Viz BranZ – Not Just Coffee
by A J Leow
Coffee drinkers in Singapore shopping for their daily caffeine fix at local supermarkets may be familiar with names like Gold Roast, Café 21, CappaRoma – products made by mainboard-listed instant beverage and snack maker, Viz BranZ, whose 2-in-1 white coffee is estimated to have 50% of the market share.
 It is also the first in Singapore to introduce the stick-like package of its coffee and tea beverages instead of the rectangular or square satchels due to the company’s efforts to cut down on packaging costs.
But in predominantly tea-drinking China, Gold Roast – or Jin Wei in Mandarin – is a name that consumers would normally associate with 3-in-1 instant cereal mix rather than coffee.
The fact is that while Viz BranZ is one of the pioneers in 3-in-1 instant coffee beverages here since 1988 – when it was known as Gold Roast Holdings Pte Ltd – more than half of its annual sales and production actually come from its cereal products.
Says executive director Tan Kok Hiang, “Our sales in China is almost totally cereal while in Indochina and Southeast Asia, the breakdown is roughly even between coffee & tea beverages and cereal.”
He explains that Viz BranZ had ventured into China, starting with Shantou back in 1991 when others – including even its own suppliers of coffee beans and packaging materials – copied its Gold Roast instant coffee mix products in Singapore.
But since the coffee drinking habit was not prevalent on the mainland, the company decided to explore other food products – starting out with snacks before taking on cereal products.
Tan says that there is a common scenario in developing economies such as China and Vietnam where dual income families are becoming the norm. Although there’s more money to spend, there’s less time to prepare a traditional breakfast. The result is that instant meals such as cereals and noodles are becoming more popular especially with younger families.
Viz BranZ’s products have since become the market leaders in at least four provinces in China – namely Guangdong, Zhejiang, Fujian and Hainan Island – a position reinforced by its corporate social responsibility (CSR) initiatives including participation in Project Hope, a campaign aimed at educating poor kids in rural areas. Viz BranZ has so far contributed to the building of eight primary schools (Jinwei Xi Wang Xiao Xue) in Guangdong, Fujian, Sichuan, Hebei and Shandong.
 China is also where 5 out of 9 of its manufacturing and processing facilities are located, including a snack food plant that makes mainly prawn crackers and its own plant for packaging material. It has two factories in Myanmar; one in Vietnam and the other in Singapore, which is undergoing expansion to include non-dairy creamer production and expected to be operational in the second half of this year.
Altogether, the company makes, packages and sells more than 40 beverage products under seven flagship brands, which include Be Be for snack food, Jin Wei and Mei Wei in China and Royal Myanmar Tea in Myanmar. In Vietnam, Viz BranZ’s cereals sell under the Calsome brand name while its coffee products under BenCafé and Gold Roast.
Mr Tan points out that the branding strategy is done deliberately to cater to the consumer psyche and eating habits in the different countries.
“For example, in Vietnam, we use the image of a muscular man and the name Calsome to convey the idea of having more calcium for stronger bones in a wholesome, nutritional beverage. The portrayal of a strong skeletal arm has made our cereal popular with farmers in Myanmar who find it convenient to have cereal packed in ready mix form when they are working in the fields, especially when it’s also considered to have nutritional value.”
“For Singapore, the strategy is to cater to more health conscious consumers and hence the introduction of sugarless premium coffee brands like Café 21 and the CappaRoma low fat series,” Mr Tan adds.
Coffee beans and machines in China
But while the coffee drinking culture is still in its infancy in China, it’s gradually making inroads in major cities such as Beijing and Shanghai where Starbucks and gourmet coffee outlets are becoming more common.
That’s where Viz BranZ hopes to penetrate the coffee drinking market on the mainland through its relatively new business of coffee bean roasting and grounding and sales of coffee machine to restaurants, cafes and fast food chains such as KFC, and Pizza Hut. It also holds the exclusive distributorship in China for commercial coffee machines from the Swiss manufacturer Franke, who is also the main supplier of kitchen equipment to McDonald’s.
