Jollibee v.

McDonald’s in the Philippines

Charles A. Rarick, Ph.D.
Gideon Falk, Ph.D.
Casimir Barczyk, Ph.D.
School of Management

CASE SYNOPSIS

The Pilipino Company, Jollibee, is imitating McDonald’s in some ways but has
its own twist on offering unique products that emphasize local spices and local taste
preferences. This fast growing restaurant chain has benefited from the increased demand
for fast food in East Asia and has developed a unique business strategy. This case
examines Jollibee’s success and how the company is successfully competing with
McDonald’s. With its rapid growth, the company is now ready to expand to the rest of
the world.

INTRODUCTION

Jollibee Foods Corporation, known distinctively by its red and yellow bumble bee
mascot, operates a number of concept restaurants in the Philippines and beyond. From its
core business, a McDonald's-like restaurant, Jollibee has expanded into a pizza chain, fast
food Chinese restaurants, bakeries, breakfast bars, and a tea house. The company
competes well with multinationals in the Philippines, and has begun a large expansion
into the international market, including China and the United States. Jollibee, the original
flagship brand, together with its additional product concepts, dreams of becoming a
global powerhouse in the restaurant industry.
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THE PHILIPPINES

The Republic of the Philippines is a country in Southeast Asia consisting of over

7,000 islands. The Philippines was “discovered” by Ferdinand Magellan in 1521, who
claimed the islands for Spain. While Magellan met his death soon after arriving in the
Philippines, the country was under Spanish control for a few hundred years. The
Philippines came under the rule of the United States in 1898 when Admiral Dewey
defeated the Spanish and Spain ceded the islands under the Treaty of Paris. While
Tagalog, or Filipino, is the official language of the Philippines, English is widely spoken,
especially among educated Filipinos. In 1935 the US government decided that the
Philippines should become a self-governing commonwealth and the country gained
complete independence in 1946. After a number of different political administrations,
strongman Ferdinand Marcos ruled the country from 1965 to 1986, maintaining close ties
with the United States. With increasing discontent among Filipinos over its government,
the country organized a “people's revolution” in 1986, and Marcos was forced to leave
the country. Political instability ensued for a short time, but democracy quickly took a
firm hold in the Philippines. The newly-formed democracy could be described as
somewhat fragile, having been forced to endure the stresses of political corruption and
attempted coups.

The population of the Philippines is approximately 98 million, with an estimated

population growth rate of slightly less than 2% per year. The Filipino people are a rich
cultural blend with ancestral heritage that can be traced to populations from Malaysia,
Indonesia, Spain, and China. The ethnic Chinese have been very influential in the
Filipino economy. Filipino culture is rooted in Asian, Spanish, and American values.

Total GDP for the Philippines in 2009 was $174.3 billion, with a growth rate of
0.9%, as compared with the U.S. GDP growth rate of -2.4% for the same period. Per
capita GDP is $1,779. The currency of the Philippines is the peso (PHP), trading at 43.9
PHP in December 2010 and ranging between 40 and 53 PHP per U.S. dollar over the past
five years.

HISTORY AND MISSION OF JOLLIBEE

What would eventually become Jollibee Foods was once an ice cream parlor
named Magnolia, started by Tony Tan in 1975 as a family-based business in the
Philippines. Over time the company began offering hot meals and sandwiches. From this
humble operation the concept of a fast food hamburger business was developed and
Jollibee has expanded in terms of revenue and concentric diversification. In 1978 the
company began a bakery and by 1986 it was operating its first international eatery in
Taiwan. With the acquisition and development of additional restaurant concepts, Jollibee
catapulted itself into an array of food service businesses including pizzerias, breakfast
cafes, Chinese fast food chains, and a teahouse. Much of this diversification has come in
recent years. While mostly known for its Jollibee hamburger franchise, the company has
ventured into many additional fast food areas, significantly expanding its number of
outlets and geographical coverage.
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The mission of Jollibee Foods is simple: To serve great tasting food, bringing the
joy of eating to everyone. Jollibee has a vision statement that expresses not only its
values, but also its aspirations.

