Fast food tycoon Tony Tan Caktiong’s Jollibee Foods Corp. is using a less capital-intensive franchising strategy to increase its store footprint in China amid the slowdown in the world’s second-largest economy.
The challenging economic climate, compounded by a property market crisis and slowing consumer spending, has not deterred JFC from growing in China, said chief financial officer Richard Shin.
“We’re not writing China off,” Shin said in a recent media briefing. “We’re in it for the long-term but we recognize that for the short-term, it’s going to be bumpy”.
Big picture
JFC has identified China as a key component in its aspiration to triple profits to over P26 billion in five years or by 2028.
It ended the first quarter of 2024 with 553 stores in China, which is equivalent to 8 percent of its global store network of 6,886 stores.
Shin said they plan to add another 100 stores in China this year.
Slowing sales
He noted that JFC’s China same-store sales declined about 6 percent during the first quarter. This is in line with the performance of other fast food giants in the country.
Their larger competitor Yum China, which operates KFC and Pizza Hut, has over 15,000 restaurants across 2,000 cities, the vast majority of which are smaller and less-developed tier 3 and tier 4 cities.
Big opportunity in smaller towns
Shin said JFC will also focus much of its expansion outside the largest cities using the franchise model to reduce capital outlays.
“You need to preserve your capital and you need to make sure you have the value proposition,” he said.
JFC continues to post growth thanks to its diversified geographic footprint, with nearly half of its global store network located in the Philippines. Its total sales during the quarter rose 10.4 percent while net income jumped almost 27 percent to P2.62 billion.
Buy rating
JFC is one of four stock picks of First Metro Securities Research.
Estella Dhel Villamiel, head of research for institutional clients, said the fast food giant beat earnings estimates during the first quarter, led by its “robust sales growth, improved gross margins, and operational efficiencies”.
Villamiel, who has a buy rating on JFC with a price target of P300 per share, expects the company to outperform despite mixed results at its foreign businesses.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
