Below is the transcript of an interview with Jollibee Foods Corporation President and CEO Ernesto Tanmantiong. The interview will play out in CNBC's latest episode of Managing Asia on 26 April 2019, 5.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan: Sir Ernesto, thank you so much for talking to me, it's good to see you again after all these years. Jollibee has grown from just two ice cream parlors in the 1970s to about 4,300 stores in 21 countries. Did you and your brother, who is the founder, ever think the company would grow this fast and this big?
Ernesto Tanmantiong: Well, we never thought that we would grow this big, but my brother Tony always likes to dream big. So when we were operating the two ice cream parlors in the seventies, the goal at that time was to be number one in all the ice cream parlors in the Philippines.
C: He knew back then, he wanted to be number one?
E: Yes, that was already the aim, to be number one. Then when we started introducing hamburgers and transforming the ice cream business into a hamburger business, the goal was to be the number one hamburger chain in the Philippines. At the same time, we were already thinking of expanding abroad. When we achieved the number one position in the Philippines, then he dreamed bigger and said that we have to be the largest restaurant company in Asia. In 2014, we were able to achieve that and he set his goal further and said we should be the top 10 in the world in terms of market capitalization. When we reached that and hit the top 10, the aim now became even higher, to be one of the top five restaurant companies in the world in terms of market capitalization.
C: So tell us, how is it that a homegrown company like Jollibee with such humble beginnings end up having such a bold ambition to become the number one restaurant company in the world? How did that come about?
E: Well, it started with the passion to excel in the business. My dad always used to tell us when he was operating a Chinese restaurant in Davao City, that if you're a restaurant company, you have to make sure that the food really tastes good – that's when people really enjoy eating. If you are a tailor, you make sure that the suit really fits the client well. So that has been our guiding mission, which is to provide great tasting products and provide the joy of eating to everyone. So that has been the goal, to satisfy our customers, and the JFC company just keeps on growing because of that.
C: Apart from your homegrown brand Jollibee, in the past few years you have acquired many brands like Smashburger and Chowking. You've also got the rights to operate the Burger King and Dunkin' Donuts franchises in some markets. What sort of food empire are you trying to create here?
E: We wanted to focus our core competencies in food service because that's what we are good at. And our plan is to continue to expand the vision to become one of the top five QSR companies in the world. To do that, we are looking at a two-pronged strategy – one is to have a strong organic growth and two, to make strategic acquisitions at the same time. We looked at the global market and we identified 'three pillars', which are the Philippines, China and the U.S., because these are some of the big economies in the world. We intend to replicate the successes of the Philippines in China and the U.S. At the same time, we intend to expand the Filipino brand of Jollibee globally, which is the flagship brand of JFC.
C: Let's talk about the U.S. because last year, you completed your acquisition of the U.S. burger chain, Smashburger – I believe the largest acquisition the company has ever made, and you've also acquired a stake in Mexican chain, Tortas Frontera, which also is a U.S. brand. What's next? Are you looking to acquire more U.S. food brands? What are you eyeing potentially?
E: Yes, we intend to. We are open to exploring new acquisitions and our focus is on companies that have strong superior products and the potential to grow, so that the conception can be scalable. We are looking at companies that more or less fall within the quick-service restaurant segment or the fast casual segment. The reason why we acquired Smashburger and Tortas was because they fall into that category. Smashburger has one of the best tasting hamburgers in the world and we think it has great potential to expand, not only in the U.S., but also outside the States. Similarly for Tortas Frontera, we were lucky to form a joint venture with the renowned chef Rick Bayless and we also believed that the torta sandwich that they serve can go beyond the U.S.
C: These acquisitions are also part of your overall strategy to generate half of your sales from outside the Philippines, from the current 30 percent. What sort of time frame are you looking at?
E: Today, the foreign businesses comprise 30 percent of the entire JFC business. We're looking to be able to achieve the 50-50 ratio in maybe five to seven years. That is not to say that the Philippines should stop growing, because the Philippines continues its very strong growth. We just need our foreign businesses to double their growth and additionally, acquire new businesses.
C: How many more brands do you think you might have to acquire to get Jollibee Foods to meet the target of 50 percent?
E: Today, the Philippines has more than 3,500 stores. The other 1,000 is coming from the foreign businesses. So we see the Philippines continues to grow and therefore we're looking at a total of 10,000 stores – where 5,000 will come from foreign businesses and 5,000 from the Philippines – in the future.
C: So it doesn't just hinge on acquisitions, it hinges on organic growth?
