JOLLIBEE Foods Corp. (JFC) expects achieving payback on its acquisition of South Korea’s Compose Coffee within five to six years, a company official said.
“Even if we take a very modest growth rate, just based on new franchisees, roughly 30 to 40 new franchisees per month are opening stores. If you just add that in, you get to a decent growth rate. With that growth rate, there’s no reason why, in five to six years, we should not be able to hit payback on this (Compose Coffee),” JFC Chief Financial Officer Richard Shin said in a virtual briefing on Thursday.
“In terms of reaching break-even, because it’s quite lucrative and profitable purely from the cash that it generates, we will likely have a very quick payback. We’re looking at it more from the return on invested capital (ROIC) perspective,” he added.
Earlier this month, JFC announced the acquisition of Compose Coffee for $340 million to bolster the company’s coffee and tea business. The company expects to complete the acquisition by the first half of August.
Mr. Shin said that JFC has no plans to introduce Compose Coffee in other countries, such as the Philippines and China, as the company is focused on expanding in South Korea.
Compose Coffee had 2,612 stores as of June and is ranked second in the value coffee segment industry in terms of the total number of franchisees, with over 1,900 franchise stores by the end of 2022.
“We see significant growth opportunities just in South Korea. Compose Coffee has an 8% market share. There’s plenty of focus and opportunity. We’re very focused on South Korea for at least the next five years,” he said.
“If there are experienced individuals who would like to explore China as franchisees, we wouldn’t necessarily say no, but we are not investing our capital in that direction. China is a tough market,” he added.
Mr. Shin also said that Compose Coffee will not compete with JFC’s other existing coffee brands, such as The Coffee Bean & Tea Leaf (CBTL), as the latter caters to the premium segment while the former serves the value segment.
“We don’t see it as competition. We actually see it as better synergy and a better portfolio play for us with coffee in South Korea because we now have the value segment, which we don’t have any brands in, and the well-established CBTL,” he said.
At the same time, he said that South Korea is not among the new markets being considered for the Jollibee brand due to differing palates.
“It’s a massive segment, and if Jollibee ever wants to enter South Korea in the fried chicken space, we really have to know what we’re doing because it’s a very different palate. Koreans have a very different palate for fried chicken,” he noted.
“Although we think about it once in a while as a new market entry for Jollibee, South Korea is not necessarily a top priority due to that intense, competitive market. Fried chicken is a bit tougher. We need to do our homework a little more before entering South Korea with Jollibee,” he added.
On Thursday, JFC shares fell by 1.75% or P4, ending at P225 apiece. — Revin Mikhael D. Ochave
