Asia’s fried-chicken king takes $2b hit with US gamble

Bloomberg

If 2019 was a bad year for Tony Tan Caktiong, the Philippine tycoon who built a fast-food empire that trounced McDonald’s in his home market, 2020 is shaping out to be worse for his company’s stock.
After wooing millions of Filipinos for decades with its signature fried chicken, Tan’s Jollibee Foods Corp set out on an expansion in the US, spending $540 million buying Smashburger and Coffee Bean & Tea Leaf Co. Even as the two money-losing chains turn out to be a drag on earnings, the coronavirus is now threatening to hit its sales.
Fuelled by concerns the spread of the disease will weigh on consumer spending, Jollibee shares have dived more than 18% this year, adding to losses in 2019, their worst in two decades. The slide has wiped $2.22 billion off the company’s market value since the end of 2018.
Long a bellwether for the Philippine consumer growth story, the headwinds have come as a reality check for Tan — a son of poor Chinese immigrants — who chased rapid growth abroad with acquisitions. Although that strategy helped widen the group’s footprint to almost 6,000 stores in 35 countries, investors have remained unimpressed by the pay-off as Smashburger and Coffee Bean continue to burn cash.
“The impact of the virus is not yet fully quantified,” said Noel Reyes, who helps manage 58 billion pesos ($1.15 billion) as chief investment officer at Security Bank Corp in Manila. “Even if the drag from its acquisitions has plateaued, sentiment will remain bearish until we are certain that the impact of the virus has peaked.”
In China, the Jollibee group — encompassing 15 brands — operates 389 restaurants that account for 7.4% of its sales. The country, where the outbreak started, is one of the company’s major markets outside the Philippines and is home to 15% of its overseas outlets.
In Hubei, the epicenter of the outbreak, Jollibee has closed all of its 14 Yonghe King stores. Though the shut stores account for only about 1% of its sales, its remaining establishments are facing fewer footfalls and a dip in revenue. As part of containment measures, Chinese customers have been avoiding crowded places for safety reasons, and many provinces have banned banquets and group meals at restaurants.
Other restaurant firms that have been hit by the health crisis include Yum China Holdings Inc and Haidilao International Holding Ltd, China’s largest hotpot chain.
Jollibee said on February 14 that it was too early to determine the impact of the virus on its business in China, but said it will press ahead with plans to have over 1,000 outlets there in the next few years.