Soaring raw material costs expected to squeeze Jollibee’s profit margin

Soaring prices of raw materials and commodities are expected to squeeze the profit margins of Jollibee Food Corp. in the first quarter of 2008 but the fastfood giant is still hopeful it can match last year’s earnings or even exceed it a bit as business conditions improve in the second half.

Jollibee chief executive officer Tony Tan Caktiong said the company just like other businesses, is grappling with surging costs of food and fuel but nevertheless remains committed to serving better the consuming public.

Tan Caktiong said the company would need to raise prices of its products to mitigate the high costs of doing business and raw materials.

Analysts said while Jollibee will be able to maintain sales growth, it would be “hammered on costs” because of inflation.

Amid the prevailing difficult business environment, Jollibee is pushing its expansion overseas and locally to further boost its presence and cashflow.  It has set aside P6 billion for capital expenditures this year, one third of which will go to international expansion while the rest will go to refurbishments.

For this year, the group is looking at putting up the same number of stores or slightly higher than the 173  opened in 2007.  Plans are now under underway to open a second Jollibee outlet in China. 

Jollibee, which outsells McDonalds and KFC in its homemarket, operates two other fastfood brands in China — fastfood chain Yonghe King and tea house Chun Shui Tang

In 2007, the company spent P2.3 billion for its expansion, fueling a 9.4 percent year-on-year rise in its full-year net income to P2.36 billion.

As of end-December last year, Jollibee  was operating a total of 1,385 stores nationwide, namely, Jollibee (625), Chowking (376), Greenwhich (237), Red Ribbon (192), Delifrance (27) and Manong Pepe (2). The group had 186 stores overseas.

Tan Caktiong said the fastfood giant also remains on the lookout for new acquisitions and new markets which include India.  “We will acquire either a restaurant that serves Indian food or Chinese food in India,” he said.