This story appears in the February 10, 2013 issue of Forbes Asia. Subscribe to Forbes Asia
BY SUNSHINE LICHAUCO DE LEON
When Tony Tan Caktiong looks back at his childhood, he remembers tasting things. His father, a chef in a Buddhist monastery in Manila, would return home to cook for his family, making delicious meals from whatever simple ingredients he could find. "My mother would say I was the most difficult to bring up because I was the choosiest in terms of taste, whereas my brothers would just eat anything," recalls the third of seven children. "She would say, 'You are the hardest to satisfy.' "
Starting with two Manila ice cream parlors in 1978, Tan has built his Jollibee Foods into one of Asia's largest home-grown restaurant companies. It boasted 2,581 Jollibees and other fast-food restaurants under various brands as of Sept. 30. Today what he calls Jollibee's "flavorful environment" and his Buddhist penchant for simplicity are on full display at outlets from Saudi Arabia to the borough of Queens in New York City. "We keep things simple and fill a simple need: very tasty food at a reasonable price. To this day I repeat to my people what my father told me--you have to make sure your food tastes really good."
Jollibee's red-and-white bumblebee logo is a familiar sight in the Philippines, where there are now 2,040 outlets after roughly 120 were added in past three years. It controls 18% of the Metro Manila market, compared with 10% for McDonald's, according to a report on last year's third quarter compiled for internal use. That ubiquity has made Tan a billionaire--worth roughly $1.3 billion by FORBES ASIA's latest estimate. Not bad for a restaurant owner whose wife, Grace, says has never really learned to cook.
Now he's pushing an ambitious international expansion. His vision is clear: He wants to become a global player, with a 50-50 split between domestic and international sales by 2020. After a false start or two, the company's 541 overseas outlets--up from 326 at the end of 2009--now contribute 20% to revenue. "It's a challenge to reach 50% because the Philippines is growing fast so the outside has to grow much faster," he says in an interview in his Manila office.
So Tan, who turned 60 last month, is not only adding outlets in the U.S. and other places where large parts of the Filipino diaspora have settled. He's also buying local chains in huge markets such as China and Vietnam that have few Filipinos. Last year Jollibee was the world's fifth-fastest-growing restaurant company outside the U.S. in terms of sales, according to Euromonitor International.
The rapid expansion is boosting revenue while profit margins hold steady. This year analysts expect Jollibee to earn $102 million, or 22% more than last year. Revenue figures to reach $2 billion, double the 2009 sales. Meantime, the stock jumped 11% last year.
A big part of Jollibee Foods' success has been the development of market-leading brands across several categories. Jollibee outlets accounted for 49% of the company's sales, as of September, and that share is slipping as the rest of its brand portfolio--both in the Philippines and abroad--grows faster. In the Philippines the company boasts Chinese fast-food chain Chow King, Red Ribbon bakeries, Mang Inasal grilled chicken outlets, Greenwich pizza parlors and its U.S. chain Burger King franchises. Lovell Sarreal, senior assistant vice president of research at Maybank ATR Kim Eng Securities in Manila, says, "Most competitors have single brands. Having multi-food concepts enables Jollibee to capture a bigger chunk of the dining-out market. For example, a typical customer can eat at Jollibee on Monday, Chow King on Tuesday, etc."
Jollibee made its initial moves abroad confident in the brand loyalty of the 10 million Filipinos working overseas. The company opened Jollibee, Chow King and Red Ribbon stores in the U.S. in the 1980s, and by 2008 it had franchises in Saudi Arabia, Qatar and the United Arab Emirates. A new Jollibee in Jersey City, New Jersey drew lines around the block for days after it opened last June. In the next few months Jollibee will open its first restaurant in Singapore and plans more. Opening Jollibees in places with large Filipino communities will continue, says Tan: "We don't have to advertise when we open in these places. The longing for home is there. It's just packed. They come here because it's the taste of comfort food. When we opened a store in the Middle East, a customer asked me, 'Sir, can you play your old jingle? I want my daughter to hear it.'"
Lyn Mina, a domestic helper in Hong Kong who visits the Jollibee branch in Central on her days off, explains, "All Filipinos love Jollibee because we feel like we are at home." The sight of the bumblebee logo outside of the Philippines fills her with pride: "Jollibee can do what other food chains can do, franchise to other countries. It means that Filipinos can ma ke their name [around the world]."
