Group 3 Analysis OF Michel Porters FIVE Forces JFC Final PDF

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nullIn Partial Fulfillment of the Requirements of the Subject B-BABD001 Basic EconomicsANALYSIS OF JOLLIBEE FOOD CORPORATION: A MICHAEL PORTER’S INDUSTRY STRUCTURE MODEL APPROACHSubmitted by: Gabriana, Yvette Cyril R. Hernandez, Mariah Therese O. Filomeno, Jurf Joy Emmanuel G. Sabarillo, Julianne Ni...

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In Partial Fulfillment of the Requirements of the Subject B-BABD001 Basic Economics

ANALYSIS OF JOLLIBEE FOOD CORPORATION: A MICHAEL PORTER’S INDUSTRY STRUCTURE MODEL APPROACH

Submitted by: Gabriana, Yvette Cyril R. Hernandez, Mariah Therese O. Filomeno, Jurf Joy Emmanuel G. Sabarillo, Julianne Nicole A. MKA 22 Submitted to Ms. Alice Valerio De La Salle University – Dasmariñas February 08, 2020

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TABLE OF CONTENTS

I.

Introduction ……………………………………………………………

3-4

II.

The Company’s Dominant Economic Features ……………………...

4-5

III.

Porter's Five Forces …………………………………………………...

5-14

i.

Threat of New Entrants (or barriers to entry) ……………..

5-7

ii.

Threat of Substitute Products or Services …………………..

7-9

iii.

Rivalry ………………………………………………………..

9-11

iv.

Bargaining Power of Buyers ………………………………...

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v.

Bargaining Power of Suppliers ……………………………..

13-14

IV.

The Drivers of Change in the Company and Impact They Will Have ...15-16

V.

Strongest/Weakest Positions …………………………………………… 16-18

VI.

Key Success Factors (KSF) for Competitive Success ………………… 19-20

VII.

Company’s Attractiveness and Prospects for Long-Term Profitability 20-24

VIII.

Summary and Implications …………………………………

IX.

References …………………………………………………………….. 27-30

X.

Researchers Roles and Parts ………………………………………

24-27

30-31

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I.

INTRODUCTION

The fast food industry is one of the most fast paced industries. It is where mass produced food served with a speed of service offered to customers. These are usually cooked in bulk hot meals and sandwiches which were kept hot and ready for take away and can be offered in tables. These restaurants are typically branches or franchises supplied by standardized ingredients or ready to cook meals controlled by their main channels. This sector serves almost half of the market and often serves the middle to low class of the population. One of the well-known fast food restaurants in the Philippines is the Jollibee Foods Corporation, also known for their yellow and red bee character mascot, operates several branches around the Philippines, in which they focused on the unique taste of the Filipino market. Their main focus is to offer Filipino inspired meals which differs from the usual American menu. JFC specializes on Filipino inspired chicken, spaghetti burgers and other famous Filipino dishes. Jollibee is also known for their great customer service and employee values. Their company has a unique way on how their values reflect which were shown in their marketing and advertising. They know how to attract customers: the focus on family values and creating a positive outlook in life with their caption ‘Bida ang Saya.’ Their remarkable commercials touched the heart of their customers which made them the number one family friendly fast food restaurant in the Philippines. Aside from franchises, JFC has been expanding itself locally with the purchase of other sister brands such as Chowking, Greenwich Pizza, Red Ribbon Bakeshop, Mang Inasal and Burger King Philippines. The company competes with several multinational companies in the

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country and now they have been starting expanding internationally including in the United States and China with their vision to take over the world with Filipino cuisine. II.

