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The New Start-up Wave

Creating a Gourmet Silicon Valley


Creating a Gourmet Silicon Valley


First came the high-tech boom in the '80s, then the boom in the '90s. Now, a culinary boom has arrived in Taiwan, spawning a surge of investment in gourmet start-ups.



Creating a Gourmet Silicon Valley

By Ming-Ling Hsieh
From CommonWealth Magazine (vol. 503 )

Hsu Cheng-chi, the chairman of restaurant business Pasadena International Group, caused a stir in 2010 when he invited Michelin 3-star chef Christian Le Squer – the executive chef at the venerated Ledoyen in Paris – to Taiwan.

One night, Hsu had his own chef use Taiwanese ingredients to prepare French food to welcome the celebrated master. When the third course arrived, Le Squer's 19-year-old daughter turned to her mother and said, "This is better than what Papa makes," leaving the Michelin 3-star chef red-faced.
Hsu originally worked in plastics, producing casings for the computers and smartphones sold by international brands. But one cold morning in Kyoto 12 years ago, he walked into a small coffee shop in one of the Japanese city's narrow alleys and was highly impressed with the warmth of the service and the shop's ambiance.

"At that moment, I began thinking about opening a place that was warm and that everyone liked coming to," Hsu recalls.

In 2000, Hsu decided to open a French restaurant on the banks of the Love River in Kaohsiung.

In the 12 years since, Hsu has ventured around Taiwan and created a map showing the country's 50 best ingredients. He has used these local ingredients to create French dishes in his restaurant. He has also marketed Taiwanese ingredients and dishes in packaging that has won the iF design award.

When Le Squer was in Taiwan, Hsu brought him to a century-old malt sugar plant in Miaoli County and the renowned A-Yong restaurant in Tainan, and even invited the French chef to his house to drink tea and listen to traditional "nanguan" music. It was part of Hsu's strategy to have Le Squer help spread Taiwan's food and culture to the rest of the world, in part because of his strong belief in the dynamism and potential of Taiwanese cuisine.

The Third Start-up Wave

In recent years, an amazing convergence of talent, technology, capital, ingredients and customers has spawned a new entrepreneurial Silicon Valley in Taiwan, occupying a special place in history.

It represents the third major wave of start-ups in Taiwan's development, following the high-tech start-up craze in the 1980s and the Internet boom in the late 1990s. Over the past five years, the number of food and beverage establishments in Taiwan has risen nearly 18 percent, according to Ministry of Finance figures, far above the average growth rate of 5.5 percent for other sectors.

The number of people employed in Taiwan's hospitality sector – consisting of businesses that provide food, beverage and/or accommodation services – grew 26 percent from 2003 to 2012, and there were nearly three times as many students enrolled in university hospitality departments in 2011 as there were in 2005.

The start-up model in the sector has also grown more diverse, as entrepreneurs have initiated all sorts of ventures, from opening restaurants and food-culture workshops, to launching food marketing and venture capital companies, creating a complete value chain.

Wilma Ku embodies the new vitality seen in Taiwan's food business. Ku, who was born in the 1980s and has a master's in molecular medicine, started her first business in 2008, selling jams made from locally grown fruit such as red guavas under the brand name "Red on Tree" to department stores and bookstores.

Last year, she created her second brand, Terroir, which also trumpets local ingredients grown in a chemical-free environment by small-scale farmers, and sells baked goods such as walnut and pineapple cakes.

A feature of the food business fueling the explosion in creativity is the industry's relatively low cost of and high tolerance for failure.

For instance, Wu Cheng-hsueh, founder of the coffee and bakery chain 85°C and chairman of parent company Gourmet Master Co., who opened a beverage franchise shop, sold NT$50 pizzas, and set up many other businesses before finding success. The food industry's tolerance for failure emboldens entrepreneurs to take risks and innovate, and bravely bring new ideas to market.

Even the sector's very nature is undergoing massive change. University food and beverage managment departments used to be derided as "cooking classes," but their image has since evolved into a lifestyle and cultural discipline imbued with design concepts. Many young chefs have taken the initiative to study abroad rather than serve as an apprentice in a restaurant to learn the craft, hoping to one day head a kitchen.

Entrepreneurs jumping into the food industry from other realms have also become increasingly common, enriching the sector's image and expanding its possibilities.

Food critic Andy Wu observes that in the past few years, more people are getting into the business out of a sense of passion and the desire to pursue their dreams, rather than to simply make a living.

"The thinking and expertise of people from other fields that is being injected into the food and beverage industry has been a precious source of vitality," he says.

