Saturday, January 9, 2016

Singapore a 'Third World' F&B market: Chen Fu Ji owner

Chen Fu Ji's Roger Koh tells 938LIVE's On The Record that compared to Hong Kong, local practices in marketing and creating value are lagging behind, but these also create opportunities.

By Bharati Jagdish, 938LIVE
9 Jan 2016

SINGAPORE: Mr Roger Koh, the owner of what many have called the “overpriced fried rice place”, Chen Fu Ji, was a successful accountant with a multinational corporation, when an opportunity to buy the successful eatery came his way.

He took it, and the restaurant’s signature Golden Imperial Fried Rice into the news with its S$25 price tag. While he has managed to keep the cost the same as it was in the 90s, he now faces the same challenges that many other businesses in Singapore face – higher business costs and labour shortages.

Mr Koh went “On the Record” with Bharati Jagdish about these issues, his restaurant, and more about the fried rice dish that at one point, was even discussed in Parliament.

Roger Koh: Chen Fu Ji was initially run by three women, known as “three sisters”, but the eldest was actually their mother. After their mother passed away, it was run by two sisters. There was no customer service, but product quality was tip-top. After 1992, they were hired by a Japanese boss, as employees of a restaurant at Erskine Road. After a year, the Japanese sold the business to somebody else. That guy couldn't manage the business and sold it to me.
I was only with them (the sisters) for six months. I was the third owner actually.

Bharati Jagdish: You said there was no customer service. I understand they would yell at their customers.

Koh: Yes, yes. Everyone would be scolded. I only know of one person who was not scolded. That was ex-president Ong Teng Cheong, because they grew up together in the same neighborhood.
The sisters had the understanding that they would be the ones to make decisions. Customers do not make decisions. So if you wanted them to cook dry bee hoon, if it's not on the menu, they have the right to reject you. But if they were in a happier mood, they would do it for you, and they would decide the price. And it could be S$80 for a portion serving three people.

Bharati: They were doing well nevertheless?

Koh: They were doing well considering the size of the restaurant. At that time, it was already at Erskine Road. Erskine Road is just opposite Maxwell Hawker Centre. It was air-conditioned with eight tables. After the introduction of GST, there was a lot of discussion about profiteering, and the S$25-fried rice came into focus. People were asking whether that's considered profiteering.

Bharati: It was even mentioned in Parliament.

Koh: It was on the front page of major newspapers. The ministers said: "If you have a choice, it's not considered profiteering."

Bharati: Yes. You could go to a place nearby and get a S$3 plate of the same dish. What made you want to buy this business over?

Koh: Well, I was working with an American company for 10 years before that and I felt it's time for me to move on. I was being paid handsomely, but I wasn't sure that was my real value. So I wanted to know. The best way for me to find out was to walk out of the corporate world, and be my own boss, so as to find out what real value is.
The fried rice restaurant came in handy, because it was quite well known. At the same time, it was about “managing” two old ladies, which was actually quite an understatement.

Bharati: What were the challenges of managing the sisters?

Koh: Well, I think the biggest challenge was I thought it was easy. But I found out I had to micromanage it. Compared to my experience in the corporate world, it was totally different. In the corporate world, there's a system. There's a structure. A lot things are already in place. When I had to manage the two sisters, it was a lot about building relationships and, as far as the two sisters are concerned, they were not so easy to talk to. They were always suspicious about your intentions. They think you have an ulterior motive that is usually, they assume, bad.

Bharati: Give me an example of something that happened to reflect this.

Koh: For example, naturally we wanted to grow the business, but they couldn't cope with the volume.
I still remember there was an order from a leisure ship operator. They ordered 50 packets of fried rice for first-class cabin customers. When we received the call, we were very happy, right? "Wow, big order came in!" But, when we sent the request in to the kitchen, one of the sisters showed me her 10 fingers, asked me to count how many fingers she has. Obviously, she was saying she couldn’t cope.
Also, because the amount of fresh crab meat she had prepared was not enough. Even if they could fulfill the order for that night, it would be tough for the next morning. So, we had to call the customer and say: "Can you halve the order?"

Things like this, it's not very straightforward. So to grow the business in terms of marketing, it's possible. In terms of branding, it's easy. Operationally, it's impossible.

Bharati: But their concerns were valid. They needed help: More manpower.

Koh: I fully agree.

Bharati: I understand you brought in another chef to help.

Koh: Yes.

Bharati: In the mid-nineties. Around 1995 or so?

