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Going Jumbo in China
JUMBO Group might have just wrapped up a successful initial public offering (IPO), but there is no crawling sideways for the seafood supplier as it sets its eyes on the prized China market.
Barely three months after it listed on the Catalist board of the Singapore Exchange (SGX) in an offering that was almost eight times oversubscribed, the group opened its third restaurant in Shanghai in mid-January. Plans for three more outlets in Shanghai are now under preparation, and are expected to be served within the next two years.
The group's bullishness in China might surprise some, given recent worries over the growth rate of the second-largest economy in the world. The Chinese authorities are expecting the economy to expand between 6.5 per cent to 7 per cent this year, after the country recorded a 6.9 per cent growth rate last year - its slowest in 25 years.
For Jumbo's chief executive officer and executive chairman Ang Kiam Meng, however, the small base the firm is starting from in the country gives it a lot more room to grow, regardless of how badly the economy might perform. In Shanghai alone - the city that it is focusing on for now - the population size of 24 million represents "a lot of upside", says Mr Ang. "Even if the economy slows down, we are quite confident that we'll not be too badly affected." The brand is quite well-known in the China market, especially in Shanghai, and there are many who have yet to try Jumbo's food, he adds.
Jumbo first ventured into China in 2013, opening its first outlet in iAPM, Xu Hui district in Shanghai, targeted at the middle to upper class who would spend 350 yuan (S$74) each on average at the restaurant.
The second, aimed at the middle-class segment with a budget of 200 yuan per person, is located in Raffles City in HuangPu district. The latest in the high-end mall Shanghai IFC Tower in Pudong New Area is for business diners who would spend about 400 yuan each.
The three restaurants merely scratch the surface of the Shanghai market, explains Mr Ang, adding that the group would have a healthy revenue size for the next few years even if it relied only on first-time customers.
FOR THE LOVE OF EATING
The expansion into China marks a broadening of horizons for the group which started in 1987 as a side-business for a group of friends and brothers.
Mr Ang's father was one of the founders who had bought over a failed restaurant in East Coast and started running it. When the time came to open its first branch, he wanted to rope in Mr Ang, who was writing weapon delivery programmes for aircraft as a software engineer at ST Engineering. "I said, okay, let's give it a try," Mr Ang recalled in a previous interview with The Business Times.
The attempt turned out to be a very expensive S$1.6 million lesson. The outlet failed to take off and was shut down a few years later. Mr Ang attributes this to inexperience and an unfavourable contract with the property owner. The experience, however, taught him that the recipe for success for a restaurant with multiple outlets is different from that for a single restaurant.
Today, Jumbo Group has 14 outlets in Singapore, and its innovativeness in expansion was lauded at the Singapore Business Awards this year with the firm clinching The Enterprise Award. It has grown into a six-brand restaurant group, including hotpot restaurant JPot, Ng Ah Sio Bak Kut Teh, Chu Huay Lim Teochew Cuisine and J Cafe, which serves local food in a cafe setting. The 6,000 diners that the group serves every day consume crabs with a combined weight of two cars.
Along the way, Jumbo Group has also been a keen adopter of productivity measures and standards. It was one of the first Chinese restaurants to adopt the point of sales (POS) system - a retail management platform that processes sales and includes other capabilities such as inventory management - 20 years ago. In 2008, it also built a central kitchen to ensure the consistency and safety of the food it prepares, and to boost productivity of its workers. Jumbo keeps a close eye on productivity measurements, such as the revenue per square foot to measure its returns on rental, and revenue per employee to track its returns on manpower.
It is now in the midst of improving its IT processes to monitor costs and performance, in order to be able to respond quickly to cost variations. "We need to keep improving on productivity, providing training, and leverage on automation and IT," points out Mr Ang.
Despite the size of its operations today, he remains fastidious in paying attention to details and visits an outlet every week, whether for a meeting or for a meal.
