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

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VIETNAM GENERAL CONFEDERATION OF LABOUR

TON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION

DAI HOC TON BUC THANG

TON DUC THANG UNIVERSITY

REPORT

Analysis and Solutions for the M&A

Negotiation Process between Highlands

Coffee and Jollibee in Vietnam

Lecturer: Nguyen Quang Phong Group: 03

Subject: Negotiation in Business

HO CHI MINH CITY 12/2023

Member list

LIST OF ABBREVIATIONS AND ACRONYMS

nvestment (a su

ergers

Table Of Contents

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In “ ẽ (4ẢẢ 14 CHAPTER 2: LITERATURE REVIEĂW Q.0 SH TT TT TH KH KT và 15 2.1 T€OTY TGVIOW HT ng KT TT TK EEE Et 15 2.1.1 The best choIces in negotiation (BATTN A$) LH kh 15 2.1.2 The worst choices in negotiatlon (WATNA) nen kớt 17 2.1.3 InftegratIve negOfIafIOT nh ng ki ki ki Ekk 18 2.2 Theory application m case of V'TI & JFC negotiafion ccccccc + ScsSSs+sằ 19 057.1305.000 07.100621 111157 a 21 3.1 The summary ofthe CaS€ SfUỦY ng kh 21 3.2 Analyze the CaS€ SfUỦY - ier rr tr tt i ii Họ tk kh 21 3.2.1 The development process of VTT and JEC in M&A .ccccceeeeeeeeeeeeeeeeeeeeeeeees 21 3.2.2 The M&A negofIatIo' DFOC€SS -c c LH Tnhh 23 CHAPTER 4: SOLUTION 5.4 .- 25 4.1 Solutions for negotiation from the paSf SH khe 25 4.2 Solutions for sustainable development between V'TI and Jollibee 27 CONCLUSION L QQQ Snnn TS TT KT KT TT TT KT KT 28 REFERENCE TQ TS HH TT TT TT cọ TT TK TK Hit 30

List Of Charts

Chart | Vietnam food and beverage revenue estimation (2018-2024) 6 Chart 2 Vietnamese people’s spending on drink - chớp 8 Chart 3 Revenue of coffee chain brands :::::ccceeeeeeeceeeeeeeeeeeecaeeeaeeeccceeeeteeeeeeeeteeeeeeees 9 Chart 4 The expansion of the Jollibee store system in Vietnam has been stable over the

VOaTS oo I EI EH IIE GaẦẢ 10 Chart 5 Development and M&A of Highlands Coffee and Jollibee Timelines 14 Chart 6 BATNA SImplIfied| rr nh KT ĐH 17 Chart 7 Iypes of IntepratIve NegOotIaftIOnI - HH HH kiệt 19 Chart 8 The profit after tax of Highlands after Mé@&A negotiatlon: ààằ cà 23

CHAPTER 1: INTRODUCTION 1.1 General Overview

Due to the disruption of many supply chains caused by the Covid-19 pandemic, the food and beverage industry has seen disruptions However by the beginning of 2022, F&B showed significant indications of recovery According to a report by market research firm Euromonitor PHFM, Vietnam's coffee and tea industry is worth $1 billion USD annually In 2018, the food and beverage industry took in slightly more than VND 800,000 billion But with the Covid-19 pandemic during the period of the next four years, income climbed dramatically, reaching 120,000 billion VND in 2022 and continuing to rise through 2024

Revenue of food and beverage

billion dong Source: BMI, Euromonitor PHFM collect 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 soend 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 soend 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

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

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

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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

REVENUE OF COFFEE CHAIN BRANDS

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 brana'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

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

SU PHAT TRIEN MANG LƯỚI

CUA HANG 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

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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 (VT1) 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

II

and has recorded profits The representative of Jollibee Foods has assessed that this is the fastest- growing business, the only "fruit" in the number of F&B chains that the Jollibee Group is operating

in Vietnam According to Highlands Coffee data, as of September 2023, Highlands Coffee has 700 stores in Vietnam and 50 in the Philippines Thus, Highlands Coffee has a total of 750 stores after

14 years of operation

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

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:

Situational Appraisal: A comprehensive assessment of the current F&B landscape, including the operating context of both Highlands Coffee and Jollibee chains

Partnership Dynamics: A clarification of the respective positions, service offerings, and management structures adopted by both entities post-merger as partners and shareholders

Comparative Evaluation: A balanced assessment of the pre- and post-merger advantages and disadvantages experienced by both parties

Third-Party Recommendations: A set of objective suggestions, formulated from an independent perspective, aimed at enhancing the future relationship between Highlands Coffee and Jollibee

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1.4 Timelines

1999 Established Highlands Coffee brand

v

2002 Established Viet Thai Group (Viet Thai

International- the owner of Highlands)

Y

2011

Viet Thai International sold market share to

the Philippines' Jollibee Group

v

2016 60% shares Jollibee officially owned Highlands

L

2022 Increased 109%, gained 3.569 billion in revenue

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

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In 2002, The Viet Thai Group (Viet Thai International (VTI), proprietor of Highlands Coffee) was formally established, concurrently marking the inauguration of the brand's first physical establishments—one situated near Notre Dame Cathedral in Ho Chi Minh City and another in Hanoi By 2008, the company had successfully established a network of 80 sales points across Vietnamese provinces: Hanoi, Ho Chi Minh City, Hai Phong, Da Nang, Vung Tau, and Dong Nai

In 2011, VTI embarked upon a strategic partnership with the Philippines" Jollibee Group, divesting 49% of its Vietnamese operations and 60% of its Hong Kong presence for a consideration

of $25 million In the same year, Highlands Coffee strategically acquired the Pho 24 chain owned

by Mr Ly Quy Trung for approximately $20 million

In 2016, Jollibee Group solidified its ownership of Highlands Coffee, raising its total stake

to 60% By 2020, Highlands Coffee had generated over 2.100 billion VND in revenue

In 2021, the revenue of Highlands Coffee in Vietnam decreased by 19% from 2020 to VND1.700 billion The main reason for this was the impact of the COVID-19 pandemic, which forced many Highlands Coffee stores to close or operate at reduced capacity

However, in 2022, Highlands Coffee's revenue in Vietnam rebounded strongly, reaching VND 3.569 billion, an increase of 109% from 2021 This recovery was due to a number of factors, including the improved control of the COVID-19 pandemic, as well as Highlands Coffee's implementation of a number of promotional campaigns and the improvement of its service quality With its revenue in 2022, Highlands Coffee remains the largest coffee chain in Vietnam, with a market share of approximately 30%

CHAPTER 2: LITERATURE REVIEW

2.1 Theory review

2.1.1 The best choices in negotiation (BATNAs)

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