Jollibee's Global Strategy: Comparing Growth With McDonald's

Introduction

Jollibee was founded in 1975 in Cubao, Philippines, and the company was incorporated in 1978 (Layug, 2009). Jollibee grew rapidly, offering a menu consisting mainly of Western foods and following a business model inspired by McDonald's. One of the main reasons Jollibee has become such a success both in the Philippines and abroad is that the company has been able to execute this foreign business model to a high degree of excellence. This essay analyzes the success of Jollibee and draws direct comparisons between Jollibee's and McDonald's business models to show that much of Jollibee's success relates to following this foreign business model. The essay breaks down Jollibee's strategy into a number of key components to better understand how it has earned both its international and domestic success.

Jollibee began expanding shortly after becoming incorporated under that name, and by the 1980s was moving into nearby international markets such as Taiwan and Brunei. The company has always maintained an international orientation, focused on a Western menu, and undertaken a number of other strategies that mirror those of Western fast food chains. The company adopted the mission of providing Western fast food to Asian audiences, alongside a goal of expanding throughout the Asia-Pacific region and further into the United States.

History and Mission

From the beginning, Jollibee adopted McDonald's tactic of appealing to children, so that it could win customers at a young age and retain them as they grew older. To this end, the company settled on the name "Jolly Bee," which was later shortened to "Jollibee," and based its bee mascot on a cartoon character. Its menu is also built around foods that children enjoy, such as fried chicken, hamburgers, and hot dogs (Layug, 2009). The company has leveraged this strategy to build its appeal, especially in the domestic market. Its success today can be partly attributed to the foundations it laid with the current generation of young adults, who grew up on Jollibee in the late 1970s and 1980s and are now bringing their own children to the brand — fueling strong future potential.

Jollibee's early international expansion targeted markets that ultimately had low growth potential. When combined with the perceived saturation of the domestic market, these experiences bolstered the company's desire to expand into larger overseas markets. The two most important of these are the United States and China. The company's market entry and operating strategies in those two countries differ from its approach in the Philippines. Jollibee has succeeded in part by emulating the strategies and tactics of Western fast food companies — especially McDonald's — across its menu, marketing approach, internal systems, and human resources practices. Where Jollibee has diverged from the McDonald's approach is in its international expansion strategy: it has avoided direct competition with McDonald's in both the US and China, though this deviation may not be the most effective long-term path.

Three key strategies have a direct impact on Jollibee's success: operating, marketing, and international expansion. The operating strategy is modeled on the standard Western fast food chain. When Jollibee began, there were few if any such operations in Asia, let alone the Philippines. This allowed Jollibee to enjoy first-mover advantage in setting up the logistics systems needed to facilitate not only the fast food business model but also its replication across locations. Similar to McDonald's, Jollibee built strong relationships with its suppliers and has continued to use its buying power to drive volume discounts and keep costs low for customers. Maintaining a supply chain advantage over Western rivals that have since entered Jollibee's key markets is important; to that end, Jollibee has worked to build relationships with local farmers (Lamentillo, 2011) and operates a sophisticated program known as the JFC Supply Chain Project (Jollibee, 2011).

Operating, Marketing, and International Expansion Strategies

At the individual restaurant level, Jollibee has successfully imitated the operations management of Western fast food companies. Jollibee locations have a similar layout to Western fast food chains and function in much the same way: orders are taken at the front, food is prepared quickly by a team in the back, turnaround time is short, and prices are kept low. One of the most important benefits of the franchise model is that a company gains competitive advantage when it has a system that works and can be easily transferred from one location to another (Goldberg, 2011). The key to Jollibee's international expansion — just as it has been for Western fast food chains — is that it developed an operating model that can be used anywhere, by anyone.

Marketing strategies closely imitate those of Western fast food outlets. Marketing to children is a primary tactic: the company name, cartoon mascot, and menu all appeal directly to young customers. Jollibee restaurants are also designed to cater to families — they are easy to clean, with open formats that encourage family interaction and discourage adults-only dining. The use of mascots to attract young children has been a staple of McDonald's promotions for decades. Jollibee reinforces this approach by hosting children's parties, running the Jollibee Kids Club and the Jollibee Kid's Meal, and offering other family-oriented promotions (Inquirer.net, 2011). These programs mirror those of McDonald's, which hosts birthday parties, supports children's charities, and has achieved tremendous success with the Happy Meal. The underlying logic is that when children want to visit a child-friendly restaurant, the whole family follows — and those children eventually become lifelong customers. While this tactic has faced criticism in the West for its perceived cynicism (Melnick, 2010), such controversy has not yet translated to the Asian market and has not meaningfully harmed fast food businesses in North America either.