The food-testing is not just limited to Jumbo's own outlets. Mr Ang also regularly visits those of his competitors, and is even a member of some of them. This way, he is able to keep his pulse on new trends and gimmicks that appear, he says, laughing. "I believe they also do the same to me."
Asked for an example of what he's learnt through these, Mr Ang points to the increasing popularity of collagen hotpot which is marketed for its health and beauty benefits. Would it be something that Jumbo will consider for JPot? "We'll study and see whether it suits our set-up," he replies.
Jumbo received a strong vote of confidence late last year, when Temasek decided to invest S$10 million in it and also brought along OSIM International chairman Ron Sim to buy another S$7 million of its stock for its S$40 million IPO. On its trading debut, its shares jumped, and ended trading at 34 Singapore cents, 36 per cent higher than its IPO price of 25 cents.
The investment by Temasek through its unit Heliconia Capital Management had almost not come to pass, reveals Mr Ang. Jumbo Group had then been at the last stage of the IPO, which is later than what funds like Heliconia typically like. The investment company was also looking at price-to-equity ratios lower than what Jumbo had in mind. Eventually, however, the deal was closed as "each other made some effort in meeting expectations", according to Mr Ang.
Despite the recognition and success it has built up in Singapore, the road ahead in the island-state remains challenging due to manpower shortages and high costs of business. While revenue has been consistent, costs continue to escalate, Mr Ang says. "We can't keep adjusting the price (of the food)."
Jumbo's revenue rose 7.6 per cent to S$30.9 million in the three months ended Dec 31 due to revenue contributions from the second Shanghai restaurant, lifting profit by a quarter to S$2.08 million, up from S$1.67 million a year ago. The group will be slowing down its expansion in Singapore, with just one more outlet planned, targeting the high-end seafood dining space which Mr Ang says is lacking in options.
Rather than opening more restaurants, it would prefer to increase the number of turns, by opening earlier and closing later. "If you're able to run a restaurant with two to three turns, it's as good as having two to three restaurants, with one restaurant's overheads," Mr Ang points out. The group currently reaches on average 1.5 turns every night. With the constraints here, "we'll rather take it easy on the Singapore side and channel our resources to China," says Mr Ang. "China has what we don't have in Singapore, which is people."
The group has established a partnership with training schools in Shanghai, which provide a ready stream of potential employees for Jumbo. Half of its workforce in the three outlets there are fresh graduates, "so they are very mouldable", Mr Ang notes. "It depends on how well you can train them."
Their lack of experience does not matter, as the skillsets required are not difficult. "You just need a good attitude. It's some very basic training and culinary skills that you need to acquire. All this is guided by our senior managers and a set of standard operating procedures that we set up in Singapore, and they just follow."
Its famous chilli crabs, for example, can be cooked by these young staff. "We have already made it so simple that my 15-year-old son can make it too," adds Mr Ang. Its recipe for the chilli paste, however, is kept secret. It's made in Singapore and then flown over.
Besides manpower, Shanghai is a prime market for the firm because of the high earning power of the people there. Compared to Beijing, which depends heavily on government spending and therefore has been hard-hit by the anti-corruption drive, Shanghai continues to be a big-spending market. "They are affluent and have their own income," says Mr Ang. "They're very willing to spend, especially if you have branding."
The firm is therefore leveraging on the Singapore brand and the quality it is known for.
It helps, too, that South-east Asian food is gaining in popularity, especially with the younger population.
For now, the group is aiming to focus on just the Jumbo Seafood brand before introducing its other brands to the China market - using the same formula that has brought it success in Singapore.
New opportunities are also unfolding for the group, brought along by the increased recognition after its listing. "Before we listed, nobody would look at us. A lot of people were surprised that we are actually that big in terms of revenue and profitability," says Mr Ang.
With a market capitalisation of S$298.2 million, the group ranks among the biggest food and beverage players on SGX. Potential partners have now come knocking, adds Mr Ang. "They don't need to listen to us and they can just do a background check on us." But he declines to say more, citing exchange regulations that the firm is just newly learning to adapt to. "I cannot reveal too much."