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Jollibee Buys Burger King Franchise(4-min read)

Is the Jollibee Champ now the Burger King? News went out last week that Jollibee Foods Corporation (JFC) has bought a majority ownership (54%) ownership or Burger King (BK) franchise currently run by BK Titans Inc. The acquisition was worth for Php65 million. The remaining 46% is owned by Lina (Air 21) and MVP (PLDT).JFC actually made a previous big acquisition of a grilled/ barbeque chicken chain, in the name of Mang Inasal late last year for Php3 billion while it already divested its interests in Mang Pepe earlier this year (which incidentally also serves chicken), supposedly to focus on bigger quick service restaurants.
The BK franchise meanwhile was previously owned by the Ayalas before it was sold to BK Titans. As such, its master franchise actually has been passed on locally from quite a number of owners already.Why is this? Either former owners lacked the expertise in the quick-service industry, or possibly back then the premium burger segment was not yet in growth mode.

Some people quoted that this move typifies the adage that if you can’t beat them, join them. Maybe on the part of BK this is the case, but I don’t think the converse holds true: that if you can’t beat them, buy them. I don’t think JFC and BK have the same target markets. Yes definitely there are overlaps in the target customers, but as JFC puts it, their entry into BK allows them to cater to the premium burger segment: in short to enter the expensive burgers market. A new market that perhaps, only their Champ burger is able to service.
As one newspaper put it, BK burgers sell at 30% higher prices compared toJFC burgers. In their disclosure, JFC expects the premium burgers market to grow as the Filipino standard of living improves along with economic growth. I sure hope so.

On the part of BK, this should mean better economies of scale and expertise in terms of operating a quick-service restaurant. Former owner Ayalas sold it to focus on what they do best: real estate, banks and telecommunications. I think this also holds true for now part-owners Lina and MVP since they also don’t have any other quick-service restaurants but there’s no doubt that they have successful telco, courier, mining, utilities businesses. And now, they get to ride on how JFC drives the BK machine. How good can it get for them?

For JFC, aside from a share in the premium burgers growth and possibly enjoying synergy as well in terms of processes, supplies and methodologies in doing burgers and other quick-service foods, it will also be beneficial in terms of expanding its network with yet another brand name (subject of course to franchise terms). Given that 54% of the franchise only cost JFC Php65.5 million, then it means that the whole BK franchise is valued at only Php121 million. The Php65.5 million acquisition is actually just 0.07% of JFC market cap as of today so it will be interesting how this acquisition moves their stocks in PSE.

JFC already has a very wide array of food businesses in and out of the country: Jollibee, Chowking, Red Ribbon, Greenwich, Mang Inasal, Caffe Ti Amo, Yonghe King and Hong Zhuang Yuan. Burger King is definitely a strong addition in terms of brand name. In terms of bottom line impact, it remains to be seen. In terms of local expansion for BK, I think there is still a lot of potential. In terms of international expansion (note that BK is a strong international brand), I don’t think this is covered by what JFC purchased.

Clearly, JFC is serious about its growth. While it is so big that the room for more growth is not that big already for its powerhouse strong brands (Jollibee, Chowking, Greenwich) (I think JFC is cognizant of this fact), JFC then focuses its efforts on growing internationally (especially in China) as well as doing key acquisitions on different but nonetheless related markets (Mang Inasal and Burger King). As of the disclosure, JFC stocks stand at Php84.40 per share, up by ~3%.

I am very much a Jollibee fan in terms of food, (burgers and chicken and spaghetti!) as well as their stock. It was able to double its share price in a span of 2 years (from sub-Php50s levels in 2009) given its huge size, and I think Php100 is a very big psychological ceiling and resistance, waiting to be breached.

Let’s see!

PS. I’m also a fan of BK but not as much as JFC since their burgers are more expensive. Used to take advantage of their refillable drinks though when I was a kid, but I think BK realized that unlimited anything in the Philippines will be maximized and somewhat abused by Filipinos, so maybe that is why they no longer offer that.

Related Articles:

http://www.pse.com.ph/html/disclosure/pdf/2011/pdf/dc2011-7046_JFC.pdf
http://www.bworldonline.com/content.php?title=Jollibee%20buys%20Burger%20King%20franchise&id=39196
http://www.philstar.com/Article.aspx?articleId=732608&publicationSubCategoryId=66
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