Commentary: Jollibee shouldn’t rush its global IPO
The fast-food powerhouse from the Philippines has effectively become two businesses, says Juliana Liu for Bloomberg Opinion.
Jollibee employees attend to customer orders at a store in Manila. (File photo: AFP/Jay Directo)
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HONG KONG: Jollibee Foods has spent two decades building a global restaurant empire. But while it makes sense for the Philippines’ fast-food powerhouse to separate the burgeoning international business from its mature, domestic operations, it shouldn’t rush to take the new company public.
The Manila-listed food and beverage group known for its signature fried chicken and sweet spaghetti confirmed earlier this month that it plans to spin off the overseas unit and seek an additional listing in Hong Kong, abandoning an earlier proposal to float the division in the United States.
While the company had previously targeted late next year for the IPO, the latest announcement didn’t specify a timeline. That flexibility is sensible. The international unit isn’t quite ready to be independent.
The logic behind the split is compelling. Jollibee has effectively become two businesses: a seasoned, profitable operation at home plus a rapidly growing overseas collection of restaurant and coffee brands – including Smashburger, dim sum chain Tim Ho Wan and Chinese fast-food outlet Yonghe King.
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Splitting them would give investors a clearer choice between the dependable cash flow of the Philippine enterprise and the greater growth potential of the international portfolio.
“MCDONALDISATION IN REVERSE”
The group has come a long way since 1975, when founder Tony Tan Caktiong, a trained engineer, started selling ice cream in Manila.
Three years later, burgers were added, followed by spaghetti and its signature Chickenjoy fried chicken. The menu additions helped Jollibee withstand the onslaught of American giants like McDonald’s and KFC, owned by Yum! Brands.
Expansion abroad initially followed the Filipino diaspora, before the company began buying foreign brands in the early 2000s to build a business with global reach.
Sociologist Jan Nederveen Pieterse writes that Jollibee – along with Japanese-owned beef-bowl chain Yoshinoya and 7-Eleven, a unit of Seven & i Holdings – has become a prime example of the phenomenon of “McDonaldisation in reverse,” in which a business model originally developed in the West is adapted overseas and reimported by the motherland.
Jollibee now has more than twice as many outlets overseas as domestically, with South Korea’s Compose Coffee, Coffee Bean & Tea Leaf and Vietnam’s Highlands Coffee among its biggest foreign brands. International sales including franchises jumped 27 per cent last year, almost three times the pace of the Philippine business.
RELIANCE ON HOME MARKET
Yet aggressive expansion doesn’t tell the whole story. The group still relies overwhelmingly on its home market for profit. It generated 112.5 per cent of the group’s net income last year after deducting expenses, interest and taxes.
The international businesses, despite healthy growth in operating income, collectively lost money.
The outlook for the offshore unit remains patchy, even if there are bright spots. The drinks business has emerged as one of the strongest performers, led by the South Korean and Vietnam coffee outlets. The beloved chicken brand’s North American expansion is also going well.
But the picture is less rosy elsewhere. Smashburger, the US burger chain Jollibee took full control of in 2018, has been struggling and is still being restructured. China, battered by a general downturn in retail spending, has also been a weak spot.
PUBLIC LISTING CAN WAIT
None of this is an argument for keeping Jollibee’s domestic and international businesses together.
Since January, when the New York listing was announced, the food chain has been building the governance, financing and organisational structure needed for each to operate independently. It has also named Chief Financial Officer Richard Shin to lead the global business full-time once the separation is complete.
But the listing can wait. Jollibee should give the international business at least another year to improve before asking public-market investors to evaluate it. The Smashburger franchise, for one, will need more time for a menu revamp and US$4.99 value offerings to gain traction.
Giving the international operation its own management and balance sheet should make it easier to judge which brands deserve more investment and which need fixing, or even exiting. Investors would also get a cleaner set of standalone financials and a better sense of how much profit can be generated overseas.
The extra time is a small price to pay to prove that the global business can stand on its own.
Source: Bloomberg/ch
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