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In race to top, Jollibee moves down supply chain

Jollibee Foods Chairman Tony Tan Caktiong, left, with Philippine President Rodrigo Duterte and Ise Foods Chairman Hikonobu Ise.

TOKYO/MANILA -- Jollibee Foods, the Philippines' leading fast-food purveyor, is learning to be its own supplier to improve quality and cut costs as it pursues a goal of becoming No. 1 in Asia.

The Manila-listed company signed an agreement with Ise Foods, Japan's top egg producer, on Oct. 26 at a ceremony in Tokyo attended by visiting Philippine President Rodrigo Duterte. His presence attested to the high hopes surrounding the partnership.

Plans call for building a 4 billion yen ($38.7 million) poultry farm outside Manila. Work on the 1.2 million-bird facility will begin this year, with a goal of starting egg shipments next August.

Jollibee picked Ise for its "know-how and technology gained over the years," founder and Chairman Tony Tan Caktiong told The Nikkei in an interview in Tokyo.

In business for more than a century, Ise produces 20 million eggs a day. Its eggs fall onto a conveyor belt as soon as they are laid, to be sorted and checked for cracks by an automated process that removes human handling. Ise makes this lack of a human touch a selling point -- any unnecessary warming of the eggs reduces their freshness, the company says.

Caktiong entered the fast-food business in 1978, selling meals of fried chicken and spaghetti. As the business grew, it expanded overseas to cater to the many Filipinos working abroad. As of June 30, Jollibee had 3,735 restaurants worldwide. That makes it roughly the same size as Japanese groups Zensho Holdings and Yoshinoya Holdings, but with a market capitalization of 255 billion pesos ($5.28 billion), it is far more valuable.

Like other growing fast-food or retail companies, Jollibee has moved to exercise greater control over its supply chain. This led to its tie-up this year with U.S. grain major Cargill, with which it is building a poultry-processing facility on Luzon with an investment equivalent to roughly $5.81 million. Able to process 45 million chickens a year, the facility will shorten preparation times at restaurants by supplying them with cut, marinated meat.

Jollibee's domestic sales rose 17.9% on the year in the April-June quarter, but overseas growth lagged at 3.7%. In China, where it operates Chinese-food restaurants, sales fell 5.7% amid competition from Western chains, coffee shops and convenience stores.

Caktiong attributed any slowness in China to problems with restaurant management, pricing and service rather than macroeconomic factors.

"Our [Chinese] business is in the lower-price mass market," he said. "High-end expensive restaurants are affected by the economy, but the mass market is still OK."

Jollibee's supply chain transformation is meant to sustain its aggressive expansion. The company plans to add locations at a pace of more than 300 a year. In China, it has taken full ownership of a food-processing unit to ensure tighter control over the safety of its ingredients.

"We are a very flexible company," Caktiong said, describing Jollibee as eager to enlist outside partners. One example is Dunkin' Donuts. In China, Jollibee runs coffee shops bearing the American chain's brand. This operation is just 10 or so locations now, but the company has set its sights on increasing the number to 1,400 in 20 years.

The U.S. chains' ratio of doughnut-to-coffee sales is 3:7, but in China, the numbers are the other way around, Caktiong explained. With coffee becoming part of China's culture, Jollibee sees room to make the drink a mainstay of its Chinese business, he said.

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