E: Yes, organic growth as well. So we are fortunate that last year, in 2018, the entire JFC sales grew by 23.7 percent and profit rose by 17 percent. Last year, we also opened more than 500 stores globally, the most number of new stores in a year. We think that that's the formula for growth and the formula to achieve our vision. We need to grow organically as well as do strategic acquisition.
C: Last year was your fastest expansion ever, as you said, 502 stores worldwide. How do you hope to do this year? Will you exceed that target this year?
E: Well, we hope to do the same because of the opportunities around the world and the Philippines continue to grow, and our international markets continue to grow. For instance, last year Jollibee brands hit several milestones by opening in new markets. We opened our first store in the U.K., in Milan and also in Toronto, Canada. So we intend to grow in these existing markets while opening in new markets.
C: What are your expansion plans this year? What's your pipeline looking like?
E: We intend to open almost the same number of stores as we did last year, plus for the Jollibee brand, we're thinking of entering into new markets.
C: Which markets will you focus on?
E: We just entered Malaysia and at the end of this year, we intend to open our first store in Rome, our first store in Rome and in Spain. We also opened our first store in Guam this year and we're looking at other markets like Australia, Indonesia and other Southeast Asian countries.
C: What's going to drive your expansion plans? Will you explore the opportunity of using franchising or are you going to do it all yourself?
E: In our expansion plans, we actually have a mix of joint venture full franchising and some that are corporate owned. So we're flexible in the setup for our expansion.
C: You're expanding in a time where there are concerns about rising inflation and slower growth, and your shares have been feeling some pressure as a result. How are you managing rising costs when you're seeing so much growth uncertainties? How much can you pass on to your customers?
E: Yes, that's a good one. (Laughs) In the last 40 years, we have actually gone through high and low inflation rates, and we were able to overcome these challenges. What we do is we try to work closely with our partners and our suppliers, and try to see where we can save on cost through efficiencies.
C: Where do you think you can squeeze out costs further?
E: One is through the process of manufacturing as well as in the operations in our commissaries and our stores. We also try to do some sales mix introduction, with combo meals and other combinations of value meals in order to bring up the efficiency and at the same time satisfy the customers' needs, because with inflation rate, their purchasing power's going to be less.
C: So you try not to increase food prices as much as possible?
E: As much as possible, we try to do modest increases because our consumers belong to the mass market and they are quite price-sensitive.
C: Last year Jollibee Foods posted higher profit and revenues. How do you expect to do this year?
E: We're optimistic about this year, especially in the Philippines, because this year is going to be our election year and in the Philippines, every election year is our peak year. So we are optimistic that we'll be able to do the same or even better.
C: So you're hoping to get a big boost from the elections?
E: Yes, elections spending. Inflation rate is going down and infrastructure spending is going up, so we expect there will be a lot of money going around the market.
C: Midterm elections happen in May, what sort of outcome are you expecting?
E: Well, we expect consumer spending to be high and therefore the market to be very progressive. We will continue to open new stores and expect existing stores to grow as well.
C: Midterm elections happening in May. What sort of political outcome are you expecting?
E: Oh, okay. We think it will be like the past elections. There will be a small transition of power and the economy will continue to grow as projected.
C: So no political concerns?
E: No concerns as JFC has been in the Philippines business for the past 40 years and we've gone through all the political changes. We just continue to make sure that our consumers are served properly and satisfied. In a small way, as a private company, we helped the nation through our Jollibee Group Foundation. So we have this Farmer Entrepreneurship Program where we help the farmers supply us directly and cut the middleman. So their earnings have actually quadrupled with this arrangement. Our second program is the 'Busog, Lusog, Talino', which is a School Feeding Program. We set up almost 33 kitchens around the country to feed the public school pupils.
C: When you look at the elections, how much of a boost will it be to your profit and earnings this year?
E: Based on our past experiences in the election years, sales usually grew by 10 to 20 percent. So we hope to see the same thing happen this year.
C: Jollibee opened its first store in New York in October last year. That was highly anticipated. Was it true that some people queued up for as long as 20 hours just to get into the store?
E: Yes, we're quite happy with the warm reception of the people of Manhattan visiting our stores. In fact the first customer who queued in the line was actually an American, not even a Filipino. We have a group of friends, office workers and families who brave the cold season and the cold weather just to enter our store.
C: What was business like on the first day? Do you remember?
E: It did very well and it went far beyond our expectations. What pleasantly surprised us was the number of non-Filipinos visiting our stores. We observed that actually 50 percent of the customers who went to our stores were actually non-Filipinos.
C: I'm looking at your menu right now, what is about what you serve here that makes it such a big hit with the non-Filipino market?
