David Teo is better known as the man behind Super Group, maker of three-in-one instant coffees. But people close to him also know he is an expert chef, capable of whipping up anything from char koay teow to lobster thermidor, skills he honed during his years as restaurateur more than 20 years ago. Teo still indulges his passion for cooking in his own kitchen, especially on Saturday evenings when his three grown-up children — Sharon, Elaine and Darren — join him and his wife Te Lay Hoon for dinner.
As they tuck into whatever Teo has cooked up, conversation around the family dinner table invariably turns to Super Group. Teo, 59, started the company with his wife in 1987, four years after their youngest child, Darren, was born. Now, all three of his children hold key positions in the company and are helping Teo expand its manufacturing operations and launch slick branding and marketing initiatives. Their aim is to focus on two engines of growth. The first is selling branded F&B products such as instant coffees, canned drinks, cereals and cup noodles. The second is producing beverage ingredients like instant coffee powder and non-dairy creamers to support its own internal needs as well as for sale to other instant coffee makers. Ultimately, the Teos want to turn their family business into a Singapore-based Nestlé of sorts.
By Teo’s own admission, many of the ideas proposed by his children did not sit well initially. An old-fashioned businessman, he had built up his company through hard work, being frugal and making use of his personal contacts to establish a foothold in markets overseas. He also invested in his own ingredient-manufacturing operations in the 1990s to ensure that he would have full control over the quality of his products and avoid being dependent on potential competitors for supplies. In addition, Teo would never pass up a chance to take on projects that he was certain would make money, even if they weren’t related to the F&B business. Even after listing the company in 1994, he was still more inclined to spend time forging business relationships that would open doors to more business opportunities than cultivating a broad investor base by explaining his core business strategy.
Having run the company himself successfully for years, Teo wasn’t about to accept anyone’s counsel easily — not even his own children’s. He baulked at their idea of enlivening the brand, fearing that the company’s regular customers might not recognise the product, thus triggering a dip in sales. He was also horrified at the suggestion of selling ingredients to the company’s competitors. “I don’t buy from competitors, so why should they buy from me?” he asked his children.
It was only after Darren produced an extensive study of Petra Foods, a company in a similar business that grew at a tremendous rate by getting into the business of selling ingredients, that Teo decided to take the idea to his board. “I didn’t tell them it was Darren’s idea,” he says. “But, when they agreed and said it could be done, I made my decision.” Six months later, Super ramped up its ingredients production. The move paid off. Revenue from the company’s ingredients business has grown from just S$3 million (RM7 million) in 2007 to S$31 million last year. Pauline Lee, an analyst at Kim Eng, forecasts that revenues from this division could double over the next three years, as the company taps fast-growing markets like China and Taiwan.
Teo’s children also persuaded him to jettison Super’s investments in property so that the company would be more focused on its core business. “My children were saying, ‘Why Daddy go and do this sort of thing?’” Teo says, referring to Super’s property investments. He retorted that other well-regarded corporate groups like Fraser and Neave, Hong Leong and Cycle & Carriage had burgeoning property arms. “Everybody was doing it. Why can’t I? What’s the problem?” But, he soon accepted that the market preferred to see companies like Super focus on their core business instead of expanding into non-related businesses.
In March, Super said it had divested itself of its 37.5% stake in Care Property Holdings, which builds homes in Changzhou in China’s Jiangsu province, where the company has a cereal factory. Super got into the business after officials in Changzhou offered Teo land at attractive prices. “We made S$10 million just by selling land, but investors didn’t like it. So, we divested,” Teo says, with a hint of regret.
Now, Super is investing in its brands and corporate identity like never before. Two weeks ago, the company officially shortened its original moniker Super Coffeemix Manufacturing to just Super Group, to reflect its expanding range of products beyond instant coffees. It has appointed an agency called Brand Union to help it come up with a new corporate image by year-end. In keeping with Teo’s thriftiness, however, Super is getting a 75% subsidy for the S$500,000 consultancy fee from International Enterprise Singapore under the Brandpact programme, which helps grow Singapore brands that have the potential to put the island on the world map. The Teos and other company officials are also kicking around ideas to improve market awareness of its brands, including opening a high-profile store to showcase its higher-value beverage products.
Meanwhile, Super plans to capitalise on the buzz its marketing efforts will create by launching new products like soya milk. It will also reposition its existing portfolio of more than 80 products, Teo says, retiring the weaker ones to free up resources and pushing the growth of its more successful ones. Interestingly, some 80% of Super’s revenues come from just 20% of its products.
Will revenues from its branded products take off as quickly as its ingredients business has? Are Teo’s children only unleashing the latent potential of the company or fundamentally changing its business model? What are the risks of their strategy? Who will eventually succeed Teo at the helm of the company he built? And, what does it all mean for investors?
Satisfying the need for coffee
Despite all the changes at Super, Teo emphasises that the company is firmly sticking to its core business, which is satisfying people’s daily need for a coffee fix. “We want the coffee ‘needs’ market,” Teo says. “We do not want coffee lovers, because that is a small market… People with coffee needs take three to four cups a day. We need this type of coffee drinkers.”
