Jollibee Foods Corporation

International Expansion

Manolo (Noli) Tongzon

New Head of Jollibee’s International Division
● Issue 1: Pondered on the demographic trends in California
○ Wondered if a Philippine hamburger could appeal to mainstream American consumers or whether it could
succeed by focusing on immigrants and Philippine expatriates
● Issue 2: Store opening in the Kowloon District of Hong Kong
○ Managers wanted to adjust the menu, operations and to focus on marketing to Chinese customers
● Issue 3: Should Jollibee enter Papua New Guinea’s virgin fast food territory and dominate the emerging market or will it
stretch the resources too far
○ Only has few weeks of experience in Jollibee when faced with these problems
● His decisions will affect Jollibee’s internationalization strategy and establish his credibility and authority in the
organization

Company History
● Started in 1975 by the Chinese-Filipino Tan family as an ice cream parlor
● Ice cream → Hamburger
○ 1977 Oil Crisis: Double the prices if ice cream
○ Burger: Customers’ favorite; recipe from Tony’s chef father
● Name origin: From TTC’s vision of employees working happily and efficiently, like bees in a hive
● Everyone in the company addressed each other by their first names and removing honorifics like Sir or Ma’am
● Five F’s (Jollibee Philosophy): Friendliness, flavorful food, a fun atmosphere, flexibility in catering to customer
needs, and a focus on families
● Affordable price: Well-developed operations management capability
● One of the key success factors: A well oiled machine that keeps close tabs on day-to-day operations
● Quick expansion in the Philippines until 1993
● Tan family members occupied several key positions – vital operation functions
● Marketing and finance managers were outsiders
● Franchises: Members and friends of the Tan Family
● 1993: Jollibee went public and raised 216 million pesos
○ Tan Family retained majority of ownership and control
● 1994: Acquisition of Greenwich Pizza Corporation
● 1995: Joint Venture with Deli France
○ 85% of revenues came from Jollibee stores

McDonald’s: Going Burger to Burger

1st challenge: McDo’s entry in the Philippines in 1981
● Jollibee already had 11 stores
● McDonald’s seen as a juggernaut
● Although McDonald’s had more money and highly-developed operating systems, Jollibee’s major asset: Philippine
consumers preferred the taste of Jollibee’s hamburger by a wide margin
● McDo opened 6 stores and spent largely on advertising
● 1983: McDonald’s had 27% of the fast food market, while Jollibee’s was 32%
● Big Mac → Pushed Jollibee to create a large hamburger, the Champ
● The Champ
○ One wide, big hamburger patty vs. Mac’s smaller two
○ Filipinos preferred the Jollibee burgers’ spicy taste
○ Promotion: Focused on taste and size
○ August 1983: Benigno Aquino was assassinated → National pride → Foreign investors slowed down
● Jollibee created taste-tested offerings of chicken, spaghetti, and peach-mango dessert pie
● 1984: McDonald’s foreign brand appeal was fading
 ● 1986: Ferdinand Marcos fled the Philippines during the “people power” led by Aquino’s widow, Corazon → Optimism in
the country à Reinvesting of foreign companies → But Jollibee had now 31 stores

Industry Background
● 1960s: Fast food industry pioneers, Ray Kroc of McDonald’s and Colonel Sanders of Kentucky Fried Chicken: Created
a value proposition that became the standard
● Fast food outlets aimed to serve time-constrained customers by providing good quality food in a clean dining
environment and at a low price
Managing a Store
● Profitability depended on high customer traffic and tight operations management
● Outlet opening required large investments in equipment and store fitting
● Keeping it open: High costs of rent, utilities, and labor
● High volume → Convenience → Store location is critical
● Choosing a site: Traffic patterns, potential of the city, competition nearby
● Good operations management, reducing waste, ensuring quality service, and self-productivity were important
● Store managers: Motivated and controlled crew members, preparing food, and keeping restaurant cleanliness
● Faster service and reduced number of crew members needed with efficient use of time
Managing a Chain
● New stores → Growth of franchising → Chains to stake out new territory by acquiring market share and building brand
recognition in an area
● Expansion: Needed to achieve economies of scale in advertising and purchasing
● Key driver of success for the fast food executives: Chain-wide consistency and reliability
○ Standardization of the menu
○ Raw material quality
○ Food preparation
○ Assurance of uniform standards of cleanliness and service
○ Uniformity of image
● McDo: Believed that they were selling an image of American pop culture
● Major fast food chains pushed their international subsidiaries to maintain or impose standardized menus, recipes,
advertising themes, and store designs

