Philippine fast food giant bets big on Korean F&B industry’s potential
The Philippines’ Jollibee Foods Corp. (JFC) is poised to take over a Korean fried chicken franchise, Norang Tongdak — translated literally as “yellow chicken” — following its acquisition last July of the Korean low-priced coffee shop chain Compose Coffee.
Its aggressive expansion has been interpreted as a signal of its optimistic outlook for the Korean food and beverage industry, despite intensifying competition in a market with low entry barriers, high price sensitivity and poor brand loyalty.
According to industry officials on Wednesday, JFC’s Korean subsidiary was recently selected as the preferred bidder to acquire a 100 percent stake in Norang Food, the operator of Norang Tongdak, for about 130 billion won ($95 million) by August from two private equity firms — Corstone Asia and Q Capital Partners.
The deal is reportedly backed by Elevation Equity Partners, another private equity firm that financed JFC’s acquisition of the entire stake in Compose Coffee for about 470 billion won.
“If this acquisition is finalized, it would signify increasing efforts by Jollibee Foods to expand in other Asian markets such as Korea,” said Douglas Kim, an analyst at SmartKarma, a Singapore-based investment research firm.
When the company acquired Compose Coffee, JFC Chief Financial Officer Richard Shin, who chairs the coffee shop chain’s board, vowed to focus on the Korean market over the next five years, denying speculation about the opening of Compose Coffee outlets in the Philippines.
At the time, the Korean Canadian executive also remained cautious about opening Jollibee restaurants in Korea, citing differing palates for fried chicken between Korean and Filipino consumers.
“Although we think about it once in a while, South Korea is not necessarily a top priority due to that intense, competitive market,” he said last year. “Fried chicken is a bit tougher. We need to do our homework a little more before entering South Korea with Jollibee.”
Industry officials are paying attention to whether the Philippine company will once again overcome concerns over Korea’s food and beverage franchise sector and trigger other foreign buyers to acquire domestic restaurant brands put up for sale.
Hiring BTS’ V as a spokesmodel, Compose Coffee posted an annual operating profit of 40 billion won last year, up 8.9 percent from the previous year. Norang Food has maintained solid earnings, posting an operating profit of 12.7 billion won last year, a 10.9 percent increase from a year earlier.
“If Jollibee is able to pay about 130 billion won to 160 billion won for a 100 percent stake in Norang Food, this would be a reasonable acquisition price range,” Kim said. “Although the chicken franchise business is highly competitive with relatively low profit margins, Norang Food has managed to carve out a decent market share and profit margins.”
Source: Korean Times
