Jollibee sees Coffee Bean, Smashburger acquisitions paying off in 2021

MANILA, Philippines — Despite the pandemic keeping many people indoors, Jollibee Foods Corp. is expecting its loss-making acquisitions to turn to growth next year.

The first to book profits, Tony Tan Caktiong, company chairman and founder, said would be Coffee Bean & Tea Leaf. The American coffee chain should go back in the black as early as the first quarter of next year. 

“We expect Coffee Bean’s performance to improve by the fourth quarter of this year and become profitable by next year 2021,” Tony Tan Caktiong, company chairman and founder, said during Jollibee’s annual stockholders meeting held via Zoom.

“We believe the Coffee Bean brand is one which can resonate and be loved by consumers globally beginning in Asia to the US,” he added.

Smashburger, another US-based fast-food chain owned by Jollibee, is also targeted to swing to profits next year, driven mainly by closure of some of its 350 stores deemed to have been underperforming way before the pandemic struck.

Building a food empire, Caktiong’s Jollibee acquired Smashburger in December 2018 and followed through with a buyout of Coffee Bean in September 2019, both of which however have proven to be more of a financial liability to the otherwise strong homegrown food brand.

Jollibee paid a total of $445 million for Smashburger, $110 million of which was settled in 2018. Coffee Bean, on the other hand, was gobbled up by Jollibee with a $350-million price tag. Since then however, the Jollibee group’s profits slowly dwindled, dropping 14.4% year-on-year in 2019, before turning red in the first quarter of 2020 with the pandemic’s impact acting as the final nail.

Sought for comment, Nicky Franco, vice-president for research at Abacus Securities Corp., said a full-year loss for the Jollibee group this year is all but certain, and it is not just because of the coronavirus outbreak’s tempering impact on customers.  

“There’s a term I saw recently – ‘kitchen sinking’ which means management will probably recognize all the losses and clean up everything this year so that 2021 and beyond will look much better,” Franco said in an online exchange. 

“Market consensus is already for a loss this year so it shouldn't be surprising,” he added.

Apart from Smashburger, Franco said cost-cutting measures must also be enforced at Coffee Bean to trigger growth, a matter already started with Caktiong saying work of the coffee chain’s back-end office had been transferred to Jollibee’s shared services in the Philippines.

Apart from that, “building and strengthening the brand’s leadership team” is also underway, he said without citing specifics. In addition, Caktiong said Coffee Bean’s “synergies” with Highlands Coffee, another Jollibee firm, would “drive profitability and sales for the brand.”

With many staying indoors for a while, Jollibee has allotted P7 billion to boost its digital services, while closing down some branches, following loyal customers too afraid to dine out using an improved delivery service.  

But Caktiong said acquiring more businesses to boost growth and expand Jollibee’s footprint remain on the table.

“Acquisitions have always been a part of our growth strategy. We remain open to opportunities that might arise but as always we are very selective and stringent with our acquisitions,” he said.