Oversea Enterprise targets 30% cafe chain contribution

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KUALA LUMPUR: Oversea Enterprise Bhd, which owns and operates the Restoran Oversea chain, plans to step out of its comfort zone of operating Chinese restaurants and venture into a casual dining cafe chain as it looks to grow its current share of the food and beverage (F&B) market and earnings.

Oversea executive director Yu Tack Tein said it is targeting revenue contribution from the café chain business to grow from 5% to 30% eventually, thereby reducing its reliance on the Chinese restaurant business.

The group has taken the first steps toward the goal by establishing three types of multi-chain cafes — halal restaurants, burger restaurants and bakery cafes — on a small scale through joint ventures (JV) with relevant partners in Malaysia and abroad.

Yu said the rationale for entering into JVs is to allow the ACE Market-listed company the flexibility of expanding its business with its limited pool of resources and to prevent it from incurring high capital expenditure. Only 60% to 70% of Oversea’s retained profits are set aside each year to expand the multi-chain cafe business.

“Every year, I only have RM2 million to RM3 million to invest. 90% of this budget for the next financial year will go toward these three concepts,” he told The Edge Financial Daily in an interview.

“That is why we needed somebody that has the capacity to help us grow … without needing the company to spend money to build a centralised kitchen,” Yu explained.

This is understandable as Oversea’s earnings growth in the past four financial years has been somewhat like a yo-yo due to its expansion plan and strategy.

The group recorded a loss of RM4.5 million in the financial year ended March 31, 2013 (FY13), after its initial expansion plan was not successful. It had to discontinue the operation of one Chinese restaurant in Malaysia and sold another in Singapore.

In FY14, the group returned to profitability, with a net profit of RM3.35 million after a consolidation exercise and cost control measures.

For the six months ended Sept 30, 2014, the group posted a net profit of RM1.37 million.

Yu is confident Oversea will remain profitable in FY15 despite its current expansion exercise, and is keeping a modest low single-digit revenue growth target for the year.

He said Oversea’s priority now is to create a strong presence in the halal restaurant market.

“We are originally a Chinese restaurant [operator], but we found that the Malay or halal market is one that we cannot ignore. So we are venturing into this segment again and will focus on it over the next two to three years,” said Yu.

Oversea had first tried to penetrate the halal F&B market through the sale of the group’s mooncakes. The attempt, Yu said, saw limited success as mooncakes are still viewed as traditional Chinese confectionery and does not appeal to the Malay audience.

Despite having “next to zero penetration” in the halal F&B segment after the initial attempt, Oversea is trying again to penetrate the market with its halal restaurants.

The group counts CNI Holdings Bhd as one of its JV partners for this purpose. Together, through a JV company known as Tunas Citarasa Sdn Bhd, they have already set up two halal food outlets in the Klang Valley known as Otak Otak Café and Janji Temu @ Mark’s.

Plans for more outlets under the Janji Temu @ Mark’s brand are in the pipeline.

“We will expand [into the halal F&B market] more aggressively. We have plans for that once the business is proven to be profitable.

“What we are trying to do now is to develop the business concept, build the team and prove that it is workable before we expand [aggressively],” Yu said.

The same, Yu added, applies for Oversea’s burger restaurant business in Adelaide, Australia, and its bakery cafe business in Taipei, Taiwan, which is due to commence operations early this year.

 

This article first appeared in The Edge Financial Daily, on January 5, 2015.