Jollibee case study 1. Introduction “Ordinary people with extraordinary achievement” said by Tony Tan Caktiong, the president of Jollibee Foods Corporation. The company started in 1975 as an ice cream parlor, and now it becomes one of the fast-food major from the Philippines. Jollibee had over 223 outlets across the world with annual sales of $7,778 millions (Pesos) dollar by the end of 1997(Bartlett & Connell, 1998). However, the company seems not to be content with current situation, and it is still seeking an opportunity to expand to the global market. This report evaluates the fast food industry as well as Jollibee‟s overall status. The report also addresses and defines some relevant issues and problems the company is facing, such as what are the competitive advantage does Jollibee have, what the strategy they have been using for the international market, what are the friction between International division and Philippine company and what the recommended strategies should be implemented to solve the problems. It also suggests Jollibee should not ignore the new opportunity to the American and Hong Kong market, because of a huge potential in future. Some of the techniques are using to help anglicizing the company and industry, such as SWOT, Porter‟s Five Forces. This may also be a limitation as the evaluation only covers certain aspects.
2. Discussion 2.1 Industry background It is very important to understand what the Fast food industry it is, before analyzing the company‟s business strategy. In the 1960s, the fast food market starts growing, leading by some main players such as McDonald‟s and KFC. They have successfully provided a model that the business was aiming to serve quality food at a clean dinning environment. And it targets the customers who with limited of time and budget.
To perform a fast food Industry analysis, it is better to follow Michael Porter\'s five forces model. This model was created to help the management team to analyze competitive forces to the company. (Porter, 1990) The five forces that need to be considered in the model are (1) The threat of new entrants; (2) the bargaining power of suppliers; (3) the threat of substitute products; (4) the bargaining power of buyers; and (5) The intensity of competitive rivalry within an industry. The threat of new entrants is usually known as the market entry barriers. Normally high barriers to entry will keep potential competitors away from the industry and low barriers to entry will give enable more competitors to enter into the industry if, especially when the industry returns are high. (Porter, 1990) In the fast food industry, one of the barriers to entry is brand loyalty. Brand loyalty is very important in this market. When people are looking for a quick meal, they always go to fast food restaurant that they familiar with. Because people know are going to get same quality of food, same taste, and maybe similar price even at different places. People feel more secure to have meal at a place where they will have same standards of cleanliness and service. On the other aspects, a branded restaurant would also take an advantage to choose a premium location because an excellent location with high volume of traffic is very important for fast food
industry. There are also other barriers to enter the market, such as huge investment on premise, equipment, advertising as well as choosing an appropriate manager to run the store. The intensity of competitive rivalry refers to all existing firms within the same industry. There is a huge competition in the market, as driven by lots of competitors, such as McDonald‟s, KFC, Burger King, and etc. there are more than 10,000 stores in about 100 different countries for those famous fast food stores. (Research and Markets,n.d.) A fierce rivalry between competing companies in the fast food industry defines how they are fighting to get new customers, in terms of massive advertising, changes of new products, and the most important is offering a competitive price.
The Bargaining power from the buyers is one of the forces that influence the industry. Here the buyers refer to those who are ordering fast food at the local restaurant. And therefore each buyer in himself, usually does not have much bargaining power over this industry. They are going to the resturant and just ordering and paying for a noraml size meal, for only a limited scale. However, be aware that the customers do have option to choose a place to buy their fast food and this is where their power exists. Since the industry is full of all different kinds of fast foods and with different brands, then the buyer can actually buy similar products from different resturants, in considering of their taste, presference, and demands. Then the buyers could choose their preferable products and maybe convice their friends to do the same. This is the situation where buyers have power to influnce the market. On the other hands, the suppliers for the fastfood industy is also an important force, such as the suppliers for soft drinks. The Vital suppliers usually play a very dominated role in the industy, such as the Coca-cola and Pepsi who are the ones have the ability to match the needs of golbal fast food industy. There are also some other small suppliers with few bargaining power over the industy, since all their products can be easly replaced.
Within the fast food industy, the threat of substitute products arise from those different types of foods or services to which customers can turn to satisfy their same needs or demands. The main resaons people choose fast food because it is convenient, clean, and with best value. therefore, an example of substiute products are those frozen food in the supoermarkets. The Frozen Reheatable food offers a strong competitve thereats against the normal fast food, because it provides a similarity needs and taste. However, the fast food sells not only the food but also offers an image and expereice while people are having meal in the store.
