Staying grounded in coffee and Food Empire

Mr Tan Wang Cheow with some of Food Empire's products. The company holds a 50 per cent share in the Russian instant coffee mix segment, and the country is its largest market, accounting for nearly half of total revenues last year.
Mr Tan Wang Cheow with some of Food Empire's products. The company holds a 50 per cent share in the Russian instant coffee mix segment, and the country is its largest market, accounting for nearly half of total revenues last year.PHOTO: SGX

Nearly three decades ago, Mr Tan Wang Cheow embarked on an odyssey that spanned two continents and turned the computer salesman into a coffee kingpin.

The founder and executive chairman of SGX-listed food and beverage manufacturer Food Empire Holdings started out as a dealer in personal computers and disk drives in the 1980s, exporting electronic products to Eastern Europe.

This network later played a key role in Mr Tan's transition to the food and beverage industry.

Winters in Eastern Europe and Central Asia - where temperatures sometimes plummet to as low as minus 30 or 40 deg C - can be brutal. Aside from drinking shots of vodka and buying coffee from hotels, there were few convenient ways of getting a hot beverage to keep warm.

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On one of his trips to Kazakhstan, Mr Tan took along a few sachets of instant 3-in-1 coffee mix.

"I got my Kazakh distributors to try them, and they were interested. Their first order turned out to be 22 container loads!"

That proved to be a fortuitous turn of events. At the time, margins in the consumer electronics distribution business were razor-thin and shrinking continuously.

  • 50

    Number of countries Food Empire exports and sells its products to.

  • 24

    Number of offices the group has across Eastern Europe, Middle East and Asia.

"In comparison, the distribution of instant coffee products was relatively stable. We felt this was something we could build on and created a brand of our own." As a result, the MacCoffee trademark was born.

SWEET INDULGENCE

After the Berlin Wall fell in 1989, and the Soviet Union was dissolved in 1991, Eastern Europe began its transition to a market economy, and foreign investments were warmly welcomed. In particular, instant food and beverage products were regarded as a novelty.

Today, MacCoffee's sales volumes have grown exponentially to more than 10,000 twenty-foot equivalent container units (TEUs) annually, from only about two TEUs per month in 1994.

"Russia has traditionally been a tea-drinking country - it was never coffee. So we needed to convert the consumer mindset, and a newly reforming Russia was more open to trying new things," Mr Tan said.

For the new Russians, MacCoffee opened up a world of aromatic possibilities.

After 1994, Food Empire diversified its product range to include regular and flavoured coffee mixes and cappuccinos, chocolate drinks, instant tea and confectionery under the MacCoffee, MacChocolate, MacTea and MacCandy labels. In 2007, it bought domestic coffee brand Petrovskaya Sloboda, which had a following dominated by elderly Russians. Its snacks and frozen convenience food products were launched after 2000, under the Kracks and OrienBites brands.

INFLUENTIAL BRAND

Food Empire listed on the mainboard of Singapore Exchange in 2000. It exports and sells its products to more than 50 countries globally, and has established 24 offices across Eastern Europe, Middle East and Asia. The group also operates six manufacturing plants and three production facilities located across the two continents.

The MacCoffee flagship label has been consistently voted as the leading instant coffee brand in the group's core markets, including Russia, Ukraine and Kazakhstan. Food Empire holds a dominant 50 per cent share in the Russian instant coffee mix segment, and the country is the group's largest market, accounting for nearly half of total revenues last year.

Food Empire has also been recognised as one of the Most Valuable Singapore Brands by IE Singapore.

For the year ended Dec 31, 2016, the group swung to a net profit of US$13.8 million (S$19.1 million) from a net loss of US$131,000 the previous year. Revenues rose 4.2 per cent year on year to US$242.2 million.

In the 2017 year-to-date, Food Empire shares have generated a total return of 46 per cent, outperforming the broader Straits Times Index's 14.1 per cent and the FTSE ST All-Share Index's 14.6 per cent.

The group has experienced its fair share of speed bumps along the way.

The first was the 2008 global financial crisis. "Asia's recovery from the mother of all financial crises was relatively quick, but that was not the case in Eastern Europe and the Commonwealth of Independent States - the process was much slower there," Mr Tan noted.

The second blow came in early 2014, when Russian military incursions into Ukraine and the annexation of Crimea prompted the United States and European Union to apply sanctions against Russia and Ukraine. This spurred Russia to respond with sanctions of its own.

"While the Russian economy has not seen a full recovery and sanctions are still in place, there are signs of stabilisation. "

GROWTH CATALYSTS

The 2014 crisis proved to be a transformative learning experience.

"It taught us the importance of diversifying geographically, and over the past few years, we've been venturing outside the Eastern European bloc into Asia, as well as pursuing vertical market integration," Mr Tan said.

Food Empire has built manufacturing facilities for potato crisps and non-dairy creamer in Malaysia.

Besides investing in a tea processing plant in Sri Lanka, it has also set up a tea chain with its partner, and expects to open more than three tea houses in Colombo by the end of the year.

Earlier this year, it opened a state-of-the-art instant coffee manufacturing facility in Andhra Pradesh, India, which makes 10 different types and qualities of spray-dried instant and granulated coffee.

The group has also acquired a minority stake in South Korea's Caffe Bene, which has a network of more than 600 domestic franchise outlets, and a further 100 in Malaysia, Taiwan, Mongolia, Saudi Arabia and the US.

Vietnam, Myanmar and China are likely to be near-term growth opportunities as the group deepens its penetration in these markets. "We're also exploring new possibilities in places like India and Africa," Mr Tan added.

Vietnam is a case in point. Food Empire hit a snag when it tried to break into the Indochina market, which had a rich coffee-drinking culture, primarily drip coffee combined with the heavy sweetness of condensed milk. "We were banging our heads against a brick wall in Vietnam, losing money for many years, before we found a niche - iced coffee," Mr Tan said.

Vietnam makes up the bulk of Food Empire's Indochina sales, contributing about 17 per cent to group revenues. Its iced coffee mix brand - Cafe Pho - has been ranked among the country's top five coffee players.

NO REGRETS

Mr Tan's epic journey has been nothing short of exhilarating, with multiple lessons learnt along the way. "The one thing I developed was perseverance - even if you fall, you have to get up and move on. If you want to fight in a market outside your comfort zone, you need to be very aggressive - moving faster than the locals, and thinking ahead of them," he said.

The father of four is a firm advocate of Confucian values. And in business, your word must be your bond, he added.

"One is one, and two is two. A contract is never as good as your spoken word. It's all about integrity and building trust."

When he is not thinking about business, Mr Tan, 60, enjoys sipping his favourite brew.

"I enjoy Colombian coffee - it has a unique aroma and acidic taste, which blends well with me." At the same time, "I'm very Singaporean - I still go for my cup of kopi-o at the coffee shop with friends".

• This is an excerpt from Singapore Exchange's Kopi-C: the Company Brew, a regular column featuring C-level executives of SGX-listed companies. Previous editions can be found on SGX's My Gateway website www.sgx.com/mygateway

A version of this article appeared in the print edition of The Straits Times on July 10, 2017, with the headline 'Staying grounded in coffee and Food Empire'. Print Edition | Subscribe