Moving Offshores (1986-1997)

● Friends of the Tan family approached TTC for franchise rights in other countries
Early Forays: Early Lessons
Singapore
● First venture abroad in 1985
● Franchise owned by a partnership consisting of Jollibee, the local manager, and 5 Philippine-Chinese investors, with a
1/7 stake
● After store opened → Deteriorating relationship between Jollibee and local manager
● Franchisee would not let the corporate inspectors check quality, cleanliness, and efficiency in operations
● 1986: Jollibee revoked the franchise agreement
○ Local company funds were gone
○ Some suppliers not paid
Taiwan
● 50/50 joint venture with a Tan family friend in Taiwan
● Low pedestrian traffic by the site → Disappointing revenues
● Day-to-day management issues between the operations staff and the Taiwanese partner
● Pulled out of Taiwan in 1988 when the rent increased dramatically
Brunei
● August 1987: New joint venture on the island of Borneo
● CEO of Shoemart, proposed that they should form a joint-venture with a Shoemart partner in Borneo
● 1994: 4 successful stores in the country
 ● Difference in the entry strategy: In SG and Taiwan, the local partners ran the operations. In Brunei, the local investor
was a silent partner. Filipino managers were sent to run the operations and the local partner supported
Indonesia
● SEA’s largest market
● 1998: Opened first store in Jakarta through a family friend
● Initial competitors: Street vendors and cheap local fast food chains
● Local managers and partners paralyzed the operation → Dissolved the partnership and sold the operations to a new

franchisee
● Market was promising
Lessons from Jollibee’s First International Ventures
● McDonald’s succeeded everywhere because they selected the right partners. They can get the 100 candidates and
choose the best - we didn’t have the name to generate that choice yet
● Key factor in business: Location. It’s hard to get prime locations if you’re new.
● People said not to go international yet until we had solved these issues: location and power

Building an Organization
● 1993: TTC: International operations required greater structure and more resources
● January 1994: Hired an experienced outsider as Vice President for Int’l Operations because his mgmt team was only
interested in growing the local business
● Kitchner
○ Divide his division and be separate from Jollibee’s PH side -- Different identity and capabilities
○ Agreed with TTC: Attracting partners with good connections in the markets is a priority BUT Jollibee’s simple
image and basic management approach will be a problem
○ To project the image of world-class company: First dress code in the company → Managers to wear ties (7th

floor, Jollibee Manila HQ)

○ Recruited experienced internationalists from inside and outside Jollibee
○ From having 3 staff + 7 more professionals (Managers of marketing, finance, quality control and product
development) + 2 secretaries
○ Greater internal recruiting restraints: (1) Philippine management’s resistance to having their staff “poached” and
(2) employees’ lack of interest in joining the division

Strategic Thrust
● Kirchner decided to increase the pace of international expansion
○ Objective: Make Jollibee one of the world’s Top 10 fast food brands by 2000
○ Strategy: (1) Targeting expats (2) Planting the flag
● Thousands of Filipino expatriates in the Middle East, Hong Kong, Guam, and other Asian countries -- Latent market for
Jollibee as a good initial base to support entry
● Focused on the Filipino guest-workers in the Middle East
○ Opened stores in Dubai, Kuwait and Dammam BUT → Limited market → Restrictions on the poorer workers’

freedom of movement and Wealthier expatriates prefered hotel dining (Alcohol consumption is allowed)
● Other strategic criterion: First mover advantages
○ Jay Visco, International’s Marketing Manager: You can set the pace and the standards.
○ Jollibee (6 stores), McDonald’s (1 store), KFC (3 stores)
● Planting the Jollibee Flag
○ Be there where competitors had little or no presence
○ Store expansion → Brand Awareness → Positive impact on sales
○ Problem: Circularity: Only after achieving a certain level of sales could franchisees afford advertising and
promotion needed to build brand awareness
○ Problem: Rapid expansion → Resource constraints: Difficulty in supporting multiple simultaneous start ups

