What strategies and actions is Jollibee using in expanding the international markets?

What strategies and actions is Jollibee using in expanding the international markets?

Jollibee is a fast-food restaurant chain serving chicken, sandwiches, burgers, and spaghetti. It is based in the Philippines and has outlets in the United States, Saudi Arabia, Hong Kong, Taiwan, Vietnam, Indonesia, the United Arab Emirates, and Brunei. The company uses the mascot of a large bee in a shirt, blazer, and chef hat. By March 2012, the company had 2,001 outlets in the Philippines, 745 of which were its flagship Jollibee stores, and close to 500 outlets overseas. For its 2012 capital investment program, Jollibee Foods Corporation (JFC) has set aside 5.8 billion pesos, of which half is to increase its store count by 250 in the Philippines and in China, to further expand its burgeoning business. The company hopes to have 4,000 outlets worldwide by 2020.

HISTORY
Tony Tan and his family started two ice-cream parlors named Jollibee in Cubao, the Philippines, in 1975. Upon the advice of a business consultant and the observation that the company was earning more from side orders of burgers than from the sale of ice cream, the family switched the product from ice cream to burgers in 1978. Jollibee was positioned as offering high-quality fast food at reasonable prices. The company achieved sales of 500 million pesos in 1984 and became the first Philippine fast-food chain to break the 1 billion peso sales mark in 1989. In 1994, Jollibee entered the pizza-pasta segment with the acquisition of Greenwich Pizza Corporation. In 1995, the company acquired the franchise of Délifrance in the Philippines, but terminated it in 2010 to concentrate on its quick-service restaurant businesses. Tan received the World Entrepreneur of the Year award from Ernst & Young in 2005, and in 2008—on its 30th anniversary—Jollibee launched JolliTown, its own children’s TV show.

STRATEGIC ENTRY INTO WORLD MARKET
Jollibee’s first experience in expansion abroad in 1994 came under the leadership of a newly appointed international operations vice president, Tony Kitchner. Since the company was committed to long-term growth, and there was a limit to the Philippine market, the company felt the need to enter foreign markets. Two strategies were used for the international expansion. First, the company targeted Filipino expatriates working in the Middle East, Hong Kong, and other Asian cities. Second, the company focused on those markets where there was minimal competition. Jollibee Xiamen opened in China in 1997, and expanded its presence considerably with the acquisitions of Chinese food chains Yonghe King, Hong Zhuang Yuan, and Chun Shui Tang in Taiwan. Elsewhere, JFC expanded its reach with the Burger King franchise in the Philippines, the Chowking business in the United States, and the Superfoods business in Vietnam.

INNOVATIONS IN JOLLIBEE’S OPERATIONAL MANAGEMENT
Jollibee’s philosophy revolves around the “Five Fs”—friendliness, flavorful food, fun atmosphere, flexibility in catering to consumers’ wants, and focus on family. Central to Jollibee’s ability to offer these five aspects is a developed operations management capability.
Jollibee expanded rapidly throughout the Philippines, financing all growth internally until 1993. Key positions related to operations functions were held by members of the Tan family, while outsiders were recruited to fill up leading roles in the marketing and finance departments.
When Kitchner took over in 1993, he remodeled Jollibee’s international division and took on a different management approach from the domestic side (Figure 1). To project a world-class image and greater credibility with foreign investors, he initiated the company’s first dress code, requiring managers to wear ties. Kitchner began recruiting experienced internationalists, relying less on internal recruitment.

FIGURE 1
Organization of Jollibee’s international franchise.

Once Jollibee had entered a new market, Kitchner transferred responsibility of the opening of the franchise to a franchise services manager (FSM). The FSM would be the bridging member between the offshore operations and Jollibee’s international division, which provided financial support and ensured quality and consistency throughout the decision process. A project manager would be appointed to oversee the appointment of store managers and crew members. International franchises adopted a standardized Jollibee floor plan that ensured efficient production procedures. However, FSMs were also encouraged to adapt counter and dining areas to suit the needs of consumers in each country.
Kitchner made several other changes to the business operating model in the process of adapting to foreign consumers’ tastes and preferences. The international division added the slogan “Great burgers, great chicken” to the Jollibee logo in an attempt to incorporate the company’s product in its name, preventing consumers from associating the logo with a candy or toy store. Paper wrapping replaced Styrofoam boxes for packaging food, which appealed to the foreign environmentally-conscious consumers.