Koh: Yes. The elder sister’s health condition was very bad, and sometimes we had to call it a day at 7.30 in the evening, and you can't really do dinner business if you close at 7.30pm. So they knew that, in terms of health, they were not going to make it.
When I took over, I had the intention of expanding, to make it more well-known within Singapore. There was the intention to bring it overseas. So they felt the pressure, and when I said: "I want to protect this recipe. I want to grow the business for the next 50 years", they actually rebutted: "You don't know what you're talking about."

Bharati: So they decided it wasn't for them.

Koh: They decided to quit.

Bharati: Did you compensate them for their many years of making good fried rice?

Koh: Yes, I gave them two ang pows (red packets).

Bharati: Substantial ones?

Koh: Enough for them to put up an advertisment in Lianhe Zaobao to say they quit.

Bharati: Weren't you afraid that their departure would hurt the business?

Koh: After I took over, I was with them for six months before they quit. Only a total of six months. Was I afraid? I think it was an eventuality I had to face, because I knew I couldn't depend on the two ladies. Of course I offered them retainer fees, I asked them to come back once a month, and “show face”. Told them we would still use their picture. But to them, basically, it was non-negotiable.

Bharati: Was the recipe theirs?

Koh: To be honest, it's a passed-down recipe for many years, from China. It's because this whole thing is so tedious, nobody wants to do it.

Bharati: But they were willing.

Koh: Of course. On top of that, they added crab meat, but I think crab meat is not the most important part, because anyone else can add the crab meat.


Bharati: So what's the most important part?

Koh: It's the preparation of the rice, and the cooking of the rice.

Bharati: Tell me more about that process.

Koh: We have to cook the rice, chill it for eight hours at least. We have to look for the freshest eggs, meaning you can pick up the egg yolk, and it doesn't break. So fresh. And the cooking of the fried rice has to be done at a very slow pace. So it's non-commercialised, you can't mass-produce. That has been the practice. 
The most expensive ingredient is the crab, freshly peeled. And, during those days, to be honest, we had one full crab in the rice. In one plate. So how much would you pay for one crab? It's maybe S$68 today? The bigger ones would be like, as high as S$78, S$88. And that is just steaming the crab. Here we're talking about extracting the meat from the crab. It takes one hour to extract one kilo of crab.

Bharati: So considering that you yourself have said the price of ingredients has gone up, the labour costs have gone up, why are you still keeping to S$25 per plate?

Koh: We try to compensate this. The fried rice today has become more or less a loss leader, in terms of marketing. So we try to compensate this by having other dishes, like chili crab, other zi char dishes, so we can cover the losses in fried rice.

Bharati: How much of a loss would you say you are making per plate of fried rice?

Koh: At most, we break even.

Bharati: But I'm sure that you have reduced the amount of crab meat that goes into each plate, right?

Koh: Correct, because I was very concerned about the pricing. At that kind of price, which is very premium, it’s very hard to make it commercially viable. It's very hard to scale up.

Bharati: If you were to maintain the standard of fried rice at what it was when the sisters were making it, a full crab in one plate, how much would it be today?

Koh: To be honest, in order to maintain the same standard that it was, 20 years ago, I should have priced it at S$125 today.

Bharati: S$125 for a plate of fried rice? How would you justify that?

Koh: Higher prices of ingredients, manpower, rent. That means every year, I should have increased it by S$5. So after 20 years, there'll be an increase of S$100, add that to the previous S$25, and it should be S$125.


Bharati: You do realise that in spite of the fact that you've made all these compromises, people still complain about your food being overpriced, generally. What do you have to say to that?

Koh: When I took over the business, I realised that it's just an ordinary zi char restaurant, so I told my master chef: "Whatever we do, we want to be different from others, so that we can sell the difference.”

Others will do minced pork tofu, or baby kailan, for example. If we were to do the same, we can only compete on prices. So every dish, we have to do differently. That means my chef has to think about how to be doing it differently. Instead of using oyster sauce, for instance, he has to do something else.

Bharati: As you said, you’re also charging people for the rent you have to pay, for the people you have to pay, so on and so forth. And that's the reality of doing business. Ultimately though, there'll always be these comments on social media, whenever Chen Fu Ji Fried Rice comes up. Even today, people say:"You know, I can make that kind of plate of fried rice at home for half the cost, maybe less."

Koh: I think this has been ongoing for the longest time. I think it happens to a lot businesses, even though some might be selling at a very normal price, comments like this will still come.

But there are a lot of people who consider our pricing justifiable. That's why we've been around for 20 years. At the end of the day, it's about pricing.

Since the very beginning, the Japanese called us the “ultimate fried rice”. There's a premium price tag, and we have to stick to the premium price tag, in order to keep to the quality. Twenty-five years ago, it was sold for S$25. At that time, it was considered expensive. Premium. The one thing I think I have done wrong is trying to keep to that price.

