Jolli Bee Case study Essay

In 1975 Jollibee Food Corporation began as an ice cream parlor and was run by the Chinese-Filipino Tan family. After the oil crisis in 1977 Tony Tan Caktiong (TTC) expected the ice cream prices to soar. The consequence of this incident was, that the family diversified into a home-style Philippine hamburger, which was quickly desired by the customers. As a result of the big success the family opened five stores in Manila, where the family incorporated as Jollibee Foods Corporation. When McDonald’s entered the Philippine market in 1981 Jollibee had to face his first serious challenge. With already 11 in their back Jollibee was fearless and confident. Moreover Philippine customers preferred the spicy taste of their hamburgers. Nevertheless McDonald’s, who spent a lot of money in advertising, quickly exceeded Jollibee’s sales per store. The company was named after TTC’s vision where employees work efficiently and cheerfully, like bees. Through a well-developed operations management Jollibee was able to offer a consistent and efficient service and quality food. Consequently the family expanded rapidly throughout the Philippines financing all growth internally until 1993. At the end of 1993 the Jollibee Foods Corporation had a total of 124 stores with a total sales volume of 3.386 millions of pesos (see Exhibit 1). Year Total Sales (millions of pesos) Total Stores at the End of the Year Company-Owned Stores Franchises 1975 NA 2 2 0 1980 NA 7 4 3 1985 174 28 10 18 1990 1,229 65 12 54 1991 1,744 99 21 80 1992 2,644 112 25 89 1993 3,386 124 30 96 1994 4,044 148 44 106 1995 5,118 166 55 113 1996 6,588 205 84 124 1997 (projected) 7,778 223 96 134 NA = not available Exzhibit : Jollibee Philippines Growth 1975 – 1997 (Bartlett and Beamish, 2011, p. 35). Although Jollibee went public in 1993 the Tan family retained the majority ownership and kept on controlling Jollibee. BACKGROUND After the big success against McDonald’s people started approaching TTC for franchise rights. That’s why Jollibee slowly began to enter the foreign markets with investments in Singapore. With the help of friends Jollibee started a partnership with a local manager and five Philippine-Chinese investors. Soon the relationship between Jollibee and the local manager started to worsen. Therefore the franchise agreement was revoked and shut  down in 1986. Jollibee kept on moving offshore and started joint ventures in Taiwan and Brunei as well as an own store in Indonesia in the late 1980s. Because of several mistakes Jollibee was unsuccessful in every market besides Brunei. Nevertheless Jollibee decided to continue entering foreign countries. For that reason in 1994 an International Division was created with Tony Kitchner selected as Vice-president. He started expanding quickly while he was differentiating the International Division from the Philippine part. Moreover Kitchner tried to create a more formal culture for the division with a strategy, which had two main themes – â€Å"targeting expats† and â€Å"planting the flag†. Soon he remarked that the Middle East, Hong Kong, Guam and other Asian Territories would provide a good market for Jollibee since many Filipinos live there. The other strategy said, that a company always has a first mover advantage. So Jollibee started to plant the flag in countries where there was no or little competition. Jollibee expanded quickly – by 1997 Jollibee had 223 stores (see Exhibit 1). But this rapid growth also had the consequences that there was not enough advertising budget. With the growth of the international business the relation between the International Division and the Philippine organization started to struggle. That’s why in 1996 TTC realized that the Kitchner’s strategy was costing heavily and decided not to keep on supporting Kitchner. Because of that Kitchner left Jollibee in 1997 while TTC shrank the International Division’s staff from 32 to 14 (Bartlett and Beamish, 2011, p. 48). INTERNAL ANALYSIS 1 Current Situation Today Jollibee is the largest fast food chain in the Philippines, operating more than 750 stores (Jollibee, 2013). It is mainly operating on its domestic home-market where it is a dominant market leader. Moreover the company currently has more than 80 stores outside the Philippines – USA (26), Vietnam (32), Brunei (11), Jeddah (7), Qatar, Hong Kong, and Kuwait (1 each). Jollibee obviously want to grow fast and become international. For further investments Jollibee has to find out what went wrong during their first years, where foreign markets couldn’t be reached successful. Additionally Jollibee has to question if Jollibee still can be mainly family-run as their company grows very fast. 2 Strength Financial situation and leadership in local market: As already mentioned, Jollibee is the biggest fast food chain in the Philippines and owns the leadership in their local market. With over 750 stores worldwide Jollibee has strong financial resources with an operating margin of approximately 7% (net income). Although competitors like McDonald’s have two-digit margins (Google finance – McDonald’s Corporation, 2013) Jollibee shows a static growth. Their net income nearly tripled between 1992 and 1996. Moreover Jollibee Foods Corp. joined the ranks of Forbes Magazine’s top 50 Asian companies this year based on financial track records (GMANETWORK, 2013). Furthermore Jollibee’s assets seem to be bound long-term in property and inventory. Operations management capability Jollibee is a family-run business. Although there was an IPO in 1993 the Tan family still controls the business. Nevertheless they hired external managers in areas where they weren’t familiar with and local knowledge was needed, e.g. the international business. Another aspect is, that the share of own stores is relatively high – with about 40% while competitors like McDonald’s only own 20% of their stores (McDonald’s, 2013). Normally own stores demand a much higher investment than franchise stores while having a much higher financial risk of failure. Besides that the company is capable of serving good, fresh and healthy food for low prices. Key to this affordable price is a well-developed operations management. Diversity in product offering Another huge strength of Jollibee Foods Corp. is its diversity in products which is bigger than most of their competitors. Moreover, the acquisition of Greenwich Pizza and the joint venture with Deli France even increased their product margin. Company philosophy The next big strength of Jollibee Foods Corp. is their company philosophy, which was set after TTC’s vision. The so-called â€Å"Five F’s† contain â€Å"flavorful food†, â€Å"friendliness†, â€Å"fun† â€Å"family† and