E: We're fortunate that our Chickenjoy is universally accepted, not only by the Filipinos overseas, but also non-Filipinos. That's why in the stores outside the Philippines, we have a brand description: 'Jollibee, home of the famous Chickenjoy.'
C: So you're going after the fried chicken market in the U.S.?
E: Yes, and our product is unique because it's 'crispylicious' on the outside and 'juicylicious' on the inside.
C: That sounds like an advertisement. (Ernesto laughs) What's the secret recipe that you put into your chicken that makes it so successful?
E: Yes, we put a lot of effort into making sure that the recipe is really superior tasting and universally accepted.
C: When you look at your menu across all your other outlets, are they the same? How different are they across the various markets that you've opened?
E: What we have across the market are the flagship products. So these are the Chickenjoy and the spaghetti. The first entry strategy was to cater to the Filipino market and then over time we try to cross over to the mainstream market. So for instance in Singapore, when we noticed that many of our customers preferred spicy food, we introduced the spicy Chickenjoy right away in Singapore market. We also offer the chicken burger that is available only in Singapore and other developed countries.
C: How price-sensitive are you when it comes to serving this fast food market? Do you have to be really price-sensitive?
E: Yes, especially in the segment that we are in. The QSR segment is a very price-sensitive market and there are a lot of competitors in the market. So you really need to price correctly and make sure that they are valued by the customers.
C: Since your acquisition of Smashburger in the U.S., the burger chain has yet to turn a profit. Will it happen this year?
E: Not this year. In the acquisition of new companies, it usually takes us two to three years to improve the system, the store operations and the value for money to our customers, based on our experience.
C: You're pretty ambitious about what you want to achieve in the U.S. but you're up against some pretty formidable competitors. We're talking about big fast food giants like McDonald's and KFC. In terms of size, you're less than a quarter of what they are. You think you can be a significant player in the U.S. market?
E: Not in the immediate future. The beauty of our company is that we invest for the long term. We plan to grow slowly but sustainably for the long term, and in the future we expect to be a major player.
C: So you hope to give KFC and McDonald's a run for their money?
E: Hopefully in the future. (Laughs)
C: Should they be worried?
E: Probably not, because we're just very small in the U.S. market. (Laughs)
C: You also have plans to expand in China, which right now makes up about 10 percent of your overall sales. You currently run a Dunkin' Donuts franchise in China, but you don't have any Jollibee stores in China, is that correct?
C: Why? What's holding you back?
E: Our strategy for Jollibee brand expansion is to first focus on the overseas Filipino markets. From there, we build the base and slowly cross over to the mainstream market, which is the local market. We have done that successfully in Hong Kong and in Singapore. So today, in Hong Kong we have eight stores and what we notice is that 40, 50 percent of our customers are already local Chinese. It's same with Singapore – we have six stores today and similarly, 50 percent of our customers are now local Singaporeans. So that's the strategy. And in China, hopefully in the near future we will be able to enter the market.
C: What sort of time frame are you looking at? When will you open your first Jollibee store in China?
E: We're looking at within five years, where we should be able to do that.
C: What's holding you back? What are your concerns?
E: First, we wanted to prioritize the overseas Filipino markets because we have been asked by our overseas Filipinos to open Jollibee stores in their markets. So for instance when we were opening our London store, there was an Austrian who passed by and he just wanted to go into the store. At that time we were still closed for the inauguration and we told him that we were still closed and asked him to come back next week. He said wasn't from there and was from Austria. But he's not a Filipino so when I asked him how he knew of Jollibee, he said he had many Filipino friends in Austria and they've been telling him about Jollibee. So he said, you better open first otherwise I'll ask all the Filipino friends in Austria to petition you. (Both laugh)
C: So you're getting a lot of encouragement?
E: Yes, yes.
C: You also opened your first store in the U.K. last October amid much fanfare. But there are concerns about Brexit in that country. Are you worried?
E: No we, we think that the consumer market is still very strong regardless of a Brexit or not. That is based on the response of the customers that we have seen – customers were willing to queue for 18 hours on the first day of business. We've also been receiving questions on when we will open in other cities in the U.K. So we see a big potential for the fried chicken market in U.K.
C: So you're going after the fried chicken market in London.
C: How big are your expansion plans for the U.K. market and for the rest of Europe?
E: For U.K., we're planning to open 25 stores in the next five years and another 25 in the rest of Europe. The reason why we're quite optimistic is because of the big and warm response on the first day of opening, where customers waited for 18 hours to visit our store. We see there's a big potential for the fried chicken market in the U.K.
