Generating $192 million in revenue last year, China is Jollibee’s biggest overseas market, but it’s not yet profitable. “Overall, if you include the head-office expense, they are still not making money in China,” says Maybank Kim Eng’s Sarreal. “It’s a tough market, and they are putting in a lot of resources. They are facing competition from brands like KFC and McDonald’s, which are bigger in China. Although they are different in food concept because Jollibee’s concept is Chinese, they are still fast food. The challenge is to turn around the China operations. The Philippine business is doing very well, but because of the drag in China, if you look at the consolidated financial statements, it’s not very evident.”
Jollibee won’t say how much it loses in China, but it expects to break even in two years. It says its three chains there enjoy a strong cash flow but that the company is investing heavily to generate long-term growth. In 2011 it opened a food processing plant in Anhui Province and built a research and development center and corporate offices in Shanghai. “It is a matter of getting to a certain number of stores and continuously growing our same-store sales to achieve absolute profitability in China,” says Tan. “We now have nearly 400 stores. We estimate we need 500 to get to breakeven. We think we can get to that in 2014.”Jollibee is also entering Taiwan with an agreement to join with a subsidiary of the country’s largest restaurant-chain group, Wowprime. The partners will own the hot pot dining chain 12 Sabu, which has 18 restaurants in Taiwan and plans for more in China, Hong Kong and Macau; Jollibee is making an $8 million investment. And it broke into Vietnam, spending $25 million in January of last year to buy half of the SuperFoods Group, which operates Highlands Coffee Shops, Pho24 noodle houses and Hard Rock Cafes. That deal expands Jollibee’s business in Indonesia, where it had 2 Chow King outlets and now also has 13 Pho24s.
Tan says the company is ready to expand because it’s developed a management corps with the right experience in catering to local customs and preferences, but he’s aware of the challenges, such as maintaining consistency. “Food development is key, in terms of making sure that the hamburger here and there tastes the same regardless of whether ingredients might be different quality; beef might vary in taste or tomatoes in sweetness,” he says. “And as it’s a location-based business we need to know the community very well in order to understand traffic flow, where people stay.” Understanding that local consumers might have different tastes–Jollibee’s products are often saltier or sweeter –the company is open to adjusting recipes if needed. “Core products like chicken don’t need to be adjusted because, all over, they love chicken the same, but our spaghetti might be adjusted, as it’s supersweet,” he says. “For the Filipino market, we just have to do our job very well and it’s there. For the others you have to go beyond that. You have to build a brand because they don’t know anything about it.”
Tan takes a hands-on approach to product development. “If I taste a new product and like it, I will say, ‘Wow, this is good, we can do this,’” he says. “But [the] marketing [department] will want a product survey, which takes time. A lot of times I give in to them, but I try to balance the organization. Everyone can do market research. We also need gut-feel.”
Tan has been following his instincts since he stumbled into the food business while still in college at the University of Santo Tomas in Manila. He was earning a degree in chemical engineering. “I never thought I would be in the food business,” he says. “I liked numbers so I thought I would be an engineer.”
But as part of his course work he toured a Magnolia Ice Cream plant with one of his chemical engineering classmates, his soon-to-be wife, and learned of a franchise opportunity. Intrigued, he and Grace decided to open two ice cream shops shortly after graduation. When he noticed that customers were craving sandwiches and saw the growing popularity of hamburgers around the world, he decided to relaunch his business as a hamburger house.
Each had an entrepreneurial streak, so the switch from engineering to running restaurants wasn’t that far-fetched. Grace’s father was a businessman and helped them get started. And Tan’s father had started a small Chinese restaurant after leaving the Buddhist monastery and moving his family to Davao in the south; Tan worked there as a teenager after school. “It was nothing special for ambiance, but it became known for the tastiness of its food,” he recalls.
Today the eldest of his three children, Carl Brian , 32, is the company’s business development director and focuses on the 12 Sabu venture with Wowprime in Shanghai. Tan also has two daughters who live in California. “I’d like to [have them all work for the company], but we don’t force them. If they are interested we will ask them to try. If they like it, the better. If not, it’s okay.”
At work Tan believes in persuading people instead of ordering them, emphasizing coming to a consensus. He motivates people by delegating and maintaining a strong rewards system. “I learned to be kind to people, so I seldom scold a person in the organization, even in private,” he says. “I try to put myself in his shoes–try to imagine how he feels and respond from that point of view. I try to see if he did something wrong, is it intentional? Usually it’s not. You try to understand why so you can teach him.”
Gerry A. Refugio Jr., the store manager at the Hong Kong Jollibee, says the company’s culture is what has kept him with the company for more than 20 years. Of Tan he says: “He has that charisma to move his people, and the strategic capacity.”
To keep Jollibee growing, Tan is always on the lookout for new global trends, innovations and technology in the industry. He studies the design and product mix of other fast-food chains such as Wendy’s but looks beyond them. “We also look at airlines to see what they are doing on the service side, as we are also in the service industry,” he says. “And Disneyland–we learn how they keep their look. It’s more than 50 years old but if you go there it looks like it opened yesterday. And people are always courteous.”
Investors such as Lindsay Cooper, founding director of Arisaig Partners, a shareholder for ten years who now owns 3.5% of the company, cites Jollibee’s strengths. He sees a scalable, long-term growth story based on the rising consumption of fast food, strong brands that cater to local tastes, a dominant market position at home, strong cash flow and strong management. “Jollibee is clearly a thinking organization and continually evaluating the competitive landscape,” he says.
If Tan looks forward with a step-by-step sure-footedness, it’s perhaps because of his Buddhist background–not just the afternoons spent playing with monks in the monastery where his father worked but also the Buddhist grade schools he attended on scholarships. “I think our destiny is already defined, but you still have to do your best or else that might change,” he explains. “We do our best and let God just handle the rest.”
FACING OFF WITH MCDONALD’S
In 1981, just three years after starting Jollibee, Tony Tan Caktiong heard some terrible news: McDonald’s was about to enter the Philippine market. Tiny Jollibee would soon be in battle with a global giant, both selling hamburgers and soft drinks. “We had a meeting to strategize how we could compete,” says Tan. After a long trip to the U.S. to study how McDonald’s operated, top managers brainstormed over every attribute that helps decide where customers go to eat and measured how Jollibee compared on each one. “We found that they excelled over us in all aspects–except product taste,” he says. “It suited Americans but not really Filipinos. Our [food] tends to be sweeter, more spices, more salty. We were lucky as it was not easy for them to change their product because of their global image.”
But even “with better-tasting food, could we really compete?” wondered Tan. “If we want to compete we have to make sure we at least equal them in all the other attributes. It was a challenge because in advertising, promotion, store look, size, playgrounds, service speed, we ranked lower. We focused on the other attributes one by one.”
Sometime later “we did a customer survey, and we were surprised we ranked higher than McDonald’s on a lot of attributes,” continues Tan. “We were surprised customers ranked us higher in courtesy and service style. Maybe they felt we were warmer? And then they liked our marketing, promotion and advertising better. And then customers kept just coming back.”
Eventually McDonald’s–which added nearly 50 outlets last year in the Philippines and now has 375–introduced new products geared to Filipinos. (It declined to comment on Jollibee.) “They have a Burger McDo, where they tried to Filipinize the burger, and McSpaghetti, because Filipinos really love spaghetti,” says Tan.
