International expansion case of Jollibee

In 1975, Tony Tan Caktiong, a Filipino of Chinese ancestry, and his brothers opened two ice cream
parlors in Manila. Food loving Filipino’s gave overwhelming response to icecream. In no time, the
Tan brothers had decided to expand their menu and began offering other quick meals such as hot
sandwiches, spaghetti and burgers. After its second year of operations, Tony Tan and his brothers
formed s Jollibee Food Corporation (JFC) in 1978 to exploit the possibilities of a hamburger concept
more fully. By that time, the firm had seven outlets.

When McDonald’s entered the Philippine market in 1981 and began opening stores in Manila, some
industry observers questioned whether the little 11-store local chain could survive. However,
Jollibee’s management team decided to see this as an opportunity that would allow them to
benchmark the American giant’s operations and then bring their own chain up to world-class
standards. In particular, they focused on learning about the sophisticated operating systems that
enabled McDonald’s to control its quality, costs, and service at the store level — an area of weakness
in the local firm that had constrained further expansion. As Tony Tan gained a better understanding
of McDonald’s business model, he recognized not only strengths but also specific areas of weakness
in the latter’s strategy, reflecting its standardized product line and a US-dominated decision
processes. Jollibee’s strategy of Five Fs (flavorful food, fun atmosphere, flexibility, flexibility,
affordability) Early year, compete with McDonald’s in domestic market: focus on larger size and
taste loyalty

By 1989, Jollibee had become the first Philippine fast food chain to break the one billion peso sales
mark. In 1994, it purchased Greenwich Pizza, the Philippines’ leading pizza and pasta chain. The
following year, seeking to cater to the changing taste preferences of the Filipinos, JFC acquired the
right to operate the Philippine’s franchise of Délifrance, an international chain of French bakery-
cafés headquartered in France.

Jollibee’s first international foray was Singapore through a franchisee, but distrust and
mismanagement led to closure of this operation. The next international foray was to Taiwan through
a 50/50 joint venture. Though intial sales were good, conflicts over day to day management with the
partner soon led to dissolution of this venture too.
The next entry was Indonesia, through a family friend of the owners. Competition was immense
from street food and cheap local fast food chains, but soon the operation stabilized and the company
was hopeful of success.

The key lessons were, since they were not big like McDonald’s, they did not get the best partners,
also location was the key to success. As an unknown brand in foreign markets, you don’t get the
prime locations. The company then decided to separate the international division from the domestic
operations and hired an Australian to head the division. The thrust was markets with large Filipino
populations such as Middle East nut it soon found that poorer workers had restricted freedoms of
movements and at the upper end, rich Filipino’s preferred hotels. The other approach was to gain
first mover advantages in new markets that did not have established chains, so they could decline the
taste and build brand recognition- “planting the Jollibee’s food flag. The new store typically recruited
a local project manager who would build the store as per requirements of JFCs and recruited a crew
who were trend at Philippines. Strong to the franchisee was done for first two months of launch with
daily sales figure providing inputs on customer preferences and menu choices. Mystery shoppers
were sent every quarter to control quality. Overtime, control was shifted to the local franchisee.

However, JFC found that planting the flag was far from easy- consumer tastes differed, cheap
alternatives were available and willingness to pay for fast food was often lower than in the
Philippines. They needed to reposition themselves for a more upmarket clientele. They decided to
incorporate menus like salads in Dubai or dried fish in Malaysia. Menu diversity always came at the
cost of operating efficiency besides causing huge tension with the local Filipino operations.

In 1998, the firm entered one of the most demanding fast-food markets in the world, the US, which
had at the time an estimated two million Filipino immigrants. But aside from Jollibee’s popularity
among Filipinos, the brand also sought to appeal to other ethnic groups in its US outlets. Other
immigrants from Asia came with their families in tow to eat at Jollibee’s. The company was confident
of replacing labour intensive operations with other equipment in keeping with high labour costs in
USA.

In 2000, JFC bought Chowking Foods Corporation, the Philippines’ top chain serving. Chinese fast-
food. Jollibee’s menu was not tailored to local tastes despite repeated requests from the franchisee
and Chinese managers considered Filipino discipline as lax, and their style of arrogant while Filipino
considered Chinese as uncommitted. Eventually, all Chinese managers resigned.

JFC had identified several markets in Asia for its expansion activities. In 2004, the company was
looking at the possibility of expanding its three-store network in Vietnam. Plans for introducing the
Chowking brand in Indonesia were also underway, based on the growing market for Chinese food in
that nation. In March 2004, the company signed an agreement to purchase 85% ownership in the
Shanghai-based Yonghe King chain, which offered Chinese style fast-food in 10 cities.

The company’s international expansion strategy focused on markets where management believed it
“could successfully develop the Jollibee brand and put up the supply chain to support the critical
mass of stores in these selected markets.” In the US, the first state targeted was California, with plans
to expand into Nevada, Hawaii, and New York in future years. By adopting a franchise mode in the
US, JFC was able to draw on local capital and entrepreneurial drive. In 2001, the firm purchased a
majority interest in Tokyo Teriyaki House, a Japanese restaurant in California, with the objective of
expanding into the Japanese QSR segment and developing it into another major chain; it renamed the
restaurant Tomi’sTeriyaki House.

In 2004 JFC had opened 21 new stores but closed down 13, of which seven were in foreign
operations. It closed all three Chowking stores in Dubai, one Jollibee store in the US, and shuttered
its three-store Tomi’s Teriyaki operation in the US.