VISION

We are the best QSR...

The most endearing brand ...
that has ever been ...
We will lead in product taste at all times ...
We will provide FSC excellence
in every encounter
Happiness in every moment ...
By year 2020, with over 4,000 stores worldwide,
Jollibee is truly a GLOBAL BRAND

Jollibee makes itself well-known in the Philippines through extensive advertising, hiring
of celebrity endorsers with wholesome images, and engagement in charitable works.

STRATEGIC BUSINESS UNITS AND EXPANSION

Jollibee Foods Corporation (JFC) consists of a number of SBUs that cut across
different food groups. Its system-wide retail sales for 2010 were 70.3 billion PHP ($1.6
billion USD), representing a 10.2% increase over 2009. Net income was 3.1 billion PHP
($70.6 million USD), which grew by 16.3% over 2009 income.

At the core of JFC is Jollibee, the McDonald's-like hamburger restaurant. The unit
sells a standard fare of lunch and breakfast items, but adds a local touch with products
such as the Amazing Aloha Burger (slice of pineapple on top of a burger), the Jolly
Hotdog Taco Style, Chickjoy with Rice, and Palabok (noodles with a spicy sauce, boiled
egg, shrimp, and ground pork). Jollibee competes with McDonald's on the basis of price,
local product offerings, and national identity. JFC also owns Chow King, a Chinese fast
food restaurant chain with operations in a number of countries. The firm has a pizza
restaurant chain called Greenwich. In addition, JFC owns a bakery chain called Red
Ribbon, and a breakfast cafe called Delifrance.

JFC is looking international to increase sales and recently acquired Yonghe King,
a "contemporary Chinese fast food" restaurant chain in China. Also in China, JFC has
established its first teahouse, called Chun Shui Tang, to serve upscale Chinese
consumers. JFC operates restaurants in the Philippines, China, Brunei, Vietnam, Saipan,
Indonesia, Dubai, and the United States. The units in the U.S. are located in areas with
large Filipino-American populations. JFC feels that international expansion is important
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not only to grow the company, but because it believes that “Being open to different
cultures widens one's spectrum of tastes, style, and ways of seeing food." JFC feels that
international expansion provides for organizational learning, and the leveraging of this
learning into new markets. JFC is always searching for new product concepts, including
its new pilot store called Tio Pepe Karinderia. This new restaurant concept serves very
low-priced typical Filipino dishes, and seeks to compete with street vendors by offering a
more hygienic and cost-efficient operation.

LOOKING AHEAD

As Jollibee looks to the future it seeks greater expansion opportunities. The

company plans on opening more stores, and in more markets, including the Indian
market. Jollibee has experienced great success in its relatively short history, but it now
faces a number of challenges. Rising food and fuel costs are putting pressure on the
company to raise prices. Consumer spending in the Philippines is starting to weaken,
especially among lower income consumers as their disposable income has declined. In
addition, the flagship brand is coming under attack from McDonald's as it continues to
open more new stores in the Philippines. According to Tony Lopez of the Manila Times,
McDonald's beats Jollibee in revenue per store, and has been gaining ground through
better customer service, better kid's meals, and better cost and supply chain management.
Undeterred by these developments, Jollibee looks ahead with the pioneering spirit that
enabled Tony Tan to establish the first ice cream shop in 1975.

