, China, and Vietnam
(Jollibee Foods Corporation, 2020, April 14). Meanwhile, the
other businesses of the Jollibee Group include manufacturing
and property leasing in support of the QSR systems and other
business activities (Jollibee Foods Corporation, 2019, p. 1).
JFC was incorporated on January 11, 1978 and was publicly listed
at the Philippine Stock Exchange (PSE) on July 14, 1993.
Restaurant Classification
Restaurants may be classified according to “menu style,
preparation methods, pricing, and more importantly, how the
food is served to the customer” (“Foundations of restaurant…”,
2011, p. 8). Table 1 contains the five restaurant segments in the
food service industry according to the US National Restaurant
Association (NRA).
Table 1.
Distinctive Features of Five Restaurant Segments
Average cost
Restaurant Serving When order
per-person for Examples
Segment Staff? taken?
dinner
1. Fine dining Yes While patron is US$25 or more French, Italian, steak, seafood
full-service seated restaurants, etc.
restaurants
2. Family dining Yes While patron is 10 or less Denny’s, The Old Spaghetti
full-service seated Factory, etc.)
restaurants
3. Casual dining Yes While patron is 10 to 25 TGI Fridays, Applebee’s, Chili’s
full-service seated Grill & Bar, Outback Steakhouse,
restaurants etc.
There is some overlap between the family dining and casual dining
segments. Quick casual restaurants may be treated as a special
case of QSRs because they also follow the fast service format.
However, quick casual restaurants serve “freshly prepared,
wholesome quality, and authentic foods” (“Foundations of
restaurant…”, 2011, p. 8).
Trends
Home deliveries and takeout services have grown since 2017
as more restaurant operators have offered delivery options
to capture this growth trend (Khandelwal, 2019, para. 8). QSR
leader McDonald’s has increased the number of outlets that offer
food delivery (Khandelwal, 2019, para. 8). In 2017, McDonald’s
underscored its clout and market presence when it negotiated a
favorable deal with Uber Eats, enabling it to expand delivery in
9,000 of its 14,000 US restaurants (Maze, 2019, para. 5).
Risks
The QSR business deals with several risks. First, while the
franchise model offers several benefits, it may expose a
franchisor to certain risks, such as its “dependence on the ability
and willingness of franchisees to implement new initiatives,
their ability to maintain food safety, and their ability to grow
the business” (Khandelwal, 2019, para. 9). Franchisors rely on
field representatives (mystery shoppers) to ensure that their
franchisees adhere to food standards, customer service, and
cleanliness.
Second, food safety is an important issue, especially for QSR
chains that have grown in size. Any incidences relating to food
safety may destroy a brand’s image and could greatly affect its
business. For example, Chipotle Mexican Grill suffered multiple
E. coli outbreaks in 2015 that tarnished its image and took the
company more than two years to recover from (Khandelwal,
2019, para. 9).
Third, disruptions in the supply chain or increased cost of raw
materials used in making the food and drinks served in the
restaurants may constitute risks and increase the cost of doing
business. Disruption in the supply may happen due to weather,
natural disasters, transportation issues (Khandelwal, 2019, para.
9), or even a change in the information system that happened
to Jollibee’s Chickenjoy. Some raw materials may not be as
easy to obtain and difficult to replace. For example, Starbucks
uses specific arabica coffee beans. A disruption in the supply
of these coffee beans could impact the company’s performance
(Khandelwal, 2019, para. 9).
Jollibee’s Vision
Tan Caktiong’s dream is for Jollibee to dominate the fast-food
industry in the Philippines, next, Asia, and then, to be among
the leading QSR players of the world. “Since the start of Jollibee
Foods 40 years ago, I have always dreamed it to be the largest food
company in the world,” Tan Caktiong said in a press statement
on June 29, 2018, at the company’s annual shareholder meeting
(Venzon, 2018, para. 15).
“Tony is a visionary and he loves to dream big. That’s primarily
the reason why (Jollibee Foods Corporation) is where it is
today. Because of that bold vision, the entire organization has
been challenged, but it has been fulfilling trying to achieve the
vision,” Tanmantiong says (Gilchrist, 2019, para. 17).
Max's
1%
Seven & I
4%
Yum! Brands
5%
McDonald's
Others 21%
14%
McDonald's 86.02%
Based on 2017 sales, excludes convenience stores that sell cooled meals; local currency data at
current prices converted using year-on-year rates
Source: Adapted from Venzon (2018)
Yoshinoya (2021)
In February 2021, JFC entered into a 50 percent/50 percent
joint venture with Yoshinoya International Philippines, Inc.
