Market Information
Southeast Asia

TECHNO FOODS, INC.: SURVIVING IN AN INDUSTRY OF GIANTS

Ronald Mark G. Omña
Researcher
Center for Food and Agri Business UA&P

Spreads are used to spice-up and give specific flavor to bread. It covers a wide range of products: mayonnaise, sandwich spread, fruit jams, marmalades and jellies, butter, peanut butter, and cheese spreads. A close relative of the spreads is salad dressing.

A look into major supermarkets and groceries would reveal that this industry is dominated by multinational companies. These include Unilever Bestfoods, Inc. formerly California Manufacturing Company, Inc. (Lady's Choice and Bestfoods brands), Kraft Foods (Phils.), Inc. (Kraft), and McCormick Foods Corp. (McCormick).

While these firms lord it over the spreads industry, a local company is trying to gain a niche in the lucrative market.

Beginnings

It was in December 1993 when Mr. Rogelio Tiu, former vice president for operations and technology of Kraft Foods Phils. Inc. for 29 years, thought there could still be room for another player. With his technical knowledge and understanding of the business, Mr. Tiu along with a partner invested P5 million and leased a 600 square meter facility within the government-owned Food Terminal Complex. And Techno Foods Inc. was born.

Being a new entrant and a very small company, Techno Foods struggled during its first years. "We have very limited resources and I am fighting multinational companies - Kraft Foods and Unilever Bestfoods, they are the giants and I am (just) a nobody," explained Mr. Tiu. People he knew were even skeptical and told him his business would last for only six months. Obviously, Mr. Tiu proved them wrong.

PERFORMANCE

Products. Techno Foods' initial products included mayonnaise, salad dressing and sandwich spreads in consumer glass bottles (225 milliliters [mL] and 470 mL) and institutional plastic packaging (3.5 mL) using the Roger's brand.

Mayonnaise is an emulsion, which is a mixture of two liquids - oil and water - that normally cannot be combined. An emulsifier like egg yolk is used to bind the ingredients and prevent them from separating. Oil content in mayonnaise is set at a minimum of 65% of total weight. Meanwhile, salad dressing is produced using a small amount of mayonnaise plus starch and gum thickeners. Oil content is about 50% of total weight. Sandwich spread, on the other hand, is salad dressing added with various spices and flavorings.

Mayonnaise, salad dressing and sandwich spread are stable products. According to Mr. Tiu, the shelf life can range from 8 months to one year. Production does not require refrigeration or call for any other special machinery. In fact, Techno Foods uses locally fabricated equipment.

Today, the company also manufactures small volumes of pickle relish, pickle chips, and whole pickles.

Capacity. From an initial daily production of 50 to 60 4-gallon cases in 1993, Techno Foods now produces 450 to 500 4-gallon cases. Despite the increase, Mr. Tiu explains that it is just half of the plant's total production capacity. Sixty to sixty-five percent of production is devoted to the manufacture of mayonnaise, which is the company's top-selling product.

Market. Techno Foods' main market is Divisoria, Manila's trade haven. It also has distributors in other parts of the country. Its products are also sold in small groceries and stores in Metro Manila.

The company has also private labeling agreements with Isetann Supermarket and the CLS Supermarket chain in Pangasinan. Mr. Tiu proudly revealed that recently, he has closed a deal with Supervalue Inc., operator of the SM Supermarket chain to produce spreads for its SM Bonus brand.

Mr. Tiu boasts that his Roger's brand has already edged Kraft in Divisoria because of lower selling price and comparable product quality. It is now competing with Bestfoods and Lady's Choice.

A price survey conducted in a grocery in Pasig confirmed that the Roger's brand is priced lower than the popular brands Kraft, Bestfoods, and Lady's Choice (Table 1). On a per milliliter (ml) basis, Roger's mayonnaise was only 13 centavos compared to 16 centavos for Kraft and Bestfoods. Lady's Choice mayonnaise was the most expensive at 19 centavos.

Na - not available
Note: Data not available for McCormick.

Salad dressing, meanwhile, was 11 centavos/mL followed by Kraft (13 centavos/mL) and Bestfoods (14 centavos/mL). Roger's sandwich spread costs only 10 centavos/mL while Lady's Choice has the highest cost of 16 centavos/mL. Assuming a weight of 220 mL per bottle, this translates to price differences of as low as P2.20 to as high as P13.20.

CONCLUDING REMARKS

Techno Foods' success in establishing prominent presence for its products in the Divisoria market did not come easy. It encountered problems in procuring raw materials like eggs. Some local suppliers required cash payments.

There were also difficulties in collecting payments from supermarkets and burger stands, which take more than four months. According to Mr. Tiu, a small company like his cannot survive without cash.

Mr. Tiu believes that there is a bright future for his business. "The opportunities in this business are big because I am not everywhere. I am only in Divisoria. Imagine if I have co-distributors," Mr. Tiu said. He added that if there would be distributors willing to finance, Techno Foods would not hesitate to put their products on the shelves of major supermarket chains since his production plant has the capacity to supply a bigger demand.

In the next five years, Techno Foods targets more production for private labels. Mr. Tiu considers quality and price as his advantage. Costs are kept at the minimum since he and his partner personally attend to the daily operations of the company and the small production staff.

For this year, the company expects sales to decline by about 25% because of the decreased production due to low uptake and collection problems with supermarkets. However, it hopes to bounce back in 2002.

References:

Interview with Rogelio Tiu, President, Techno Foods Inc.
www.howstuffworks.com
www.epicurious.com