Market heats up for chilli paste maker


  • SMEBiz
  • Monday, 06 Jan 2020

New skills: Tan (fourth from left) intends to upskill her employees to handle IR4.0 technologies.

ELEEN Tan knows all about taking the heat. She and her late husband have been dealing with chillies since the early 2000s.

And while business has grown much over the years, Tan, 41, says there is still a great need to educate the market on Lifestyle Ventures Sdn Bhd’s chilli paste product.

Tan’s husband had been selling fresh chillies at wholesale markets for years before the duo met. Along with their union came the birth of their company.

Founded in 2003, Lifestyle Ventures started its fresh chillies trading operations in a bedroom at their home. Tan recalls that it was hard getting customers’ buy-in given the personal setting. But her husband knew their products well and had a supply network to leverage on, which helped them grow their customer base in spite of the limiting circumstances.

They eventually made enough profits to upgrade to a small factory in 2008, which allowed them to expand into manufacturing.

Limited supply: One of the main challenges for Lifestyle Ventures is securing adequate supply of chillies.Limited supply: One of the main challenges for Lifestyle Ventures is securing adequate supply of chillies.

Tan notes that customers were increasingly looking for convenience. They wanted semi-processed ingredients such as cut vegetables and chillies rather than having them whole.

It was just as well as they were also preparing to introduce a new product to the market.

“We wanted to make chilli paste. When there is an abundance of harvest, customers can’t consume so much chillies. And If you leave them be, the chillies will rot. We might as well convert them to paste for longer shelf life, ” she explains.

But of course, manufacturing was quite a different ballgame from merely trading fresh chillies.

It took them about two years to carry out research and development (R&D) works and trial run the product with their existing customers.

Room to increase production: The factory produces about 200 tonnes of chilli paste a month.Room to increase production: The factory produces about 200 tonnes of chilli paste a month.

However, Tan says this convenience was shunned by their customers and the market in general.

“It was a challenge because in Malaysia, the industry can’t really accept chilli paste. They want to see the actual fruit to consider them as fresh ingredients. So we have to educate them that we use fresh chillies to make the paste.

“We have to explain that we are doing all the ‘dirty’ work for them — de-stalking, chopping, processing. And we are producing a semi-finished product whereby customers can just add in their own ingredients to our chilli paste to personalise for their own use, ” she says.

Their customers were ultimately convinced and Lifestyle Ventures today supply its chilli paste to most of the major fast food chains in Malaysia.

This also opened the door for the company to export its products out to Indonesia and the Philippines.

Commodity play

One of the main challenges for Lifestyle Ventures is securing adequate supply of chillies.

Some years, like last year, are wetter than usual. This means lower yields and higher prices of fresh chillies.

When Tan took over the helm of the company early last year after the passing of her husband, she was faced with a severe shortage of supply thanks to a very wet season.

“That was a hectic period. Around April to June, there was a shortage of chillies so prices went up to as high as RM20 per kg.

“We had orders to fulfil but we can’t sell our products at such high prices when we already had fixed contracts for the orders, ” she shares.

The average market price for chilli ranges around RM8-RM9 per kg.

Modern facility: Tan hopes to roll out its automation plans this year.Modern facility: Tan hopes to roll out its automation plans this year.

This led to a greater implementation of contract farming for the company to buffer any future shortages. They also tapped into the local Farmer’s Association to absorb any excess supply.

“We also source for supply based on customers’ requirements. If they want a certain type of chilli species, we will get those for them, ” she says.

At the moment, most of its chillies are imported as Tan notes that there is limited local supply.

Chillies are not an easy crop to raise. They are disease-prone, she adds. Because of this, local farmers prefer hardier crops like banana and papaya.

Additionally, imported chillies are usually cheaper than local chillies due to the types of variety available. This may also be one of the reasons local farmers are not inclined to grow chillies.

“I hope the Ministry of Agriculture and Agro-based Industry can look into this to encourage more farmers to plant chillies, ” says Tan.

Tan expects the price of chillies to trend upwards this year due to the increase in the cost of labour and pesticide.

Consumer market

Up until now, Lifestyle Ventures has mainly served the business-to-business market. But the company has a new product in the pipeline which will cater to end-consumers.

“There is demand from the ready-to-eat market. These days, people want new things that suit their needs. For example, people eat Korean food and we have Korean chilli paste.

“But at the moment, our products are sold to other food companies as ingredients. We can sell our chilli paste to retail but we haven’t done that yet, ” says Tan.She hopes to wrap up talks with its potential distributor to start exporting its new product to China by the second half of the year. If this product does well, it could open up new markets for the company.

Tan notes that there is big potential in the Chinese market as they favour our sauces and pastes.

Major customers: The company mainly supplies its chilli paste to major fast food chains in Malaysia.Major customers: The company mainly supplies its chilli paste to major fast food chains in Malaysia.

And with the trade tension between China and the US, there is also opportunity to be tapped in the US market. And with growing acceptance of Asian cuisine worldwide, the company is exploring opportunities in the European market.

Exports currently make up about 20% of the company’s sales. Its revenue averages above RM10mil each year.

Although the company is already serving most of the major fast food chains here, Tan says there are still pockets to tap in the local market like the food service segment and frozen food manufacturers.

“Locally, there are not that many other similar players in the industry and we all have our own niche markets, so it’s not very competitive yet. There is still a lot of room to grow. For us, it’s just a matter of educating sauces and food companies about using chilli paste because many of them still insist on getting fresh chillies, ” she says.

Lifestyle Ventures can produce about 200 tonnes of chilli paste a month, utilising only 60% of its production capacity.

Technology and talent upgrade

One of the things that Tan hopes to achieve this year is to roll out its plan for full automation.

Like most manufacturers, labour shortage is quite a major challenge for the company. She notes that a lot of its operations, like de-stalking, require manual labour.

The company makes do with 40 employees as well as ad-hoc contract workers.

“Labour cost is increasing every year. On the other hand, when workers have to work very long hours, they get tired and may be prone to making mistakes.

“So we want to automate in order to reduce our labour cost and pass the savings on to the consumers. Our operations are currently semi-automated and we have engaged Sirim to help us with IR4.0, ” she says.

Moving upstream: The company has contract farms to buffer shortages and work with local farmers to absorb any excess supply of chillies.Moving upstream: The company has contract farms to buffer shortages and work with local farmers to absorb any excess supply of chillies.

She reckons it would take an investment of about RM2mil-RM3mil to fully automate its production lines. The project will likely take about two years to complete.

She hopes the instalment of robotic arms will speed up manufacturing processes and reduce safety risks at the factory.

Along with the implementation of new technologies, Tan also intends to upskill her employees. And while most SMEs are concerned about handling new technologies, she believes old dogs can be taught new tricks.

“I believe with training, we can upskill our workers to manage IR4 technologies. I don’t think it will be a problem if we train them well. There are courses by HRDF for this and we plan to send them for training to deal with our automation strategy.

“It’s true that a lot of SMEs don’t really send their employees for training. Training is not cheap but it is essential for your company to grow, ” she says.

She also hopes to fashion Lifestyle Ventures into a place that nurtures and engages its employees to ensure that they continuously progress with the company.

Hopefully, in five years’ time, sales would have hit RM25mil, she says, and the company would have a diverse customer base from different parts of the world.

If all goes well, she could explore the IPO route in 10 years’ time. Tan is currently the sole owner of the company.

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