Jollibee's International Spinoff Makes Sense, but the Hong Kong IPO Can Wait: Bloomberg Opinion
Key Takeaways
- •Jollibee Foods will spin off its international unit and list it in Hong Kong instead of the United States, without committing to a specific IPO date.
- •International sales, including franchises, grew 27% last year, nearly three times the pace of the Philippine business, and overseas outlets now number more than double the domestic count.
- •The domestic business generated 112.5% of the group's net income last year, while the international operations collectively lost money despite growth in operating income.
- •The coffee and drinks portfolio, led by South Korean and Vietnamese outlets, is a strong performer, whereas Smashburger remains under restructuring and China has been weakened by a retail spending downturn.
- •CFO Richard Shin will lead the global business full-time after the separation, and columnist Juliana Liu recommends waiting at least another year before the public listing so the unit can improve.
By Juliana Liu | Bloomberg Opinion
Jollibee Foods Corp. has spent two decades building a global restaurant empire, and separating its fast-growing international business from its mature domestic operations makes strategic sense. But in a Bloomberg Opinion column, Juliana Liu argues that the Philippine fast-food powerhouse should not rush to take the new company public.
The Manila-listed food and beverage group, best known for its signature fried chicken and sweet spaghetti, confirmed earlier this month that it plans to spin off its overseas unit and pursue an additional listing in Hong Kong, abandoning an earlier proposal to float the division in the United States. Although the company had previously targeted late next year for the initial public offering, the latest announcement did not specify a timeline. That flexibility is sensible, Liu writes, because the international unit is not yet ready to operate independently.
The logic behind the split is compelling. Jollibee has effectively become two businesses: a seasoned, profitable operation at home and a rapidly expanding overseas portfolio of restaurant and coffee brands, including Smashburger, dim sum chain Tim Ho Wan, and Chinese fast-food outlet Yonghe King. A separation would give investors a clearer choice between the dependable cash flow of the Philippine enterprise and the greater growth potential of the international business.
The group has come a long way since 1975, when founder Tony Tan Caktiong, a trained engineer, began selling ice cream in Manila. Burgers were added three years later, followed by spaghetti and the signature Chickenjoy fried chicken. Those menu additions helped Jollibee withstand competition from American giants such as McDonald's Corp. and KFC, which is owned by Yum! Brands, Inc.
International expansion initially followed the Filipino diaspora before the company began acquiring foreign brands in the early 2000s to build a business with global reach. Sociologist Jan Nederveen Pieterse has written that Jollibee — along with Japan's Yoshinoya Holdings Co. and 7-Eleven, Inc., a unit of Seven & i Holdings Co. — exemplifies "McDonaldization in reverse," a phenomenon in which a business model originally developed in the West is adapted overseas and reimported to its place of origin.
Jollibee now operates more than twice as many outlets overseas as it does 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% last year — almost three times the pace of the Philippine business.
Yet aggressive expansion tells only part of the story. The group still relies overwhelmingly on its home market for profit: the domestic business generated 112.5% of the group's net income last year after deducting expenses, interest, and taxes. The international operations, despite healthy growth in operating income, collectively lost money.
The outlook for the offshore unit remains uneven, even with clear bright spots. The drinks business has emerged as one of the strongest performers, led by the South Korean and Vietnamese coffee outlets, and the chicken brand's North American expansion is progressing well. Elsewhere, the picture is less rosy: Smashburger, the US burger chain Jollibee took full control of in 2018, has struggled and is still being restructured, while China — battered by a broad downturn in retail spending — has also been a weak spot.
None of this is an argument for keeping the domestic and international businesses together. Since January, when the New York listing was announced, the company has been building the governance, financing, and organizational structure each side needs to operate independently. It has also named Chief Financial Officer Richard Shin to lead the global business full-time once the separation is complete.
The listing itself, however, can wait. Liu contends that 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 its menu revamp and $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 receive a cleaner set of standalone financials and a better sense of how much profit can be generated overseas. The extra time, the column concludes, is a small price to pay to prove that the global business can stand on its own.
