Looking Back at Acquiring Coffee Bean & Tea Leaf for $350 Million
Buy low and sell high, this has been the mantra of many entrepreneurs and individuals who want to win big. Whether it’s buying stocks or even a business, buying low and having the chance to earn crazy profit margins is always something that makes this move seductive for many.
Coffee Bean & Tea Leaf was bought by Jollibee Foods Corporation by shelling out $350 million in July last year. Some argue that it was a relatively good deal because Coffee Bean & Tea Leaf more than a thousand stores worldwide. Most of which are located in Asia.
If this move is correct, it could potentially funnel more sales for the Philippine version of McDonald’s. Last year, it was even projected that it could add 14% to the fast-food giant’s sales.
It was a huge move by Jollibee. The 1968 Coffee Shop brand in LA was the largest acquisition by Jollibee Foods Corp.
Was It a Good Idea?
It could be a good competitor against Starbucks and other coffee shops in the Asian region. And come to think of it, you can’t go wrong with coffee. Jollibee has been known to have an ability to turn anything it touches into gold.
When Jollibee Foods Corp bought Coffee Bean & Tea Leaf, the coffee shop that originated from LA had a net loss of $21 million in 2018. Was this a red flag that the fast-food giant missed? When it announced acquiring the coffee shop from LA, the stocks fell by 13% almost immediately. But what seemed like skepticism at first proved to be a bad move.
Worsened By the Pandemic
The Philippines had a rough time dealing with the pandemic. With a poorly equipped medical infrastructure, coupled with poor testing capability and several blunders from its officials, the Philippine economy suffered its first recession in 29 years.
Jollibee posted a net loss of P10.2 billion ($209.9 million) in the second quarter of this year. A large chunk of the loss came from its business transformation program. Though it isn’t just because of their move to acquire Coffee Bean & Tea Leaf, its move to gobble up a US-based company that’s losing millions of dollars is partly to blame.
According to Jollibee, 50% of their stores around the globe were forced to close because of the pandemic. Most of its sales were reliant on deliveries and take out. There was a stark difference between Jollibee’s performance last year to what it is now. Last year, it recorded a P2.5 billion net income.
From a business standpoint, you could say that the acquisition was a ballsy move. Was it a case of greed on the part of Asia’s fried chicken king? Or is this a miscalculation exacerbated by a global pandemic? Why buy a company that’s losing money?
Jollibee has been known for acquiring companies that have been on the rise. Should the pandemic last longer, it can prove to be a more disastrous move for the company. There is a chance that the coffee shop will be a liability that will keep on losing money. Till then lets hope, at the end of the day, while we sip on our cuppa, all’s well that ends well!