- Younger generations are crying out for healthier food options but the simultaneous demand for fried chicken is surging.
- Filipino fried chicken chain Jollibee is aggressively expanding in the west with plans to “beat KFC in Europe”. It also plans to open 300 stores in the USA by 2024.
- Founder Tony Tan Caktiong’s dreams of being among the world’s top 5 restaurant group owners started with 1 ice cream parlour in 1975. His empire, housed under Jollibee Food Corps (JFC), now operates 17 F&B brands in 33 countries, including Michelin-starred dim sum chain Tim Ho Wan and The Coffee Bean & Tea Leaf globally.
- JFC has the lowest PS ratio compared to competitors such as McDonald’s and KFC owner Yum Brands.
If kale is to hipsters, avocados are to millennials, and general veganism is to Gen-Zs, to whom does fried chicken match with? Everybody. That is the answer the Philippines’ fast-food giant Jollibee Food Corps (JFC) is banking on.
In an effort to not only solve the equation but also capitalise on it, JFC – top of the brood back home – is sending its chickens westward with aggressive plans to dethrone KFC as the leading fried chicken joint with its namesake chain.
At least, in Europe.
In the UK, Jollibee is investing GBP 30 million (USD 41.6 million) to open over 20 stores by 2022. In all, it is pushing for 50 stores in Europe within the next 5 years, VP Head of Marketing in Europe Adam Parkinson said in June 2021.
Further afield, Jollibee will have to contend with the world’s largest fast-food chain McDonald’s, KFC, Bojangles, Popeye’s, Church’s, Chick-Fil-A and Zaxby’s that have saturated the fried chicken market in North America.
Yet, it’s confident of its fried chicken, loved by the diaspora of Filipinos living abroad. According to recent census data, there are over 4 million Filipinos living in America that it can count on. (Okay, these aren’t mind-blowing figures by any stretch, at 1.2% of the American population, but good things must share.)
And despite COVID19, Jollibee embarked on its most aggressive expansion plan in North America in 2020, which it has continued in 2021. As of June 2021, it has 66 stores across the country and is on track to have 300 stores by 2024.
Entering a heavily saturated market whilst facing resistance from an increasingly health-conscious generation seems like a cuckoo move but Jollibee’s feathers remain unruffled.
Gobbling Up The Competiton
Even before the pandemic reminded us that we’re extremely vulnerable to external factors and to not take our health for granted, there’s been the rise of fitspo to make us feel bad for craving fried chicken.
According to Plant Proteins, 6% of Americans identify as vegan as of 2021 – a 500% increase since 2014. A Meticulous Research study also found that the plant-based food market is expected to reach USD 74.2 billion by 2027. Barclays estimates the market for alternative meat could grow by 1,000% over the next 10 years, totalling USD140 billion.
This has put immense pressure on the F&B business. McDonald’s and KFC have both recently partnered with Beyond Meat. KFC, owned by fast food chain operator Yum Brands, even has a vegan burger on their menu now and McDonald’s is due to release the McPlant this year.
“McDonald’s and Yum Brands have doubled down on plant-based meat and have demonstrated the long-term potential they see in the category. This is the clearest sign yet that the future of meat will be plant-based,” The Good Food Institute Executive Director Bruce Friedrich said in February 2021 following Beyond Meat’s partnership with the two fast food chains.
Cargill Philippines, which supplies chicken to Jollibee, has said it is eyeing up meat-free options. “We have a participation in plant-based protein somewhere in the world, but not yet in the Philippines. But yes, definitely this is an interesting space…that’s still in the works,” Cargill Philippines President Sonny Catacutan said in an interview with ANC’s Market Edge.
However, Jollibee itself has not expressed an interest in offering alt-meat. It ultimately gives zero clucks about diversifying its menu as demand for meat-free options hasn’t eaten into the demand for fried chicken.
According to Market Research Future, the global take-out fried chicken market is expected to grow at a CAGR of 5.47% from 2021 to 2025 and is set to reach USD 8.25 billion then.
Anyway, Beyond Meat has admitted that making fake poultry is much harder than replicating fake beef.
As of August 2021, Jollibee has over 5,810 restaurants across 33 countries – half are in the Philippines. Apart from Europe and North America, it can be found in Greater China, Singapore, Malaysia, Vietnam, Saudi Arabia, UAE, Qatar, among others.