Operational Management
Market Entry
 ● Tony Kitchner negotiated the franchise agreement with an investment by the parent company to create a partnership
with the franchisee
● Franchise Service Managers (FSM)
○ Key contacts between the company and its franchisees
○ Support group in Manila was built to prepare them to manage an offshore franchise
○ Encouraged to adapt the preferences of the franchisee for the counter and dining areas
○ Kitchen: Followed the standard Jollibee design for proper production flow
○ Kitchner: Adapt the counter and dining area to the space and preferences of the franchisees
○ Responsible for engaging local architects to plan the store
● Project Manager
○ Hired a month before opening by FSM
○ Usually a native of the new market
○ Manages the first store
○ Made important decisions along with the FSM
○ Works with International Division finance staff to develop budget for materials, labor, etc.
○ Identified local suppliers and negotiated prices
● Franchisees’ level of involvement varies per country, but they were deeply involved in selecting and securing the site
of the first store (with advice from International Division staff)
● International Division staff
○ Had to develop skills very different from those of their Jollibee colleagues in the Philippines
○ Prepared marketing plans for the opening and first year’s operation
○ Made positioning and communications strategies
■ Based on surveys, aggregate market data, analysis of major competitors
○ Trained local marketing manager, local store manager, assistant managers
○ Trained crew members hired by project managers (trained on cooking, serving, and maintaining the store)

Oversight and Continuing Support

● FSMs
○ Remained as key contact
○ Monitors financial and operational performance and working to support and develop the store manager
○ Two months after opening: stores in their jurisdictions required to fax everyday their figures for sales by
product, customer traffic, and average ticket.
○ With stable operations + store manager seeing patterns in sales and operational needs, stores report weekly
instead of daily, and provide a monthly summary
○ Information sent by stores was used to
■ Project and track royalty income for corporate purposes
■ Identify ways to support local franchise
○ If data suggested problems, FSM contacts store manager and asks for a plan of action
■ FSM Gina Buan demands plans within 24 hours, otherwise she will step in and coach them to help
them generate answers with an aim “to turn the into clones of me -- or at least teach them my
expertise”
● Open Partnership and Franchise Relations
○ Many stores voluntarily report on their costs because they found FSM’s analysis helpful
○ Data from franchise helps FSMs provide consulting assistance more than control
○ Jollibee’s royalty: % of franchisees’ sales
○ Local operations focused on profits
○ Similar interest of franchisees and local operations:
■ Growth in sales for growth in royalty
■ But this will not happen if stores are not profitable, because franchisees will not push to expand
● International Division Quality Control
○ Unannounced on-site inspections every quarter as primary tool for quality control
■ Over two days, FSM evaluate every aspect of operations in detail:
● Product quality and preparation (taste, temperature, freshness, availability and appearance)
● Cleanliness
● Restaurant appearance
● Service Speed
● Friendliness
 ■ Manual for intensive checks is several inches thick
■ International staff
● Trained in Jollibee’s quality standards
● Conducted quick checks when they traveled
■ Quick Check
● 15-page questionnaire
● Takes two hours to complete
● Covers all areas as intensive check but with less rigor and detail
● Each store gets to have. two quick checks per quarter

● FSMs engaged the expertise of International Division functional staff

○ They tried to shift responsibility to franchise, but division staff often bore much of the responsibility long after
startup
■ E.g. Marketing staff tried to limit support to creating initial marketing plans for new openings and
reviewing new store plans, but ended up drawn into the planning of more routine campaigns for
particular stores, which they felt should be handled by the franchisee and store managers

