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CNBC Transcript: George Quek, Founder & Chairman and Henry Chu, CEO, BreadTalk Group

Christine Tan (C): You founded BreadTalk here in Singapore in the year 2000. It's been 19 years. Today you have nearly 1000 stores. Did you ever think the Group would become so big?

George Quek (G): I really hadn't imagined that BreadTalk would grow so big and so quickly over the last 19 years.

C: The F & B business is such a tough business. There is so much competition not to mention changing consumer tastes. What do you owe your success to? Any hard lessons learnt along the way?

G: I always believe in setting goals at each stage of the business and map out how to get from Point A to Point B. This makes it clear for the entire team. With a goal in mind, you can plot the journey, so if you are asking about achieving success, I think goal-setting is very important. BreadTalk Group also believes in learning and having the courage to try. When you put knowledge to application, you are able to innovate. At BreadTalk Group, we are always on the lookout for what's new, what's cutting edge and innovative, to come up with products that are differentiated from competition. This is also one of our core values.

C: Everyone knows you're the man behind BreadTalk Group. You have close to 40 years of experience in F & B and you've won many business and entrepreneur awards. What drives you? What motivates you? What keeps you going?

G: In the beginning, I was constantly hungry as my family was poor. I had to work hard, show results in order to achieve the life I wanted. When you're hungry, you are driven to work hard. In the process, you have to make some sacrifices, but at the same time, you learn to apply the knowledge and innovate. When we create products that are loved by customers, it gives you a sense of satisfaction. You will be motivated to expand further as you need to look after the team's growth and their livelihood is in your hands. It becomes an invisible source of strength and motivation, before we knew it, we are in 19 territories.

C: In the 19 years you've built up the business, did you ever think of giving up?

G: No. My days in the army taught me strength and resilience - we need to navigate our way out of a jungle, and you just can't give up especially when you have a team with you. This training equipped me with a very strong sense of resilience. That is why I always ask why I am not doing well if I am not doing well, and I will keep trying new methods, figure out the problems and move forward. I always set a goal and work towards it.

C: Expanding into China wasn't easy for you. Before BreadTalk, you had an earlier venture there in the 1990s that saw you lose a lot of money. What is it about the China F&B market that makes it so difficult to crack?

G: The Singapore market is smaller. Food trends and people's tastes and eating habits are rather homogenous. But when you are in China with a population of more than 10 billion, the cultures are very different – from Shenzhen to Guangzhou, from Shanghai to Beijing and Szechuan. For a Singapore company entering a new market, especially one as big as China, the way we run the business will be different. In the beginning, I hired a Singaporean manager to run China, and we suffered losses because our methods, thinking and management approach were not suitable for the market. We ran the China business via long distance phone calls on very crucial decisions. That approach was not right. Looking back, either I or my most trusted advisor should have been on the ground to guide the manager, understand the market, build up a team and sort out the difficulties to achieve results.

C: In the early days you spent a lot of time in China managing your franchise there. What were some of the issues and problems you had to deal with in China? How did you go about choosing the right franchise partner?

G: The franchise model is a great model. We benefitted from learning and putting in place intellectual property and the transfer of knowledge. We developed systems for finance and recipes, for instance, and also how to replicate a model for each market. What we didn't realize was that even if the local franchisee had a lot of energy and will to succeed, they might lack experience. They could do well for the first few outlets but they would encounter problems running a larger scale operation. We made some mistakes when selecting franchisees in the early days. Now, we take into consideration their experience running large scale franchises, from selecting locations to setting foundations in place.

C: Today, you have over 300 outlets in China. Your business there has expanded beyond bakeries into food courts and restaurants. The slowdown in China has made things challenging for you. You worried about the weakness you're seeing in the Chinese market?

G: The market is very competitive but we are focused on mid to lower income mass market consumers who may not choose to eat in a restaurant but at Food Republic. Our bakeries cater to these consumers as well, as they can get toast for lunch, so we are not affected greatly by China's economic slowdown. The key is the intensifying competition within the industry. Most importantly, you have to be sharp and quick with every opportunity. If you are quick but not accurate, it may result in us losing a shop, and we have learned from our experience.

C: Let's talk about last year because it was a milestone for you, you made your first move into London by opening a Din Tai Fung restaurant in the city's trendy Covent Garden. Was it your dream come true to finally expand beyond Asia?

