Philippine Fast Food Giant 'Jollibee' Acquires Korean Budget Brand 'Compose Coffee' and the Reason Behind It

Jollibi Acquires 70% Stake in Compose Coffee
Leveraging Compose Coffee to Target Korean Market
Expected to Strengthen Hold on Southeast Asia's Mid-Range Coffee Market

Interior view of a Compose Coffee store and the model BTS V.

Jollibee Foods Corp (JFC), the largest food service company in the Philippines, has acquired a 70% stake in Korea's low-cost coffee brand Compose Coffee. This marks the first case of a Korean coffee franchise being acquired by a Southeast Asian company. Aiming to become one of the world's top five food service companies, Jollibee appears to be leveraging the rapidly growing Compose Coffee to strengthen its dominance in the Southeast Asian coffee market beyond Korea. Previously, Jollibee also acquired Coffee Bean, once considered a 'Starbucks rival.'

Jollibee, the largest food service company in the Philippines, grows through acquisition of Compose Coffee

According to the Philippine Stock Exchange on the 4th, JFC announced that its subsidiary Jollibee Worldwide Pte. Ltd (JWPL) will acquire 70% of Compose Coffee's shares for $238 million (approximately 330 billion KRW). The remaining 5% will be held by Titan Fund, which owns 90% of JWPL's shares, and 25% will be acquired by private equity firm Elevation. The total sale price for all shares of Compose Coffee amounts to $340 million (approximately 472 billion KRW). JFC stated, "On the 2nd, a stock purchase agreement was reached between the buyer and seller, enabling us to acquire one of Korea's most beloved low-cost coffee brands."

JFC is the largest food service company in the Philippines. Jollibee is already famous among Korean tourists who have visited the Philippines as a fast-food brand more popular than McDonald's locally. JFC's market capitalization reaches 252.4 billion Philippine pesos (approximately 5.96 trillion KRW). Although it struggled with losses during the COVID-19 pandemic, it has recorded rapid growth again following the endemic phase. Last year's revenue was 244.1 billion Philippine pesos (approximately 5.77 trillion KRW), a 15.2% increase from the previous year. Operating profit rose 45% to 14.4 billion Philippine pesos (approximately 340 billion KRW).

JFC's goal is to become one of the world's top five food service companies. To achieve this, it prefers acquiring existing companies rather than creating new brands. Notable examples include Singapore's franchise dim sum chain Tim Ho Wan and Taiwan's bubble tea brand Milksha. To increase its coffee market share, JFC acquired Vietnam's leading coffee brand Highlands Coffee 10 years ago and purchased Coffee Bean & Tea Leaf in 2019.

Why Compose Coffee? A 'cash cow' company with a 41% operating profit margin

JFC's recent acquisition seems to be a strategic move to start targeting the Korean coffee market and strengthen its dominance in the Southeast Asian coffee market. In the acquisition announcement, JFC expressed its ambition to pioneer the Korean market. JFC stated, "With this acquisition, Jollibee will cross the gateway to rapidly growing low-cost coffee markets in Korea, the world's third-largest coffee market."

Brands Owned by Jollibee Foods Corporation (JFC)

In an era of high inflation, Korea's high-priced coffee market is stagnating, while the low-cost coffee market is growing rapidly. Compose Coffee, in particular, shows clear expansion trends. In 2022 alone, it opened 626 new stores, the highest among coffee franchises. According to the Korea Fair Trade Commission, as of the end of 2022, Compose Coffee had 1,901 stores, ranking third in the number of coffee specialty stores in Korea after Ediya Coffee (3,005 stores) and Mega Coffee (2,156 stores). Currently, the number of stores is 2,612.

Compose Coffee grew into a profitable company last year with sales of 88.9 billion KRW and operating profit of 36.7 billion KRW. Operating profit increased by 20.5% compared to the previous year, and the operating profit margin was the highest among low-cost coffee brands at 41%. This is why Yang Jae-seok, chairman of JM Coffee, who founded Compose Coffee 10 years ago in Gijang-gun, Busan, sold it to the Philippine fast-food giant.

"A strategic move to dominate the mid-to-low price market in Southeast Asia using Compose Coffee as a foothold"

Additionally, JFC appears to aim to increase its market share of mid-to-low price coffee brands in Southeast Asia using Compose Coffee as a foothold. Like Vietnam, the Southeast Asian coffee market is divided into high-end and low-end segments, but there are no notable mid-to-low price brands. Since Compose Coffee opened its first overseas store in Singapore last September and received favorable reviews, JFC is expected to accelerate its Southeast Asian market penetration leveraging its local network.

JFC is also likely to actively introduce robot baristas to rapidly expand Compose Coffee's sales. When announcing its first-quarter results, JFC stated, "We will invest $28 million (approximately 38.9 billion KRW) in Borista, a developer of robotic beverage solutions, to achieve immediate sales growth."

Meanwhile, some consumers speculate that this acquisition could signal Jollibee's entry into the Korean market. Previously, the three daughters of Jollibee founder Tony Tan Caktiong mentioned in an interview with Korean media that "Korea, with its large Filipino community, is one of the target markets for Jollibee's expansion." However, the domestic burger market is firmly competitive with American brands like McDonald's and Burger King, as well as local brands such as Mom's Touch and Lotteria. Moreover, competition has intensified recently with the entry of premium burger brands, making Jollibee's market entry challenging.