International vs. Domestic Practice

● Kitchner: International expansion felt like struggling up an unconquered, hostile mountain. Elements of Jollibee’s PH
business model needed to be modified overseas.
○ E.g. in Indonesia, they had to target a more up-market clientele because the mass market was not as willing to
spend a lot for fast food
○ Jollibee needed to present itself as “world class,” not “local” or regional.”
■ They disliked the PH store design. Int’l Division and an outside architect developed three new store
decors, and used them for all subsequent openings
■ Redesigned logo
■ Red → Orange background to differentiate from Coke, Marlboro, KFC
■ Added slogan -- “Great burgers, great chicken” -- to the logo to link the name and logo with its
products in people’s minds because market tests found that consumers outside PH guessed the logo
signified a toy chain or candy store
○ Other changes
■ Int’l marketing group created a library of promotional photographs of each food product that could be
assembled, in house, into collages introducing new promos.
■ Styrofoam to paper packaging to appeal to greater en
■ v’tal consciousness

Customizing for Local Tastes

● Changes triggered controversy, especially on the experiments with menu items, but managers in the International
Division believed that menus should be adjusted to local preferences
○ They argued that the “flexibility” aspect of Jollibee’s “Five F’s” corporate creed stood for a willingness to
accommodate differences in local tastes
● Accommodating local tastes
○ 1992: PH manager was dispatched to Indonesia to create a fast food version of local favorite, nasi lema (a
mixture of rice and coconut milk)
■ This brought rise to the international menu item, the Jollimeal:
● Rice-based mean + topping that could vary by country
○ HK: Rice + hot and sour chicken
○ Vietnam: Chicken curry
● Ktichner saw this as an important way to “localize” the Jollibee image
○ Product Dev’t Manager Gil Salvosa in Dubai
■ Created a salad for the menu
■ Acquired a chicken masala recipe and adopted it to fast food production methods
○ Int’l Division added idiosyncratic menu items, like dried fish -- a Malaysian favorite
■ This increased the size of menus abroad
● Increased Menu Diversity
○ Comes at the cost of some operating efficiency
 ○ Kitchner felt it was necessary
● Examples of concessions to local tastes
○ Giam
■ Extra large local appetites: fried egg + 2 strips of bacon to Champ
■ Middle East: For spicier fried chicken, Int’l dev’d a spicy sauce that customers could add
● International Division’s modification of menus and products caused considerable tension with the PH side of Jollibee
○ No controversy about reformulating hamburgers for Muslim countries
○ Adding new products or changing existing ones led to major arguments
○ International received little cooperation from the larger PH research and dev’t staff
○ Customization remained a source of disagreement and friction

Strained International-Domestic Relations

● Relations between the Philippine division and the International Division began to deteriorate due to strained relations.
● Both divisions operated independently. Already limited exchanges were kept to a minimum.
● Tensions over menu modifications reflected more serious issues after Kitchner formed the international group.
○ International side:
■ International saw the Philippine organization as bureaucratic and slow-moving. They felt hindered by
the procedures and channels they had to go through to obtain assistance
■ International felt that the Philippine side, which controlled most of Jollibee’s resources, should do more
to improve existing products and practice.
● Visco (International’s Marketing Manager) wanted help for new packaging but PH marketing
interpreted that the international side could fend for itself.
● Salvosa (Dubai’s product development wanted more cooperation on product development
from PH R&D but was frustrated over the lengthy discussions and required approvals.
○ Philippine side:
■ Philippine staff saw International as newcomers who discarded practices built over 16 years.
■ According to Executive Vice President Ernesto Tan:
● Strained relations began when International recruited people from the PH side without
consulting the superiors. Resulted to jealousy on a personal level because new recruits were
promoted with better pay & benefits.
● International developed a superiority complex. They wanted to do things differently so that
they could take all the credit when their stores did well.
● International proposed a training facility in the Philippines to show PH that they were better
● International was perceived as lavish spenders while the PH paid close attention to costs.
● Redesigning the Jollibee logo in 1996:
○ Triggered by International’s modification of the old logo, the redesign committee had representatives from
across the company.
○ Some domestic managers felt that the International Vice President's strong opinions were obstructive.
○ Early in 1996, Kitchner stopped attending the meetings.
● November 1996: TTC stopped supporting Kitchner’s strategy of rapid expansion due to the financial problems it was
creating.
○ International stores were losing money while costs of supporting unprofitable activities were increasing.
○ According to TTC:
■ Putting up stores as a strategy to maximize revenue was not viable in the long term.
■ Jollibee preferred to go slower, making sure that each store was profitable.
■ “Whoever we do business with - suppliers and especially franchises - should make money. This
creates a good, long-term relationship.
● February 1997: Kitchner left Jollibee to return to Australia and TTC supervised a restructuring.
○ International staff were reduced. Finance, MIS and HR functions were merged with bigger PH counterparts
○ Jay Visco bechave the interim head of International while TTC searched for a new Division leader.