â€Å"flexibility†. Flavorful food: As already mentioned, Jollibee places special emphasis on good, healthy and flavorful food. The other four F’s aim to give the customer a nice stay and a nice atmosphere with their family where they can join their meal. 3 4 Weaknesses Expansion of business in international markets As already mentioned the first moves to foreign markets failed. Due to several mistakes Jollibee had to close their stores after a couple of years. The management made huge errors when they cooperated with local manager, which didn’t follow the company’s philosophy. Jollibee should have controlled the manager from the beginning and maybe they had to show them their operational management skills to fulfill their requirements, e.g. with a training or instruction. Additionally the communication within the organization has to approve so that problems between the two divisions can be minimized. Dependence on Filipinos Another weakness of Jollibee is their dependence on Filipinos. Instead of addressing to people from all walks they try to force themselves to just serve Filipinos. With a well managed marketing addressed to other citizens the demand after Jollibee products could increase and maybe lead to a expansion towards Europe. Moreover they could start promotional campaigns where Jollibee is presented as a global brand. Bias towards friends Jollibee Foods Corp. has a strong bias towards friend and relatives while selecting local franchise partners. This often led to problems. They should select their partners after their attitude to work and capability instead of friendship. EXTERNAL ANALYSIS 5 Opportunities Widen product range As previously mentioned the product range and taste of Jollibee differs from  competitors like Burger King and McDonald’s due to its Philippine origin. This is not only a chance, but also a risk at the same time. The special taste gives Jollibee the chance, that customers prefer their food. Also Jollibee should show that they only serve quality food while the price is still affordable. With a well-planned marketing campaign they could reach a competitive advantage. Otherwise Jollibee runs danger to lose the competition because of the far bigger marketing budgets and brand recognition of the established burger chains, as they face this problem in Hong Kong and California. Furthermore they could widen their product range to address people from other countries. Another option would be to include more local food items to target more mainstream American people. But as Tony Kitchner already failed with the â€Å"Jollimeal†, which is modifier for each country this has to be planned exactly. If something like that will be used again, a better communication to the customers is necessary. Untapped locations Location management is a key to success in the fast-food industry, as the number of customers increase with a well-located restaurant. That’s why another opportunity is, that the â€Å"plant the flag† strategy should be reused, but in a slightly smaller scale. Jollibee should watch out for untapped locations with fewer or negligible competition to save the first mover’s advantage or just to acquire new customers. Another option is to hire local people to get local knowledge. But in order to stay successful in foreign countries, Jollibee has to at least run 60 restaurants with a turnover of minimum 800.000 US-Dollars each. 6 7 Threats Competition One of the biggest threats and problems of Jollibee Foods Corp. is the huge amount of competitors. Moreover, these competitors, e.g. Burger King or McDonald’s, have a established brand and are well known Other At last there are several other little threats that could get problematic for Jollibee. Since the downturn in economy many people have to eat at home, because they cannot afford the costs of going out with the whole family. Another aspects are the rising operational costs, e.g. power or labor. With static increasing operational costs the profit decreased so that Jollibee will be forced to raise the food prices. Since people try to live healthier their dining habits could change, so that people could prefer dining than fast food. RECOMMENDATIONS This analysis makes one thing clear: Opening over 150 stores within 10 years is beyond the organizational and financial capabilities of Jollibee. It should grow slower and concentrate on every store opening so that it is able to generate income very quick and be able to pay back debts. Another big question is, if Jollibee is able to address to non-Philippine expats without or with less modifications. The suggestions for this three selected markets are as following: Hong Kong and the United States (California) both are huge but highly competed markets. The advantage of California is that there is a big community of immigrants as well as a big community of Philippine expats, who are the main group addressed by Jollibee. Moreover the Americans like fast food and probably like the regular Jollibee menu. However the Chinese market needs high entry costs since the demanded modifications are very high, although the customer acceptance is not guaranteed. As mentioned before, Jollibee should concentrate on few stores. That’s why it would not make any sense to enter both markets, as the financial situation is too bad. Because of a wider range of communities as well as fewer modification costs, Jollibee should try to compete on the U.S. market. Though the market in Papua New Guinea may be entered on a basis as a test, since there are only few fast food companies to compete with. Additionally, the entry costs are low. Although it is not guaranteed that the fast food will be accepted on this virgin market, the risk for a fast expansion is too high. As Bartlett and Beamish state, the so-called â€Å"Global mentality† is a key factor for the fast food industry to get successful (Bartlett and Beamish, 2011, p. 12). REFERENCES Bartlett, Christpher A., Beamish, Paul W. Transnational Management – Text, Cases, and Readings in Cross-Border Management. 6th ed. New York: McGraw-Hill Irwin, 2011. Print. McDonald’s. Our company. Retrieved September 14th, 2013, from: http://www.aboutmcdonalds.com/mcd/our_company.html Google Finance – McDonald’s Corportion (2013, September 13). Retrieved September 14th, 2013, from: http://www.google.com/finance?cid=22568 Jollibee – About us. Retrieved September 14th From: http://www.jollibee.com.ph/about-us GMANETWORK – Jollibee, Ayala Corp., Alliance Global among Forbes’ ‘Fab 50’ Asian firms . Retrieved September 14th From: http://www.gmanetwork.com/news/story/324133/economy/companies/jollibee-ayala-corp-alliance-global-among-forbes-fab-50-asian-firms