Wu recalls meeting an office worker at a chemical engineering firm who began to study Italian ice cream, simply for the love of eating it, and eventually developed an improved version of the Italian ice cream machine.

Another prominent example is Lisa Huang, who got her start exporting shoes but, in search of a "second spring" for her career, went on to found the vegetarian chain restaurant Easy House, which now rakes in over NT$200 million a year.

Wu says that because these owners did not have backgrounds in the food industry, they were able to ignore conventional thinking about what ingredients to use or how high prices should be. Instead, they have been able to concentrate on figuring out how to create a food experience that truly resonates with customers.

A World-class Technical Lab

This sudden influx of entrepreneurs has helped bring Taiwan's food and beverage sector closer to the rest of the world. Much like Silicon Valley, it has been able to attract and intergrate the world's most advanced technology and skills.

International restaurateurs and chefs have been entering Taiwan at a breakneck pace: The upscale department store Bellavita brought in the Michelin three-star restaurant L'Atelier de Joel Robuchon. Villa 32, a hot spring resort in Beitou, partnered with Michelin three-star chef Yannick Alleno to open STAY (Simple Table Alleno Yannick) on the fourth floor of Taipei 101. Hakata ramen chain Ippudo and Hokkaido ramen chain Santouka have both set up shop in Taiwan and drawn large crowds in the past six months.

Rather than attracting brand names from the outside, some Taiwanese entrepreneurs have opted to go abroad to learn the trade firsthand.

"The fastest way to learn Japanese is to go to Japan. To understand French food, you have to go to France," says Pasadena chairman Hsu, insisting that to cultivate talent, people have to be sent to more places with more advanced knowledge.

By the second year after his restaurant was established, Hsu was already sending some of his staff overseas, sometimes to try restaurants or work at restaurants, at other times to take courses at culinary schools.

More importantly, when these Taiwanese have brought home new techniques from their time abroad, they have been capable of using them to create something fresh and innovative.

In mid-July, the Namchow Group, a chemical and food-processing conglomerate, opened its second frozen noodle production line at its plant in Jhongli, but the table was set for the move about 15 years ago. That's when Namchow Group chairman Alfred Chen introduced frozen food technology picked up from Japan's biggest frozen noodle manufacturer, Katokichi Co.

Although the technology and production equipment came from Japan, Namchow used it to develop a wide variety of new items catering to the domestic market, from noodles for food stalls and breakfast shops to spaghettis for five-star hotels. They also incorporated ingredients grown in agricultural Jiayi County to make wasabi noodles, black fungus noodles and tea-flavored udon.

"The Japanese were really surprised, always wondering how we were able to make so many noodle varieties catering to so many different customers," says Elly Chou, the general manager of Namchow's subsidiary Lucky Royal company Ltd. "For the Japanese – my God, it was hard to imagine."

Now, Taiwan's gourmet army is making incursions abroad.

Aside from dumpling chain Din Tai Fung, the first Taiwanese restaurant to successfully promote its brand overseas, Taiwanese bubble tea is now being sold at McDonald's restaurants in Europe, and boxed-lunch chain Wu Tau Co. has opened outlets in Xiamen. This year, the renowned Lao Dong Beef Noodles, a mainstay for decades in Taipei's Ximending, opened two stores in Los Angeles, with each store able to do up to NT$5 million in business a month.

Taiwan has even emerged as the place from which others hope to learn.

"Malaysian and Thai brands say that all they have to do is travel to Taiwan once a year, and they'll know what they should make," says Endy Wang, the vice chairman and president of restaurant company Wowprime Corp., best known for its Wang Steak brand.

Putting Up the Money

With the necessary talent and technology in place, the money has flowed into the industry.

Taiwan's capital markets have traditionally been driven by the electronics and IT industries. But as Gourmet Master; An-Shin Food Services Co. Ltd. of MOS Burger fame; Wowprime; and TTFB Co. Ltd. (Tai Tong Food & Beverage Group), which runs Thai Town Cuisine, have gone public in rapid succession, investors have begun diverting some of their bets to the food and beverage sector.

The stocks of these listed companies have generally been solid performers. Wowprime's shares soared from their listing price of NT$340 to NT$492 on their first day of trading in March, then fell to a low of NT$415 after the initial exuberance wore off, but closed Aug. 8 at NT$456 per share. The price is the highest of any stock on the Taiwan stock exchange's tourism sub-index and much higher than the share price of smartphone-maker HTC Corp., which has more than 60 times the revenues of Wowprime.

TTFB's shares closed at NT$285 on Aug. 8, the highest of any share price on the emerging market, where the company is listed.