A New International Era: 1997

● TTC consulted with his contacts in the PH regarding a replacement.
● Manolo P. (“Noli”) Tingzon
○ One of the industry’s most experienced managers.
○ Had spent much of his time helping foreign chains crack the PH market
○ 1981: Joined Mcdo as a management trainee
 ○ 1994: Took the challenge to launch Texas Chicken, a US fast food chain in the PH
○ 1996: TTC offered him the opportunity to head the International Division
○ 1997: He joined the company as general manager, International Division.

A Fresh Look at Strategy

● Tingzon reviewed International’s current and historical performance.
○ Estimated that an acceptable ROI in international operations would require 60 Jollibee restaurants abroad with
annual sales of US $800, 000 each.
○ Felt that Jollibee’s international expansion was driven by pride rather than business. Led a fresh examination of
existing international strategies.
● Tingzon consulted with his colleagues at Jollibee:
○ International: Many felt that the “plant-the flag” approach should be continued
■ Visco argued that establishing a presence in each market before the competitors conferred first-mover
advantages
○ Domestic (PH): Flag planting was ill-conceived and led the company to rash market choices (e.g. Middle Eat
branches where it was hard to attract expats or locals)
■ Ernesto Tan: “Focus on expanding share in a few countries while making sure each store does well”
■ Consolidate and build on existing Jollibee markets with high potential (e.g. HK) or mild competition
(e.g. Malaysia, Indonesia)
● Respecting the strategy of initially focusing on Filipino expatriates in new market (i.e. the strategy in Guam and HK),
Tingzon wondered whether this might trap the chain.
○ “Might we risk boxing ourselves into a Filipino niche that prevents us from growing enough support to
operations in each country?”
○ Opinion was divided between those who wanted the expatriate-led strategy and those who felt that it was time
to shake the PH identity and target the mainstream market.

Strategy in Action: Three Decisions

Three immediate growth opportunities that would shape the emergence of the future strategy:
● Papua New Guinea: Raising the Standard
○ A local New Guinea poultry entrepreneur approached Tony Kitchner about a Jollibee franchise
○ There were only 3 store of fast food chains and they were all poorly managed
○ The local entrepreneur believed that Jollibee could raise the quality of service and food enough to take much of
the Australian chain’s market share while discouraging further entrants
○ Original plan: open just 1 store in Port Moresby (capital city)
○ Tingzon was uncertain whether Papua Guinea could support 20 stores that he saw as the target critical mass
for new markets
○ Comparison: Philippines - 1,200 fast food outlets competed for the business of 75M people. GNP per capita in
both countries was almost at US$2,500
○ Solution of the franchisee to Tingzon’s concerns:
■ He would negotiate with a major petroleum retailer and try to open stores in five of their service
stations around the country
■ He was willing to build more stores if necessary ad would put up all the capital so that Jollibee would
risk not equity in the venture