THE COMPANY’S DOMINANT ECONOMIC FEATURES

Jollibee Foods Corporation (JFC) runs the largest chain of fast-food restaurants in the Philippines. Jollibee has a reliant source of raw materials for vegetables, cereals and animal produce, at significant quantities and stable prices. Jollibee has more than 3000 branches in the Philippines and has 200 more on international branches. Jollibee Foods Corporation is one of the largest and fastest growing Asian restaurant companies in the world. Jollibee is cited as one of the leading companies in Asia by the Far Eastern Economic Review. Jollibee's system-wide sales increase to P8. 29 billion which translates to a market share of more than 50% among all hamburger fast food chains. For JFC, customers are no. 1. Its operations adapt to customers' wants. JFC maintains a small to reasonable Net Profit Margin, ensuring that prices are cheap without compromising quality. JFC has also shown that its flavors adapt to what the customers demand. JFC creates new items that would suit the customers’ taste. Thus, it is not uncommon to see the JFC menu differ from one region to another. JFC is in a market that has a lot of competition. In the past, JFC’s strategy was to buy-out its competitors. This strategy is effective to reduce the competitors of Jollibee and may still work now with new entrants to the quick service restaurant industry. JFC continues to expand its brand portfolio to cater to different market segments and establish business presence across the Philippines through organic growth and acquisitions to boost growth and profitability. Jollibee

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experienced rapid growth that was able to withstand the entry of McDonald’s in the Philippines in 1981 by focusing on the specific tastes of the Filipino market, which differed from the American fast-food company. Jollibee Foods Corporation current life cycle is in the shake-out phase which is during this phase the sales continue to increase, but at a slower rate, usually because of the approaching market saturation or the entry of the new competitors in the market. In 2018 the total system wide sales of JFC are ₱212,185,435 with a net income of ₱7,641,586. In 2019 the total system wide sales are ₱243,792,179 with a net income of ₱6,422,916. In the first quarter of 2020 the total system wide sales were ₱55,151,268 with a net income (loss) ₱2,073,515 the company obtained a net loss due to the closure of the market because of the coronavirus pandemic. In the second quarter of 2020 the total system wide sales are ₱30,678,472 with a net income (loss) ₱10,171,224. III.

PORTER'S FIVE FORCES

JFC has been operating in the Philippines and now even internationally through different methods to enhance their strategic management that can address their external environment in the food sector. They adjust their strategies depending on what threat of new entrants, threat of substitution, competitive rivalry in the industry, bargaining power of buyers and the bargaining power of suppliers. i.

Threat of New Entrants (or barriers to entry)

Is usually known as the market entry barriers. Normally high barriers to entry will keep potential competitors away from the industry and low barriers to entry will enable more competitors to enter into the industry if, especially when the industry returns are high (Porter,

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1990). Threat of new entrants reflects how new market players impose threats to the existing market players. If the industry will be profitable and barriers to enter the industry will be low, it will attract more players and hence, the threat of new entrants will be high.

Jollibee Foods Corporation will be facing high new entrants threat if: 

Existing regulations support the entry of new players.



Consumers can easily switch the brands due to weak/no brand loyalty.



Initial capital investment is high.



Building a distribution network is easy for new players.

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Retaliation from the existing market players is not a discouraging factor.

Here are some factors that reduce the threat of new entrants for Jollibee Foods Corporation:



Entry in the industry requires substantial capital and resource investment. This force also loses the strength if product differentiation is high and customers place high importance to unique experience.



Jollibee Foods Corporation will face the low threat of new entrants if the existing regulatory framework imposes certain challenges to the new firms interested to enter in the market. In this case, new players will be required to fulfill strict, time consuming regulatory requirements which may discourage some players from entering the market.



The threat will be low if psychological switching cost for consumers is high and existing brands have established a loyal customer base.

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New entrants will be discouraged if access to the distribution channels is restricted.

ii.

Threat of Substitute Products or Services

Products or services of Jollibee is that the products arise from those different types of foods or services to which customers can turn to satisfy their same needs or demands. The main reasons people choose fast food is because it is convenient, clean, and with the best value. Therefore, an example of substitute products is those frozen foods in the supermarkets. The Frozen Reheatable food offers strong competitive threats against the normal fast food, because it provides a similarity needs and taste.