Another element of the marketing strategy is achieving a strong distribution presence. In fast food, distribution is essentially restaurant location, and chains typically operate with saturation distribution — many locations clustered relatively close together. For Jollibee, the base distribution strategy focuses on both domestic and international expansion. The company has consistently opened new restaurants as the Philippine economy has grown, ensuring a presence in major shopping areas and malls to reach the greatest number of consumers.

The international expansion strategy is an outgrowth of the distribution strategy. The company first expanded internationally in the 1980s to nearby locations such as Taiwan and Brunei, and has since built its profile across other Asian countries and expanded to the United States. Because the Philippine economy remains highly tied to overseas remittances (Flores, 2009), long-run success requires international expansion as a primary growth engine. For the franchisor, such expansion not only builds the global strength of the Jollibee brand but also brings valuable foreign exchange through new franchise owners. As of 2010, overseas growth projections called for approximately 100 new stores abroad, bringing the international share of revenues to 25% by 2013 and 50% by 2017 (GMA, 2010), with focus on the US, China, Vietnam, and the Middle East.

The push into the US market came when fewer new Asian countries were deemed worth entering. Jollibee recognized that the California market was saturated with fast food chains, but that it also had a strong Filipino population that would support a Filipino brand. This was the company's entry point into the US, where growth potential was high if it could differentiate itself from other chains. US operations are still growing and are beginning to expand beyond the Southern California base.

China was targeted specifically because of the size of its market and seemingly unlimited growth opportunities. Unlike other expansions carried out under the Jollibee brand, the company chose a different means of entering China. It operates over three hundred locations there, but most use local names and serve Chinese food under the brands Yonghe King and Hong Zhuang (Montecillo, 2011). This stands in contrast to the approach of Western chains such as McDonald's and KFC, which have made few concessions to local taste and instead asked local populations to adapt to them. Jollibee has also pursued acquisition as a means of entering China — including the purchase of the fast food noodle chain San Pin Wang — rather than its usual method of licensing its name and systems to local franchise partners. This allows Jollibee to build its Chinese presence quickly, but it is difficult to justify foregoing the Jollibee brand and business model in a market as important as China, especially given that Western-style fast food has proven highly successful there.

The pros of the Chinese strategy include the ability to establish a large outlet network rapidly and generate income regardless of brand. The cons, however, are significant: using different brands and formats is not typical for fast food international expansion. Neither McDonald's nor Yum Brands — which operates Pizza Hut and KFC in China — uses this approach. Those companies leveraged capital and proven business models developed in Western markets to finance Chinese expansion. For Jollibee, China is the second-largest market and comes relatively early in the development of its international presence, which may explain why the company has felt a need to deviate. Nevertheless, the strategy of clustering around non-competing segments — rather than challenging McDonald's directly — appears consistent with Jollibee's broader historical pattern of avoiding head-to-head competition with Western chains it cannot yet outcompete.

Conclusion

In China, the market entry strategy of acquisition is sound given the importance of building scale quickly. However, Jollibee must recognize that its current brands are selling Chinese food in China — which is not differentiated. While this can be done successfully, as the Japanese chain Ajisen demonstrates, it is not the strategy Jollibee used in its home market and not the strategy McDonald's employs overseas. Furthermore, operating noodle shops does not leverage Jollibee's core competencies, systems, staff expertise, or any of the capabilities that drove its domestic success. Jollibee needs to fundamentally rethink its China strategy. Buying growth may appear attractive in the short run, but long-term success requires doing something that competitors cannot easily replicate.

Jollibee has been highly successful in the Philippine market and moderately successful in its overseas expansions. In smaller nations where it has deployed its core brand and systems, the company has enjoyed consistent success. In larger countries, however, Jollibee's strategy has allowed it to build out a network of locations while leaving significant growth potential unrealized, because the company has deviated from the domestic strategies that made it dominant at home.

When McDonald's expands overseas, it does not deviate from the strategies that made it successful in the United States — and this consistency allows it to flourish in foreign markets. Jollibee used its version of the McDonald's strategy to dominate the Philippine fast food market, and it needs to apply that same formula when it goes abroad. In the United States, this means offering a meaningfully differentiated menu. In China, it means introducing the Jollibee brand and core menu offerings rather than hiding behind acquired local brands. Adhering to these principles will play to the company's strengths and allow it to grow more rapidly — and more profitably — in both markets going forward.