STRAINED INTERNATIONAL-DOMESTIC RELATIONS
The international and domestic sections of the company operated largely independently of each other, eventually leading to tension between the two. The reins of value chain activities—such as research and development and finance—were held by the Philippine operations. This hampered the international division’s accessibility to resources to modify store layouts, menus, and existing practices. With escalating internal disputes over the pace of Jollibee’s globalization plans, Noli Tingzon soon replaced Kitchner as the vice president of international operations.
Tingzon sought to lessen the financial constraints of the company by concentrating the company’s assets on a few key and high-potential markets, instead of multiple locations. He closed six stores that were making marginal profits and focused his efforts on breaking into the Hong Kong and California markets. The Chinese and U.S. markets were seen as vital to the company’s long-term plans, and Hong Kong and California represented key footholds for these markets.

OPERATIONS IN DIFFERENT COUNTRIES
Jollibee Foods Corporation (JFC) had established 35 restaurants in five key countries—the United States, Brunei, Hong Kong, China, and Vietnam—by March 2008. JFC’s globalization initiatives extended beyond the company’s flagship burger business. JFC bought Chowking, a Filipino fast-food chain specializing in Chinese food, which enabled the company to establish dominance in the Chinese fast-food market. Jollibee also acquired the local franchise for Délifrance, a bakery chain, and Greenwich, a rival of Pizza Hut. To establish its presence in China, Jollibee acquired Yonghe King, another fast-food chain. All in, JTC had 1,652 outlets in nine countries in 2008 and had adopted a multibrand strategy, gradually cementing its position in the fast-food industry.
The United States
As at the end of 2007, Jollibee had 13 stores in the United States, in the states of California, Nevada, and New York; by 2011, this had expanded to a total of 27, with new stores in Hawaii and Washington as well. The United States was seen by Jollibee as a lucrative market due to the growing Filipino community there, providing a sizable consumer base. Instead of seeing itself as a direct rival to McDonald’s and KFC, Jollibee wanted to break into the market as an “alternative.” Thus, Jollibee characterized its menu as American fast-food favorites with an Asia-Pacific flavor. Jollibee’s unique offerings to foreign consumers tended to be relatively sweeter and seasoned with more spices than traditional U.S. fast-food chain dishes. Jollibee’s success in the U.S. market could also be attributed to its wider variety of menu items. Apart from the usual fries and burgers, Jollibee’s fare included spaghetti, rice-based JolliMeals, and hot dog sandwiches.