However, the porter‟s Five forces model is not suffcient to explain the whole fast food industy, there are also lots of uncertianty in the future. One of the biggest chanallage is that people may change their preference and perceptions to this industry. The primary purpose of industry analysis is to identify and determine the critical success factors for the business.
2.2 Company Anaysis Jollibee was funded in 1975, and starts as an ice cream parlor. Soon after the oil crisis, the company deceide to make some home-style hamburger, and this was quickly accepted by the Filipino. Jollibee quickly expanded throughout the Philippines over last 20 years and was first time listed on the stock market in 1993. In order to describe a clear situtation of Jollibee, a traditional SWOT analysis is applied (Appendix 1) and it will helps determining the critical issues and generating a recommendations for action.
Jollibee faced its first serious combat in 1980s, facing the McDonald‟s. However, the company, as a host player, initially secured its dominant position in the market with Five F\'s: flavor, fun, flexibility, family atmosphere, and friendliness(Bartlett & Connell, 1998). This philosophy fit with the habits of local customers and enabled the firm\'s success and expansion in Philippines. There are two main resaons for Jollibee to attain a competiive advanatege when against with McDonald‟s. Firstly, the company has taken a first-mover advanatage as Jollibee has been in the market for more than 5 years before Mcdonald‟s deceided to enter the market. Secondly, the company took the local advantage and focus more on the doemistic market. it operated more flixble to cater to the tastes of its local Filipino.
A first-mover advantage is defined as an advantage gained by the initial occupant of a market segment. The advantages incudling Technological Leadership, Preemption of scarce assets and Switching costs.(Robert M. 2003) In 1975, Jollibee started the fast food business in its home contry, the Philippines. Therefore, it has an advantage to choose the best location with high traffics and potentials. It is very important for a fast food business choosing a premise that is convenient and with intensive traffic. In addition, Jollibee, as a technological leader, knows more about the products and operation in Philippines. Therefore they can take overall control from supplying of raw materials, making of the food, and sell the products. It results a more effciency in operating the business. With a closer distance to the target market, Jollibee could control its brand image, and select an approrate franchisee in order to maintain the quality of its products and services. Further more, the Switching costs is an advantage for Jollibee when customers face some loss in turning to the compititor‟s products. For example, local people prefer to eat spicy burgers at Jollibee, compare with a plain beef burger at McDonald‟s. the local people are used to have such taste and they know they will get similar food at Jollibee, but uncertian with McDonalds.
As mentioned above, another resaon that Jollibe dominated its position to compete with McDonalds is that company has benefited from a few local advantage. The Porter‟s diamond of Naitonal competitive advantage describes the facts. From Porter‟s theory, he beilieves that success in international trade comes from the interaction of four country and firm specific elements: Factor conditions, Demand conditions, Related and supporting industries, and Firm strategy, structure and rivalry.(Porter,1990) Philippines is a small contry but with large population, of different races. The western culture in Philippines is very popular and the local people are kind and hard working. This is a local factor that influnces Jollibee‟s business philosophy, and therefore encourages the company to deliver quality food and freiendly services consistently and efficiently. Local demand is another critical condition that Jollibee considered well. The local Filipino prefer large appetites with strong taste, such as spicy sauce. In order to compete with the Big Mac, Jollibee quickly introduced a Champ Burger with larger size and taste with local flavor. In terms of brand image, Jollibee emphysiz on promoting its Joy Bee with fun atmosphere, and focus on famlies. This helps to attarct children from Philippine famliy, and of course to provide best value of food is another selling point. An instable business environment in Philippines helped to slower the investment from overseas. The Philippine government somewhat offered a protection to the local company. An expample is the economic and political crisis stoped foreign investors, inculding McDonald‟s, expanding its business activties in Philippines. Nevertheless, the main resaon that Jollibee has estbalished a dominate position is it focus more on the local market, and provides suitble meal to the domestic market. Jollibee reacts more flexible than McDonald‟s, it changes its menu quickly to satisfy the local customer‟s needs. On the other hands, McDonald‟s applied more to the Global Strategy at that time. It is a strategy that the firm views the world as a single marketplace and its primary goal is to create standardised goods and services that will address the needs of customers worldwide. About the local knowledge, Jollibee knows better than McDonald‟s, such as the Filipino prefer rice than chips.
Further more, during that time, Jollibee was able to go ahead by using riding a wave of national pride and again tailored their menu, adding "taste-tested offerings of chicken, spaghetti, and a unique peach mango dessert pie, all developed to local consumer tastes" (Bartlett & Connell, 1998). These were the sources of competitive advantage for Jollibee winning the battle against McDonald‟s by 1984.