(YIPI), to operate and expand “Yoshinoya” in the Philippines
(Jollibee Foods Corporation, 2021, February 15, para. 1). YIPI is
1
But this is not the first Japanese fast-food experience for JFC. It operated three outlets of Tomi’s Teriyaki
in California, part of another JFC acquisition in 2001 (Dela Peña, 2004).
Divested Acquisitions
JFC acquired several other foreign food businesses that they
have since divested from. These are Chun Shui Tang (Shanghai,
China) purchased in 2006, Lao Dong Restaurant (Taipei, Taiwan)
in 2008, San Pin Wang in (Guangzi province, China) in 2010, Jinja
Bar Bistro (New Mexico, USA) in 2011, and 12 Sabu (Shanghai,
China), 2013.
2
Since 1990, the James Beard Foundation recognizes culinary professionals in the United States. The awards
recognize chefs, restaurateurs, authors, and journalists each year, scheduled around James Beard’s May 5
birthday (Awards policies…, n.d.).
The Coffee Bean & Tea Leaf (Los Angeles, US), 2019
In July 2019, JFC announced its 100 percent purchase of CBTL
for US$350 million (~₱18.3 billion) on a debt-free basis (i.e.,
the acquired business would have no debt upon acquisition)
(Jollibee Foods Corporation, 2019, September 24). The terms of
the deal included an infusion of US$100 million, representing 80
percent of the equity of Java Ventures, LLC, a US-based wholly
owned subsidiary of Super Magnificent Coffee Company Pte.
Ltd. (SMCC Singapore), a subsidiary of JWPL (Jollibee Foods
Corporation, 2019, p. 3) and the holding company that will
acquire 100 percent of CBTL. The balance of US$250 million
would become advances to Java (Dumlao-Abadilla, 2019, para.
4). JFC’s Vietnamese partners in SuperFoods would invest 20
percent in SMCC Singapore. The acquisition was completed on
September 24, 2019.
Prior to the CBTL buyout, JFC was reported in local and
international media to be exploring a bid for Britain’s upscale
sandwich chain Pret A Manger to compete in the growing US
coffee sector (Venzon, 2020). Pret A Manger was widely known
for its “organic coffee and wholesome sandwiches” (e.g., gourmet
baguettes, wild crayfish-and-rocket sandwich) to office workers
in Britain and cities like Hong Kong and New York; and it had
big plans for a US expansion (Wu & Daga, 2017, para. 2). Jollibee’s
offer valued Pret A Manger at over US$1 billion, based on its
2016 core earnings of just over £93 million from reported 2016
revenues of £776 million (US$1.1 billion) (Wu & Daga, 2017, para.
4). However, Pret A Manger was eventually sold to the private
equity firm JAB Holdings for US$2 billion in 2018, twice the US$1
billion that Jollibee was prepared to pay for it (Venzon 2018, para.
36). “It’s a very good brand, but we felt we cannot afford it,” Tan
Caktiong said of Pret A Manger (Venzon, 2018, para. 36).
Founded in 1963, CBTL had 1,189 stores at the end of 2018—336
company-owned, 853 franchised. CBTL’s three biggest markets
Red Ribbon
Zinnia Carmencita S.
Rivera
Greenwich
Joseph Michael V. Castro
Burger King
Jose Amado M. Dominguez
Source: Created based on information from amended SEC 17A, 2019, pp. 111-112.
China 1)
16. Tortas US 2018 (47%) 4 – US 5
Frontera
17. Panda Philippines 2018 (50%) 0 – Philippines 1
Express franchise
18. Yoshinoya Philippines 2021 (50%) 3 Philippines, 3
franchise
Total Philippines Philippines 3,217+;
1,921*; Abroad 2,607;
Abroad Worldwide 5,824
395;
Worldwide
2,316
* includes 12 Manong Pepe and 3 Caffe Ti-Amo stores that were eventually closed in 2011;
Yoshinoya, not yet included store locations from Jollibee Foods Corporation, 2011, March 31;
2021, February 15.