Venture capitalists and cross-sector investors have also moved aggressively to get their foot in the door.

As early as five years ago, international venture capitalists were in touch with Wowprime, proposing to help it expand its retail network in China. Easy House Vegetarian Cuisine received visits from three or four venture capitalists in July alone interested in investing in the company.

In business for less than two years, Kaohsiung-based Boulangerie Shakespeare & Co. has drawn the interest of an American venture capital firm, which wants to help the bakery expand overseas. And another enterprise wants to partner with the company to set up a dedicated baking business unit.

So why is it that so much capital is pouring into the F&B sector? In the high-tech and financial sectors, companies capable of generating rates of return over 100 percent are few and far between these days. But more importantly, food and beverage enterprises can deliver steady, long-term earnings and have the potential to build their own brands.

Looking at the financial statements for companies in the sector in 2011, Gourmet Master, Wowprime and the Sushi Express Group all had net profit margins of about 10 percent. By way of comparison, electronics companies that rely on exports average gross margins of about 5 percent.

Customers the Best Teachers

Even with the best restaurants and chefs, no culinary Silicon Valley could thrive without a ready clientele, and Taiwan's competitive and diversified market has gained vibrancy because of the country's many bold and discerning consumers.

Long-time food and travel blogger "Christabelle" observes that based on everything she's seen, from BBS message boards, blogs and Facebook to food apps and group buying, writing and chatting about food has been growing in popularity in recent years.

Her blog is currently browsed by 8,000 visitors a day, and others get even more traffic. "Many food and travel sites get at least 20,000 to 30,000 visits a day," she says.

More than consumers in neighboring countries, Taiwan's foodies love to try and compare new dishes and quickly get tired of the familiar. They also accept a wide range of cuisines, pushing F&B operators to constantly refresh their menus and experiment with change.

This is readily apparant on Yongkang Street, one of Taipei's most notable food streets. Here, with a short stroll of ten or so minutes, visitors may encounter Chinese, Western, Japanese and Southeast Asian restaurants, offering dishes ranging in price from tens to hundreds of Taiwan dollars.

This consumer culture, which prizes new experiences, also tolerates some rather special rituals. One example is seen at Kanpai Yakiniku restaurants, which ask their customers to empty their glasses together every night at 8 p.m. The chain's president, Soji Hiraide, tried to introduce the same custom in Japan, but to his disappointment, he found that the Japanese were not willing to stand up and drink together and some even left to avoid participating.

"Taiwanese are more 'high,'" says Wowprime's Wang. "They love to experiment and live in the moment, making it possible for many special services to spring up and take hold."

Boundless Opportunities, Boundless Competition

Although this new culinary Silicon Valley abounds with opportunities for start-ups, it also harbors intense competition and is still composed of mostly small players.

According to Ministry of Finance figures, 92 percent of the businesses in the field are sole proprietorships, and 93 percent have revenues of less than NT$5 million a year.

Even after 7-percent annual growth over the past two years, the F&B industry as a whole had an output value of NT$370 billion, less than that of computer vendor Acer Inc.

If Taiwan hopes to "export" its culinary niche, the government's strategic investment in the sector is currently inadequate. In contrast, the Thai government offers incentives, trains students at school and has even developed a special set of cutlery for Thai food to create a complete food supply chain that exports and promotes Thai cuisine to the world.

Another problem in Taiwan is that because of the small scale of restaurants, their inability to expand, and their lack of management skills, the turnover rate in the F&B sector is high. Nearly half of the businesses in the sector have been around for less than five years, and more than 10 percent opened less than a year ago, Finance Ministry statistics show.

"The numbers are quite scary," admits Vincent M.L. Chen, the manager of the Department of Urban & Rural Synergy at the Corporate Synergy Development Center. "This is an industry where people are not afraid of failing."

In fact, just as with Silicon Valley, not everybody can thrive in this highly volatile trade.

Howard Hu, a board member of Easy House, counts on his fingers the many costs involved: ingredients usually cost 30 percent and labor another 30 percent. Once overhead, such as the rent, water and electricity, and other miscellaneous expenses are thrown into the equation, total costs add up to about 85 percent of revenues. And that still does not include depreciation or borrowing costs.

Hu says that the F&B industry is really hard work and that profits must be squeezed from every aspect of the business. If food is wasted or a mistake is made in setting up the staff's work rotation, profits can quickly disappear.

"Today, management is more important than the cooking," Hu says bluntly. "Whoever can manage their business well will continue to have room for survival."

Translated from the Chinese by Luke Sabatier