Uni-President's Alex Lo
Dominating the Business of Living
Uni-President Enterprises and its many affiliates have more influence over the daily lives of Taiwanese consumers than any other conglomerate. How will things change under the leadership of new chairman Alex Lo?
Dominating the Business of LivingBy Ming-Ling Hsieh
When President Chain Store Corp.'s board of directors formally announced on Dec. 19 that Alex Lo would take over as chairman of the company, replacing his father-in-law and Uni-President Group founder Kao Chin-yen, it was not unexpected.
Lo had already been appointed chairman of Uni-President Enterprises Corp. and Ton Yi Industrial Corp. over the previous six weeks after the 84-year-old Kao announced he was stepping down as chairman of those companies to pave the way for a new generation of leadership, ending more than four decades at the pinnacle of Taiwan's food industry.
Yet Lo's appointment to head President Chain Store, the operator of 7-Eleven convenience stores in Taiwan, still carried great significance. It completed his ascension to the Uni-President throne, not only establishing him as the true leader of the "Tainan Gang" (a group of business magnates from southern Taiwan who lead some of Taiwan's most successful and largest corporations), but also giving him complete control of the domestic business group with the greatest influence on local consumers.
The New Consumer Overlord
"He's shrewd, calculating and very determined," says one Tainan entrepreneur of Lo. "He was able to be patient for over 10 years before finally rising to the surface. He gradually gained the support of various factions and built his own influence while instilling a culture of institutionalization. That's really something."
Beyond his complete command of Taiwan's biggest food processor and convenience chain operator, Lo also wields considerable influence through his share holdings in nearly 100 Uni-President and President Chain Store affiliates and subsidiaries throughout the supply chain, effectively putting the many diverse interests of the conglomerate in the hands of a single leader.
His every move will affect the daily lives of Taiwan's 23 million consumers – from what they eat and wear to where they live and how they get around.
Convenience stores, including President Chain Store's 7-Eleven chain, have emerged as an integral part of the daily lives of Taiwan's citizens. They go to 7-Eleven to get their three daily meals, buy instant noodles and fresh milk, make withdrawals at ATMs, purchase high-speed rail tickets or pick up books bought on Taiwan's Amazon – books.com.tw.
When they have spare time, Taiwanese enjoy buying donuts at Mister Donut, shopping at big box retailer Carrefour and Hankyu Department Store, or visiting the National Center for Traditional Arts in Yilan County. All of these goods and services are provided by the Uni-President Group.
The 57-year-old Lo is tall and thin, with a broad face and high nose. When he is not smiling, the corners of his mouth purse slightly with determination. He chooses his words carefully and seldom makes an assertion without giving it some thought, giving the impression of being serious and steady.
In some respects, he remains something of an unknown, leaving many wondering what in fact are his core values and preferred management approach, and what kind of impact he will have on the nearly half-century-old Uni-President Group, the "Tainan Gang," and Taiwanese society as a whole?
Building Synergies through Investments
The somewhat reserved Lo, who married Kao Chin-yen's only child, stresses modern management systems and performance. He derives his authority not from close associations with founders of the Tainan Gang, but from the holdings of Kao Chyuan Investment Co. Ltd.,which belongs to the Kao family,as well as the operating performance of Uni-President Group businesses.
In recent years, the Kao family has steadily built up its stake in Uni-President Enterprises, emerging as the company's single biggest shareholder. If the 1.64 percent stake owned by Lo's wife, Kao Shiu-ling, is included, the family now owns 6 percent of the company, exceeding the holdings of the once biggest shareholder, the Hou family.
Lo took over as the company's president in 2007 at the age of 51. In June of this year, at a press conference following Uni-President's annual shareholders meeting, Lo proudly announced that Uni-President had finally made it into Forbes' top 1,000 global companies (at 904) after ranking between 1,000 and 1,200 the previous five years.
"For us, that was really significant," says Lo in his typically conservative manner.
Hou Po-ming, the straight-talking president of Tainan Spinning Co. and one of Uni-President's major shareholders, says of Lo: "Uni-President used to only earn NT$2-3 billion a year, but since Lo took over as president, it has made over NT$10 billion a year. So all of us big shareholders applaud him."