● Hongkong: Expanding the Base

○ Expand to a fourth store in Hong Kong
○ The franchise was owned by Jollibee in partnership with local businessmen and managed by Tommy King
○ First store was built in September 1996 and it was successful
■ Located near a major transit hub in the Central district
■ It became a gathering place for Filipino expatriates and domestic works (mostly)
■ Appealing to the locals but proven more difficult
■ Volume was high on weekend but low during the weekdays, when business was primarily from local
office workers
● 2 more stores were added in Central
■ Relied heavily on Chinese customers and generated sales of only about ⅓ of the first outlet
■ Problem 1: Jollibee had been unable to hire many local CHinese as crew members
 ● Chinese people were embarrassed that Filipinos will not understand their English
■ Problem 2: Jollibee’s brand recognition among locals were weak
● McDonald’s stores dominate the city
● Henry Shih - sub-franchisee; owned the second franchise
○ Jollibee staff were helping launch a thematic advertising campaign but due to Hong
Kong operation’s small size, the franchise could not inject sufficient funds
○ Blamed the rigidity over menu offerings because Jollibee’s food are not appealing to
Chinese customers
○ His idea of serving tea the Hong Kong way and developing a less-fatty recipe for
Chicken Joy (core menu of Jollibee) were declined
■ Staffing problems were worsening
● 4 locally-recruited Chinese managers vs. 5 Filipinos imported from Tommy King’s Philippine
franchise
○ Chinese calling the Filipinos’ discipline lax and their style arrogant
○ Filipinos saw the Chinese managers as uncommitted
○ August 1997, Chinese managers resigned leaving Jollibee with only Filipinos in store-
level management positions
○ This undermined the Jollibee’s ability to hire local crews (Chinese preferred to work
for Chinese)
■ Due to staff turnover, the day-to-day issues faced were:
● Uneven product quality
● Had little time to design even short-term marketing strategies
■ King’s focus on his Philippine stores slowed decision-making
■ Despite the frequent visit of Gina Buan, the problems mentioned were not resolved
■ In June, King appointed Shih General Manager to oversee the entire Hong Kong venture
○ Shih and King proposed to have a fourth store at the Kowloon district, one of the busiest cities in Hong Kong
■ Hong Kong, the area had only few Filipinos and the store would have to depend on locals
■ The fourth sore would test Jollibee’s ability to appeal to Hong Kong People
● Shih suggested for the menu to be customized
■ Tingzon was not certain of having a fourth store in Hong Kong
● He was not sure of he should support the menu variations that might complicate quality
control
● However, expansion in this busy area of Hong Kong can enhance the visibility and brand
recognition of Jollibee among the locals, which can eventually help in increasing business
even without changing the menu.

● California Supporting the Settlers

○ Open one Jollibee per quarter in California starting in the first quarter of 1998
○ They thought that by supporting this, Jollibee could win enormous prestige and publicity by gaining a foothold in
the birthplace of fast food
■ Kitcher had drawn up plans with with a group of Manila-based businessmen as 40% partners in the
venture
○ Confidence for this bold expansion plan came from Jollibee’s success in Guam, a territory of the US.
■ They targeted the 25% of the population of Filipino extraction
■ The menu appealed to another groups of Americans based there
■ The management found out they could adapt the labor-intensive Philippine operating methods by
developing different equipment and cooking processes more in keeping with a high labor cost
environment
■ “In Guam, we learned how to do business in the United States” - International Division veteran
○ Plans for the expansion:
■ The first store was to be located in Daly City, a community with a large Filipino population but relatively
low concentration of fast-food competitors in San Francisco (this state had one of the highest
concentrations of Filipino expatriates in the world)
■ The menu would be transplanted from the Philippines without changes
■ Branch out geographically to the San Francisco and San Diego regions
■ Demographically appeal to other Asian-American and Hispanic-American consumers (they hope for
Jollibee to expand to all consumers throughout the US)
 ○ There was a visible support from Filipino-Americans, strong interest of local investors and TTC’s great interest
in succeeding in McDonald’s back-yard
○ Tingzon’s concerns:
■ Could Jollibee hope to succeed in the world’s most competitive fast-food market?
■ Could they provide the necessary support and control to operations located 12 hours by plane and
eight time zones away?
■ Was the Filipino-toAsia-to-Hispanic-to-mainstream entry strategy viable or did it risk boxing them into
an economically unviable niche?

Looking Forward
● Noli tingzon was aware that his predecessor’s plan was to open 1000 Jollibee stores abroad before the turn of
the century
● McDonald’s took 20 years for its international operations to count for more than 50% of total sales.
○ Tingzon aimed to do it in 10 years
● The decisions he made on the three entry options would have a significant impact on the strategic decision he
made on his international division took and on the organizational capabilities it needed to get there