Jollibee hasn't expanded into Europe, where large numbers of Filipinos work, but Tan is open to it. "Filipinos are asking for it," he says. "And interested parties are asking for a joint venture or franchise. So it's a matter of internal capability and whether we have the people and support team. Right now we have not focused there yet."
But the road to becoming an international force must go through countries without a strong Filipino presence. In China the company opened a Jollibee in Xiamen in 1998 but had to close it three years later. So instead of building its own brand, Jollibee decided to buy already-popular brands and work to improve their strength in the marketplace. "We decided the harder thing to do was marketing the brand, so we buy brands with a following and just have to improve the back end of the operation," says Tan.
Jollibee opened more than 100 Yonghe King fast-food outlets in China over the last two years and now has 288 there; it bought the noodles, rice and dim sum chain in 2004. With its 52-outlet Hong Zhuang Yuan chain, a congee brand purchased in 2008, Jollibee improved the taste of the food, redesigned the restaurants and introduced new products. Last March it paid $6 million for 55% of Chinese beef noodle chain San Pin Wang, which now has 39 stores. Overall sales for Jollibee's China operation rose 20% last year. "We don't even have to launch a Jollibee store in China--these branches in themselves can be a major business," says Tan.
Generating $192 million in revenue last year, China is Jollibee's biggest overseas market, but it's not yet profitable. "Overall, if you include the head-office expense, they are still not making money in China," says Maybank Kim Eng's Sarreal. "It's a tough market, and they are putting in a lot of resources. They are facing competition from brands like KFC and McDonald's, which are bigger in China. Although they are different in food concept because Jollibee's concept is Chinese, they are still fast food. The challenge is to turn around the China operations. The Philippine business is doing very well, but because of the drag in China, if you look at the consolidated financial statements, it's not very evident."
Jollibee won't say how much it loses in China, but it expects to break even in two years. It says its three chains there enjoy a strong cash flow but that the company is investing heavily to generate long-term growth. In 2011 it opened a food processing plant in Anhui Province and built a research and development center and corporate offices in Shanghai. "It is a matter of getting to a certain number of stores and continuously growing our same-store sales to achieve absolute profitability in China," says Tan. "We now have nearly 400 stores. We estimate we need 500 to get to breakeven. We think we can get to that in 2014."
Jollibee is also entering Taiwan with an agreement to join with a subsidiary of the country's largest restaurant-chain group, Wowprime. The partners will own the hot pot dining chain 12 Sabu, which has 18 restaurants in Taiwan and plans for more in China, Hong Kong and Macau; Jollibee is making an $8 million investment. And it broke into Vietnam, spending $25 million in January of last year to buy half of the SuperFoods Group, which operates Highlands Coffee Shops, Pho24 noodle houses and Hard Rock Cafes. That deal expands Jollibee's business in Indonesia, where it had 2 Chow King outlets and now also has 13 Pho24s.
Tan says the company is ready to expand because it's developed a management corps with the right experience in catering to local customs and preferences, but he's aware of the challenges, such as maintaining consistency. "Food development is key, in terms of making sure that the hamburger here and there tastes the same regardless of whether ingredients might be different quality; beef might vary in taste or tomatoes in sweetness," he says. "And as it's a location-based business we need to know the community very well in order to understand traffic flow, where people stay." Understanding that local consumers might have different tastes--Jollibee's products are often saltier or sweeter --the company is open to adjusting recipes if needed. "Core products like chicken don't need to be adjusted because, all over, they love chicken the same, but our spaghetti might be adjusted, as it's supersweet," he says. "For the Filipino market, we just have to do our job very well and it's there. For the others you have to go beyond that. You have to build a brand because they don't know anything about it."
Tan takes a hands-on approach to product development. "If I taste a new product and like it, I will say, 'Wow, this is good, we can do this,'" he says. "But [the] marketing [department] will want a product survey, which takes time. A lot of times I give in to them, but I try to balance the organization. Everyone can do market research. We also need gut-feel."
Tan has been following his instincts since he stumbled into the food business while still in college at the University of Santo Tomas in Manila. He was earning a degree in chemical engineering. "I never thought I would be in the food business," he says. "I liked numbers so I thought I would be an engineer."
