Hesed & Emet Holdings Interview - Sharing insights on Food Industry over the years Hesed & Emet HoldingsMr. Reuben Ang, Managing Director Introduction Hesed & Emet (H&E) is the parent company of Singaporean caterers Elsie’s Kitchen and Continental Delight, currently managed by the third generation of the Ang family. With a central kitchen facility spanning 57,000 square feet, H&E caters an average of more than 10,000 meals every day. Its catering subsidiaries were official food suppliers for major national events such as the 28th SEA Games Singapore and National Day Parade.Reuben Ang grew up helping out with the family business as his father believed in teaching his children responsibility from a young age.Another reason they were required to help out was the fact that F&B businesses are typically very labor-intensive.After graduating from NUS with a Bachelor in Business Administration, Reuben worked in a Christian ministry for two years before joining H&E in 2012, making him the 3rd generation in his family to manage the business.Back then, things were run very traditionally – it was still a very mom-and-pop shop establishment, with no proper accounting system and no clear reporting structure.The company used to be in a shophouse but had to move due to zoning restrictions. They realized the fastest and most efficient way to move into a new factory was to take over a competitor (also an old family name but with a declining business).This proved to be a good chance for Ang to transition the company into more modernized business practices.Their company has since grown from a staff strength of about 50 to the current 200.Nevertheless, they do not focus on expanding the company via manpower as they do not want to be too labor-reliant. They intend to be more manpower-lean going forward. Expanding into new businesses, risk-taking and the need to innovate Ang acknowledged that he is not a major risk-taker, especially as they have to answer to stakeholders of an older generation.He pointed out that they didn’t exactly venture into new businesses, but rather expanded into areas which they already have some familiarity with. He believed that a person must first and foremost do what he/she has the passion for.Nevertheless, he is definitely open to new possibilities if it makes strategic sense.It was added that although they have long-term plans, things don’t always play out accordingly and they have to take opportunities as they come.He narrated the example of their wedding catering business, which came about as something they felt they could do well, and would create synergies with their current operations. In addition, they believed it gave them a competitive advantage as no other catering business was doing it.Ang emphasized the need to innovate and adapt to the changing times. He pointed out that he has seen many long-time companies stuck in the SME phase, unable to develop any further.But he acknowledged the difficulties in innovating, especially for young SMEs who are typically bogged down with everyday issues.On the other hand, there are the new start-ups who are very nimble and who are bold risk-takers.Ang shared that their company is in a transition phase and he hopes to make the business more nimble and adaptable. To do so, mindsets and expectations have to be managed and adjusted. How has COVID-19 affected the company? Ang said that the biggest hit came in February when Dorscon Orange was announced and business fell by nearly 90%. Business in March remained stale, and they considered venturing into doing home deliveries.But from April to early-August, there was a sudden spike in demand due to the dormitory business (the government placed all foreign worker dormitories on lockdown and food catering services were provided to them). The company was able to build up their financial reserves during those months.However, their dormitory business has since ended, and sales are currently about 20-30% lower than usual.Ang commented that none of the businesses planned for such a crisis, but opined that they should have, given previous events such as SARS.He shared that since SARS, there are many government organizations who implemented contingency plans, which included contracts for Elsie’s Kitchen to provide contingency catering services. As a result, the company still had some demand from those contingency contracts during the lean months.Ang also pointed out that there are many companies who have not tried to adapt themselves to this new situation. Some thought COVID-19 would have lasted only a couple of months, and they could just wait the crisis out. Even now, there are some companies who are just hoping for the government to bail them out.Ang reasoned that financial aid from the government during this period should only serve as a buffer, to allow companies a bit of breathing space before quickly repositioning themselves.He explained the need to make good use of government grants to improve the company (i.e. not just as a cash flow item). For example, half the company’s automation program and 75% of their rebranding program was supported by the government.Ang opined that if a company can survive this crisis, it will likely become a market leader thereafter. What’s next? Ang believes that the F&B industry will never go back to “normal”, instead there will be a “new normal”. Therefore, they have to adapt their businesses accordingly.He shared that they have plans to diversify their revenue streams and manage costs, adding that they have very high overheads (factory rental, staff costs, etc.).Short-term plans: working on virtual brands and re-licensing the company to get a manufacturing license.Ang said they intend to invest more in branding for the individual stores of their own food courts, with the end goal of promoting a cloud kitchen format.He commented that they have a relatively large factory but are limited in the things they can produce due to their food services license. This is why they are aiming for a food manufacturing license.He hopes that their short-term goals will have stabilized