report analysis and solutions for the ma negotiation process between highlands coffee and jollibee in vietnam

Surpassing Starbucks, local franchise Highlands Coffee was the leading coffee-shop chain in Vietnam based on earnings and based on the number of stores.. After that, Viet Thai Group - Vi

VIETNAM GENERAL CONFEDERATION OF LABOUR

TON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION

Lecturer: Nguyen Quang Phong Group: 03

Subject: Negotiation in Business

HO CHI MINH CITY 12/2023

LIST OF ABBREVIATIONS AND ACRONYMS

BATNA Best Alternative to A Negotiated Agreement

JFS JSF Investment (a subsidiary of Jollibee)

4

Table Of Contents

Member list 2

CHAPTER 1: INTRODUCTION 6

1.1 General Overview 6

1.2 Issues 11

1.3 Objectives 13

1.4 Timelines 14

CHAPTER 2: LITERATURE REVIEW 15

2.1 Theory review 15

2.1.1 The best choices in negotiation (BATNAs) 15

2.1.2 The worst choices in negotiation (WATNAs) 17

2.1.3 Integrative negotiation 18

2.2 Theory application in case of VTI & JFC negotiation 19

CHAPTER 3: ANALYSIS 21

3.1 The summary of the case study 21

3.2 Analyze the case study 21

3.2.1 The development process of VTI and JFC in M&A 21

3.2.2 The M&A negotiation process 23

CHAPTER 4: SOLUTION 25

4.1 Solutions for negotiation from the past 25

4.2 Solutions for sustainable development between VTI and Jollibee 27

CONCLUSION 28

REFERENCE 30

List Of Charts

Chart 1 Vietnam food and beverage revenue estimation (2018-2024) 6

Chart 2 Vietnamese people’s spending on drink 8

Chart 3 Revenue of coffee chain brands 9

Chart 4 The expansion of the Jollibee store system in Vietnam has been stable over the years 10

Chart 5 Development and M&A of Highlands Coffee and Jollibee Timelines 14

Chart 6 BATNA Simplified 17

Chart 7 Types of Integrative Negotiation 19

Chart 8 The profit after tax of Highlands after M&A negotiation 23

(Source: BMI, Euromonitor PHFM collect)

Chart 1 Vietnam food and beverage revenue estimation (2018-2024)

Despite being a significant coffee-exporting country, domestic demand for this beverage

in comparison to Vietnam's production and export volume of these beans is rather modest However, the country has seen some growth in coffee consumption recently With the expansion

of international and local coffee chains, Vietnamese consumers have even more choices of coffee Surpassing Starbucks, local franchise Highlands Coffee was the leading coffee-shop chain in Vietnam based on earnings and based on the number of stores Regarding socio-cultural environment, Vietnam has more than 97 million people, of which 55.5% are under 35 years old, and the per capita income will reach about 4.2 million VND/person by 2020(According to the Vietnam census)

In Vietnam, two typical brands of F&B are Highland and Jollibee Starting with Highlands Coffee in the beverage industry, the coffee chain's investors began to boom for about a decade Although, in the beverage industry, there are many competitors such as Cong Cafe and The Coffee House, as well as more popular brands such as Phuc Long, Trung Nguyen, and the entry of world

"giants' like Starbucks or Coffee Bean But Highlands Coffee is still the leading name, demonstrating the data of people ready to spend more money on drinks than meals in the 2022 report

Forty-four percent of Vietnamese respondents said they are prepared to spend VND41,000 to 70,000 ($1.75-$3) on drinking coffee and bubble tea, which is more than for a main meal, a new survey found Another 33% of respondents are willing to spend VND20,000-40,000 on drinks, according to the survey of 3,940 consumers conducted by food and beverage market solutions firm iPOS.Only 14% said they would splurge more than VND70,000 for a drink, the equivalent of the

8

price of a drink at high-end coffee shops such as Starbucks and Runam Bistro, it added

Chart 2 Vietnamese people’s spending on drink

(Source: Vnexpress)

Highlands Coffee was founded by an oversea Vietnamese who returned home with a deep love for his homeland and the desire to devote himself to his homeland - David Thai David Thai's initial desire was to return to Vietnam to find the person he wanted, but after studying and working here for a while, David Thai came up with the idea of starting a business with only a small amount

of capital and support from an investor After that, Viet Thai Group - Viet Thai International was established in 2002 by David Thai, who is also the owner of Highlands Coffee Initially, after Viet Thai Group was established, in Vietnam there were only two Highlands Coffee stores in Hanoi and in Ho Chi Minh City, up to now, the scale of this market has been expanded, becoming a leading name in the coffee and fast-food market in Vietnam