DISCUSSION QUESTIONS

1. What advantages does a domestic firm have over a MNC in its local market?
2. Can Jollibee Foods Corporation continue to successfully leverage its brands and
products in other geographic markets, including the United States? Explain.
3. In what way should Jollibee expand? Which countries are likely to be profitable
markets?
4. What strategic direction would you suggest for Jollibee Foods Corporation?
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APPENDIX

SELECT DATA FOR JOLLIBEE FOODS CORPORATION

2009 2008 2007

Gross Revenue 47,957,693 43,891,559 38,693,662

Net Income 2,666,900 2,321,817 2,388,358
Return on Equity 16.4% 16.4% 18.9%

(Above amounts are in PHP 000, except for return on equity)

Number of Stores

Jollibee 743 700 652

Chow King 431 418 402
Greenwich 226 231 245
Red Ribbon 242 239 212
Yonghe King 160 141 99
Delifrance 24 26 26
Chun Shui Tang 0 2 1
Manong Pepe’s 15 8 2
Hong Zhuang Yuan 41 38 0
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REFERENCES

Chae, S. Jollibee serves up fast food, Filipino-style: Chicken, rice noodles a nice change.
Tribune Business News, November 8, 2007.

Cuevas-Miel, L. Fast-food giant plans new round of price hikes. Tribune Business News,
May 15, 2008.

Jollibee Foods Corporation Annual Report 2009.

Lopez, T. McDo vs. Jollibee. The Manila Times, August 14, 2007.

Rubio, R. Jollibee ventures into karinderia concept. BusinessWorld, July 25, 2007.

http://finance.yahoo.com/currency/convert?from=USD&to=PHP&amt=1&t=5y.
Accessed on December 10, 2010.

http://www.jollibee.com.ph. Accessed on February 22, 2011.

http://www.state.gov. Country Background Notes: Philippines. Accessed on February 25,

2011.
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INSTRUCTORS’ NOTES

Teaching Approach and Strategy

The Jollibee case can be used in a variety of ways. It is appropriate for general
class discussion, group project assignments, or as individual homework. The case is
believed to be most useful when students have the opportunity to develop their analysis in
small groups and then discuss their findings in an open forum. The case presents
questions that are best explored through interaction with students having differing
perspectives. A discussion of how international expansion facilitates organizational
learning, for example, can lead to a rich exchange of ideas.

Since Jollibee Foods Corporation is evolving rapidly in a period of economic

turbulence, it might be instructive to have students explore how the company is changing
since the case was written. An investigation of changes could provide an opportunity for
additional discussion and learning.

Background

Tony Tan Caktiong is a man with a very ambitious vision. The Filipino
entrepreneur who founded Jollibee in 1975 and then expanded into other franchises wants
to change the way the fast food business is conducted in East Asia and beyond. He wants
to develop a business model to satisfy the needs of his working customers. By 2009 he
successfully operated eight restaurant chains consisting of 1,882 stores (See Table 1). In
2010, he added a new chain and increased the total number of stores to 1,903.
Mr.Caktiong has been very successful and he plans to further expand his fast-food
empire.
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Table 1. Number of Stores by Chair, 2007-2009

Number of Stores

Year

Change
2007 2008 2009 2008-2009

Jollibee 652 700 743 +43

Chow King 402 418 431 +13
Greenwich 245 231 226 - 5
Red Ribbon 212 239 242 + 3
Yonghe King 99 141 160 +19
Delifrance 26 26 24 - 2
Chun Shui Tang 1 2 0 - 2
Monong Pepe’s 2 9 15 + 6
Hong Zhuan Yuan - 38 41 + 3

Total 1,639 1,804 1,882 78

Source: Jollibee Annual Report, 2009, page 34.

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Table 2. Consolidated Revenue and Income for Jollibee in PHP, 2007 – 2009

Year

2007 2008 2009

Consolidated system-wide sales 51,550,858 58,162,821 63,729,418

Gross revenues 38,693,662 43,891,559 47,957,693
Net Income 2,388,358 2,321,817 2,664,623
Net Income attributable to parent 2,386,722 2,319,088 2,664,623
Payroll and benefits 6,308,609 7,049,833 8,170,786
Personnel 32,918 39,599 38,932

At year-end

Total assets 21,945,002 27,125,701 29,727,493

Total property, plant and equipment 7,491.045 8,274,919 8,350,573
Total equity 23,648,337 14,139,831 16,285,206
Current ratio 1.38 1.43 1.45
Debt-to-equity ratio 0.42 0.48 0.45

Per share data

Basic earnings per share 2.36 2.27 2.61

Diluted earnings per share 2.34 2.25 2.58
Cash dividend 0.80 0.84 0.85
Book value 12.43 13.81 15.73

Share information

Outstanding shares - net of treasury shares * 1,017 1,023 1,035

* Expressed in millions

Source: Jollibee Annual Report, 2009, page 34.