G: Yes. It has always been my wish to enter the U.S. and European markets. They are mature markets where consumers have strong purchasing power. We have ventured in many Asian markets. As I frequent England more to visit my son who is studying there, I realised that as an international financial hub frequented by tourists with high spending power, it is very open to new cultures. Of course, it was not without risks entering a new market that is so different from Asia. Our study tells us that the English people enjoy a beer before meals and are slower diners - they don't just finish a meal and leave. Din Tai Fung's positioning, however, is one that sees a quick turnaround of food and customers, and does not sell beer, so we had to think about how to adapt this to the Western market. We designed a bespoke cocktail with our ingredients such as vinegar, Chinese tea, and mixed them with other types of alcohol and it did really well on the menu. So when Din Tai Fung opened, the bar contributed to 15% of the profits. We adjusted our operations to adapt to the culture, and managed to lower costs to a reasonable level. Together with our tasty dumplings and a Michelin-star brand, our first restaurant in London at Covent Garden is a great success.

C: Are you happy?

G: Of course. Din Tai Fung's owner and we were all delighted.

C: So you struck gold?

G: Yes. With this confidence, we're planning our second store, which will open in July at Centre Point along Oxford Street.

C: You are 62 years old, Chairman of BreadTalk Group, the company you founded. Henry Chu is your CEO. What kind of leadership are you trying to put in place within the company?

G: On his first day, he said to me that I should be the Chairman that I wanted to be, and let him do his job as a CEO to lead and carry out my vision. As founder, I had kept myself in the loop on all matters. If I was at a shop, I would have comments to make, so he told me to let him do things slowly and interfere less. I had to remind myself to take a step back and let him lead. Otherwise, I'd always be running the show. Slowly, I got used to it and the team also slowly accepted his leadership, and he is doing a great job. I will transition and hand over most of my work to him. You could say that I've passed 50-70% of my work to Henry and the team.

C: Do you think you'd be able to let go eventually?

G: I hope there'd be this day -- the team working seamlessly together, reaching a point when there is satisfaction from board members and shareholders. I do hope they'd be able to run independently.

C: Thank you George!

G: Thank you, thank you.

Christine Tan: You're in charge of the so-called fourth division, which is in charge of spearheading new opportunities, new partnerships and new brands. What is out there that you want to bring into the BreadTalk Group?

Henry Chu: Well, I think, the consumers today are changing. I travel a lot and I see interesting brands that I think are relevant to us. Tai Gai and Nayuki are some of them, but at the same time I'm also bringing Singapore brands, like Song Fa, to China and very soon to Thailand. So it's a lot about what the trend is today.

C: And what is the trend?

H: Well, I think the younger generation are the money spenders today. I think it's important to ensure our company continues to stay young by having very young, trendy and welcoming brands.

C: Anything out there that you want to bring into the company?

H: There are a few brands that I'm talking to and some are really new to us as a group and some are complementing. I will share in due course.

C: Will you bring them into the fold this year? How many new brands can you bring into to the group this year?

H: Yes, I hope to bring at least one but there are a few on the table.

C: So, Henry, this is your second stint at BreadTalk. You returned in 2016 and one year later, you were made CEO. Is your main objective to take the Group overseas?

H: Well, I think for BreadTalk as a group we are always focused on Asia. I think for us we would like to grow this brand to really take it international and I think that's the reason why we have opened our first Din Tai Fung in London in December. But at the same time we are also looking at the big needle mover for us. We did our site understanding of the market in the US to see if we can put our brands there

C: How's the Din Tai Fung restaurant in London right now?

H: When we opened up in the first week, we had a four hours queue. Business is really good and I think the restaurant right now is performing better than we had expected.

C: You're expanding into London at a time when there are concerns about Brexit. Is this something on your radar that could potentially impact your business there?

H: Well, when we the signed the deal to open Din Tai Fung in London, Brexit was already made known to us. But for us, I think we are more focused on bringing this very authentic Taiwan cuisine into the market. We visited London a few times and we felt that there would be less impact on this brand. I think it's really about managing the shortage of labor but we were more ready to go to London at that point in time.

C: What's next, the rest of Europe?

H: Well, I think for us, maybe bringing our other brands is one consideration. That includes our bakery.

C: What other brands?

H: BreadTalk for one, maybe even our very local Nanyang Toast Box. It could even be the other brands that we have right now – maybe a food court. We noticed in London that there are food courts everywhere and Asian food seems to be a very welcomed cuisine there, so we are looking. We want to make sure that we are putting the right brands and that we have the right team before we grow other brands over there.

C: I understand you and your team have made many trips to the US. How does the market feel to you right now? Is it a matter of time before you enter the US market?

H: Well, I think for us right now it's a bit too early to tell. But we definitely see the U.S. as a market with huge potential. We have easily been there four to five times last year and the year before. But I think for me I would like to find the needle mover for the Group and I think for us to be an international company, we can't stay in Asia. Like I mentioned earlier, with us in London, being in the US will make us a much bigger company.