Not A Spring Chicken
JFC is no spring chicken. It began as an ice cream parlour founded by young Chinese immigrant Tony Tan Caktiong in 1975, before he expanded his menu to incorporate fast food such as hamburgers, and soon found a calling for chicken.
The gregarious founder and chairman, now ranked #9 in the Forbes Philippines’ 50 Rich List 2020 with a net worth of USD 2.6 billion, went on to make several F&B acquisitions in the Philippines and overseas to achieve his lofty dreams of JFC becoming one of the world’s top 5 restaurant companies. (No, it’s not there yet.)
Other F&B brands operated by JFC in the Philippines include local delights Mang Inasal, Chinese cuisine Chowking and Panda Express, western grub Greenwich Pizza, Hard Rock Café and Burger King, and bakery Red Ribbon.
While some of these chains can also be found in the region, JFC has acquired stakes in overseas brands including Vietnam’s Highlands Coffee and Pho24, China’s Yonghe King, Hong Zhuang Yuan, San Pin Wang, and Smashburger and The Coffee Bean & Tea Leaf in the US.
Perhaps most excitingly, JFC has just bought out the entirety of dim sum restaurant brand Tim Ho Wan. The Michelin starred Hong Kong group’s reputation precedes itself, especially in South East Asia. Known for being “the world’s cheapest Michelin-star restaurant,” the brand prides itself on offering the “best dim sum in Hong Kong.”
JFC had already owned 85% of Tim Ho Wan but on 11 August 2021 announced it would pay SGD71.56 million to purchase the remaining 15% from other investors.
JFC has cast a wide net on the F&B industry and investors should note that the group is consciously diverse, enroute to world domination.
“Our business outside the Philippines contributed 40% of total system-wide sales. But in the next three years, business overseas will contribute 50%, as we will be able to reach our goal of 50:50 business split by that time,” CEO Ernesto Tanmantiong said in a June 2021 AGM.
For the first time in its history, JFC in 2020 invested in more stores overseas than at home. And its diverse geographical reach has helped JFC navigate through 2020, and beyond, even if it did have to close stores and reduce headcount significantly under a Business Transformation Program to deal with the COVID19 fallout.
As of end June 2021, JFC is one of Asia’s largest F&B companies with 17 brands and 5,816 owned and franchised stores in 33 countries.
Bubbling Chicken Stock
JFC’s main listing is at home but it is also listed on the US OTC market. Glancing at its 6 month stock price chart, there appears to be volatile activity in a downward trend until the end of May. After which, Jollibee’s stock price started to rally from USD 3.50 each to highs of USD 4.45. Its stock has since tumbled back down to USD 3.79.
Nonetheless, JFC’s latest quarter shows some signs of promise.
2Q2021 saw a net profit of PHP 976 billion (USD 19.3 million), miles ahead of the COVID stricken 2Q2020, though less than the pre-pandemic 2Q2019.
EDBITDA of PHP 5.5 billion in 2Q2021 was higher than pre-pandemic levels though, as were gross profit margins, operating margins, general and net income margins.
“The improvement in profitability ratios was driven by the growing contribution of foreign business to total sales, the higher contribution of the coffee business to the business portfolio, the increasing contribution of franchise stores versus company stores and the cost improvement brought by the Business Transformation implemented in 2020,” JFC said in its results statement.
In terms of valuation, JFC seems reasonable, with a price to sales ratio of 1.4574. Fried chicken fiend KFC’s parent company Yum Brands has a PS of 6.3921, while McDonald’s has a PS ratio of 8.1300. Not a competitor but Starbucks has a PS of 5.0262.
Liquidity wise, JFC is well-stocked to deal any extended COVID fall out. In January 2020, it completed its first USD 600 million 3.9% perpetual bond to pay for its Coffee Bean acquisition, and then followed up with a USD 300 million 4.125% 5.5-year bond and USD 300 million 4.75% 10-year bond in June 2020 as precautionary measures.
A 2019 research report showed that JFC has the biggest market share of the fast-food market in the Philippines. It had 43% of the market, with KFC only holding 9%. Thus, Jollibee’s confidence to beat KFC in the west is clearly not unfounded, whilst their dominance at home serves as an anchor for their overall business.
Jollibee’s cult following could make its chicken business a cut above the west.