Jollibee Foods Corporation

6/18/09

1.

From the brief description in the case, ascertain the underlying structure and economics of the fast food industry.

The fast food business is like any other industry; to make money one has to be efficient, flexible, and serviceable. Most importantly, it helps to have brand recognition. When customers enter a Jollibee, McDonald's, or Burger King, they do not want to wait long for their food. The time from when they get in line until they get their food has to be minimized. I know from my own experience that if I wait more than five minutes I am dissatisfied. To help reduce time, kitchens in fast food restaurants must have a good flow. The grill cannot be too far from the counter. The burgers have to come off the grill and be able to get to the counter very quickly. If the grill is in the back and the counter in the front, the time it takes to move the food will increase. People who frequent fast food establishments are often pressed for time, so every second counts. Also, people want the food tailored to their own specific tastes. Some people may demand a sandwich without mayonnaise. If this request cannot be completed, then customers will go elsewhere. Jollibee's often tried to tailor their menus to meet the needs of the consumers. In Muslim countries, they eliminated all pork from their food and menu. Similarly, customers may ask for changes at the counter. A person may ask for a Big Mac without the special sauce. If a person requests no sauce, he wants his order to be handled accurately and timely. If he receives a sandwich with sauce, he will have to go back to the counter and wait for a new sandwich. This will waste his time and give him a bad sense of

customer service. Another important key to success is name recognition and first entry into the market. Jollibee's often found it very difficult to enter a market where McDonald's already existed. McDonald's was able to set a standard that customers were familiar with. Also, people were familiar with McDonald's. Their stores are located all over the world and their profits allow them to have a lavish advertising budget. McDonald's is a sponsor of the Olympics, which is seen all over the world, while Jollibee's is not. This brand recognition allowed McDonald's to successfully enter markets where Jollibee's already existed. In the early 1980's, McDonald's was able to quickly enter the Philippine market, have per store sales surpass Jollibee's, and grab a 27% share of the fast food market. McDonald's was able to do this even though the Philippine people preferred the taste Jollibee's hamburgers by a wide margin. This success can be traced back to McDonald's brand recognition.

2.

On the basis of this understanding from 1 above, how was Jollibee able to build its dominant position in fast food in the Philippines? What sources of competitive advantage was it able to develop against McDonalds in its home market?

Jollibee initially built up its dominant position on a platform of Five F's: flavor, fun, flexibility, family atmosphere, and friendliness. This philosophy fit with the habits of Filipino customers and enabled the firm's success and expansion in Manila. Flavor was an essential element of this, since Filipino customers preferred the taste of Jollibee's spicy hamburgers. These hamburgers had been developed from a home-style recipe from Tony Tan's father, while McDonald's hamburgers came from a global recipe that did not appeal to local tastes in the same manner. In addition, Jollibee's dominant position stemmed from a unique political situation, in which a

political opposition leader was assassinated in 1983. Following this event, McDonalds slowed its investment in the Philippines, and Jollibee was able to build a base and compete without much pressure. The subsequent growth in nationalism and local pride further helped secure Jollibee's local success against McDonalds.

3.

How would you evaluate Tony Kitchners effectiveness as the first head of Jollibees international division? Does his broad strategic thrust make sense? How effectively did he develop the organization to implement his priorities?
Tony Kitchner came to Jollibee in January 1994 and was a great success over

his three years. During his time, there was great expansion and increase in wealth. He used a plant the flag strategy to expand Jollibee overseas. Kitchner built stores in countries that had little or no fast food presence. Also, he felt that by expanding he could build brand recognition, which would increase sales. He turned out to be right. According to the case the total number of stores increased 65% to 205 from the end of 1993 to the end of 1996. Also total sales increased over 94.5% over the same period. Furthermore, total assets increased over 230% in the same period. Also, operating income increased about 114% while net income increased over 100% during the same period. These increases are dramatic and significant. Very few companies can experience rapid growth like this. It is very rare. Because Kitchner came in the beginning of 1994 and stayed until the beginning of 1997 I

used the statistics at the end of 1993 and 1996 to calculate returns during his tenure. Kitchner also made in-house changes to help implement a more successful business. One of his first moves was to implement a dress code. He required all employees to wear ties because according to one employee, "We had to look and act multinational, not like a local chain. You can't have someone in a short-sleeved open-neck shirt asking a wealthy businessman to invest millions". Kitchner gave the International side of Jollibee a more professional persona. He increased his staff by hiring mangers of marketing, finance, and quality control and product development. He prepared the company for great expansion. Kitchner also understood the need to customize local stores. His team created the Jollimeal, a rice-based meal with a topping that varied according to country. Also, to ensure good quality and atmosphere he created the FSM who visited three times per quarter to give one thorough check and two quick checks. This ensured that each store was run as best it could.

4.

As Noli Tingzon, how would you deal with the three options described at the end of the case? How would you implement your decision?
The new international general manager was given three countries of options

on expanding Jollibee Franchising. First was Papua New Guinea, second was Hong Kong, and the third was California. The best option for Tingzon to take would be having a franchise in California rather than the first two options. California offers better market conditions for JFC as opposed to PNG and HK. First, Daly City has little foreign fast food chain competitors offering the company a sure end-market base opportunity for the

company to grab and in following the first in flag way of business. Moreover, California is known to be a second home for Filipinos in the US and actually accounts for the highest volume of Filipino immigrants in the world at over a million, of which most are professionals. This means that the target consumer of JFC has the capacity to pay for their products and service offerings unlike what has happened in the Middle East operation. Thus the menu would be transplanted from the Philippines without changes and last minute order revisions would occur much less.

While the California market offered the best opportunity for JFCs international expansion, the PNG and HK options must also not be dissolved from the plan list. Marketing strategies, if necessary to involve, a little innovation on the product characteristics, to appeal to a broader audience, and not just to the Filipino ready market, would have to be considered by JFC should it consider to open in these areas. Also looking at pricing, Jollibee would have to make up for the increased labor costs associated with having industry in the United States. These margins would have to be made up in other cost decreases, perhaps using economies of scale. In another marketing strategy Tingzon should focus on promoting awareness of there products and services through local broadcasting and written advertisements. This will ensure that the target audience is aware of the new location.