Maintaining its position in that segment of the market could be easier said than done. Competitors like Nestlé, UCC and Kraft are offering freeze-dried instant coffees, which deliver better aroma and flavour than traditional instant coffees. To maintain its turf, Super has a freeze-dried instant-coffee brand called Cafe Nova, which is popular with younger consumers. And its freeze-dried Ipoh White Coffee is said to lead the Malaysian market. Super buys its freeze-dried coffee ingredients from other producers, but may invest in its own manufacturing plants if demand keeps growing. Teo would only say that such a plant would be a large investment, and he is unsure whether it will be worth it.
That is especially so with all the branding and promotion programmes Super wants to do to raise the profile of its instant coffees, cereals and cup noodles. “We want to be a house of good brands,” says Darren, the assistant business development manager. The aim is for these products to be as recognisable in the market as Nestlé’s brands, which include Nestum, Perrier, Smarties, Milo, Maggi, Häagen-Dazs, Lean Cuisine and Cerelac. Teo adds that “Nestlé and the other big boys” doubted that Super’s foray into instant coffees would work. Yet, the company has proven them wrong.
Super appears to have strong positions in several growing markets in the region, including Thailand, Myanmar, Malaysia and China. In fact, Teo says its sales in Thailand in 1Q2010 were up 50% y-o-y despite the Red Shirt protests at the time. “People were staying at home and drinking more coffee,” Teo hazards a guess, when asked why sales jumped. Thailand accounts for almost one-third of Super’s revenue currently. Myanmar is its next-largest market, where it claims to be the industry leader. Super reported a 139% y-o-y jump in earnings to S$14.7 million for 1Q2010, on a 27% increase in revenue to $81.6 million.
So, does Super have the financial muscle to sustain its branding initiatives and continue investing in its manufacturing capacity? Probably. As at end-March, the company had S$81 million in cash, which some analysts say might be enough to make an acquisition or two. On top of that, shares in Super have performed strongly this year, rising 36% so far. In addition, continued earnings strength as well as plans to launch a TDR (Taiwanese Depository Receipt) programme in 2H2010 could lift its stock further, analysts say. That could give it the flexibility to use its shares to support its acquisitions or expansion initiatives.
DMG & Partners and Kim Eng recently initiated coverage of the stock with “buy” ratings and price targets of S$1.10 and S$1.33 respectively. “Super will continue to benefit from the region’s GDP growth and lower-input Robusta coffee prices,” DMG & Partners says in its report on the company. “We expect its share price to continue to react positively to quarterly earnings momentum, its TDR listing in 2H2010 and potential merger-and-acquisition news flow.” Meanwhile, Kim Eng is no less positive, foreseeing a “massive re-rating” for the stock as the company seeks to triple ingredient sales in fast-growing markets while consolidating its lead in Asia and enjoying margin recovery.
Succession planning
One problem Teo won’t have in the future is finding a suitable candidate to take over his position when he retires. Unlike many other entrepreneurs, who find that none of their children is interested in the businesses they have built up, all three of Teo’s offspring have the potential to become leaders of Super. Besides having grown up in the business, occasionally helping to stack supermarket shelves with Super’s products as children, they are all quickly earning their spurs at the company and climbing the ranks.
Teo’s younger daughter Elaine, who was the first to join the company 10 years ago, was appointed general manager last year. Sharon, who joined next, is purchasing manager. Darren, who is just 27, has also taken on an investor-relations role in addition to his business-development duties.
Not that any of them have any sense of entitlement to the top job. “[The] throne will not be passed down on the basis of who’s closest to the chairman but who is most capable,” says Darren. Indeed, several other executives in their 30s and 40s are also being groomed for bigger things in the future, he adds. “From the family’s point of view, we want to grow Super into a global company. We have a common understanding to pass on the leadership to people who can grow the business better,” he says.
Still, Teo’s children are likely to have the greatest incentive to drive the company hard, given their family’s ownership of it. Teo and his wife’s family collectively own a 39% stake in Super. Separately, Elaine and Sharon have been rewarded minority stakes of 0.57% and 0.56% respectively, in recognition of their contributions to the company. Darren, whose efforts have yet to be similarly recognised, says he is feeling the heat to perform. “There is a certain pressure on me, but this is something I enjoy doing,” he says.
Is there any sibling rivalry at the company? Darren concedes he and his sisters do clash from time to time, but “we always put Super before our own ego”.
Whatever the outcome of the succession process in the years ahead, the next chairman and CEO of Super is likely to be running a very different company from the one Teo started. From a small, conservative family company with a finger in every pie, Super could well be a much larger and more focused F&B player, aggressively expanding its product portfolio and collaring new markets. And, if the analysts who cover it are right, it might also be much more richly valued by then, too.
Leu Siew Ying is an associate editor at The Edge Singapore
This article appeared in Corporate page of The Edge Malaysia, Issue 809, June 7-13, 2010