Tan notes that while the sales of coffee machines are one-off items, there’s also income from regular maintenance and servicing. But more importantly, the sales of coffee machines also provide an additional channel for Viz BranZ to boost its coffee roasting and grounding sales. As coffee drinking habits take off, it will also help to pave the way for a build-up of sales of its BenCafébrand in China.
The group chalked up a turnover of nearly S$138 million for the financial year 2007, up 17.7% with sales from Southeast Asia and Indochina rising by more than 25% to $65.2 million compared to $52 million the previous year.
Pre-tax profits were up three fold to $12.1 million led by a 94% increase for its instant beverages while overall margins rose to about 8.75%. In terms of pre-tax profits, China led with a 14.6% margin.
Net profit rose 466% from $2.4 million to $9.2 million due to rising sales and higher average selling prices in selective markets, as well as better control over costs through better procurement and inventory management.
Fairly Good Growth Ahead
Alan Lok of SIAS Research notes that Viz Branz is relatively debt-free due to its healthy cashflow, which puts the company in a good position for any future acquisitions.
The expansion of its Singapore plant into non-diary cream production will also help the group’s efforts to exercise better control over quality and maintain costs of raw material costs and key ingredient for its beverage mix products.
He expects the group to see fairly good growth due to the continuing massive numbers of Chinese migrating from the rural to urban areas where Viz Branz normally plants its new captive markets.
“Viz BranZ is engaged in a non-cyclical and cash generating business. With its strong branding in China, we do not see any pressure on its revenue growth even if China’s GDP growth slows down from 10.8% to 9.6% based on the World Bank’s economic projections.”
“Besides, we are also witnessing a gradual but visible trend in the consumption of Western-style beverages such as instant cereal especially among the younger generation. As per capita income and exposure to international cuisine grow, there will also be a widening demand for cereal products,” says Lok.
However, the weaker US dollar will have an impact on the group’s bottomline as a large portion of its sales in booked in the Chinese reminbi while purchases and export sales are greenback-denominated.
While rising inflation these days poses a threat to prices of commodities such as cane sugar, non-dairy creamer, wheat and coffee, it might actually work in Viz Branz favour.
Says Tan, “Given how the price of a cup of coffee is rising even at the neighbourhood coffeeshop these days, more office workers might opt to have one made and consumed in the office instead.”
Lok added that it might also spell opportune times for Viz BranZ to consolidate its market share due to its stronger brand as weaker competitors fall on the wayside.
“The weaker rivals will either see their profits squeezed and possibly go into the red if they maintain their selling prices. Or they may lose the market share if they raise prices.”
In contrasts to some other food-related companies who have seen their margins eroded by ongoing inflation, he notes that Viz BranZ on the other hand has seen its gross profit margin on a consistent uptrend for the past three years. “This clearly demonstrate its strong brand identity with consumers of instant beverages,” says Lok.
The recall of several China-made beverage and food products last year also prompted Chinese consumers to opt for foreign-owned brands like Viz BranZ’s Jin Wei and Mei Wei which are deemed to be safer and of superior quality.
Besides China, Southeast Asia and Indochina, the group also exports to more than 20 other countries such as Japan, Russia, Liberia, Egypt, Iran, Lebanon, Canada and the USA. These however make up to less than 4% of overall revenue though sales did soar by 43% to $5.6 million in FY2007.
Lok projects Viz BranZ earnings to rise some 17.4% for the current financial year based on a forecast of 10% growth in revenues, or roughly in line with China’s GDP growth.
He points out that at current price earning ratio (PER) of about 6 times, Viz Branz’s stock looks an attractive buy compared to those of Super Coffee Mix (12.3 times) and Food Empire (10.6 times).
SIAS Research is looking at a target of 8 times PER for Viz BranZ, which translates into a fair value of 59 cents, or a possible upside of more than 60% from current prices.
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