Before the opening of the first outlet in Daly City, California, a city heavily populated by Filipino immigrants, Jollibee chose not to hire local specialists. Instead, the company sent a team to live in San Francisco for two years to study the market and its industry. This resulted ultimately in adaptations of Jollibee’s operations to complement the habits and lifestyle of Americans. The team found out that Americans’ main mode of transport was cars, and this resulted in Jollibee having more drive-through counters in the United States than in the Philippines.
China
Because the Philippines had been occupied by the United States in the early 20th century, Philippine firms are heavily influenced by Western ways of management. JFC is no exception, with its bottom-up approach—the same approach it uses in its management of Yonghe King.
Previous management of Yonghe King did not have departments performing business analysis, decision support, and performance management. After its acquisition of the noodle enterprise, JFC hired new local recruits to head the operations, marketing, network development, and R&D sections, which were previously understaffed or nonexistent. JFC hoped that with the recruitment of locals, it would gain a more intimate understanding of the Chinese consumer market, enabling it to establish Yonghe King’s foothold in China.
Over time, JFC realized that operations in China and Jollibee’s domestic market differed in terms of external issues such as legal matters and relations with franchisees. However, internal management of the staff, taste preferences of both consumer markets, and operational matters are similar in both countries.
Middle East
The Middle East is another market that Jollibee thrives in due to the large number of Filipinos working as domestic workers there. JFC successfully opened Chowking stores in Guam, Dubai, the United Arab Emirates (UAE), and Saudi Arabia.
The Chowking food chain in the UAE operates very differently from that in the Philippines. Catering to the Filipino group in the UAE who frequent the outlets for gatherings or celebrations of special occasions, a number of Chowking restaurants in the UAE have function rooms, unlike in the Philippines. Apart from the traditional Chowking offerings of rice and noodles, Chowking restaurants in the UAE also sell signature Filipino dishes such as kare-kare (beef stew with a peanut-based sauce). The Chowking menu in the UAE is slightly different from that in other countries, due to the perceived desire of Filipinos in the UAE to have a “taste of home.”
Brunei
The year 2008 marked the opening of the 10th and 11th branches of Jollibee in Brunei. Jollibee did not perceive Brunei’s small market size as a barrier to its expansion plans. Founder Tony Tan believed, instead, that efficient company operations and successful marketing strategies would overcome this limitation to growth. He also held that Jollibee fast-food chains possessed a competitive edge in terms of the company’s understanding of Asian taste preferences. Rice-based meals offered in Jollibee’s Brunei outlets feature foods aptly suited and familiar to the Asian consumer market, differentiating it from its Western counterparts. The products offered include chicken curry, nasi lemak (coconut-flavored rice), and burger steak with mushroom sauce, all of which cater to consumers in Brunei.
Vietnam
As the Pacific Rim’s fastest-growing economy after China, Vietnam was another market that Jollibee wanted to capture. With economic growth rates at an average of 6 percent and rapid development of the Western fast-food industry, Vietnam is a strategic source of growth in Jollibee’s foreign operations. Jollibee opened five stores in Vietnam in 2007 and expanded its outlets in the country to 31 in 2011.

LOOKING AHEAD
In 2011, Jollibee opened a total of 260 new stores—including 93 overseas—to bring its store network to 2,469 stores worldwide. JFC’s international expansion has proven successful so far. However, the company continues to face new challenges. Jollibee sales in the Philippines grew 17.8 percent, a slower rate of growth compared to overall growth of 19 percent abroad, led by its business in China and the Middle East. Rising costs of commodities have also cut into Jollibee’s profit margins. In 2008, the price of rice tripled due to increasing demand, poor harvests, and high fertilizer costs. The Philippines is the world’s largest importer of rice. Jollibee’s dominance in the Philippine market and its usage of rice as the key ingredient in its dishes means that the company would incur higher input costs and bear the risk of declining profits. The prices of beef, pork, chicken, and eggs have also been rising steadily since 2009, after a dip in prices due to the global recession that began in 2007, and net income stagnated at 3.2 billion pesos in 2011 due to rising commodity prices.
As such, Jollibee must find ways to offset this rising cost while maintaining its market share in local and international markets. Jollibee believes that one way would be to increase the sales contribution from over-seas operations. Jojo Gonzales, the managing director at Manila-based brokerage firm Philippine Equity Partners Inc., explained Jollibee’s proposed strategy: “This is why they are diversifying into other markets and starting new brands—they need to spread their risk.”
Jollibee was also looking into its third foray into the Indonesian market in 2011. Its first foray in the early 1990s did not prove successful due to the Asian economic crisis in 1997, and its second attempt in 2007 resulted in a collapse, leaving only two Chowking branches in Indonesia. Chief executive Tony Tan has expressed interest in reintroducing Jollibee to Indonesia within three to five years, despite there being no large Filipino communities in that country. He believes that by adjusting the menu to suit local tastes, Jollibee will be able to tap on the ripe opportunity that Indonesia—with its growing economy and large population—presents. Similarly, Jollibee has set its sight on India and hopes to make inroads with acquisitions of popular local food chains, similar to its expansion strategy in China. It will also be looking to bring its Mang Inasal, a popular Filipino restaurant chain, to Filipino expatriates in the United States and the Middle East.

Questions
• What needs and wants are fulfilled by Jollibee’s products and services? (10%)
• According to your knowledge and opinion, identify the macro-environmental factors (Political factor, economic factor, social factor and natural environment) affecting Jollibee as it pursues international expansion? (30%)
• What strategies and actions is Jollibee using in expanding the international markets? (30%)
• What marketing mix strategies (4Ps) is Jollibee using in the international markets? Do you think these are appropriate? Why or why not? (30%)


 

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