Quarter 2020 All Stores Philippines China North America EMEAA Super Foods CBTL Global
System-Wide Retail Sales 30,678 59,428 -48.4% 40,593 57,362 -29.2% 49,548 72,724 -31.9% 175,970 234,792 -27.8%
Revenues 23,331 43,680 -48.6% 29,965 43,179 -30.6% 36,746 54,420 -29.9% 129,476 179,626 -27.9%
Operating Income (Loss) (5,268) 1,525 -445.5% (3,348) 1,317 -354.1% (2,680) 1,539 -274.1% (12,626) 6,479 -294.9%
Operating Income (Loss)
ex-Business Transforma-
tion Cost (1,173) 1,317 -189.0% 1,090 1,539 -29.2% (5,918) 6,479 -191.3%
EBITDA ex-Business Trans- 1,385 6,520 -78.8% 7,069 9,752 -27.5% 11,035 26,848 -58.9%
formation Cost
Net income (loss) Attributable 2,049 3,128 -34.5% (11,495) 7,303 -257.4%
to Equity Holders of the Par-
ent Company, as restated*
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Acquisitions:
1994 80% of Greenwich Pizza (Philippines) 2015 40% of Smashburger (US)
2000 Chowking (Philippines) 2017 Another 10% of SuperFoods
2004 Yonghe King (China) 2018 Remaining 60% of Smashburger
2005 Red Ribbon Bakeshop (Philippines) 45% stake in Tim Ho Wan Asia-Pacific franchise
2006 Remaining 20% of Greenwich Pizza (Philippines) 47% stake in Mexican restaurant Tortas Frontera
2008 Hong Zhuang Yuan (China) 50% JV to operate Panda Express in the Philippines
2010 Mang Inasal (Philippines) 2019 CBTL
2011 Burger King’s Philippine franchise Additional 15% stake in Tim Ho Wan franchise
2012 50% of SuperFoods (Philippines/Vietnam) 2020 Additional 25% stake in Tim Ho Wan franchise
2014 60% JV to operate Dunkin’ Donuts in China
JFC aimed to break even in one or two years for both of its two
large purchases Smashburger and CBTL. However, the tough
competition in the US restaurant industry from powerhouses
McDonald’s, Starbucks, and Dunkin’ Donuts derailed Jollibee’s
plans. Not only are both US acquisitions still losing money, but
Country of % Ownership
Subsidiary Principal Activities
Incorporation Direct Indirect
Fresh N’ Famous Foods Inc. (Fresh N’ Philippines Food service 100
Famous)
Chowking Food Corporation USA USA Holding company 100
Zenith Foods Corporation (Zenith) Philippines Food service 100
Freemont Foods Corporation (Freemont) Philippines Food service 100
RRB Holdings, Inc. (RRBH) Philippines Holding company 100
Red Ribbon Bakeshop, Inc. (RRBI) Philippines Food service 100
Red Ribbon Bakeshop, Inc. USA (RRBI USA Food service 100
USA)
Mang Inasal Philippines Inc. (Mang Inasal) Philippines Food service 100
Grandworth Resources Corporation Philippines Leasing 100
(Grandworth):
Adgraphix, Inc. (Adgraphix) Philippines Digital printing 100
IConnect Multi Media Network, Inc. Philippines Advertising 60
(IConnect)
JC Properties & Ventures Co. Philippines Dormant 50
Honeybee Foods Corporation (HFC): USA Food service 100
Tokyo Teriyaki Corporation (TTC) USA Food service 100
Honeybee Foods (Canada) Corporation Canada Food service 100
(HFCC)
Jollibee Worldwide Pte. Ltd. (JWPL): Singapore Holding company 100
Regional Operating Headquarters of Philippines Financial ac- 100
JWPL (JWS) counting, human
resource and
logistics services
Golden Plate Pte., Ltd. (GPPL): Singapore Holding company 100
- Golden Beeworks Pte. Ltd. Singapore Food service 60
- Golden Piatto Pte. Ltd. (m) Singapore Holding company 75
- Cibo Felice S.R.L. (k) Italy Food service 100
- Bee World Spain, Sociedad Limitada(h) Spain Food service 100
(a) On November 18, 2019, the JFC Group, through GPPL incorporated Hong Yun Hong in PRC.
(b) On August 28, 2019, SBEMAC was deregistered with the Shanghai Administration for Industry and
Commerce and completely dissolved and liquidated on December 23, 2019.
(c) On September 24, 2019, the JFC Group, through Java Ventures, LLC completed the acquisition of
100% share of International Coffee & Teac, LLC.
(d) On September 11, 2019, Super Magnificent Coffee Company Hungary Kft was incorporated.
(e) On August 22, 2019, Super Magnificent Coffee Company Ireland Limited was incorporated.
(f) On June 28, 2019, the JFC Group, through JWPL incorporated Super Magnificent Coffee Company
Pte. Ltd. In Singapore.
(g) On June 24, 2019, Java Ventures LLC (USA) was incorporated.
(h) On May 23, 2019, Bee World Spain, Sociedad Limitada was incorporated and registered in the
Mercantile Registry of Madrid.
