Monday, 12 February 2018

(The Star) Excelling in a sticky business

F&B chain operator looks abroad to drive growth moving forward

Building a global F&B brand out of a non-halal Western concept restaurant chain in a Muslim majority country is certainly not an easy feat. Yet, for a pioneering restaurateur, Dr Jeffrey Goh Sim Ik is going big where many fear to tread – this could well be his secret ingredient to success.

Grand Century Restaurant, the Malaysia-based operator of home-grown American-inspired ribs and barbeque restaurant chain Morganfield’s, would like to do business where there is potential to thrive in a niche market.

“The idea of Morganfield’s came about as I noticed there is an underserved market, with no real dedicated non-halal Western restaurant chain that offers good pork cuisine, besides the few mom-and-pop and neighbourhood restaurants here and there. We wanted to make the brand synonymous with good ribs and to maintain quality, we only used imported European ribs and pork as the base of our core food offerings,” says Goh, who is the founder and chief executive officer.

Goh notes that the F&B industry is fiercely competitive and the market for Western casual dining restaurants in Malaysia is already reaching a saturation point.

Favourites: Morganfields famous half slab spare ribs with Hickory BBQ sauce.

“There is already not much room for us to grow in a market where close to 70% of the population don’t consume pork and most can’t even work for us,” says Goh.

Additionally, increasing cost of business and the depreciating ringgit are putting pressures on operating margins.

To stay competitive, Grand Century has been focusing a great deal of its attention on marketing and research and development to stay ahead of the curve instead of slashing prices.

After seven years in the business, Goh says a major revamp of its menu is on the cards. The revamp will see changes to around 40% of its existing food items. The changes are mainly based on customers’ feedback and the trend among the millennial segment which prefers smaller portions, better variety and shareable dining moments.

Goh expects to see at least 10% to 15% pick up in same-store-sales with the introduction of the new offerings.

A yet-to-be-named sub-brand, which will offer express services and more affordably-priced food to cater for the mass market, is also in the works. The tiered concept aims to capture a different market segment and geographical reach such as residential neighbourhoods and business centres.

Taking a cue from other successful local F&B brands such as Oldtown and PappaRich, Morganfield’s is also looking to expand its downstream operations. It is in talks with potential strategic partners to expand its in-house production and sale of sausages, specialty sauces and trading of imported ribs and pork.

Overseas trips

Going overseas is a natural progression for the business to grow. But while going global may sound interesting, no success story starts without a stumble or two along the way, if one is to be honest. And Grand Century’s Morganfield’s overseas venture has had its fair share of learn-it-the-hard-way lessons.

Morganfield’s first trip overseas was a relatively short one, across the Causeway to Singapore in 2013, and it started off relatively well. That outlet is still doing fine in a small but affluent market.

However, its market entry into the giant of all markets – China – in 2016 gave the company a reality check and a rude awakening. Goh realised that F&B chains such as Starbucks, McDonald’s and KFC that have found success there are more of an exception rather than the norm.

Looking out: Goh says its growth over the next five years will be driven by expansion into overseas markets.

Making it big in China turned out to be a lot tougher than expected.

Instead of its sticky ribs being an instant hit in the pork-loving nation of 1.3 billion people, Morganfield’s had to deal with a unique consumer market that is largely influenced by demographic, weather and different local palates. Morganfield’s ended up closing two stores after a strong start of four openings within a year.

“We learnt that Chinese preference for Western food is limited except in certain expatriate and city centres. It is also not sustainable to copy the entire concept from here without a mixture of local foods in different geographical locations. Weather factors such as winter time, when hotpot rules, also have to be taken into consideration,” he explains.

Humbled by the steep learning curve of its overseas adventure, including the need to understand and cater to the local taste and unique characteristics of each market, Morganfield’s will launch its second attempt at expanding in China.

This time, with a twist.

The good thing about being a fully owned brand, says Goh, is that Morganfield’s has the liberty to devise and revise its menu and concepts to suit local taste, culture and demographics together with its master franchisee in each market.

Grand Century currently has a total of 25 Morganfield’s restaurants in operation, 16 of which are in Malaysia.

“Going out is the way forward for the company, as our growth over the next five years will be driven by expansion into overseas markets and we are looking for at least 70% revenue contribution from overseas by then,” he says.

“Malaysia, with 16 stores, is already close to saturation point. We may have room for another one in Sarawak where we are yet to be present and another one or two in the East Coast and Central regions. Pushing overseas expansion will be one of the key priorities in 2018,” he says.

Morganfield’s restaurant chain has already grown to four outlets in Singapore, three in the Philippines, and the two surviving restaurants in China.

In Singapore and the Philippines, the outlets are operated through a licensing deal with local partners.

International concept: Morganfield’s needed an international branding that would enable it to expand into other markets.

Goh says the company also plans to establish franchise outlets in Australia, Indonesia, Taiwan, Vietnam and Thailand by next year. China will serve as Morganfield’s springboard for growth, where it plans to open more stores with the new strategy. In the short-term, the company plans to double the number of China outlets back to four by year-end.

Bringing the sticky ribs back to the US would be seen as some kind of a sweet victory for Goh and Morganfield’s is indeed eyeing the US market, with San Francisco as the possible entry point.

The company would prefer to use the master franchise model to expand abroad as it does not have the manpower to operate overseas outlets on its own. Investment cost to open an outlet is about RM2mil, says Goh.

Each store’s operating income margin ranges from 15% to 25%, depending on the franchise size and locations.

Good catchment: Morganfield’s 16 outlets in Malaysia serve more than 12,000 customers per month.

Morganfield’s outlets in Malaysia serve more than 12,000 customers per month. On average, Goh says each outlet records sales of around RM350,000 per month or an annual overall turnover of RM67mil, based on the back of the envelope calculations. It has more than 160 workers in Malaysia.

Singapore, meanwhile, is averaging around S$250,000 monthly or about S$3mil annually per store.

Aside from Morganfield’s, the other F&B companies under Grand Century Restaurant that Goh heads include Golden Regal Restaurant Sdn Bhd – which owns the HOUSE restaurant, bar and winepost franchise, Ong Lai, a traditional Chinese-themed restaurant, and bakery chain Bread & Co.

Revise and revamp: A major revamp of its menu is expected to boost same-store-sales growth.

He was also one of the co-founders of Revenue Valley, an F&B restaurant operator that was acquired by Malaysia state-backed private equity firm Ekuinas for RM64.7mil in 2011.

In the longer term, Grand Century Restaurant may also look at potential listing or even a partial trade sale within three years once the brand reaches a sizable scale and profitability. Goh currently owns 100% of Morganfield’s parent company.

However, unlike his previous F&B venture, Goh is determined that he will not cash out completely. Instead, he is sticking with the ribs for the long haul and will continue to drive the business forward as the controlling shareholder.