Bharati: But you admit that it wouldn’t have been commercially viable.

Koh: A lot of criticism about it being expensive. Of course we can always say it's because it's a premium product. But when such criticism happened too frequently, I succumbed to it. I’ve tried to hold to the price for as long as I can.

At one point, we even reduced the price, from S$25 to S$18. But consider this: In 25 years, the labour cost has gone up so much, rental has gone up. So if we were to keep to the same price level, it's going to be very difficult for us to keep to the same quality.

Bharati: You've learned how to cook this fried rice, haven't you?
Koh: I had to. Because after they left, I got a new chef who was not the most friendly chef. There were a lot of threats. Eventually, I realised that I had to learn how to do it. At least I’ll be able to train new chefs.

Bharati: How did this new chef threaten you?

Koh: That was during the initial period in 1995. This is the typical problem of a one-restaurant company. Basically, the chef calls the shot, and he decides whatever he wants. He would come just before the start of operating hours and expect everything to be fully prepared for him.

After a while, he wanted to borrow money. He said: "I like your pen, your Mont Blanc pen is very nice." And then he said he needed a renovation loan. It's more like blackmail.

Basically he was saying: "If you don't allow my request, I'm going to leave." He even proposed getting his sister to come in as the cashier, his brother to come in as his assistant, and things like that. Basically he wanted to run the whole place with his own family. So that's very common, I think, for a small Chinese restaurant.
Bharati: Why does it happen?
Koh: It's just the culture. After he left, he actually got an investor to open a restaurant not too far away. And he took almost every single staff member I had.
Bharati: How did you deal with that challenge?
Koh: I just had to recruit more people. And that actually gave me the opportunity to recruit the next two chefs who were very young and who were prepared to help me build the business.

Bharati: And the previous chef never managed to overpower your business?
Koh: No, I think he closed within three months. Because he made promises that he couldn’t fulfil. He promised the staff that after three months, they would get a one-month bonus. That's how he got the staff over to him. But after three months, he closed down the business, and the staff came back to me.

Bharati: We’ve talked a lot about money and the cost of food earlier. People have said over the years that there's a limit to what most Singaporeans, even the affluent ones, can stomach when it comes to the price of food. If you were to charge more for your fried rice, will people buy it? How can you convince them?

Koh: I think at the end of the day, it's how you market the product. We have created enough differentiation over the years, but we haven't marketed that differentiation enough. Only my chef and I know that there is extra effort involved, but our customers do not know, because we don't market it enough.

Bharati: So you don't blame the customers.

Koh: I don't blame them.

Bharati: What would you do differently if you could?

Koh: I think if we were to spend the same effort to create a business, we should not be attached to any particular idea. We should look at investment in a broader spectrum. If I have a S$100,000 and one year to spend, what would I do? Would I work on my old brand? Or should I look into the market to see what it is more feasible?

So I think I'm taking the second approach. As for Chen Fu Ji and the Gold Plated Fried Rice, I think I would like to make it an academy moving forward. It makes more sense. Teach people how to do good fried rice. My objective has always been to protect this heritage. That's why I've never withheld the recipe. In fact, I make it very public.

Bharati: Aren't you afraid that someone will replicate it?

Koh: If you read the recipe correctly, it's so tedious that you wouldn’t want to do it yourself; you would come to my restaurant and eat.
Seriously, two things I did right over the last 20 years is the two fried rice competitions that I organised, because we focused so much on the product of fried rice, rather than promoting the restaurant. We should promote our signature item, which is the fried rice. The fried rice academy, I think, would go back to the original vision of keeping the heritage. If more people get to know the recipe, the heritage will be passed down and they can choose to keep it going if they are serious about it.


Bharati: Let's talk about challenges facing businesses today. What do you think are the most important ones?

Koh: I still think there're a lot of opportunities in Singapore, it being a First World country. But in terms of branding, the industry hasn’t caught up. A lot of areas in Singapore, business-wise, are still very Third World.

Bharati: Give me an example of some of the business practices you consider “Third World”.

Koh: For example, a lot of brands in Singapore – for instance, cooking oil - they are well known, but they have not created perceived value in consumers' minds. Other brands have done it. for example, Coca-Cola is happiness, while Sprite is cooling.
I think Singapore has moved too fast over the last 50 years. A lot of us haven’t caught up yet. So they maintain the status quo, because they have been around since day one.

