Jollibee risks indigestion with US coffee deal

[HONG KONG] Jollibee Foods is risking indigestion with its acquired taste for coffee. The US$5 billion Philippine fried chicken and burger chain is buying Caifornia-based retailer The Coffee Bean & Tea Leaf (CBTL) for US$350 million. The deal gives Jollibee 1,189 stores, over 400 of them in fast-growing South-east Asia. But the company is losing money in the battle with Starbucks and other entrenched rivals. A quick turnaround looks unlikely.

Jollibee wants to be one of the world's top-five restaurant groups, and is looking to do so through acquisitions. It finished gobbling up Smashburger, a Denver-based chain, last year; Reuters reported it also explored a bid for British sandwich chain Pret A Manger in 2017. This deal will be chairman Tony Tan Caktiong's biggest international takeover, and makes coffee his company's second-biggest business line behind its flagship Jollibee chain, which outsells McDonald's and KFC on its home turf.

But the deal could be a misstep. Owned by investors including US buyout giant Advent since 2013, CBTL generated US$313 million in sales last year. That's up 4 per cent from 2017, but the company also lost $21 million. The acquisition of Smashburger is still dragging on earnings, and now Caktiong wants to accelerate CBTL's growth in Asia, which could mean further financial strain.

Jollibee shares closed 8 per cent lower on Wednesday following the news, and fell a further 8 per cent in early trading on Thursday.

Coffee consumption in South-east Asia has grown at an average annual rate of 6 per cent in the last 25 years, according to the International Coffee Organization, compared to 2 per cent in the rest of the world. But competition has been fierce. Starbucks has already cornered more than half of the existing market in the Philippines and Indonesia, and is the biggest player in Singapore and Malaysia too, Euromonitor reckons.

CBTL's share of those markets was much smaller, at 6.2 per cent, 10.3 per cent, 23.2 per cent and 7.6 per cent respectively as of 2018. Caktiong will need to sell a lot of cups of coffee to win back love from his investors.

Jollibee Foods of the Philippines has agreed to buy California-based retailer The Coffee Bean & Tea Leaf from investors including US private equity firm Advent International.

The total consideration for the acquisition is US$350 million excluding debt.

REUTERS