C: So Jollibee Foods now has 14 brands under its belt. Where do you see the company five to ten years from now? Do you have ambitions to become a billion-dollar company in terms of earnings one day?
E: Yes. We expect to reach that goal, once we achieve our vision of being one of the top five QSR companies in the world. Today, our revenue is around four billion dollars and our income is about 150 million dollars. So once we reach the vision, we should hopefully be able to achieve that one billion.
C: What sort of time frame are you looking at?
E: Oh, it's going to be a long journey because what we notice is that from top ten to top five, there's a big gap and it will take years. Hopefully within my generation. (Laughs)
C: What was it like, do you remember, competing with McDonald's in the early years? Did people think you guys were crazy?
E: Yes, it was very hard. In fact when, we learnt that McDonald's was coming into the country, friends were telling us to shy away from the competition, do other businesses and to not try confronting the global giant. But what we did was to have a strategic planning internally. We did a SWOT analysis on our strengths, our weaknesses and what the gaps were. After that strategic session, we came out quite confident. So instead of chickening out, we jokingly said, we actually serve Chickenjoy. (Both laugh)
C: No pun intended. (Both laugh) Tony is the Chairman, while you sit as the CEO. What's it like working with your brother?
E: Well it's quite challenging because of his vision. He's actually the Executive Chairman, so he does all the M&A while we do the execution to help him achieve the vision. So it's quite challenging but very fulfilling.
C: You're his blood brother, so are you both alike or different?
E: Different, but there are some similarities.
C: Like what?
E: Maybe in the look? (Christine laughs) People think we are twins when he's actually five years older.
C: Do you get mistaken a lot of times?
E: Yes, when he's actually five years older than me. We both have similar believes and principles in life. We built the organization with the belief that people are the best asset and that's where the 'Jollibee' name came from. When we were starting the business, we said that the organization should represent a group of people who work together, who are hardworking and produce something productive. So at that time, we thought of bees as the best symbol for what we wanted in the organization.
C: Who came up with the idea of having a bee as the mascot?
E: It was Tony. Yeah because at that time he loved going to Disney Land and he saw Mickey Mouse and Donald Duck, and he said he was going to create a Jollibee as loveable as the Disney characters. The reason we thought of Jollibee was because at that time, he said that if people are hardworking but they're not happy, it's not worth it. So he combined the word 'jolly' and 'bee'. That's how the Jollibee mascot came about. We also ensure that the entire organization lives up to that name, so we make sure that the core personal values of our people and our leaders are aligned with our corporate values, our shared vision and our mission.
C: Your brother is Executive Chairman as you rightly pointed out and you're the CEO. How do you carry out decision-making within the company? Who actually calls the shots?
E: We actually have four brothers working in the company. What's nice about us is that we have different strengths and different perspectives. For instance, Tony's a chemical engineering graduate, my third brother William is a civil engineering graduate, I'm a business management graduate and my youngest brother is a management engineering graduate.
C: You have different strengths.
E: So we have different strengths, different training and different perspectives. So when there is a disagreement, what we do is we combine all those discussions from different perspectives.
C: Does it happen often?
E: Sometimes it happens, but what we do is we respect the strengths of the person. So for instance, if it's a real estate issue, then it's William who calls the final shot. When it's an acquisition issue, then obviously, it's Tony. So what we do is we respect the strengths of the person and try to decide based on that agreement.
C: So you always work out the disagreement in the end? Everyone's happy?
E: Yes. Everyone's happy because of those differences and similarities.
C: As CEO of Jollibee, what sort of leadership do you try to provide as you transform Jollibee from a homegrown company into a truly global restaurant business?
E: Because the company has a bold vision, therefore it cannot be handled by one person. So we always look at the entire JFC team as one big family to help us achieve the vision. Because of that, we make sure the leaders that we invite to join the company are aligned with our vision, mission and values. That's very important because once these are aligned, then they are empowered to do what they think should be done to help build the company.
C: You have four brothers working within the company, is there a next generation waiting to take over?
E: The beauty about JFC is we professionalized the company in the early years. Actually, we did that as early as in the late seventies. We made sure that family members were placed in positions they were competent in. Since then, many professional leaders have joined us. This is part of the succession plan that we intend to carry out.
C: And finally, Jollibee Foods today has about 4,500 outlets in 21 countries. What sort of global footprint do you see the business having in the next five to ten years?
E: In the next five years we intend to double the number of countries that we're operating in.
C: So, 42 countries?
C: That's pretty ambitious.
E: Yes, we see a very big potential for Jollibee. We feel that the market is actually just waiting for us.
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