JFC or known as Jollibee Foods Corporation is popular to have high availability of substitutes which is considered as a strong force in the market. Many fast-food chains are rising and even all sorts of food establishments in the food industry. Jollibee is the all-time favorite of Filipinos specifically, children, because of its Filipino taste that captures our heart. With that basis, with the help of the sudden increase of food deliveries many establishments grow that provide low price products which give the same function, to get us filled. Now, in the product quality equalizes with Jollibee the risk is high from the substitute, a strong force in the market as well. Another strong force though not need to worry about of Jollibee Foods Corporation is the satisfactory performance since JFC has established their brand for years, it is also known to satisfy Filipino families for over decades which give them a low risk when it comes to that. Price can be considered a medium risk in the industry mainly if we take Shakey’s Pizza Parlor or Max’s Restaurant since they offer high-price products.

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If we look around, there are many substitutes for Jollibee. It may be dining in restaurants or simply by doing it at home. These options strengthen the threat of substitutes for Jollibee especially if you consider the costs, quality, taste, and other criteria. However, a threat of substitutes will highly affect JFC if only an enterprise would rise that would fulfill Jollibee’s legacy in the industry. To sum it up, this particular aspect of Porter’s Five Forces analysis points out that the threat of substitutes would not highly affect Jollibee’s operation.

Number of substitutes

As of 2019, there are 92,011 food service establishments in the country including restaurants, fast food chains, kiosks and counters, bars, hotels, cafeterias and cafes and catering services.

Buyer Propensity to substitute

Since JFC offers unique taste with their products it is the very reason their loyal customers go. Which in that case, the propensity to substitute is low unless the demand for the product in a specific branch is high that couldn’t accommodate customers in their available time that leads them to go to or find a substitute that is convenient for them. Switching Costs

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The only reason for the inability of a consumer to avail Jollibee is the lack of finance to afford one or in need of spending less. Otherwise, it is very rare for loyal consumers of Jollibee to substitute, so switching costs are low.

The relative price of performance of substitutes

The cost effectiveness of substitutes is mainly for saving trips into going to Jollibee, if they choose to do home-cooking or buying instead into a convenience store or even a kiosk/booth which offers lower price than the former. In that scenario, this particular attribute is a high risk for substitutes. iii.

Rivalry

JFC is in a market that has a lot of competition. Jollibee top brand competitors are McDonald’s corp. and Yum! Brands Inc. which operates KFC. There is also another industry which is a high rivalry for Jollibee such as Max’s Restaurant, Shakey’s, and a lot more food industries. The threat of new entrants reflects how new market competitors impose threats to the existing market competitors. If the industry will be profitable and barriers to enter the industry will be low, it will attract more competitors and hence, the threat of new entrants. will be high. There are some factors that increase the Rivalry among existing firms for Jollibee Foods Corporation for example, the company will face intense Rivalry among existing firms if market competitors are strategically diverse and target the same market. The rivalry will also be intense if customers are not loyal with existing brands and it is easier to attract others’ customers due to low

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switching costs. Competitors with equal size and offering undifferentiated products with slow industry growth tend to adopt aggressive strategies against each other. These all factors make the Rivalry among existing firms a major strategic concern for Jollibee Foods Corporation. The Rivalry among existing firms shows the number of competitors that give tough competition to the Jollibee Foods Corporation. High rivalry shows JFC can face strong pressure from the rival firms, which can limit each other’s growth potential. Profitability in such industries is low as firms adopt aggressive targeting and pricing strategies against each other. The Rivalry among existing firms will be low for Jollibee Foods Corporation if there are only a limited number of competitors in the market, the industry is growing at a fast rate, there is a clear market leader, and the exit barriers are low, which means firms can easily leave the industry without incurring huge losses. Jollibee Foods Corporation's main competitor is McDonald’s which has been founded in the Philippines since 1981. McDonald’s selects the site for location of a restaurant and negotiates the location’s purchase or lease. The choice of location is based on a variety of factors such as population density, traffic patterns, and competition. Jollibee's second main competitor is KFC, an American fast-food restaurant that specializes in fried chicken. KFC is a popular eating place for millions of clients, creating the firm considered the biggest fast food restaurants chain within the world. KFC remains one of the biggest eating place chains in terms of numbers of eating places, quantity of employees and income generated.