in five years’ time: H&E will have a robust manufacturing business, as well as a clear brand portfolio that enables them to build multiple franchise brands.Long-term goals: To diversify out of the catering business, and out of the Singapore market.Ang shared that the catering business is very profitable, but only one of the many F&B concepts.He added that the catering culture in the various countries are very different, and they cannot just replicate their catering business model in Singapore to another country.In addition, catering is a very risky business because of food safety challenges. On top of that, the catering business is very fragmented in Singapore with many small players in the market. As a result, the switching costs for customers are very low.Consequently, they cannot rely on their catering business for growth. Instead, they will rely on their core competency: central kitchen operations. Not only can this support catering, it can also support the manufacture of their own brands, which they hope to be able to franchise overseas. Expanding overseas via franchising Ang believed that franchising is a less risky way to expand overseas, and emphasized the importance of being able to control their own brand, research and development, intellectual property rights and supply chain. He further stressed the importance of finding the right local partners when venturing overseas.It was added that Singapore brands have a good reputation in many overseas markets. In addition, although the Singapore market is very small, it is very stable and quite predictable. It is a very good base for companies to expand into the region.Ang also mentioned that the Singapore government is very supportive in helping them to do feasibility studies for new markets.Ang highlighted fast-serve kiosks, ready-to-eat and ready-to-cook formats as the fastest growing segments. He opined that brick-and-mortar restaurants are no longer scalable. Competitors and the difficulties of running a family business Ang reaffirmed that the industry is very labor intensive and so they invest a lot in automation, which their competitors have also learned from them. He further shared the collaborative culture amongst him and some of his closest competitors.Ang also shared the difficulties faced in running a family business: changing older mindsets, introducing new practices, managing change and transformation – while still cherishing the relationships. To a family business, relationships are more important than strategic planning, and he is constantly trying to balance both. Daily routine Ang doesn’t have to intervene much with the daily business operations. He is a visionary and more of a big picture person.He spends most of the time meeting with people: with his managers to discuss plans, with suppliers, with other colleagues in the industry and with government agencies. That’s how he understands the general market outlook, the macroenvironment and the available opportunities.Ang added that government agencies may not always have a good sense of what is actually happening on the ground, and so they need to meet up to bridge that gap.He gave the example of how a government agency tried to push for ready-to-eat and ready-to-cook meals (i.e. vending machines), but the Singapore market was not ready for it. Ang explained that Singapore is a very small market and things are already very convenient (many 24-hour F&B outlets). Learning from Japanese companies H&E learned a lot from their Japanese consultants, such as the kaizen strategy.Ang also attended a two-week training in Japan and visited various companies across the country.He learned many useful work methodologies, but felt it would not be easy to implement them in a Singapore context due to the vast difference in culture. He has observed many Singapore companies who have tried to implement Japanese work methodologies to not much success.Nevertheless, he is still trying and highlights the need to acclimatize the methodologies to local context.He added that there is still a lot he can learn from Japanese companies, their systems and processes. How does H&E manage the labor crunch? H&E focuses on enhancing their branding in order to retain staff for the future. Ang pointed out the importance of updating their old brand in order to attract new talent.SMEs must know their strengths: they can’t offer better compensation packages than MNCs, but they can offer learning opportunities as the work in SMEs is less specialized.Ang added that the younger generation is more impatient and expects to be promoted every year. Therefore, there is a need to manage expectations.He further said that joining a SME is the best way to learn the entire business. They train their staff to be proficient in many areas, so that they know how management decisions affect ground operations, as well as to allow for more flexibility and for contingency situations.Ang believes that they are able to retain staff due to their close-knit culture. Some might feel that they will have limited progression in a family-business, but he debunks that opinion. He commented that it is precisely because they are a family-owned business that they treat all staff like family.They have an open-door policy and he encourages employees to approach him for any problems they face, even personal problems.H&E sees employees as individual people and believes in sharing their profits with employees so that everyone flourishes together. Their employees are paid well, but more is also expected from them.Ang emphasizes the need to balance being strict as a boss, but compassionate as a friend. Message to Japanese corporates Ang opines that the new normal will be marked by uncertainty. The only way to survive the future is to share knowledge. Singapore and Japan have a lot to learn from each other and they should start the conversation now. Please contact GPC if you have any questions regarding your market entry into Southeast Asia or vice versa, expand into Japan.Our consultants will assist in advising the best solutions for your business.