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Monday, 24 April 2017

Origin-ating a venture from health foods

Steady progression: The company started with doing packaging but today offers full scale contract manufacturing services.

Steady progression: The company started with doing packaging but today offers full scale contract manufacturing services.

By embracing the uncertainty of entrepreneurship, Ben Wong Seng Tong built a successful health food venture.

Trained as an accountant, Ben Wong Seng Tong, 48, knew how to raise funds even at the most difficult of times.

Two years after starting his business in trading imported health food, he and his partner found themselves running out of credit. The year was 1998 and Malaysia was engulfed in its worst ever economic crisis.

Banks were closing down on credit lines faster than shops were closing their shutters. Credit facilities were withdrawn from those who thought it would be there forever.

Wong, co-founder of The Origin Foods, found a way out to raise the required capital. He and his partner applied for 10 credit cards and drew down on the cash advances.

“We raised about RM300,000 from taking cash advances of the credit cards. It served as a startup capital,” says Wong in an interview recently.

The capital also allowed Wong and his partner to explore the possibilities of manufacturing their own health food products.

Without much capital, one of the elements that kept Wong and his partner going was the aptitude to take risk in venturing into business.

Innovative: Wong with the wheat grass which the company started cultivating since year 2000.
Innovative: Wong with the wheat grass which the company started cultivating since year 2000.

“One must be daring to take risks, adapt to the business environment and if one falls, start again from where you fell,” Wong says.

Beginning his career as an auditor, Wong earned his stripes as an accountant, a profession he practised for four years. After poring the numbers of various companies, he decided to start off on his own with a childhood friend.

“Although I love the accounting profession, I believe in working hard and doing business to progress in life,” Wong says.

In 1996, the duo started trading imported health food.

“The food trading business is less capital intensive as we were only sourcing for products and then selling it to our network of agents,” he says.

Without the need for much capital, they thought the business was easy.

Financial crisis

Then came the 1997 Asian Financial Crisis. It gave them the first taste of why for any business, capital was a much required ingredient. It exposed them to the vagaries of fluctuations in currencies as their business required imported content.

As the saying goes, desperate times require desperate measures. The idea to raise funds through cash advances kicked in. The cost of funds was not cheap - at 18% per annum.

“The cost of funds was high but we had little choice as there was no other funding avenues,” recalls Wong.

During the crisis, the ringgit depreciated significantly within a period of one year starting from July 1997. By Sept 1998, the ringgit was volatile and hitting well above RM4.70 to the US dollar. The depreciation of the local currency was so fast that businesses were caught flat-footed.

“Times were bad and we faced difficulties paying for the imported products. Things just got too expensive due to the ringgit depreciation. We knew then that the company could progress no further,” Wong explains.

Ongoing research: They also have their R&D team to keep coming up with new products.
Ongoing research: They also have their R&D team to keep coming up with new products.

But they weren’t about to completely give up on their entrepreneurial dream.

They took into account the many aspects of being a manufacturer, from the required machinery to the startup cost, and decided to give it a go with their ‘newly raised funds’.

“Some materials may still need to be sourced from overseas but they will, nevertheless, be cheaper compared to importing the finished products,” Wong explains.

Adapting to the current economic climate, Wong shift his business model from being a trader of imported health food to becoming a contract manufacturer for food products.

In 1999, they set up The Origin Foods in a rented 6,000sq ft factory in Shah Alam. They employed 25 people to do the work.

Some of the staff included nutritionists and food technologists as they needed to do research and development work and formulate ingredients for their health food products.

“We also collaborate with universities to develop some of the health food products,” says Wong.

They started with 10 products – health drinks in powder form with multiple flavours, functional products in tablet and capsule forms and even coffee powder – under their own brand.

The following year, they expanded into wheat grass cultivation as it is one of the vital health food ingredients.

By 2005, they had moved into their 60,000 sq ft factory in Puchong and staff count was at 80.

They continue to invest heavily in equipment and machinery, putting in over RM8mil to-date, to ensure that their products keep up with market demand.

Hygienic: The company complies with necessary food manufacturing certifications.
Hygienic: The company complies with necessary food manufacturing certifications.

“We need to keep investing in new machinery and acquire talents for product development. Over time, as customers’ demand for different products, some of our old technology may not be able to meet some of the demand and we will need new technology to produce these products,” he says.

As the business grew, Wong mulled expansion plans into China. However, they decided against it due to management and investment risks.

They focused instead on doing business in Malaysia and Wong finds that there really is no limits as to what one can do in the country.

Rather than continuing with business as usual, they carried out some market research to find out new trends and products that they can leverage on.

They discovered that there is a rise in demand by brand owners for reliable and capable contract manufacturers to produce the goods for them. This way, the brand owners will be able to focus on marketing the products instead of on manufacturing operations.

Realising this, they moved into contract manufacturing works in 2011. They continued to manufacture a small portion of their own products.

They started with simple packing operations but Wong notes that the company, today, runs a full-scale contract manufacturing operation, from formulation to finished product.

“We emphasise the strength of our R&D and our understanding of the market,” Wong says.

Wong’s team is capable of planning a pipeline of products for up to a year in advance so that his clients can plan their own product releases depending on the market condition.

“We even let our client’s do away with the minimum order quantity so that it will not hamper the release of new products into the market. Hence, when the market is soft, we would recommend to our clients to introduce products that are of a lower price instead of just stopping production altogether,” he says.

When market conditions are tough, Wong’s team will help them test the market with new products before manufacturing them in higher volume, something that brand owners appreciate.

This, he opines, is one of the reasons why brand owners continue to stay with him throughout the years.

Wong adds that the health food consumer segment rarely stops consuming health food altogether when the market is slow. Rather, they look for a more economical alternative.

The Origin Foods also has the full set of food manufacturing certifications, which, Wong says, are audited almost every two months.

Some may see audits as cumbersome, but Wong sees it as a way to ensure the quality of their products.

“We also do tests on raw materials for every product, checking for microbes to heavy metals in the products. This allows us to also check on food contamination easily and stop it from spreading any further if that happens,” he says.

Meticulous: Checking is done to ensure that the products meet clients requirements.
Checking the products: Checking is done to ensure that it meet clients’ requirements.

The company also opens its factory for visits from tourists and students.

In 2011, they participated in overseas health food exhibitions and received orders from foreign clients.

Today, they manufacture for clients from over 20 countries including the US, Germany and Japan.

The company will continue to focus on the export market, which currently contributes about 52% of the company’s revenue.

“This is a segment where one has to be patient with getting the necessary certifications. Once they are in order, your business will take off,” Wong says.

And take off it did.

The company posted revenue of RM10mil in 2016 with over 100 clients within its portfolio.

Wong and his team are not slowing down. They are also looking to work with foreign health food manufacturers who would like to outsource their manufacturing activities in Malaysia.

Wong knows for sure that his team is more than ready to take on such challenges.

Related story:

The entrepreneurial equation

Tags / Keywords: origin of foods , contract manufacturing , Ben Wong

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