Jollibee to continue stinging McDonald’s despite labor issues

Jollibee Foods Corporation’s largest brand has been experiencing some financial challenges since July 2016 due to the rising cost of raw materials and contractualization issues in the Philippines. But despite these, the homegrown fast-food chain expects to maintain its lead against rival McDonald’s Philippines, driven by its network expansion and product innovation.

Jollibee, known for its Chickenjoy fried chicken and sweet spaghetti, told the Philippine Stock Exchange that the brand expects to maintain a “significant lead” over its key competitor in the coming years.

This was despite two price increases last year due to higher raw material costs and the Philippines’ new regulations on contractualization, which resulted to increased labor expenses.

“These price increases did not adversely affect consumer purchase volume regardless of income class. Over the past years, the pricing of Jollibee had been at parity with key competitors,” Ysmael Baysa, chief finance officer and corporate information officer of Jollibee, told the local bourse on Wednesday, March 29.

Baysa said this in reaction to an analyst report from Macquarie, saying that McDonald’s has been closing in on Jollibee in terms of preference and that the new labor rules could affect its leading position in the Philippine market.

Baysa said Jollibee has been incurring the costs of those steps since the 3rd quarter of 2016.

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Because of this, Jollibee said the cost of labor will be higher in the first half of 2017 versus the same period in 2016. However, the labor cost increase in the 2nd half of 2017 over the same period of 2016 will be at a normal rate.

At present, Jollibee already has 978 stores nationwide, while McDonald’s has 521 stores.

David and Goliath

McDonald’s had said that it plans to open 45 stores this year, while Jollibee said it continues to enjoy higher sales in the Philippines based on its latest financial report.

Jollibee’s same store sales growth in the Philippines in 2016 stood at 8.3%, driven by higher customer traffic and higher amount of purchases per visit per customer compared with a year ago.

Moving forward, Jollibee said the growth in its brand in the Philippines will continue at a strong pace, at least sustaining the number of new store openings in the past two years.

“The Jollibee Group of Companies had faced many challenges in the past. It had emerged stronger from these challenges and its profit recovered quickly. It has one of the most consistent sales and profit growth track records among all public companies in the Philippines, while sustaining one of the highest returns on equity (ROE) at 18% to 22% annually over different economic cycles,” Baysa told the local bourse.

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Overall, Baysa said Jollibee’s share in burgers, fried chicken, and spaghetti “actually increased in 2016 from its key competitor,” which is McDonald’s.

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