The market expansion rate of Highlands also increased rapidly when they had nearly 700 stores, an increase of nearly 400 stores compared to 2019 In two years 2019 and 2020, revenue of this F&B chain reached more than 2.1 trillion VND However, by 2021, Highlands’ revenue will only reach VND 1.7 trillion (decrease 19.2% compared to 2020) Also in 2021, this F&B chain

also received a loss of about 19 billion VND, although before that Highlands Coffee brought in a pre-tax profit of more than 100 millionVND in 2020 Although there is a tendency to decrease in revenue and profit before tax, Highlands Coffee still continues to hold its position as the largest coffee chain in Vietnam

(Source: VietData)

Jollibee, this is the largest corporation based in the Philippines specializing in fast food business, this famous brand also owns 234 large and small goods abroad and territories, including Vietnam through its subsidiary JSF, which has spent 25 million USD to acquire 49% of Vietnam's business and 60% of VTI's Hong Kong business division owned by David Thai Not only that, Jollibee agreed to lend VTI an additional 35 million USD with an interest rate of only 5% This loan was paid in 2016 According to Jollibee's representative, this money is used by VTI to invest

in the future Indeed, Vietnam has always been a potential market for the development of food services and the rapid development of JolliBee in our country's market is also a completely unexpected thing thanks to the attractiveness of the dishes as well as the brand's distinct business strategy.Jollibee's competitors are Burger King, In-N-Out Burgers, White Castle, Whataburger, Chick-fil-A, A&W Restaurants, Jack in the Box, McDonald's, Starbucks Although there are

Chart 3 Revenue of coffee chain brands

10

formidable competitors like this, Jollibee still has resounding successes in the fast food market

Chart 4 The expansion of the Jollibee store system in Vietnam has been stable over the years

(Source: Jollibee)

The two sides agreed to put Highlands Coffee chain on the Vietnam stock exchange before

2019 After buying Highlands Coffee, Jollibee also included Highlands Coffee in its restaurant chain outside the Vietnamese market and impressed diners After Jollibee's hand, the management and operation of this coffee chain quickly changed Highlands Coffee and Jollibee both use the franchise model to expand the market and reach many customer segments The franchising model is an old business strategy, but this market is not outdated Franchising is a business form in which the franchisee is allowed to trade in goods and services in a specific area and time in the form, method, and use of the franchisor's brand while making a profit, while understanding more culture and habits of each region, each country

1.2 Issues

In the modern era, as the global economic market develops, the competitive pressure is increasing day by day Businesses related to customer trends such as food and beverages face fierce competition from many brands Some businesses with advantages in the market choose to continue

to compete, while some businesses are smarter to choose to cooperate and develop together In the context of the post-Covid economic crisis and the war situation in the world, the choice of a smart strategy will contribute to reducing risks, strengthening competitiveness, and sustainable development Through cooperation and development, businesses can penetrate each other's markets, reduce economic barriers, and increase competitive advantage

One example of the M&A connection between two strong and famous franchise brands is Highlands Coffee and Jollibee The Highlands Coffee brand was founded by businessman David Thai in 2009 Later, he established Vietnam Thai International Corporation (VTI) to boost business activities Highlands Coffee's business activities are based on the foundation of beverages serving the business segment The Jollibee Group was founded by billionaire Tony Tan Caktiong in the Philippines in 1975 with its origins as two ice cream shops Jollibee currently operates the largest food and beverage service network in the Philippines In 2012, the Jollibee Group from the Philippines through its subsidiary JSF spent $25 million to acquire 49% of the Vietnamese business unit and 60% of the Hong Kong business unit of the VTI Group owned by businessman David Thai, indirectly owning Highlands Coffee In 2016, in exchange for the number of shares

in VTI, Jollibee agreed to lend the group an additional $35 million at an interest rate of 5% This loan was used to invest in the expansion of Highlands Coffee's business

The cooperation between Jollibee and VTI has helped Highlands Coffee to develop rapidly This deal has brought Highlands Coffee a large amount of investment capital, helping the brand to expand its business scale and improve service quality Through this cooperation, it helped to develop the IPO of Highlands Coffee on the Vietnamese stock market before 2019 and Jollibee,

in addition to continuing to develop the Highlands Coffee coffee chain in Vietnam, will bring Highlands Coffee products into other Jollibee restaurant systems across Asia This will be a significant added value for Jollibee, as the world now recognizes Vietnamese coffee as being of the highest quality Under this cooperation, Highlands Coffee has continuously opened new stores

It can be seen that M&A brings many benefits to businesses, including:

• Expanding the business scale: M&A helps businesses to have a customer base, market, resources, and infrastructure available, thereby expanding the business scale quickly and effectively

• Improving business efficiency: M&A helps businesses to reduce costs, improve productivity and increase profits through the integration of resources and processes of the two businesses

