Biscuit maker Munchy's started out with an RM80,000 loan and has grown into a regional powerhouse. Now, its CEO C K Tan aims to transform it into a billion-ringgit company.
Munchy’s is a remarkable Malaysian success story of how five brothers from Muar, Johor, built a biscuit company that went from RM338,000 in revenue in year one to over RM300 million at end-2008. But for C K Tan, the third of the five brothers, the journey is only now getting exciting: “In 10 years, we want to become a powerhouse in Asia and the Middle East.” This explains why the company has not gone for a listing yet. While its revenue is strong, its profits are affected by its non-stop investment in people, machines and infrastructure.
If it hits the target, it will have easily surpassed its BHAG (or big hairy audacious goal) of becoming one of Malaysia’s 100 largest companies by revenue. It has indeed come a long way from its beginnings as a small and medium enterprise (SME), which almost went bankrupt during the Asian financial crisis in 1997/98 to being a RM300 million revenue company today, while aiming for RM1 billion in sales in the future. There are surely lessons in its journey that SMEs today can take away. “We develop products, we innovate and we are continuously improving the company and our products. But fundamentally, it is about people, strategies and execution,” says Tan when asked about the key to its success. He adds that he and his brothers are driven to keep doing more and not being satisfied.
They also know how to stay focused. Although the company is in over 60 countries, Tan says Munchy’s is an Asian company with products suited for the Asian palate. This is where it aims to be dominant.
To achieve its BHAG, Tan has already started its regional expansion plans where Munchy’s has sales and marketing teams in Singapore and Indonesia, while establishing teams in a number of other Asian countries. Its goal is to become a leading player in each of the countries it expands to. “There is no point having a direct presence if you just want a small market share. We want to be as strong regionally as we are in Malaysia,” he says.
According to a Nielsen Retail Index Corporate Value Share report in 2008 (June 2006-2008, excluding Sabah and Sarawak), Munchy’s is Malaysia’s top homegrown biscuit brand. Incidentally, the Malaysian market for biscuits is estimated to be worth between RM600 million and RM700 million.
In laying the groundwork for their Asian expansion, Tan started to transform the company three years ago. This included bringing in an impressive senior management team with a strong MNC (multinational corporation) background. The idea is to eventually allow Malaysia to run without him as CEO so that he can focus on its regional plans.
This also involved making hard decisions about senior team members who, it was felt, did not have the right skill sets to take the company to the next level.
“There were some hard decisions to make,” acknowledges Tan. “Some people had been with us for a long time and could not take it and left us when told we were bringing in outside talent.” Other senior staff were reskilled and now lead different functions.
Incidentally, Tan is the only brother still in operations. “We all grew up around biscuits, when they were still made by hand. Our father’s factory was our second home. We lived, ate, slept, studied and played in it. During the school holidays, we would help out in the factory. So you can say biscuits are in our blood,” he says.
But with the need to bring in new skill sets, Munchy’s structured a supervising board which is filled by some of the brothers and also some very experienced former chief executives to help guide the company forward.
Tan admits the transformation, which is still ongoing, is not easy to execute but then Munchy’s targets are bold and it needs to be decisive. “There is this book called What Got You Here, Won’t Get You There, and you just have to believe that things need to be done differently, hence this injection of MNC talent,” he says.
Indeed, the history of how it started bears testimony to this bold streak. Already comfortable in the business, his two elder brothers asked their father to allow them to start their own company (Tan was in the US getting his degree and joined the business in 1994). He agreed and so they started out with an Austrian-made second-hand wafer stick machine costing RM80,000.
They could have chosen cheaper machines, but the brothers share a belief that the best quality machines will help you make the best quality products. Which is also why in 1996, when they built a bigger plant in Muar for more capacity, they opted for the best equipment in the industry and so ended up borrowing RM40 million to build their plant. “Mind you, this was at a time when our revenue was only RM14 million,” laughs Tan. Put it down to one part naivety (after all, the three brothers were only in their 20s at the time) and two parts boldness and ambition. It also shows the confidence their bankers had in them.
The plant at that time was considered the most advanced fully automatic wafer plant in Southeast Asia. Today, the plant is fully certified with all the required quality marks it needs, including Good Manufacturing Practice or GMP, ISO 9000, the Hazard Analysis and Critical Control Point (HACCP), which is used to describe an internationally recognised way of managing food safety and protecting consumers. Munchy’s also has the British Retail Consortium standard, a global product safety and quality certification programme, to be able to supply to European countries.
Tan considers 1996 a turning point. With the larger capacity coming onstream, Munchy’s has since enjoyed a brisk cumulative average growth rate of 30.1% over the past 12 years.
Another turning point came in 1999 when the brothers brought in someone to help them put in some systems and build a corporate culture. “Up until then, it was a close-knit operation and we could have quick meetings and get someone to act on the decisions we made. But up to that point we only applied our own limited knowledge to grow the business. Since then, we have continued to bring in consultants to help strengthen our operations.”
This includes the decision in 2005 to bring in brand experts to help the company refresh its brand. By this time Tan was in charge of branding, and after spending RM500,000 on their first above the line campaign -— including RM53,000 on a TV ad in 2002 — it was basking in the impact the campaign had, which transformed its product line from 7,000 cartons to over 20,000 cartons a month. “But then, over the next three years, I began getting feedback that the brand was very Chinaman-like and so I finally hired international brand consultants in 2005 to give us a refresh.” Indeed, today the company is a strong believer in branding and wants to infuse its brand identity with being cheekily fun. It has a great tagline, “Bite Me”, and its various meeting rooms are cheekily named Nibble Me, Lick Me, Eat Me and so on.
In competing with global brands, it spends a serious amount in A&P, with next year’s budget for Malaysia at about RM20 million. It has also tied-up with celebrities and used blockbuster movies to promote its products. Next month, it will launch its new website to attract the net-savvy crowd.
“We have always believed in the power of branding and automation and technology,” says Tan. As the first graduate in his family, he recalls being made in charge of the export department, which was new at the time. “I was the only one in the company with a laptop and created the first export invoice on my notebook,” he recalls. He also had the benefit of working for a time at CompUSA, an IT retailer which made extensive use of technology to run its business. Having seen the benefit of IT in a business, Tan spent RM500,000 on IT systems for Munchy’s in 1997 and has since kept investing when needed. “Computerisation makes you more efficient,” he says.
Everything that the company does is guided by its mission and Tan is confident that if it keeps improving, executes well and develops its people, it is inevitable that “filling homes all over the world with Munchy’s yummylicious, affordable and world-class goodness” will become a proud Made-in-Malaysia reality.
This article appeared in SMEs, the Special focus pullout of The Edge Malaysia, Issue 778, Oct 26-Nov 1, 2009