Lo has earned the support of not only large shareholders but also institutional investors. Foreign institutional investors currently hold about half of Uni-President's shares, far exceeding the roughly 10 percent stake they held in the years before Lo took over as vice president of Uni-President Enterprises.
"I think Alex Lo taking over as chairman is a good thing for the Uni-President Group. It shows that the political situation is stable and he can put in place his ideas and philosophy," says an analyst at one investment firm.
Unchallenged No Longer
A former senior investment executive at Uni-President compared the different environments faced by company founder Kao and Lo. "Mr. Kao started with a small beverage factory and a small flour factory. There weren't any rivals because there was nobody as bold or gutsy. Chairman Lo does face competition, not from domestic rivals but from Chinese and global corporations," the executive says.
During the Uni-President empire's golden era, it ruled consumer markets. But those days are gone for the empire Lo has now inherited.
Uni-President's major rival – the Ting Hsin International Group and its Master Kong brand – not only has the advantage of being the leader in China, but it also makes decisions more efficiently. The four Wei brothers who run the Ting Hsin Group are in constant touch with each other and can make major decisions rapidly. At Uni-President, on the other hand, everything has to go through the company's Taiwan headquarters and Taiwan-based executives who may not be fully familiar with China, leaving it lagging behind Master Kong in China's fiercely competitive environment.
Simply put, Lo appears to be taking over a management team that seems behind the times and is not as on the ball and aggressive as it needs to be.
One individual familiar with Uni-President's corporate culture over the years describes the venerable enterprise's atmosphere as being steeped with human warmth and a sense of communal happiness. A former employee of the Uni-President Group explains that while pay levels may not be too high, the company offers excellent benefits and genuinely cares about its workers.
"There are tangible and intangible benefits. It feels like one big family," the former employee says, but notes that this collegial atmosphere also has its downside. Though Uni-President does not have a strong bonus system, it also does not have a clear disciplinary system.
"Earlier employees feel that it is an 'iron rice bowl.' No matter how big the mistake, the person responsible will not be let go," according to the former employee.
Uni-President's business, meanwhile, is huge, enabling different divisions and subsidiaries to support each other. For businesses that are not doing well, upper management will give the business time and inject needed resources, but after a period of time, that approach may leave the business too dependent on the group's backing. "Once the group's resources are pulled away, can (the business) survive on its own?" questions another company insider.
Under Lo, those tendencies may be changing.
Turning Up the Heat on Profits
Lo derives his authority from the support of major shareholders, institutional investors, and that combined with the fiercely competitive environment has led to a new management style that stresses "performance" over all else.
One Uni-President employee describes Lo's approach as "constantly conducting reviews" as well as "leaving no stone unturned" when he comes across something that leaves him dissatisfied or that he sees as unreasonable. He also continually reminds every senior executive that, "you have to demonstrate that your division is worth keeping around." That approach has exposed many problems that were previously overlooked, according to the former employee quoted above.
Lo has not shown himself to be obsessed with recklessly expanding the company's reach; instead he is willing to stop the bleeding and eliminate a business if its positioning and profit model are unclear.
Lo's emphasis on putting profits first and focusing on performance as president of the company since 2007 has helped build the business. The Uni-President Group has at least 100 SKUs (stock keeping units, meaning specific items) that have annual revenues of over NT$100 million, and 32 companies in which it has invested have net income of over NT$100 million.
Part of that success involved turning around Uni-President's instant noodle business in China, which had been operating at a loss.
Five years ago, Uni-President launched a bold "Phoenix Project" to build market share by paring down the number of instant noodle varieties it was selling in China from over 400 to 34, making a concerted effort to develop the "Old Altar Pickled Beef Noodles" brand, and tapping into more traditional distribution channels that it had previously ignored. As a result, the market share of Uni-President instant noodles in China has grown from 9.8 percent in the third quarter of 2010 to an all-time high of 16.8 percent in the third quarter of 2013.
That forced Master Kong to counter with an instant noodle line that had the same Chinese name as "Old Altar Pickled Beef Noodles" except for one character, used the same purple packaging and even included a ham sausage as a bonus.
The Downside of Being Performance-oriented
Lo is also addressing criticism that the company may be too old, promoting young managers to give the company a younger look. He personally selected a group of management trainees and reads and critiques their reports, while also encouraging the company to cultivate internally the next generation of potential successors and build a deep pool of talent.
