Email Spotting

Received this in the mail today. My brother said that Jollibee also recently bought Red Ribbon.

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MANILA – Sometime in the late 1970s, Tony Tan Caktiong, the owner of a small ice cream parlor in a lower- middle-class neighborhood here, learned that an American hamburger chain was coming to invade the Philippines.

Worried that his store, which had just started selling burgers,
might get floored by the new competition, Tan Caktiong, a Filipino of Chinese descent, took a leaf from the Chinese military tactician Sun Tzu: he flew to the United States to know his future enemy.

When he returned to the Philippines a few weeks later, Tan Caktiong brought with him an arsenal of ideas on how to fortify his store, called Jollibee, to face the newcomer.

What followed was a classic tale of survival that quickly became a Filipino legend that is now being retold in the country’s business schools, often with a tinge of nationalistic pride directed against the U.S. burger chain in question, McDonald’s.

Tan Caktiong had no choice but to reinvent Jollibee.

"He was told that either he sold Jollibee to McDonald’s or be its franchise holder here. ‘They will eat you alive,’ his friends told him," said John Victor Tence, vice president for corporate and human resources of Jollibee Foods.

Described by friends as self-effacing and frugal but determined, Tan Caktiong told his friends, "I have a third choice: I can fight McDonald’s."

And fight he did, using as weapons the very things that made McDonald’s successful: the mascot, the colorful uniforms of the crew, their cheerful greetings, French fries, fried chicken and a burger aimed at Filipino tastes and priced much lower.

"He brought the standards of Jollibee notches higher, at least on par with McDonald’s, by basically copying what McDonald’s was doing," Tence said.

By the time McDonald’s put up its first store here, in 1981, it no longer offered anything new. Jollibee, meanwhile, was already prepared, having opened nine branches and started an aggressive marketing campaign. Jollibee entered the list of the top 1,000 corporations in the Philippines that same year. By 1984, it was in the Top 500 list and dominated the local fast-food market.

The Philippines, The Economist magazine wrote in 2002, "is a huge embarrassment to McDonald’s," citing a Taylor Nelson Sofres study showing that Jollibee was the "most often visited" fast-food restaurant in the country.

Jollibee had grown so big and confident that, in 1986, it opened its first store overseas, in Taiwan. It was a sign of things to come. In 1998, Jollibee would encroach on McDonald’s home territory, opening its first U.S. store in Daly City, California, which has a large Filipino population.

Today, Jollibee has more than 500 stores in the Philippines and 25 in other countries, selling more than half a million burgers every day. McDonald’s has about 250 outlets in the Philippines, according to Cerwin Eviota, a public relations consultant for the chain.

Aside from the United States and Taiwan, Jollibee also has stores in Indonesia, Hong Kong, Saipan and Brunei, as well as in Vietnam, where sales grew 46 percent in the first quarter of 2004.

Jollibee Foods also embarked on an ambitious expansion program domestically and overseas, and not just for its flagship stores.

It bought Chowking, a popular Filipino fast-food chain that sells mainly Chinese food; it is now the dominant Chinese fast-food chain in the Philippines and has even entered the Indonesian market. Jollibee also acquired the local franchise for Delifrance, a French café and bakery chain.

It also bought Greenwich, a small pizza chain that has grown larger in the Philippines than another American giant, Pizza Hut. And it acquired Yonghe King, a fast-food chain in China. All in all, Jollibee Foods has 1,186 stores in nine countries, including 120 in China.

Jollibee is now the largest Filipino food company, with sales of 21.7 billion pesos, or $397 million, in 2004, up 13.7 percent from a year earlier. Sales in the first quarter of 2005 were up almost 20 percent.

Yonghe King sales in China grew 27 percent in the first quarter. All its other stores are doing well, with Delifrance increasing its sales by almost 32 percent in the first quarter of 2005.

The value of Jollibee stock has grown 28 percent since last year, and it was the best-performing domestic stock on the Philippine stock exchange.

Jollibee’s business, said Jose Vistan of AB Capital Securities, "will be driven primarily by their expansion in other countries like China and the robust domestic market." Vistan forecasts Jollibee’s profit for 2005 at 1.83 billion pesos, a jump of 21 percent from last year.

According to company officials and food experts, Jollibee owes its success to the fact that it respects local tastes. Unlike McDonald’s, which was constrained by its obligation to remain faithful to its core products, Jollibee was flexible.

Gene Gonzalez, a restaurateur and food consultant who runs the Center for Asian Culinary Studies based in Manila, said Jollibee adjusted its burger to taste like the meatballs that Filipinos like eating. "Unlike Americans, Filipinos do not like pure beef patties, which can be bland. They like their burgers to taste like meatballs,
which are stronger-flavored, with flavor extenders – spices, garlic, onion, celery," he said.

It helped that Jollibee makes sweet spaghetti, which is a turnoff to foreigners but loved by Filipinos, particularly children. It also offers Filipino fare like palabok – vermicelli noodles topped with sauce and fish flakes – and arroz caldo – rice porridge with chicken bits.

"These did not taste fast-foody at all," Gonzalez said. "The Jollibee palabok is decent palabok." Jollibee, he said, has a "good understanding of Filipino culture and taste."

Tence said that as the company expanded to more countries, it would use the same model.

"Initially, our thrust was to target Filipinos overseas, but we learned that targeting Filipinos was simply not enough," he said.

Then there is the culture factor. As part of its strategy to counter the Western image of McDonald’s, Jollibee’s marketing campaign promoted Filipino values like respect for elders, patriotism and loyalty to the family.

"Jollibee had this big marketing campaign that appealed to Filipino sentiment," Gonzalez said. Instead of running ads in English, as McDonald’s did, Jollibee ran ads in Tagalog, the Filipino language.

It may be hard for McDonald’s to match that, but it is certainly trying. This year, the McDonald’s Philippine franchise became 100 percent Filipino-owned, which gave its owners some flexibility. George Yang, the Filipino-Chinese chairman of Golden Arches Development, the local McDonald’s franchisee, now has taken a leaf from Tan Caktiong’s book.

Yang said that his full acquisition of the franchise here would enable McDonald’s to "give our customers even more by being more sensitive and responsive to their changing tastes and wants and by adding a local flavor to our product range."