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How Does Jumbo Group Ltd Make Money?

Royston Yang

When investing, it is important to understand each investment’s underlying business, how it is performing and also how it generates revenue and cash flows. Without a proper grasp of how a business is run, the investor risks losing money when something goes wrong – so it’s imperative for all investors that they understand what they are investing in.

Today, let’s take a closer look at a home-grown food and beverage company – Jumbo Group Ltd (SGX: 42R). As a recap, Jumbo is one of Singapore’s leading multi-dining food and beverage (F&B) establishments. Its network of F&B outlets spans multiple cities such as Singapore, Shanghai, Beijing, Taipei, Bangkok, Tokyo and Osaka.

Serving up tasty dishes

Jumbo first started out with its first outlet in 1987 at the East Coast Seafood Centre, and over the years, its name became synonymous with Singapore’s chilli crab. Aside from its trademark dish, the restaurant also serves up a wide array of fresh seafood dishes across its current six outlets in Singapore.

Jumbo makes its money by serving great seafood dishes to both locals and tourists, and it has also made a name for itself as the go-to place for chilli crab.

An array of brands

Aside from its main seafood business, Jumbo has also invested in an array of different brands across a wide range of local fare. These include brands such as Ng Ah Sio Bak Kut Teh (peppery pork rib soup), Chui Huay Lim Teochew Cuisine (Teochew classic dishes), Chao Ting (Teochew rice in broth) and JPot (Singapore-style hotpot).

By diversifying away from its core seafood restaurant, management hopes to capture a wider base of customers and appeal to a larger crowd of consumers. These brands are able to bring in multiple sources of revenue for the group over time.

Franchising as a strategy

Source: Jumbo Group May 2019 Presentation Slides

From the above table, you can see that Jumbo has a total of 32 outlets spread across 11 cities in Asia. However, of these 32 outlets, eight of them are franchised. Jumbo has astutely made use of a franchising strategy to accelerate its expansion plans into other Asian countries such as Thailand and Vietnam.

In such an arrangement, Jumbo will allow the franchisee the right to use their brand name in order to set up restaurants and food outlets, and the group will collect a franchise fee or a portion of the franchisee’s income (depending on the specific clauses within the franchise contract) in exchange for this privilege.

Far-sighted expansion plans

Plans are afoot to open even more outlets serving different cuisines, with a second Tsui Wah Hong Kong-style outlet to open in Singapore, a second Jumbo Seafood restaurant in South Korea and two more Ng Ah Sio outlets in China and Taiwan – all within the next 12 months.

Management is not standing still as it plans to open even more outlets in the near future, and may even bring in additional brands under its belt.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.

Motley Fool Singapore 2019