(i) On April 17, 2018, the Jollibee Group, through BGI completed the acquisition of additional 45%
share of SJBF, increasing its ownership from 40% to 85%. Subsequently, on December 14, 2018,
the Jollibee Group, through BGI acquired the remaining 15% share resulting to 100% share in SJBF.
(j) On April 16, 2018, Bee World UK Limited (UK) was incorporated.
(k) On July 31, 2017, the Jollibee Group, through Golden Piatto Pte. Ltd. incorporated Cibo Felice in
Italy.
(l) On May 10, 2017, the Jollibee Group, through JSF increased its shareholding in SF Vung Tau Joint
Stock Company (SFVT) and Blue Sky Holdings Limited (Blue Sky) to 60%.
(m) On April 12, 2017, the Jollibee Group, through GPPL, incorporated Golden Piatto Pte. Ltd. to own
and operate Jollibee restaurants in Italy.
(n) On June 18, 2004, the stockholders of the Jollibee Group approved the Plan of Merger of the three
(3) dormant companies. The application is pending approval from the SEC as at December 31, 2018.
Source: Jollibee Foods Corporation, SEC 17A, 2019 Notes to Parent Financial Statements, pp. 10-12.
233
ventures,
Appendix B. (cont’d)
JOLLIBEE FOODS CORPORATION
AND SUBSIDIARIES FINANCIAL STATEMENTS
coventurers and associates 6,832,102 3,512,230 7,492,771 9,873,297 8,449,310 3,388,903 3,322,394 3,011,502 3,188 21,622
Property, plant and equipment 32,592,122 26,672,549 20,869,738 16,655,567 14,547,152 13,363,567 11,772,441 11,059,464 10,580,367 8,770,519
Right-of-use properties 42,907,418 36,564,242 25,324,378 - - - - - - -
Investment properties 572,722 848,974 848,974 983,428 998,113 1,025,645 751,767 754,013 772,469 777,720
Trademarks, goodwill and other
Intangible assets 50,208,119 31,541,825 15,730,239 9,086,742 9,412,134 9,385,110 9,103,637 8,837,559 8,542,321 7,990,646
Operating lease receivables 98,749 64,304 157,775 25,995 12,517 21,090 21,267 22,560 26,839 33,086
Finance lease receivables 161,934 184,800 204,698 - - - - - - -
Derivative asset - 82,852 11,949 78,329 75,031 - - - - -
Deferred tax assets 4,449,262 4,711,794 4,282,822 2,585,495 1,408,489 751,965 756,197 685,823 636,390 920,139
Other noncurrent assets 3,795,974 3,751,044 3,510,518 3,044,552 2,669,674 2,139,529 1,893,275 1,645,859 4,609,352 1,483,534
Total Noncurrent Assets 141,656,604 107,974,456 78,463,724 42,359,617 37,593,882 30,097,288 27,642,457 26,144,929 25,291,575 20,173,549
187,276,006 150,512,878 115,619,404 72,728,352 64,763,048 54,118,679 46,026,634 41,778,130 38,550,523 33,746,006
235
Appendix B. (cont’d)
JOLLIBEE FOODS CORPORATION
AND SUBSIDIARIES FINANCIAL STATEMENTS
Comprehensive income (loss) on
derivative liability -58,241 82,852 11,949 -33,530 -35,449 -2,395 -3,411 -7,087 - -
noncontrolling interests acquired -1,804,766 -1,804,766 -2,152,161 -2,152,161 -542,764 -542,764 -542,764 -542,764 -542,764 -542,764
Retained earnings:
Unappropriated 23,009,145 19,391,656 15,664,077 11,659,531 15,487,039 12,445,662 8,817,166 12,871,154 15,238,047 13,042,709
52,780,558 47,675,620 40,212,440 33,782,727 30,803,735 27,370,838 22,729,390 21,178,713 19,891,690 17,300,029
52,600,047 47,495,109 40,031,929 33,602,216 30,623,224 27,190,327 22,548,879 20,998,202 19,711,179 17,119,518
Non-controlling Interests -318,170 1,500,988 1,758,351 679,188 1,133,366 887,695 812,061 733,101 703,691 561,924
Total Equity 52,281,877 48,996,097 41,790,280 34,281,404 31,756,590 28,078,022 23,360,940 21,731,303 20,414,870 17,681,442
Total Liabilities and Equity 187,276,006 150,512,878 115,619,404 72,728,352 64,763,048 54,118,680 46,026,634 41,768,130 38,550,522 33,746,006