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Max’s Restaurant is a Philippine-based restaurant serving fried chicken and Filipino dishes founded in 1945. Max’s Restaurant offers a wide range of menu items such as Max's fried chicken, pancit, lumpia and rice, soup, salads and desserts. Today, dynamic individuals interested and willing to invest in the long-standing tradition of quality which Max's Restaurant offers can invest in Max's. Shakey's Pizza is a pizza restaurant chain based in the United States. Shakey's launched in the Philippines in 1975. Shakey’s is a popular pizza parlor in the Philippines and one of the leading operators of Fast Casual Restaurants in the Philippines, focused on family casual dining. Industry Growth Reported December 11, 2020, the Philippines food service establishment market is growing at a CAGR of 4.5% during the forecast period (2019-2024) which includes JFC, McDonald’s, Starbucks and Domino’s Pizza, Max’s Restaurant, and Shakey’s Pizza Parlor. Due to busy lifestyles and rise in value-conscious consumers that are willing to try new tastes, varieties of food to suffice the day without hassle that makes the food service industry to grow. (Marketing Insight Reports). Industry Concentration It is known to many that JFC has many subsidiaries that can be considered as its competitors as well. Jollibee leads the food service market by 37.5% market share alongside its subsidiaries namely Mang Inasal with 8.8% and Chowking with 5.2% which are under the JFC. With those results, it’s evident that JFC is highly competitive and highly concentrated in the market.

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iv.

Bargaining Power of Buyers

The bargaining power of buyers is high due to numerous fast food chain options of the customers especially that the food industry is rising through the years. Local and international restaurants offer the same product variety with Jollibee, which contains no difference with each competitor. Jollibee must create and develop more strategies to maintain loyal customers and attract new customers. The factors are based on the following

Price Sensitivity

Any customers have the ease to transfer to any other competitor since products in this industry are closely related to each other along with their costs which enables the consumer to easily impose their demands on Jollibee. Customers get to choose what fast food restaurants aside from Jollibee due to high market saturation. Numerous fast food restaurants are available in the country, aside from that there are food carts and outlets that the customers can choose from. Due to many competitors, product differentiation is not present in the market. Customers can choose any restaurant since products are similar to what Jollibee has.

Relative Bargaining Power Real versus nominal buying power, customers get to see what they can actually buy and what opportunity costs they can face. Buying power also can be attained through customer loyalty.

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v.

Bargaining Power of Suppliers

The bargaining power of suppliers for fast food chains is low. The availability of raw materials for this industry is always available if not locally, internationally, or simply just in the neighboring countries. For example, if there will be a shortage of rice or a price hike here in the country since rice is the staple food and part of the culture of Filipinos, the most consumed grain. Rice can be imported from Thailand, Vietnam, or Cambodia which are next-door countries to the Philippines. Number and size of suppliers There are 600 poultry farms reported here in the country. The Philippines is known to be the 8th largest rice producer in the world which means a lot of rice dealers/suppliers/producers available. And same with other raw ingredients that JFC needs for their products. However, JFC has a total of 13 commissaries. One of them is Cargill Joy Poultry Meats Production, Inc., which will be the partner of JFC. They will supply the chicken which JFC is known for, too. Uniqueness of each supplier’s product With Cargill Inc., the distinction of them from any other possible suppliers for JFC is that they created a relationship, a bond with JFC by not just being their supplier that gives competitive cost and quality chicken supply, they partnered with their buyer for a strong supplier-buyer relationship, loyalty. A new poultry venture, indeed. Cargill’s goal is to contribute to improving the system of hygiene, food safety, and quality by operating a world-class facility and by setting a high level of partnership with the poultry growers and farmers.

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Another commissary and a full subsidiary of JFC located in Laguna is the Zenith Foods Corporation (ZFC). ZFC produces and supplies JFC with its custom-made mechanized equipment for frozen patties and pies, bread, sauces, hotdogs, and other meat products and dry blended goods. One of the many commissaries of JFC is called the ...