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EXECUTIVE Q&A: REGIONAL EXPANSION ON THE MENU FOR SORKON
14 March 2014

Northeastern and Thai-Chinese dishes have broad appeal, says Mr Charoen.
“We’ll compete in terms of the quality of our foods.”
CHAROEN RUJIRASOPON Chief executive, S. Khonkaen Food Plc

S. Khonkaen Food Plc (SORKON) is a major producer of Thai-style sausages and dried, shredded pork. In recent years the SET-listed company has branched out into food retailing and restaurants and is also pursuing other market opportunities. Chief executive Charoen Rujirasopon discusses the company’s strategy and outlook.

What is Sorkon’s business model?

Sorkon brings food from the farm to the table. We currently produce traditional Thai foods and seafood products, and these we distribute both domestically and internationally. And we have taken our operations a step further in recent years by expanding into the quick-service restaurant (QSR) and snack business segments.

As one of the largest producers of traditional Thai foods and the largest maker of seafood balls, how will Sorkon expand throughout the region?

For seafood we currently have a capacity of 9,000 tonnes a year, and our factory is working three shifts. Consequently we have purchased new land and are constructing a factory that will double our capacity to 18,000 tonnes by the third quarter. We have also invested in new machinery that will improve our efficiency and reduce our labour requirements, as Thailand is facing a labour shortage today.

For traditional Thai foods we have continually refined the quality of our products and expanded the range as well, as Thai foods are not purely just northeastern foods. Thailand has a high ratio of ethnic Chinese whose foods are now considered Thai. For expansion throughout the region, we are focusing on Cambodia, Laos, Myanmar and Vietnam, countries that are next to or near Thailand. Foods these countries consume are very similar, if not the same, as Thai food, so penetrating these markets will be easier.

How is Sorkon’s quick-service restaurant business progressing? Are there plans for further expansion or franchising?

The consumer trend is to dine out – people don’t want to cook by themselves any more. Our QSRs are focused on Thai foods with our Zaap Restaurants, and we recently launched kiosks selling only pork leg stew with rice (kha mu ) and soup, which is originally a Chinese dish but has become a Thai favourite. Due to the labour shortage, we are finalising the franchising concept and logistics. Once this is completed we believe this business segment will grow very quickly.Sorkon’s entry into the snack business has been difficult. What plans do you have to improve sales?

Last year was a bad year, as consumer spending decreased strongly. We initially launched the Entree brand targeted at health-conscious people, with a snack that had no fat content. This year we’ll launch two more products, both of which have had very positive results from market surveys and testing. The first will be the Moochi brand and the second a pork rind-based snack under the Entree brand, which will be distributed through 7-Eleven convenience stores. With these two new items, we think the snack business will double this year.

What differentiates Sorkon from its competitors?

We have to differentiate ourselves because anyone can sell food in restaurants or on the street. We differentiate ourselves on the product side due to the emphasis on the quality of our foods, the packaging material and design and for our QSRs, the cleanliness of our restaurants and dishes. On the production side, we keep ourselves ahead of our competitors, as we invest in machinery that is efficient and requires less labour. We used to employ more than 600 people in our factory. However, we expect to have fewer than 300 employees in the future.

How does Sorkon manage the volatility of raw material prices and supply?

I’m an ex-CP [Charoen Pokphand] man, and 30 years ago we decided that as a company, we had to be self-sufficient in terms of raw materials. We could not allow ourselves to experience a shortage, as that leads to late deliveries, penalties and being blacklisted by our customers. For this reason, for pork we have our own swine farming facilities, and this allows us to hedge 25% of our supply. For fish, there are seasonal trends due to weather, and we manage this by keeping the necessary quantities in inventory to ensure our operations can operate smoothly.

What effect has politics had on your business, and what other risks do you worry about?

Politics does not materially affect us today, but if [current tensions] continue then the effect on us and the country will continue to worsen. I am very confident with our business, as our strategy allows us to avoid competing with the major players and our customers enjoy the quality product that we provide.

How will the Asean Economic Community (AEC) affect your business?

I think the food business is getting tougher, but Sorkon is reputed for original and delicious Thai food, and Thai food can compete against that of any other nation. So with the AEC, we’re essentially expanding our market from 70 million customers to 603 million. As well, it provides us a sourcing base to find raw materials where the quality is consistent and cheaper.

Where do you see Sorkon five years from now?

In terms of turnover, we should be able to double in size, as the QSR business will outgrow the traditional Thai foods segment. We’ll compete in terms of the quality of our foods. What is interesting is that regardless of where people are from in Thailand, they all enjoy northeastern food, and with many Thais also having an ethnic Chinese background, offering Thai-Chinese food products in parallel will allow us to target all of Thailand. And under the AEC, while we are now already busy serving 70 million people in Thailand, we’ll have 603 million to target.

The Executive Q&A Series is presented by ShareInvestor, Asia’s leading financial internet media and technology company and the largest investor relations network in the region, with more than 500 listed clients. This interview was conducted by ShareInvestor. For more information, e-mail [email protected] or visit www.shareinvestorthailand.com

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