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Analysis

Possible answers to the discussion questions can be found below. While these are
the recommendations of the case writers, they are not intended to be the definitive
answers to the questions.

1. What advantages does a domestic firm have over a MNC in its local market?

The main advantage a domestic firm would have over a large multinational
corporation like McDonald’s or Dunkin Donuts is that it is more familiar with the
domestic market and its culture. It can easily develop and offer products to match
cultural traditions and domestic taste perceptions. Furthermore, the name of the stores or
chain would match the language and mirror the local culture. Specifically, the arguments
are the following:

a. In this case three of the chains, Yonghe King, Chun Shui Tang, and Manong
Pepe’s are the names of stores that fit local culture and language.

b. The products offered by the domestic firm would specifically meet the taste
preferences of the local populations.

c. The spices used in the preparation of the products would be the preference of
domestic consumers.

d. The structure housing the restaurant, as well as the colors and ambiance of its
interior, are consistent with the culture of the target market.

e. Because of their networks and local connections, it is easier for a domestic

company, as compared to a multi-national firm, to provide value packages that are
consistent with local consumers’ expectations.

2. Can Jollibee Foods Corporation continue to successfully leverage its brands

and products in other geographic markets, including the United States and
how? Explain.

Yes, Jollibee Foods Corporation can continue to successfully leverage its brands
and products in other geographical markets. The following strategies are suggested as a
way to achieve this end.

a. It should focus on geographical market taste preferences and try to develop

products that respond to those preferences.

b. It should respond to customer preferences in terms of infrastructure, color, and

ambiance appreciated by the local populations when designing restaurants.
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c. It should invest significantly in advertising its products to increase consumer

awareness and ultimately impact on revenues.

d. It should develop and maintain a focus on product and service quality.

e. The products should be designed in ways that add more value and help increase
customer satisfaction.

3. In what way should Jollibee expand? Which countries are likely to be good
markets?

a. Jollibee should add a second or third restaurant chain in the countries where they
currently operate.

b. India would be a good and very large target market for Jollibee. However, India is
not homogeneous in terms of its population, taste preferences, and spice usage.
The country’s GDP is growing at an average rate of 8%. A key difficulty for
foreign investors is the legal limitation which maximizes ownership of companies
in India to 49%.

c. The United States would be another good market for Jollibee. One segment would
be Filipino immigrants living in the U.S. Some of them may be familiar with
Jollibee and its chains. Most may have preferences for Filipino foods and spices.
If the company can identify cities and regions with high concentrations of
Filipinos, these would be good potential markets. The two main advantages of the
U.S. market are its large size and minimally restrictive entry requirements for
potential businesses. A key disadvantage is the large degree of competition.

d. Myanmar is still another market for Jollibee. This South Asian country is one
whose citizens may like Jollibee products, their spices, and method of food
preparation. One main concern for investors and owners might be the legal
requirements imposed by the military government.

4. What strategic direction would you suggest for Jollibee Foods Corporation?

A proposed strategic direction for Jollibee Foods Corporation might consist of the
following:

a. It should strengthen its existing brands in the countries in which it currently

operates.

b. Gradually, it should expand into other geographic areas. In these new areas it may
add new products that match the taste preferences of the local culture. See
question 2 for additional insights to this strategy.
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c. Lastly, Jollibee should focus on the products that provide the most consumer
satisfaction and add value to them. This approach is advocated because the
quality literature consistently maintains that the cost of retaining existing
customers is significantly lower than the cost of generating new ones.