237
Appendix B. (cont’d)
JOLLIBEE FOODS CORPORATION
AND SUBSIDIARIES FINANCIAL STATEMENTS
INTEREST INCOME (EXPENSE)
Interest income 400,657 424,419 269,433 286,913 257,783 242,045 245,574 270,114 179,763 163,081
Interest expense -3,187,298 -2,617,463 -1,793,377 -267,618 -225,544 -152,471 -152,920 -206,013 -291,343 -193,201
-2,786,641 -2,193,044 -1,523,944 19,295 32,239 89,574 92,654 64,101 -111,580 -30,120
EQUITY IN NET LOSSES OF JOINT VENTURES
AND ASSOCIATES 23,384 -86,750 -282,645 -337,145 -189,086 -126,174 -115,561 -50,954 300 -2,181
OTHER INCOME - NET 5,745,671 3,342,528 2,135,647 1,582,923 1,536,757 659,304 337,325 503,535 566,814 618,898
INCOME BEFORE INCOME TAX 9,483,556 10,321,703 8,075,949 7,730,120 6,434,941 6,759,471 6,245,514 4,861,699 4,357,670 4,185,932
PROVISION FOR (BENEFIT FROM) INCOME
TAX
Current 3,255,664 2,822,092 2,310,630 2,334,855 1,926,078 1,694,769 1,521,967 1,277,161 1,187,564 1,040,928
Deferred -195,024 -141,975 -727,700 -658,244 -537,470 -424,239 741 -127,457 -83,696 -67,532
241
Appendix B. (cont’d)
JOLLIBEE FOODS CORPORATION
AND SUBSIDIARIES FINANCIAL STATEMENTS
Loss (gain) on disposals and retirements of:
Property, plant and equipment -278,318 45,540 174,510 236,609 136,747 156,615 446,159 318,631 216,295 183,846
Investment properties - - -231,036 - - - - - - -
Available-for-sale financial
assets - - - - - - - - 229 145
Reversals of impairment losses
on:
Receivables -91,402 -23,675 -20,705 -3,188 -4,606 -868 - - - -
Inventories -26,465 -6,148 -53,819 -18,129 -12,047 -8,489 - - - -
Property, plant and equipment -29,179 -408,184 -2,111 -2,000 - -62,647 - - - -
Equity in net losses (earnings) of
joint ventures
and an associate -23,384 86,750 282,645 337,145 189,086 126,174 115,561 50,954 -299 2,182
Acquisitions of:
Property, plant and equipment -10,041,912 -9,520,681 -8,904,796 -6,694,133 -4,596,787 -5,045,474 -3,907,876 -3,755,907 -3,700,449 -2,553,449
Interests in joint ventures -2,174,784 -1,410,885 -531,147 -1,617,092 -5,057,543 -74,999 -103,608 -98,040 - -5,000
Subsidiaries - net of cash
243
Appendix B. (cont’d)
JOLLIBEE FOODS CORPORATION
AND SUBSIDIARIES FINANCIAL STATEMENTS
Minority interests - -528,800 - -2,070,159 - - - - - -
Market entry fee - - - - -93,870 -277,485 - - - -
Available-for-sale financial
assets - - -450 - - - -300 -7,500 - -3,940
Proceeds from:
Short-term debt 22,180,320 - - - 7,594,200 1,865,000 - - 900,000 1,842,031
Long-term debt 1,485,526 11,126,459 5,517,281 2,993,810 5,176,600 1,053,535 2,582,580 1,700,800 3,131,020 -
Issuances of and subscriptions
to capital stock 585,461 475,537 861,125 368,620 435,029 657,386 210,908 301,597 68,700 27,887
Payments of:
Cash dividends -2,807,766 -2,667,060 -2,347,164 -1,988,082 -1,899,666 -1,560,658 -3,232,637 -2,274,367 -1,196,621 -2,556,644
Short-term debt - - - -282,360 -9,191,000 - - -900,000 -342,031 -305,024
Long-term debt -4,900,541 -5,524,746 -1,607,623 -929,558 -734,360 -1,096,988 -3,149,352 -728,864 -2,379,826 -53,697
Lease liabilities -8,419,749 -6,979,019 -4,902,325 - - - - - - -
Liability for acquisition of
businesses - - - -94,852 -87,775 -109,920 -149,815 -108,696 - -
Interest paid -1,434,897 -731,670 -360,856 -232,646 -188,648 -123,473 -141,263 -194,336 -284,118 -189,703
Contributions from non-controlling
interests 30,428 11,417 14,578 715,608 177,628 - 29,416 79,873 42,421 54,997
Acquisition of non-controlling
interests - - - - - - - - - -2,000