The ongoing pandemic has thrown up plenty of challenges for the F&B industry. Operators have been forced to adapt quickly to the restrictions imposed to curb the spread of the virus.

Most businesses adopted delivery systems to take online orders. Those that used to serve mainly big-spending tourists re-channelled their offerings to the mass market instead. Others tried to provide catering services.

For established listed F&B company Tung Lok Restaurants (2000), its response to a lower business volume was to expand its food manufacturing segment. “What I’ve learned during this Covid-19 pandemic is that manufacturing is the way to go,” says managing director Andrew Tjioe in a recent interview with The Edge Singapore.

The company operates more than 30 restaurants, mostly in Singapore, and also Indonesia, China, Japan and Vietnam. Instead of having a unified brand, Tung Lok prefers to run different concepts with varying price points such as Duckland, Dancing Crab, Lao Beijing, LingZhi Vegetarian and Tong Le Private Dining.

Currently, Tung Lok’s manufacturing-related brands include Home Fiesta and its Halal products BellyGood Caterer — both offering packaged ready-to-heat convenient meals.

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Tjioe sees his manufacturing arm as a growing business for days to come, especially with the pandemic ongoing. He observed rising demand for ready-to-eat or ready-to-heat frozen foods, as consumers spend more time at home and work-from-home measures become the norm.

“We have developed 65 items, and from BellyGood there’s another 20, [totalling almost] 100 items…[whereas] a normal restaurant might only have at most 50 dishes on its dine-in menu,” he says.

Tjioe is hence confident of the “formidable varieties” that the company has worked to produce within the manufacturing arm. “When you have so many varieties of excellent quality food, you can do a lot of things and this can develop into many different kinds of business,” he says, adding that this brand can also be sold as a franchise.

For Tjioe, the move towards manufacturing was also due to rising rental costs and manpower shortages, and the need for a smaller, more cohesive central kitchen.

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“A central kitchen is necessary for standardisation, for saving on manpower [costs], and to do a lot of automation and scale-up mainly because we want to be consistent in quality,” he says. “[This creates] a natural progression into manufacturing.”

“Sometimes the quality of the food becomes better [when centrally produced] than when preparing one or two portions,” Tjioe explains. For example, stewed dishes carry more flavour when cooked in large batches.

Typically, F&B manufacturing brands will aim to have their products sold in supermarkets. But this is not the case for Tjioe, as he continues to prefer dealing with customers directly by selling the ready-to-heat meals at his own restaurants.

By doing so, he can keep prices low and competitive. “And I would rather pass on the benefit directly to the consumer rather than sharing it with so many people,” he reasons.

Of course, with e-commerce becoming a prevalent part of daily life, Tung Lok’s products are available online too. Thanks to this, Tjioe says that the company has seen a healthy demand for its manufacturing goods both online and offline. Items listed on the company’s website includes 24 pieces of siew mai for $19.50 and $15 nyonya pork trotter to $278 “Home Fiesta Treasure Bowl”. There’s even Western fare such as beef stroganoff for $18 and crustacean bisque sold at the same price.

To be sure, the manufacturing segment is still a relatively small portion of Tung Lok’s overall earnings. For its 1HFY2021 ended September, Tung Lok generated revenue of $963,000 from external sales of its manufacturing segment. That’s 4.7% of the company’s total sales of $20.3 million in the same six months. For the full year ended March 31, 2021, manufacturing sales to external clients generated $1.65 million in revenue — 2.8% of the total of $59.7 million.

The revenue contribution is small but manufacturing is profitable. Inclusive of inter-segment manufacturing sales, Tung Lok recorded a segment profit of $112,000 for 1HFY2021, versus a loss of $2.7 million incurred by the restaurants.

Tung Lok was founded by Tjioe, a self-professed foodie, back in 1984. The company started out with a flagship Tung Lok Restaurant at Liang Court and has since expanded to its scale today, including a listing on the Singapore Exchange back in 2001.

Tjioe, however, did not start off in the F&B business at first. Prior to founding Tung Lok, Tjioe was in the family’s textile business, although it also operated the restaurant Charming Garden in 1980, giving him his first taste of F&B.

