Jollibee Foods Corporation (A) From the brief description in the case, ascertain the underlying structure and economics of the fast food industry. The fast food industry began in California and spread throughout the world. THe major goal was to serve time-constrained customers by providing good-quality food in a clean dining environment and at a low price. Profitability depended on high customer traffic and tight operations management. Store location was critical as it involved large investments and high fixed costs. Also key were strict operations management and tight control on costs.
Service also had to always be up to standard. Efficiency was key when it came to labor. In order to succeed and develop brand recognition, stores needed to franchise to expand quickly and gain economies of scale. Though franchising was necessary, it was important to keep chains consistent and reliable. On the basis of this understanding from 1 above, how was Jollibee able to build its dominant position in fast food in the Philippines? What sources of competitive advantage was it able to develop against McDonald’s in its home market?
Jollibee had the first mover advantage in the Philippines market as well as a strong understanding of the Philippine consumer. Because they were able to enter the market before McDonald’s and gain dominant presence they were able to set the standard that McDonald’s was held to. They were also able to gain market share that McDonalds then had to take from Jollibee which is more difficult than gaining market share when you are the only fast food option. Because the founders and workers were all Philippine, they were able to tailor the menu to Philippine tastes. Jollibee burgers beat McDonald’s burgers in taste tests every time.
This knowledge of Philippines and Philippine culture helped Jollibee gain greater market dominance when the Philippines underwent a period of political instability when one of their leaders was assasinated. Unlike foreign investors, who were off-put by the instability, Jollibee invested heavily in Philippine enterprise and was able to use that as an advantage over McDonalds when the country became stable and McDonalds began looking to invest. How would you evaluate Tony Kitchner’s effectiveness as the first head of Jollibee’s international division? Does his broad strategic thrust make sense?
How effectively did he develop the organization to implement his priorities? Tony Kitchner was not very effective as the first head of Jollibee international. Though he brought a wealth of knowledge and experience, it seemed he did not understand how to apply the best strategy to international expansion for Jollibee. The first mistake he made was to come in and create such a large new international division. This created too much friction with the domestic division. If he wanted to expand effectively he should have leveraged the knowledge and experience that the domestic division had as that was key to their competitive advantage and success.
His strategy seemed to be just to expand as far and as fast as they could: “planting the flag” as he called it. He should have been more selective and knowledgeable about the locations which he chose to expand to, and more involved in the operations during the first year of operations for franchises in new countries. Instead of thoroughly researching the areas he chose to expand to and understanding the tastes and values of the different cultures, he targeted expatriots which proved to be an ineffective strategy.
In order for Jollibee to brand themselves internationally they cannot focus solely on getting Philippinos to eat there. He should have researched how to appeal to the domestic population of the places he was expanding to. He also should have made sure that first franchises in countries were profitable before adding a larger presence in any of these countries. Kitchner wanted to expand fast to get their name out there before other fast food places could get into other countries, to gain the first mover advantage but he neglected to make sure the name was going to be associated with well-run, successful restaurants.
This is not a good strategy for such a small company. Although his strategy was misguided, he did deftly develop the international division to implement his priorities. He was able to provide enough “corporate” support to the franchises to allow them to open and operate effectively and quickly. Though this harmed his relationship with domestic, the international division was well-equiped to carry out his goals. As Noli Tingzon, how would you deal with the three options described at the end of the case? How would you implement your decision? OPTION 1: Invest in Papua New Guinea
I think he should invest in Papua New Guinea. Though the population is small compared to the Philippines (5mil compared to 75 mil), there is currently no viable competition in the fast food industry. They also have an enthusiastic and willing investor who is willing to put up the capital for the stores, which removes a lot of risk for Jollibee. OPTION 2: Expand in Hong Kong Tingzon should not expand further in Hong Kong. The stores that are currently there are struggling to adapt to the Chinese market and the original store seems to be the center of Phillipine expat traffic.
In order to expand in Hong Kong, Tingzon should first get the stores that are currently operating in China back on track. Some of their biggest problems are their lack of ability to attract Chinese workers, and their inability to appeal to Chinese tastes. These are fundamental problems that will not be fixed by adding more stores and gaining more brand recognition. These are core problems that will continue to be problems in new stores. Figuring out how to solve these problems for the existing stores should be his focus for now. OPTION 3: Invest in California
Tingzon should invest in California. They have a 40% investor lined up already and one of the largest Phillipine expat populations yet. It has been proven in prior expansion that at least the first store opened in an area with a high population of Phillipines would be successful and it is appealing that there is not a high concentration of fast-food places in the area. Tingzon should be careful however that the stores do not become a pride symbol of “putting stores in McDonald’s backyard. ” Having too much pride associated with the stores will cause the company to lose site of its objectives.