C: The F&B business as we know is so tough. As CEO of BreadTalk listed in Singapore, your job as CEO basically is to improve the margins of the four different segments you're looking after. How do you grapple with the issue of rising operating costs and the impact on margins?

H: Well, I think for us we are spending a lot of time consolidating what we have today. We have a thousand stores and I think making our model better is something that is definitely on my radar. We're trying to reduce the operating costs here by moving some of the front of the house to the back of the house. So I think for us, we have invested quite a fair bit over the last two years to improve infrastructure, like the Central Kitchen and other equipment, so that we are able to produce more to help the front line. I think the rental and the labor costs will continue to be a challenge everywhere. For us, the rising costs give us a lot of pressure to make things different. So it's really consolidating what we have, but at the same time, looking for a new business model that will help us in our bottom line – a business that will be easier to operate and that is smaller in size that perhaps could complement what we have today. And I think where we are sitting in Nayuki – we can use the same central kitchen to help us with our bread. We can also use our expertise and our hiring knowledge in our other brands to grow this brand.

C: What are your margins like?

H: Well, currently we are low. I think for us as a group, we want to make it higher. Internally, we have set ourselves a target which is 8 percent, which I think for an F&B company is required. Since we are international company, the exchange rate is something we need to worry about. So it is not about increasing it from 6 to 8 percent. It's really about pushing hard and as I mentioned earlier, consolidating what we have to continue to grow.

C: Last year, your bakery business was a drag on the overall Group earnings. You've had to close down some stores in China. But at the same time, you're actually increasing or expanding your joint venture that you have with Taiwanese bakery brand Wu Pao Chun. Are you still optimistic about the bakery business?

H: Well, I think for us the closure of franchisee stores was a planned decision. We wanted to do it to look at what we have, because that's part of the process of the consolidation. A lot of the closures were planned because we wanted to make sure that we were driving enough top and bottom line. We wanted to make sure that we had enough efficiency at the store and also at the central kitchen. While the signing of Wu Pao Chun is different, I think we have that opportunity to partner a world champion and the whole discussion took two years to happen. And the fact that we opened our first store in Shanghai very recently has given us more motivation. The products are well-received – customers are enjoying a different product that Breadtalk is not offering. So for us, we are going to open Wu Pao Chun very soon in Singapore, in July this year.

C: So you're hopeful the bakery business will pick up this year?

H: Yes, and I believe not just with the Wu Pao Chun. I think for us, the ongoing consolidation of BreadTalk will help us as a group.

C: We're entering a new year and as you know, interest rates are rising and BreadTalk has been increasing its loans and borrowings to further its expansion. Is this going to weigh on your earnings this year?

H: Well I think it will. But at the same time it's an investment we have to do this year for us to be able to earn more in the years to come. So it's really a timing issue rather than is it a decision. Because for what we're doing today, the growth we are putting in, the investment that we are putting in and the infrastructure, we need the money for us to prepare for future growth.

C: So overall where do you see earnings this year? Where is growth going to come from?

H: Well, I think for us the new brands will be important. We signed Song Fa, a 50 year old brand that we are bringing to China and Thailand. We are also looking at other territories that we want to bring it to. Of course the consolidation of the bakery gives us confidence that this year, our bakery will bring more earnings to the Group.

Henry Chu: ... To drink this tea, there's a milk crown on top, so we usually take out the lid and if you want a little bit more milk, you just have to tilt it slowly. If you want a little bit more tea below, you just have to tilt at a bigger angle so you can get that very good mix of milk crown and the tea.

George Quek: Good design.

Henry Chu: Really, good design.

Christine Tan: He sounds like he's got the right credentials to be your CEO.

G: Yeah. I'm really working hard!

C: So bringing Nayuki in is basically your decision. Because you spearheaded the move, correct George? He was the one who brought it in.

H: Yes, yes.

C: How did you spot this brand?

H: Well, I think due to the nature of my job, I travel a lot, China being one market. I saw how this brand grew in China. It was at a speed which I thought was incredible. Today, I think they have 220 stores in more than 20 cities in China. In Singapore, we have a lot of bubble tea, but we don't have good fruit tea. That's the reason why I decided to bring this brand to this part of the world.

C: What other brands are you at looking out there to bring in?

H: Well, I think over the last two years I brought brands not just into Singapore. But we also brought a Singapore brand, Song Fa, out to China. Today, we have opened 4 stores in a year and it's doing very well. It's a fifty-year-old, traditional Teo Chew Bak Kut Teh. And it is doing so well that we are going to open in our Thailand market very soon. We will be opening our very first Wu Pao Chun. This is a discussion that Mr Quek has personally spearheaded. We have opened one store in Shanghai and we will be opening our very first Wu Pao Chun store in Capitol in July this year.

