Quest for growth takes Jollibee Foods beyond Asia
Oct 26, 2015
Philippine fast-food company Jollibee Foods is looking to replicate its domestic success overseas. (Photo by Ken Kobayashi)
Touted as its biggest acquisition to date, Jollibee Foods announced on Oct. 13 it would buy 40% of U.S. fast casual restaurant chain Smashburger for nearly $100 million. Jollibee has the option of fully purchasing the burger joint from 2018 to 2026.
Investors cheered the news, with shares of Jollibee Foods rising 1% that day, shrugging off the nearly 2% slump in the benchmark Philippine Stock Exchange index. Jollibee Foods’ shares were down 3.4% this year, due largely to disappointing second-quarter results combined with overall market weakness on concerns of a possible U.S. rate hike and a slowdown in the Chinese economy, said Luis Limlingan, managing director at brokerage Regina Capital Development.
The fresh push for global expansion helped the company’s stock regain some of its momentum. Since going public in 1993, Jollibee has seen its share price rise by 21-fold from its initial public offering price of 9 pesos($0.19). Investor optimism over Jollibee’s future can be seen in its price-to-earnings ratio of 38.9 for 2015, more than twice the average for the overall Philippine stock market, which stands at 19.4.
Still, the deal did not come as a big surprise in Manila. In June last year, Chairman Tony Tan Caktiong said Jollibee had already achieved its goal of becoming Asia’s largest fast-food chain by market value and was now setting its sights on an American acquisition. At a forum last October, Chief Financial Officer Ysmael Baysa announced an even bigger target. Jollibee Foods, he said, aims to become one of the top 10 quick-service restaurant operators in the world. The list is currently dominated by Western companies like McDonald’s and KFC owner Yum! Brands, which dwarf the Philippine company in terms of sales and store count.
To achieve its ambition, Baysa said, Jollibee Foods will need to generate half of its sales abroad, up from 23% currently. Outside of the Philippines, China and the U.S. were identified as pillars of the company’s global growth.
Tan Caktiong, speaking to reporters after a shareholders meeting last June, said he had only one major condition for a U.S. acquisition: It had to be “a brand that is already doing well.”
Smashburger seems to fit the bill. The company, founded in Colorado in 2007, is reportedly in the black and now boasts 339 outlets, 184 of which are company-owned while 155 are franchised. It has a presence in 35 states and seven markets outside the U.S. Its systemwide sales expanded 30% while store count grew at a pace of 20% annually between 2011 and 2015.