2.3 Problems and issues In 1994, Tony Kitchner was employed as a professional manager to operate the International department, since the company had decided to put more recourse on its international business. During his time, there was great expansion and increase in the company‟s international side. He used a “plant the flag strategy” to expand Jollibee‟s chain stores in overseas, and he saw all the expatriate Filipinos as a potential Niche market. This is another strategy from Kitchner, named “Targeting Expats”. In addition, he also made some internal changes to help implement all the business plans. Kitchner start recruiting people for the International operations, such as marketing, Finance, Quality control and product development (Bartlett & Connell, 1998). One of his reformations on employees is to ask them wearing ties, as to provide a more professional image on Jollibee‟s international side. During his time at Jollibee, Kitchner manage to increase the franchise stores up to 205 by 1997(Bartlett & Connell, 1998), however, with more than 30 employees in his group (Bartlett & Connell, 1998).
Kitchner believes that company should take a first mover advantage in the fast food industry and therefore began to “plant the Jollibee flag” in countries where with few competitors. With this strategy, Kitchner was hoping to build brand recognition. Unfortunately, the risk exists at the same time when the company decided to become a first investor in the market. There is always uncertainty in the new market, and the
company needs to spend lots of resources to find out what the local tastes are, and how to localize the menu to suit its habit. Jollibee, as a pioneer company, has to spend huge money in lots of areas, such as R&D, buyer education, infrastructure development, marketing, and even staff training. An even worse case is that in some of the new countries, the franchise could not afford an expensive advertising before they achieved certain level of sales. All these negative are defined as First Mover Disadvantage (Robert M. 2003). On the other hand, the experience in Middle East shows that there is few potential on the overseas Filipinos, because of different eating preference. Therefore, he fails to implement the “Targeting Expats” strategy. Kitchner did not ignore the importance of localization, in terms of tastes, customer preference and cultural difference. He hired 32 employees in his division to help each franchise store in different countries, in order to find out what the local customer needs and what is their preference. Kitchner felt that Jollibee needed to present itself as “world Class, not “local” (Bartlett & Connell, 1998). As a result, he decided to change company‟s logo, store design, advertising, and even the food package. Gradually, Kitchner has built his own empery, and viewed itself as a collection of relatively independent operating division. Naturally, he has applied a Multidomestic Strategy for Jollibee entering international market. This is a strategy that the firm focus more on each specific domestic market, and trying to meet the needs of local customers. It is normally adopted by the companies who are selling brand-name, thereby ensure that local customers are still paying premium price so that to cover the all heavy cost. However, Jollibee sells only fast food, and this somewhat confused its brand image.
As one of the important divisions in the company, Kitchner was always seeking a support from the company start building his own international group. He has employed 32 staffs internally and externally to fit into his division, including both functional position and operational side, such as the Franchise Services Manager (FSM). As the division expand and fast growing, the local Philippine staff saw them as new comes and became more offensive with the international department. On the other side, the employees from International division found the local department bureaucratic and slow -moving. As the
conflicts rose, the support and coordination between the two groups are getting worse. The International Operation received little support from the local Philippine company, in terms of R&D, marketing and sales. By the end of 1996, the international division became less efficiency, and non-profitable due a loss from several international stores. The company has to shrink the international operation, including Toni Kitchner.
2.4 Recommendations In the wake of Kitchner‟s leaving, Jollibee is facing a big challenge to reform the international division and trying to recovery from his awful performance. Tingzon, as a new manager of Jollibee international, starts from a precarious position. It is recommended that the first job is to resolve all the problems within the department, and trying to minimize the cost of operation. The cost of sales increased dramatically from last few years (Bartlett & Connell, 1998), while Kitchner managed to open 24 new stores in 10 different countries. It is more important now for the company to slow the expansion, as it requires more financial investment and increase the debt. Jollibee needs to be more patient and give some time for the existing stores growing and turning to profitable.
Nevertheless, opportunities immediately strike Jollibee. There are some options to open new stores in Papua New Guinea (PNG), Hongkong and United States. (Bartlett & Connell, 1998) All these investment seems to be attractive and positive. With providing information, the California expansion seems to be the best option to go. Firstly, there are millions of people living the city, and with a large number of Filipino. This could
minimize the risk of not having enough sales at beginning, so that not to worry about cover the cost of operating the business. Secondly, doing this business in the States, will gain a World Wide Learning. After all, this is the birth country of fast food, with all the competitors like McDonald, Burger King, KFC…etc. Nonetheless, to successfully put a footprint on this country will help Jollibee to develop its brand recognition, and therefore improve its international reputation. The company could also learn from this experience, and transfer this learning to its operation in the other countries. It is highly recommended to put this significant investment into the US market and it is an opportunity not only provides extra sales but also with good learning.