"I have told all of my colleagues that every person should prepare a successor," Lo once remarked. "Otherwise, when the company wants to make a move, there won't be a successor ready. You will have to continue on in the same position, which is not a good thing for you."
In recent years in China, he has asked top executives to bring an outstanding Chinese manager with them when a meeting is called, hoping to give them some experience. At present, he has developed a list of 600 Chinese managers of the future.
Lo's centralized concentration of authority and performance-oriented philosophy has helped tighten up the company's operations and inspired shareholders, institutional investors and employees. But it may have also had the unwanted consequence of stifling other values.
Last year, former President Chain Store president Hsu Chung-jen left the company, a move followed by several other departures or transfers of top executives.
Though some saw the bloodletting as appropriate and part of building a system, others saw it as an effort by Lo to consolidate his power and resolve the longstanding communications gap between Uni-President's manufacturing and sales arms, and the parent company's inability to get retail subsidiaries to followits directives. The spate of personnel changes generated plenty of whispers, raw emotions and unease.
"These 20 to 30 people were top-notch, very senior people," observes one entrepreneur. "Why was it necessary to get rid of them? I don't understand."
The new commercial- and performance-oriented culture, meanwhile, is also having aprofound effect on downstream suppliers and consumers.
A close look at the items sold in any 7-Eleven in Taiwan today reveals that most of them carry the Uni-President brand. Among the products occupying prime shelf space even with consumers' eyes is Uni-President brand milk, and frequent users of the chain will notice that the percentage of own brand or fresh food items is rising while other brands are having an increasingly hard time getting their new products in the door.
"Over the past year, we've been dealt a harsh blow," says one mid-sized vendor who spoke on condition of anonymity. "You clearly sense that it's harder than ever for new products to make it onto store shelves."
He originally wondered if his products were no longer as popular in the market as they had once been. But after observing how other vendors were doing, he realized that President Chain Store was simply interested in promoting its own brand while shrinking the amount of space given to products of other vendors. The only way to counter that, the vendor said, was to offer deep discounts or contribute to marketing costs.
President Chain Store's growing power and new emphasis on sales per square meter seems to have left suppliers with increasingly limited bargaining power and consumers with less choice.
"In the past, you got the feeling that President Chain Store 'exists for you the consumer.' Now the sense is 'you can't do without me,'" the vendor said.
"Uni-President is in the process of streamlining our SKUs. It's not likely that we would expand our shelf space," responds Lily Lin, President Chain Store's director of public relations. "In fact, the number of our own branded products has not increased. It's remained steady at about 300 items or so."
Lin explains that because of Taiwan's sluggish economy in recent years, 7-Eleven has held an ongoing dialogue with its suppliers on how to develop products and promotions that truly resonate with consumers.
That has particularly been the case with non-mainstream products that do not have high turnover rates, including magazines, and they have felt the heat.
Chen Shu-wan, secretary-general of the Magazine Business Association of Taipei, said she received many calls from members at the end of 2012 complaining that President Chain Store was strictly basing new annual contracts with publishers on sales per space used.
Some magazines, for example, were required to meet specified sales rates or see their presence in the stores diminished. In the case of fashion magazines, which are generally thick and heavy because of their dependence on advertising, 7-Eleven raised the possibility of having them pay extra fees to compensate for rising costs.
President Chain Store argues that because of rising fuel, electricity and personnel costs, it has naturally gone back to the supply chain in search of cost savings from vendors.
The offensive against food suppliers and publishers clearly reflects the performance-oriented thinking of the new man at the helm of the Uni-President Group, who is leading his venerable company out of the competitive morass, but at the same time setting off shock waves that have unsettled employees, the supply chain and consumers.
"The emphasis on profits reflects a typical capitalist mentality on how to run a business. But today, companies should take a broader view and show concern for all of their stakeholders and their social responsibility," says one management scholar.
The succession completed, and power fully concentrated in one man's hands, the Alex Lo era is now truly set to begin at the Uni-President Group. Consumers and other stakeholders will be watching closely to see if any of the traditional "human touch" seen at the company over the past 46 years will survive the transition.
Translated from the Chinese by Luka Sabatier