JFC expects the investment in Compose Coffee to be recouped within 5 to 6 years

JOLLIBEE Foods Corp. (JFC) expects its acquisition of South Korea’s Compose Coffee to be recouped within five to six years, a company official said.

“Even assuming a very modest growth rate based solely on new franchisees, approximately 30 to 40 new franchisees are opening stores per month. If you just add that, you arrive at a decent growth rate. At that growth rate, there’s no reason why we can’t recoup this (Compose Coffee) in five to six years,” JFC Chief Financial Officer Richard Shin said in a virtual briefing on Thursday.

“In terms of reaching break-even, we will probably have a very quick payback period because it is quite lucrative and profitable purely based on the money it generates. We look at it more from a return on capital employed (ROIC) perspective,” he added.

Earlier this month, JFC announced the acquisition of Compose Coffee for $340 million to strengthen the company’s coffee and tea business. The company expects to complete the acquisition in the first half of August.

Mr. Shin said JFC has no plans to introduce Compose Coffee in other countries such as the Philippines and China as the company focuses on expanding in South Korea.

Compose Coffee had 2,612 stores as of June and ranks second in the value coffee segment in terms of total franchisees, with more than 1,900 franchised stores at the end of 2022.

“We see significant growth opportunities in South Korea alone. Compose Coffee has a market share of 8%. There is sufficient focus and possibilities. We are very focused on South Korea in the next five years,” he said.

“If there are experienced individuals who want to explore China as a franchisee, we don’t necessarily have to say no, but we don’t invest our capital in that direction. China is a difficult market,” he added.

Mr. Shin also said that Compose Coffee will not compete with JFC’s other existing coffee brands such as The Coffee Bean & Tea Leaf (CBTL) as the latter focuses on the premium segment while the former serves the high-end segment.

“We don’t see it as competition. We actually see it as a better synergy and a better portfolio play for us with coffee in South Korea because we now have the value segment, where we don’t have any brands, and the established CBTL,” he said.

At the same time, he said South Korea is not among the new markets eligible for the Jollibee brand due to its diverse tastes.

“It’s a huge segment, and if Jollibee ever wants to enter South Korea in the fried chicken space, we really need to know what we’re doing because it’s a completely different palate. Koreans have a very different taste for fried chicken,” he noted.

“While we occasionally look at it as a new market entry for Jollibee, South Korea is not necessarily a top priority because of that intense, competitive market. Fried chicken is a bit tougher. We need to do our homework a little more before entering South Korea with Jollibee,” he added.

On Thursday, JFC shares fell 1.75% or P4, ending at P225 each. — Revin Mikhael D. Ochave