Set up the fourth store in Hongkong is another good decision, because Jollibee has already made some success in the market. The loyal Filipino customers contribute great sales for Jollibee in Hongkong. However, before any new investment, it is important for Jollibee international resolving the issues with Chinese employees in Hongkong stores. The problem is that all Chinese managers resigned because they like to work with Chinese. A solution would be having a Philippines born Chinese to manage the shop because they know Philippine culture and still cope with the local Chinese. An additional challenge is that Jollibee Hongkong needs to tailor its menu to fit with local dining habit. It is not enough to serve only the expatriate Filipinos with increasing cost of sales, promotion and advertising. There is no controversy that weather should open an extra store in Honkong or not, because a victory in Hongkong will lead Jollibee to an immense market, the Mainland China.
Another investment option is from New Guinea, a new country to Jollibee with 5 million people, but with limited fast food choices. However, it is suggested that company should make a conservative investment. It is a question that whether a few stores in PNG would cover the operating cost or not. This is a typical Kitchner „s strategy that we are about plant a new flag in a country we know few about it and with thousand miles away.
We have to consider carefully if we can manage the store effectively and economically before putting money in the pool.
In order to implement all the plans and decisions, the international division needs to be reformed. The international operation should become a department not only operating the overseas franchisee, but also coordinating with the Philippine company. It is critical for the Philippine company to understand the international strategies and its decision, so that they could provide efficient support to the division. It is also important for both domestic and international departments share the resources and cooperate with each other, and therefore serve the world market together as a common goal.
3. Conclusion
There are lots of augment on Jollibee‟s future strategy, whether should keep following the niche market “targeting expats” and “planting the flag. In fact, with these strategies, the ex vice president, Kitchner, did make some success. During that time, 205 stores were set up across 10 counties in the world. However, there is no absolute strategy should be applied, and it is recommended the company should keep “planting the flag” but with a conservative pace, otherwise It will become too ambition to grow. Especially, facing with some new investment opportunities, Jollibee is suggested to start a business in California as its first priority, with lower risk and changes in operation. The target market at beginning is still the expatiate Filipino. However, the strategy “targeting expats” for niche market is limited in long term. A Multidomestic strategy is recommended for Jollibee dealing with international market. The strategy suggests that a company should attempts to combine the benefits of global scale efficiencies, with the benefits and advantages of local responsiveness. (Ghoshal & Nohria, 1993, p.27) An opportunity to expand its Hongkong business encourages Jollibee to customize its products and services to the local market, and eventually helps Jollibee become a Multinational Corporation world wide. The pain teaches, as the company should learn from the previous mistake. It is always a challenge for company keeping a balance between external expanding and its internal organizational ability. A strategy plan will fail if this exceeded company‟s capability.
4. References
Bartlett, C.A., & Connell, J. O. (1998). Jollibee Foods Corporation (A): international expansion. Boston: Harvard Business School Publishing.
Bartlett, C.A., Ghoshal, S., & Birkinshaw, J. (2004). Transnational management: text, cases, and readings in cross-border management (4th ed.). Boston: McGraw-Hill Irwin.
Fisher, G., Hughes, R., Griffin, R., and Pustay, M. (2006). International Busness: Managing in the Asia-Pacific (3rd Ed.). Pearson Education Australia: Frenchs Forest, NSW.
Grant, Robert M. (2003). USA, UK, Australia, Germany: Blackwell publishing.
Michael E. Porter, (1990)The competitive advantage pf nations, Harvard Business Review
Ghosha & Nitin Nohria, (1993) Organizational forms for multinational corporations
Research and Markets. (n.d.). Fast food and quickservice restaurants-industry profile. Retrieved 27 March, 2008, from http://www.researchandmarkets.com/reportinfo.asp?report_id=448696&t=d&c
Agri-Food Trade Service (n.d), from http://ats-sea.agr.gc.ca/general/home-e.htm
5. Appendix 1 Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis Strengths
Weaknesses
Flexibility on changing the menu to fit with
Costs of customizing the products is
local taste
relatively high, financial pressure
FSM helps developing a new store and provide professional consultancy Different types of products with more flavors Opportunities There are more countries to establish Jollibee fast food store Improve and customize the products Distinctive from other traditional burgers, or fast food products Non- Filipino customers
Over staffing at international division
Uneven quality on its products Threats Uncertainty in the new market Cost and quality control on new products Existing competitors Macroeconomic environment
(SWOT) Analysis
