Red Ribbon sees growth amid pressure on margins

MANILA, Philippines - Bakeshop chain Red Ribbon, Inc., a unit of fastfood giant Jollibee Foods Corp., is confident of meeting its targets this year due to monthly double-digit growth rates but officials said high inflation was putting pressure on margins. "We are really happy with the growth of the top line despite the economic situation because our customers continue to visit us. The challenge is really on the margins," Red Ribbon President Joseph Tanbuntiong told BusinessWorld. He declined to provide figures. Red Ribbon reported gross revenues of P2.32 billion and incurred losses of P32.37 million in 2007 based on its audited financial statements. "Definitely we are feeling the increased cost of materials, which everybody is feeling, but we have to maintain a healthy profit margin so what we do is study our selling price and increase our efficiency," Mr. Tanbuntiong said. Last Thursday, Jollibee reported net earnings of P1.125 billion, down by 15% from last year, due to rising costs. Red Ribbon marketing director Albert Cuadrante said the chain might consider serving smaller portions but would not switch to lower-quality ingredients even if high inflation persists. He said raw material expenses have risen by an average of 6%-8% following inflation nationally, but Red Ribbon has increased prices by only 3.5%. Mr. Cuadrante added that being part of the extensive Jollibee group helped Red Ribbon because the scale of the company has allowed it to leverage on prices of common raw materials. Marketing manager Marizu Baser said the company has bought several packing machines for Manila commissaries and has been trying to reduce back-end costs. Mr. Tanbuntiong said that since Jollibee bought Red Ribbon in 2005, yearly store openings have increased to an average of 25 from only five. Eighteen outlets were opened in the first half with 13 more scheduled to open within the rest of the year, he added. The cake and pastry company has 200 outlets and eight commissaries. The Jollibee network has 1,479 stores locally and 207 stores abroad, and wants to expand to 10,000 by 2020. Ms. Baser said Red Ribbon was looking at "some pockets" in Luzon and even Metro Manila for expansion. Red Ribbon, acquired by Jollibee in November 2005 for P1.8 billion, had been expected to add P2.5 billion in annual sales to the fastfood giant led by Tony Tan Caktiong.