Jollibee Gobbles Up Mang Inasal for P3B

Jollibee Foods Corp. bought 70% of Mang Inasal Philippines for a whopping P3 Billion.  Press say it's because Mang Inasal is an emerging competitor, and Jollibee wants to cement its position as the top and biggest food service provider in the country.

If that's the case, why hasn't Jollibee gobbled up KFC or Kenny Rogers Roasters? Why hasn't it bought out burger chains Burger Machine and Minute Burger?  Under the assumption that the owners of these establishments are open to selling out to the food industry's Goliath, why has Jollibee chosen Mang Inasal over everyone else?

My take:

Jollibee does not need KFC because it clearly lords over the latter in the fried chicken category.  Jollibee also wins over Burger Machine and Minute Burger pound per pound in terms of advertising, location and branding so it does not make sense to acquire them, at least not at this point.   While Kenny Rogers Roasters competes with Jollibee in catering to the chicken-loving market, its segment is different from that of Jollibee;  Roasters caters mostly to the B market, while Jollibee gets the C market apart from the B segment.  Moreover, Jollibee has recently introduced roast chicken into its menu and may probably introduce more that directly compete with Roasters, if necessary.

So why Mang Inasal? What about it has threatened or attracted Jollibee enough, that prompted Jollibee to make the acquisition?

Threat to Sales

Mang Inasal is an emerging competitor, and its Chicken Inasal is relatively new to the market, as far as the Product Life Cycle is concerned.  Jollibee's no. 1 product, Chicken Joy, on the other hand, has been in the market since the 1980s.  Chicken Joy may have now reached its retirement in the cycle, and Chicken Inasal's freshness therefore directly threatens Chicken Joy sales.  (KFC's fried chicken has been in the market since the late '80s; Kenny Rogers Roasters, the '90s. But neither have solidly threatened Chicken Joy sales ever.)

In addition, Mang Inasal's sulit meals at P50 are more pocket-friendly to the C market, versus Jollibee's 1-piece Chicken Joy meal at P83.  (Jollibee's 1-piece Chicken Barbecue is also priced higher at P79.)  Competing with Jollibee's 2-piece Chickenjoy (P130)  is Mang Inasal's value meals, priced P99. In terms of chicken portions they are equal, but for only P99, Mang Inasal diners get all the rice they want.

Franchise Loss

Jollibee may lose potential franchisees to Mang Inasal because Mang Inasal charges only P800,000.00 in franchise fees, compared to Jollibee's (reported) P30 million.    Assuming the same ROI or the same earning potentials, P800,000 is 30 times easier to put up than P30 million.  Additionally, exposure from losses is greater in an investment of P30 million and 30 times less in an investment of only P800 thousand.

The ROI and earning potentials of Jollibee and Mang Inasal however, are not equal.

Jollibee has saturated the entire country with corporate stores and franchisees; even if investors are able and willing to buy a Jollibee franchise, they would be hard put to find a location where they will not share the market (ergo, sales) with another Jollibee outlet.  That is not the case though with Mang Inasal, which has a lot of room to grow in Northern and Southern Luzon.  The first few franchisees scooping good locations will monopolize sales and rake up solid returns on their investment.

If Jollibee were to lose even just three potential franchisees to Mang Inasal, it loses P90 million in earnings from franchise fees, while it takes only ten new Jollibee franchisees to recoup the cost of buying Mang Inasal.

Stock Shocks


Mang Inasal is gearing to go public, targeting for Initial Public Offering (IPO) by the first quarter of 2011, as announced in their September 2010 newsletter.   While Jollibee's shares are on a climb, the entry of blue chips has historically affected the performance of stocks of the same industry.  It is likely that some investors will trade Jollibee shares in order to buy into Mang Inasal, while new ones could opt to buy Mang Inasal shares over Jollibee shares.  Either way, Jollibee shall be directly threatened by Mang Inasal's stock offering.


Can't Beat Them? Buy Them!


What exactly Jollibee plans to do with Mang Inasal is left to be seen, but I believe that in buying Mang Inasal, Jollibee did not intend to squash the competition, but rather to benefit from its potential and growth.  Jollibee now owns 70% of Mang Inasal, and so stands to gain 70% of all that Mang Inasal has in store in terms of product sales, franchise sales and stock market profits.

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I am 9 units short of obtaining my MBA degree at DLSU.  I am AWOL, with the demands of work and family life narrowing chances of ever going back.  Sigh. I kinda miss the late nights spent analyzing and writing business recommendations and solutions.  So humor me as I indulge in a little MBA exercise, such as this one, from time to time.  This will make up the new section of this blog, which I'd call "Business Class." :)

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5 comments:

jeeny said...

I have been visiting various blogs for my MBA dissertation writing research. I have found your blog to be quite useful. Keep updating your blog with valuable information... Regards

Olive Joy said...

egads...i fear we are in the same predicament and i am unable to find the desire to finish it.

Olive Joy said...

ugh, reminds me of my own predicament :)

FrenchFryRai said...

"If Jollibee were to lose even just three potential franchisees to Mang Inasal, it loses P90 million in earnings from franchise fees, while it takes only ten new Jollibee franchisees to recoup the cost of buying Mang Inasal."

Isn't it supposed to be 100 new Jollibee franchisees? 10 x P30M is only P300M.

FrenchFryRai said...

"If Jollibee were to lose even just three potential franchisees to Mang Inasal, it loses P90 million in earnings from franchise fees, while it takes only ten new Jollibee franchisees to recoup the cost of buying Mang Inasal."

Isn't it supposed to be 100 new Jollibee franchisees? 10 x P30M is only P300M.

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