C: Sounds like a lot of opportunities you're exploring.

H: Yes

C: Do you involve George here in every step of the way?

H: Well, I think George acts as the consultant to me. I make the decision. I'm blessed that he gives me that autonomy to make that decision. But of course as the figurehead and founder of the Group, usually his presence helps in the whole negotiation. So when he's there to help me with the negotiation, usually it works out.

C: So, George, what advice would you give your CEO? How can he further build up your business?

G: I think he's very experienced in the F&B industry. He travels to a lot of cities. So I trust his judgment regarding whether a certain brand can be successful in other parts of the world. But he moves very fast, he wants to do more than me, so sometimes I have to hold him back and ask him whether he's doing too much and should slow down.

C: Hahaha. So you're going to keep him as CEO?

G: Hahaha. I'm willing to, for a long period. (Laughs)

H: I always say he is the wen jiang, I'm the wu jiang, you know, I'm out there to fight. So he's always there to make sure that I am fighting within that boundary that the rule is.

C: You know, founders sometimes have problems letting go. Does he interfere a little too much in the day to day decision-making process? Does he have trouble letting go?

H: Not for the day to day decisions. I think for him, like I mentioned earlier, he is willing to give me the opportunity to make the changes. And I think he personally wants the changes. But interestingly, he is very passionate about certain brands – brands that he started from day one, like BreadTalk. So we have to exercise a little bit more sensitivity. We don't want to make too big of a change. We will consult him and spend more time engaging him, making sure that he's comfortable with the change and get his support. But for the day to day decisions, he's fine, you know. He enjoys his freedom and his rest now. He looks so much better than two years ago.

C: (Laughs) You mentioned both of you are very different. Do both of you see eye to eye on things?

H: Not all the time.

C: Like what, give me an example.

H: Maybe as a professional manager myself, I measure my team clearly to KPI. I set up metrics for team to follow. But I think for Mr Quek, he has that passion for people. He likes loyalty. So sometimes we don't agree on some issues due to his emphasis on loyalty and my professional management approach. But he usually allows me to make the next step. If for any reason we need to compromise, we discuss this.

C: You have more than 25 years of experience in the F&B business and you worked for many brands like Delifrance, Starbucks, Burger King, and Maxim in Hong Kong. How would you describe your leadership and your management style? What are you like as the boss?

H: Well, I'm a tough boss. But I think over time, I learnt to be more appreciative of the team. I think in my younger days in my career, I tend to be too aggressive. I tend to be too tough. But I think over time in my position today, I try to balance the emotions of my team. I try to give them clearer directions and my vision for them to move forward. And I'm usually the fun guy, you know. I want to make sure the guys are motivated. I want to make sure they are happy working with me. And I think over the last 10 years, I have built a little bit of "fans" to work with me if I need help, or even to provide suggestions for ex-employees of mine.

C: Hygiene and cleanliness is something you have to practice religiously in F&B. You've had one issue last year where one of your outlets had to be closed in a shopping mall here in Singapore because of this problem. What are you doing to make sure - what systems and checks are you putting in place to make sure you maintain highest of safety standards?

H: Well, we have a team of operators that have to travel stores. We basically ensure that we have a checklist to make sure that they go through all the check-and-balances. At the same time we have a QA audit, a quality assurance team, where they help us to make sure that mistakes like these are not repeated.

C: And finally, BreadTalk Group has close to a thousand outlets spread across 19 countries. Where would you like to take the Group under your watch as CEO? Where do you see BreadTalk Group?

H: Well, I think for us we definitely want to increase our market cap. Internally we have set a goal of a billion dollar company for us. Since I've joined, I think the company has doubled in terms of the market cap and I feel that with the teamwork, with clear direction, with the new brands and consolidation of the current ones, we definitely would be able to reach that one billion.

C: What sort of timeframe are you looking at?

H: Well, we're planning to do it in 2022, to get that S$1 billion. But at the same time we are also hoping to bring up the net profits so that we can give more back to the shareholders and at the same time, our team members.

C: How many stores could you possibly have by 2022?

H: Well, I think 2,000 is our target. With the growth that we are experiencing and the consolidation that we are doing, this is the internal target we have set – 2,000 stores by 2022.

C: Will you be in the US by then?

H: Maybe, maybe. I think it's too early to tell. We still want to make sure that we do London and Europe well, before we venture into a country that is really far away.

C: Thank you Henry.

H: Thank you very much.


For more information:
Clarence Chen
Communications Manager APAC, CNBC International
D: +65 6326 1123
M: +65 9852 8630

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