Taiwan's Food & Beverage Industry
A Bountiful in Banquet in 2012
With the once gleaming high-tech sector losing its luster, the thriving hospitality industry is luring both jobseekers and investors, as more chain restaurants go public to tap the capital market.
A Bountiful in Banquet in 2012By Ming-ling Hsieh
From CommonWealth Magazine (vol. 488 )
In late November 2011, on the third floor of the Grand Formosa Regent Hotel in Taipei, a crowd of investors squeezed into the banquet hall, each clutching an information packet, filling the room almost up to the entrance. Even though hotel personnel rushed in extra chairs, quite a few people had to remain standing.
Attracting so much interest was an investor briefing by An Shin Food Services Co., the local operator of Japanese rice burger chain MOS Burger, on its plans to list on Taiwan's over-the-counter market. Two weeks after the packed-out briefing, the company's shares started trading at a high issue price of NT$166 per share, and the issue was oversubscribed 141 times.
Taiwanese restaurant chains are getting bolder in tapping the capital markets. In 2010, Gourmet Master (Cayman), which owns the 85C Cafe chain, returned to Taiwan to list on the Taiwan Stock Exchange. In 2011 MOS Burger began to trade on the OTC market, while two other major restaurant groups, the Wowprime Group and Thai Town Cuisine, applied for OTC listing.
Going public is the hottest trend in the F&B business in 2012, be it for Chinese or Western cuisine, confectionery or desserts. The restaurant industry will continue to be favored by institutional and private investors.
"MOS Burger is a trial balloon," notes Winnie Hung, secretary general of the Taiwan Chain Stores and Franchise Association (TCFA). The strong response to the company's listing shows that institutional investors are looking for opportunities beyond the stars in the high tech industry. "They want to find the golden eggs of the future in the F&B industry," Hung explains.
Market rumors hold that hot pot chain Tripod King and breakfast chain My Warm Day, which both started out from Taichung, are planning to go public to gain better access to capital.
One only needs to compare the performance of certain other industries to know why investors are presently so fond of the F&B industry.
An Industry with Stable Demand
Quite a number of companies in other sectors scrapped year-end bonuses and even the traditional year-end parties this year, because they are pessimistic about economic growth in 2012. But unlike years past, when Taiwan's technology sector fostered a tide of prosperity, a new breed of the "newly affluent" is rising in the F&B industry, where fat bonuses are increasingly common.
Tripod King restaurant managers can get up to 16 months of salary as a year-end bonus. At Wowprime Group year-end bonus are said to average 3.5 months of salary. Bonuses and other incentives not only show that business was good during the outgoing year, but also that entrepreneurs are confident of growth in the year to come.
In the past Taiwan focused on its high-tech star industries alone. But a growing number of people have observed that prospects for export-oriented industries are difficult to predict given the dramatic and often abrupt changes in the global economic situation in recent years. Against this backdrop, the F&B industry, which depends on domestic consumption, is considered comparably stable. In contrast to the high-tech industry, it does not easily crumble in the face of disruptive innovation.
More important, while the hospitality industry involves a lot of hard work, it does not have inventory problems and boasts average profit margins of 30 percent or more.
Compared with slim, single-digit margins in the computer assembly industry, the F&B industry finds it much easier to recover the initial cost of an investment. "Unlike the high-tech industry, the hospitality industry doesn't have profit margins of just 3 percent to 4 percent – you will have to add a zero," Hung points out.
Furthermore, since tourism in Taiwan is still growing, the restaurant business is also bound to thrive.
Taiwan saw a record high of almost 6 million tourists in 2011. For example, Shin Yeh Co. Ltd., which runs traditional Taiwanese cuisine restaurants, boosted its revenue by 8 percent in 2011 to an estimated NT$1.5 billion. As much as 15 percent to 20 percent of its revenue is owed to tourists.
A Vibrant Job Market
In 2012 the F&B industry is expected to continue to grow and act as a job generator.
Taiwan's Council of Labor Affairs forecasts that the hospitality industry – hotels, restaurants, bars and cafes – will register a net increase of 4,700 employed persons in the three months between the end of October 2011 and the end of January 2012, which would be a historic record for this period of the year. This stands in stark contrast to the high-tech industry, through which the chill wind of unpaid furloughs blows all too frequently.
"In 2012 the F&B chains will require an additional 30,000 people. There's no way around it," predicts Wowprime Group chairman Steve Day. The restaurant group plans to hire an additional 3,000 employees in Taiwan and China next year.
Noticing the trend, a growing number of young people have switched careers, leaving the previously favored electronics, high-tech or finance industries to launch a business in the F&B sector.
For example, at the Eatogether restaurants, which offer an all-you-can-eat sushi buffet, Chen Yi-hang, a graduate of the Department of Business Administration at National Taiwan University, took over as chef, succeeding his father. In 2011 he developed a new brand, which offers traditional Sichuan cuisine in a new packaging, in a bid to attract a younger clientele.
Now that several F&B groups have gone public, Shin Yeh Restaurant Group CEO Steve Shih believes that restaurant chains have even greater opportunities to expand their network of outlets, to grab market share and boost turnover. These expansion-oriented moves will trigger the next wave of growth in the F&B industry.
"This time will be different from the short-lived booms of the past. It will be stable growth," Shih predicts.
He observes that Taiwanese F&B brands that are older than ten years have already gained a strong foothold in the market, be it in a certain region or with regard to a specialty cuisine, and enjoy steady growth. Brands younger than five years, meanwhile, tend to be good at introducing technology management, are expanding in a planned, efficient way, and boast vigorous growth momentum.
Translated from the Chinese by Susanne Ganz