But as part of his course work he toured a Magnolia Ice Cream plant with one of his chemical engineering classmates, his soon-to-be wife, and learned of a franchise opportunity. Intrigued, he and Grace decided to open two ice cream shops shortly after graduation. When he noticed that customers were craving sandwiches and saw the growing popularity of hamburgers around the world, he decided to relaunch his business as a hamburger house.
Each had an entrepreneurial streak, so the switch from engineering to running restaurants wasn't that far-fetched. Grace's father was a businessman and helped them get started. And Tan's father had started a small Chinese restaurant after leaving the Buddhist monastery and moving his family to Davao in the south; Tan worked there as a teenager after school. "It was nothing special for ambiance, but it became known for the tastiness of its food," he recalls.
Today the eldest of his three children, Carl Brian , 32, is the company's business development director and focuses on the 12 Sabu venture with Wowprime in Shanghai. Tan also has two daughters who live in California. "I'd like to [have them all work for the company], but we don't force them. If they are interested we will ask them to try. If they like it, the better. If not, it's okay."
At work Tan believes in persuading people instead of ordering them, emphasizing coming to a consensus. He motivates people by delegating and maintaining a strong rewards system. "I learned to be kind to people, so I seldom scold a person in the organization, even in private," he says. "I try to put myself in his shoes--try to imagine how he feels and respond from that point of view. I try to see if he did something wrong, is it intentional? Usually it's not. You try to understand why so you can teach him."
Gerry A. Refugio Jr., the store manager at the Hong Kong Jollibee, says the company's culture is what has kept him with the company for more than 20 years. Of Tan he says: "He has that charisma to move his people, and the strategic capacity."
To keep Jollibee growing, Tan is always on the lookout for new global trends, innovations and technology in the industry. He studies the design and product mix of other fast-food chains such as Wendy's but looks beyond them. "We also look at airlines to see what they are doing on the service side, as we are also in the service industry," he says. "And Disneyland--we learn how they keep their look. It's more than 50 years old but if you go there it looks like it opened yesterday. And people are always courteous."
Investors such as Lindsay Cooper, founding director of Arisaig Partners, a shareholder for ten years who now owns 3.5% of the company, cites Jollibee's strengths. He sees a scalable, long-term growth story based on the rising consumption of fast food, strong brands that cater to local tastes, a dominant market position at home, strong cash flow and strong management. "Jollibee is clearly a thinking organization and continually evaluating the competitive landscape," he says.
If Tan looks forward with a step-by-step sure-footedness, it's perhaps because of his Buddhist background--not just the afternoons spent playing with monks in the monastery where his father worked but also the Buddhist grade schools he attended on scholarships. "I think our destiny is already defined, but you still have to do your best or else that might change," he explains. "We do our best and let God just handle the rest."
FACING OFF WITH MCDONALD'S
In 1981, just three years after starting Jollibee, Tony Tan Caktiong heard some terrible news: McDonald's was about to enter the Philippine market. Tiny Jollibee would soon be in battle with a global giant, both selling hamburgers and soft drinks. "We had a meeting to strategize how we could compete," says Tan. After a long trip to the U.S. to study how McDonald's operated, top managers brainstormed over every attribute that helps decide where customers go to eat and measured how Jollibee compared on each one. "We found that they excelled over us in all aspects--except product taste," he says. "It suited Americans but not really Filipinos. Our [food] tends to be sweeter, more spices, more salty. We were lucky as it was not easy for them to change their product because of their global image."
But even "with better-tasting food, could we really compete?" wondered Tan. "If we want to compete we have to make sure we at least equal them in all the other attributes. It was a challenge because in advertising, promotion, store look, size, playgrounds, service speed, we ranked lower. We focused on the other attributes one by one."
Sometime later "we did a customer survey, and we were surprised we ranked higher than McDonald's on a lot of attributes," continues Tan. "We were surprised customers ranked us higher in courtesy and service style. Maybe they felt we were warmer? And then they liked our marketing, promotion and advertising better. And then customers kept just coming back."
Eventually McDonald's--which added nearly 50 outlets last year in the Philippines and now has 375--introduced new products geared to Filipinos. (It declined to comment on Jollibee.) "They have a Burger McDo, where they tried to Filipinize the burger, and McSpaghetti, because Filipinos really love spaghetti," says Tan. --S.L.D.L.
