Philippine economy? Get a burger - Frontline - Jollibee Foods Corp posts profit in fourth quarter

Business Asia, March, 2003 by William Pesek, Jr

It's 8pm at Quezon City, the Philippines, on a weekday at one of this nation's ubiquitous Jollibee restaurants, and the place is packed. Dozens of parents and children line up for hamburgers, fried chicken and ice cream.

The scene can be found at just about all Jollibee Foods Corp locations, and it says much about the state of the Philippine economy. Jollibee's performance suggests the economy will do a bit better this year than in 2002, and also that the longer-term challenges are becoming more serious.

You may wonder what burger sales have to do with a nation's gross domestic product. Jollibee's story is interesting because it's the only fast-food joint that on its home turf outsells that international behemoth known as McDonald's. More importantly, Jollibee's performance has proven to be a good barometer of consumption trends here.

Call it the "Jollibee Indicator". As chief financial officer Miguel Jose Navarrete likes to say, "only two operations have a wider reach in the Philippines--the Government and the Catholic Church."

If incomes are shaky or households are worried about political stability, history shows that Jollibee--and the company's other fast-food Operations--feel it immediately. That explains why Philippine economic officials sometimes ask for a peek at Jollibee's monthly sales figures. They're that telling.

Worrisome

It's good news, then, that the largest fast-food company in the Philippines returned to profit of 271.8 million pesos ($8.1 million) in the fourth quarter as sales rose by a tenth. An impressive result, given that consumer spending grew only 1.3 per cent in the last three months of the year. Jollibee also added 36 restaurants, the fastest growth in two years.

The news isn't all good, though. That Jollibee is faring better than the vast majority of Filipino companies raises worrisome questions for the broader economy. When Jollibee is doing well while competitors aren't, it can be a sign consumers are still watching every peso.

Looking forward, Jollibee is quite optimistic about its prospects. It's boosting spending by a fifth this year to 1.7 billion pesos and opening as many as 100 new restaurants. Behind that confidence is the bigger point that consumers may lack the ability--wealth, in other words--to support pricier establishments.

Stagnant income

An economy characterised by stagnant household income, rising inflation and growing poverty will do more to help the bottom lines of ultra-low-cost places than trendier ones. That's why today's business climate may be good for Jollibee, but few others.

President Gloria Macapagal Arroyo and her team should watch these signals closely. The anecdotal data offered by an operation like Jollibee has never been more important in an economy as polarized as the Philippines. It's a tale of two very different economies--the macro and the micro.

The macro-economy is booming. The Government wants to boost economic growth to as much as 5.2 per cent this year from an estimated 4.3 per cent in 2002. While much of the world grapples with deflation, the Philippine central bank is saying it may raise key interest rates to slow things.

The micro-economy looks very different. The banking sector remains loaded with bad loans, which are hindering efforts to boost the economy. Manila is still grappling with how to collect more taxes to plug a growing budget deficit. Foreign investors remain wary of corruption.

That divide means mainstream economic reports are only telling part of the story. Gross domestic product growth may seem high relative to global trends and stock indexes may be holding their own, but that doesn't say much about an economy like this--one that has so many moving parts going in opposite directions.

William Pesek Jr is a columnist for Bloomberg