And because the market is very small, there's less competition coming in. But I'm not sure if this is going to stay the same, because Singapore is getting more affluent and, even though the population is small, the market is quite big. If people like the Chinese businessmen were to come in, I think they can wipe out the whole cooking oil industry.

If we compare Singapore F&B sector with Hong Kong's, ours is very much a Third World F&B market. You can only realise it when you go to Hong Kong. The F&B outlets there pay a lot higher rent than local outlets, yet can make more profit.

This is because the Hong Kong people, when they go to a restaurant, eat and go. They don't ask for anything else. So they go for the product, and that's why the turnover is very fast. I mean, three families sharing a table is very common, and you just eat and go, eat and go. The productivity per square foot is much higher than in Singapore, and it's all because of culture, I think.

In Singapore, some restaurants have started to give the customers a time limit. Within one hour, you must return the table, and a lot of customers are not prepared to accept that. Whereas in Hong Kong, you don't have to do that and usually the menu is very short. It's Set A, B, C, you order one, and it can be served quickly. You finish in 10 minutes, and you go. So the turnover is very fast, very high.

Bharati: This has a lot to do with customers and culture. So are you suggesting that restaurants here set some terms and educate customers?

Koh: F&B education is very expensive. Don't try to do it. Don't ever try to teach customers how to eat. You won't be successful. Hong Kong has had this culture for many years. We need time.

Bharati: But do we have time, considering F&B outlets are dealing with very real problems of higher business costs and a labour shortage? Wouldn’t the Hong Kong culture be useful now?

Koh: Labour and rental are two big problems. When I first took over the restaurant business, I was paying like S$4,000 and today it's easily four, five times over. Raw material and labour. Labour is actually most difficult, because even if you're willing to pay, you can't find the people.

Bharati: So what do you think needs to be done about these issues?

Koh: I think it's a process of elimination. If you're able to charge higher prices, have a bigger margin, you have a better chance of finding the people you need. But you must have the margin first.
If you do not have a premium brand and you need a lot of staff to service your business and your customers, I think it's going to be very, very tough, because they're just not available.

Bharati: So what's your advice to individuals in order to be able to achieve this in their business?

Koh: I'm not sure about productivity gains, because a lot of talk about it hasn't really materialised.
At the end of the day, we have to look at the other First World cities like those in Europe and America. More people will be taking away food rather than dining in. They have to look into this trend. The takeaway sales of the F&B industry is going to increase.

Bharati: So what are you doing to adjust to this new environment?

Koh: I will probably look more outwardly into other countries, other cities.

Bharati: Of course local businesses are being encouraged to internationalise as well. What would you say are the key factors to consider in order to, as far as possible, become successful at this?

Koh: There are many factors to consider. I think the most important one is to find a mentor. Young people have to try it out with guidance. Learn from failures, keep improving, but don't always try the same method.

Bharati: Give us an idea of the kind of hard work you had to put in as an entrepreneur.

Koh: Well, when I first learnt how to slaughter a crab, I actually cut seven of my fingers. But I looked at the other three fingers, which were still intact, and I was quite happy.

Bharati: Name me one of your personal challenges, that perhaps has been the most significant in terms of running a business, and how you overcame it.

Koh: Learning to accept talent instead of finding the talent you want. Accept people for what they are and make use of whatever they're good at, instead of keep looking for a better person. We always complain that there's not enough talent in the market.

In reality, a good team is like the characters in Journey to the West. You have got the lazy pig, you have got the naughty monkey, you've got an operator who will ask about the working hours. I work 9 to 5, and don't ask me about my dreams. That kind of team is a real team, rather than getting all the best people under your wing before you go forward. That’s harder to achieve and, if you wait for that, you may never move forward.

I think I'm okay, at this point, because we do have a premium pricing from other dishes at the restaurant. We do have enough profit to pay higher wages to get staff. Our staff work for half a day, and they get a full day’s pay. I think it's just a market trend. In order to get people to work, you need to pay them a lot higher than the market price nowadays.

Bharati: If there was just one more piece of advice that you could give to business people, or to people looking to be entrepreneurs, what would it be?

Koh: It is not necessary to be in the business of something you love. You need to be in the business of something that you can win. You have to look into the industry that you want to go into, and the kind of businesses and the competition.

It's better to be in a blue ocean than to be in a red ocean. Blue means less competition. I love innovation and creativity, but you should be cautious, because it's easy to fall in love with the things you want to do. Sometimes they don't make business sense. So you need to be very business-minded.

It’s called a business. It's not merely an interest. Sometimes interest and business are two separate things. My advice to budding entrepreneurs is do something where you can make money, rather than do something that you're only interested in, because there may not be a market and you’ll just go out of business.  

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