• Strengthening competitive advantage: M&A helps businesses to expand markets, penetrate new industries, or develop new products and services, thereby strengthening competitive advantage

• Increasing the value of the business: M&A can help businesses increase the value

of the business through the acquisition of high-value businesses or the development of new business opportunities

• Specifically in the above situation, Highlands Coffee has faced many difficulties in pursuing the business segment of corporate beverages with high competition, along with the trend

of modernization making consumers have higher demands In a difficult situation, Highlands Coffee is even more wary of the heavyweight Starbucks The name and success of Starbucks in other markets are a threat to Highlands Coffee In Vietnam, although it does not yet exist, almost everyone in the young generation has heard of this world's largest chain coffee brand The American giant will likely be a direct competitor in the corporate segment in that Highlands Coffee

• Uneven drink quality between stores

• Low ability to manage a chain of stores, leading to staff shortages and inconsistent service quality

• On the other hand, Jollibee will be able to increase its market penetration in Asia, first at potential markets such as the Philippines, China, Japan, etc., by leveraging Highlands Coffee's store network

M&A is a strategic move for Highlands Coffee and Jollibee However, this deal also has some disadvantages that businesses need to carefully consider before making a decision, such as high initial investment costs, complexity of the M&A process, risk of failure, cultural and business differences, legal risks, competition from other competitors if they cannot cooperate effectively, market changes (customer needs may change, coffee and fast food trends may change, government regulations may change) If Highlands Coffee and Jollibee can understand each other well and cooperate effectively, this deal will be a stepping stone for these brands to grow stronger after integration

1.3 Objectives

Through this report, the researcher wants to analyze several aspects of the M&A deal between Highland and Jollibee, two pivotal players within the dynamic food and beverage industry Specifically, the analysis dissects the following:

including the operating context of both Highlands Coffee and Jollibee chains

and management structures adopted by both entities post-merger as partners and shareholders

advantages and disadvantages experienced by both parties

independent perspective, aimed at enhancing the future relationship between Highlands Coffee and Jollibee

14

1.4 Timelines

Chart 5 Development and M&A of Highlands Coffee and Jollibee Timelines

In 1995, Motivated by a deep-seated love and unwavering dedication to his homeland, young Vietnamese expatriate David Thai repatriated In 1999, the Highlands Coffee brand was conceived, driven by a fervent desire to elevate Vietnam's esteemed coffee heritage and cultivate

a spirit of national pride This mission commenced in 2000 with the introduction of packaged coffee products in Hanoi

20

reached an agreement when Jollibee lent an additional 35 million USD at an interest rate of only 5% According to Jollibee's representative, this amount of money will be used by VTI to invest in the future, helping the Highlands Coffee brand become more developed and larger in scale In addition, it also helps Highlands Coffee Have confidence when competing with Starbucks in the future Carefully considering and combining potential options (BATNA) is crucial in any negotiation, especially before reaching a final decision This cooperation between Highlands Coffee and Jollibee brings great value and potential to both parties

In negotiations, every situation can happen, so negotiators need to prepare for the case scenario (WATNA) to minimize their losses According to information related to this negotiation, in 2011, Jollibee through its subsidiary - JSF, spent $25 million to acquire 49% of Viet Thai group's Vietnam business and 60% of its Hong Kong However, in 2016, after Jollibee officially announced the initial public offering (IPO) of Highlands Coffee chain on the Vietnamese stock exchange, Jollibee raised its ownership to 60% of the owner's capital for owning Highlands while Viet Thai Group reduced its ownership to 40% Before such an offer, Viet Thai Group has proposed the WATNA for this situation, which is to still accept the above transaction level, but in return, Viet Thai Group is supported by JSF Investment (a subsidiary of Jollibee) additional loans

worst-of 30 million USD at the last interest rate and long payment term Thus, in this case, Viet Thai Group has accepted to exchange shares of the company and officially become a subsidiary of Jollibee; however, Viet Thai Group was able to get an equivalent loan in return to be able to continue long-term investment goals In this case, Viet Thai Group agreed to exchange its shares

to become a subsidiary of Jollibee However, Viet Thai Group was able to secure an equivalent loan to continue its long-term investment goals

In integrative negotiations, two companies cooperate to exploit each other's strengths and achieve common goals Before Jollibee acquired Highlands Coffee, this brand was facing pressure

to compete with Starbucks in the future Starbucks is a world-famous F&B brand with a wide store network The success of Starbucks has made Highlands Coffee encounter many difficulties in expanding its market and growing revenue Understanding the difficulties of Highlands Coffee, Jollibee approached Viet Thai Group and proposed cooperation This cooperation has brought many benefits to both sides Jollibee can reach the Vietnamese and Southeast Asian markets with