“Back in the early 80s, the textile business was quite a sunset industry. It was very difficult because the business was manpower and capital-intensive. It was very difficult to sustain such a business in Singapore, unless you move out to other developing countries,” says Tjioe, as he recalls how the price war on textile with China was tough to beat.

After much thought, Tjioe and his family had to shut down the family textile business, even after going through several rounds of restructuring, as the competition with China was tough to beat. It was then that Tjioe decided to take on the F&B world, which he figured has more room to adapt.

This was evident in his over-30 years of experience in Tung Lok, forging through several tough periods, such as recessions, financial crises and the current pandemic. “If we did not change and pivot ourselves over the years, we would not have survived today,” says Tjioe.

For Tjioe, the current Covid-19 pandemic is the worst event the group has ever faced. “At first, we thought that the Covid-19 pandemic would be similar to SARS, which was very brief. It lasted only about six months. But this didn’t. This is different and so much longer. Also, it seems that there is hardly any pent-up demand after a while,” tells Tjioe.

Unsurprisingly, because of the restrictions imposed dining in, the company’s earnings report is not pretty. In its latest 1HFY2022 ended September 2021 results, Tung Lok recorded a loss of $3.8 million compared to earnings of $21,000 in the previous year. This came on the back of a 10% y-o-y decline in revenue to $20.3 million from $22.6 million.

On Oct 28, the company announced that its indirect wholly-owned subsidiary, Tung Lok Central Restaurant, has secured a $1 million loan for five years from UOB for “general working purposes”.

As at Jan 19, shares in Tung Lok were trading at 13.5 cents, up 22.7% over the past 12 months, giving it a market capitalisation of $37.0 million.

During FY2021, the group managed slight earnings of $1.0 million, compared to a loss of $2.6 million in FY2020, despite revenue decreasing 23.5% y-o-y to $59.7 million. This was thanks to financial support the group received from the Singapore government and its landlord, as well as internal cost-control measures.

“Last year, we had to lay off about 200 people. It was a difficult decision to make but it was one I had to do. On top of that, we had to implement pay cuts across the board. We had to perform drastic measures, something that we had never before even thought of doing. But with the several on-and-off restrictions last year, our business was really hurt and if we didn’t do anything, I would not be here speaking to you,” says Tjioe.

Even before the pandemic, the company has been struggling to maintain revenue and earnings growth as the overall F&B industry is highly competitive. “Singaporeans are very spoilt for choice when it comes to restaurants. There are so many choices,” Tjioe says.

“With that, consumers have no loyalty towards any brand. They want to keep hopping and try new things, because they can. No matter how good your restaurant is, consumers will not keep going back again and again. This is simply not the case in Singapore,” he adds.

When asked what advice he would give to struggling F&B players in Singapore, Tjioe says: “Just be smart in managing your cash flow. Be more conservative. This is definitely not the time to [rush], because space rental now is still quite unreasonable in my opinion. The business, the whole industry, is doing poorly and yet, the landlords are still charging 100% or increasing the rents.”

“The landlords are not generous and will not share [their profits] with you, unless it is government-mandated. Although the relationship between landlord and tenant should be symbiotic, this is not the case,” adds Tjioe, who because of such disagreements had to shutter a few restaurant outlets, such as Lokkee and Slappy Cakes, both of which were previously located in Plaza Singapura.

Tjioe, who was also formerly the president of the Restaurant Association of Singapore, recalls how the association, which he is still a committee member of, had to push hard for fairer tenancy agreements between landlords and tenants. Although this code of conduct has yet to be fully implemented and legislated, Tijoe hopes that this could be done this year.

Looking forward, Tjioe is not entirely positive on the outlook of the overall F&B industry. Although the economy is slowly opening up, it will still take some time for it to reach pre-pandemic levels.

Hence, the way Tjioe sees it, F&B manufacturing is the way to go as consumers will be spending more time at home. Meanwhile, he will not be aggressive in opening new outlets, but is looking to introduce new concepts in the near future. “There is no dead end for the F&B industry,” says Tjioe.

Photo: Albert Chua/ The Edge Singapore

Tung Lok turns to food manufacturing amid muted dine-in business

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