Jakarta. While some companies have their heads firmly stuck in the sand trying to hide from the advent of the Asean Economic Community at the end of this year, others are taking the challenge head-on.
Food producer Tiga Pilar Sejahtera is actively working to create a wider role for itself within the AEC and at the same time has set ambitious goals to woo a bigger share of Indonesia’s expanding middle class.
When GlobeAsia last chatted with Tiga Pilar Sejahtera back at the start of 2010, the company was already on its way to becoming one of the country’s largest food and beverage producers.
TPS had booked Rp 550 billion in revenue at the end of 2009, about $58.5 million at the exchange rate back then, and controlled a 40 percent market share in the vermicelli and dried noodle market. The company had also expanded into the agribusiness and energy sector, and had its eyes open for new growth opportunities.
Fast-forward to 2014, and in the first nine months of the year its sales topped Rp 3.6 trillion ($277 million), a dramatic increase of 24 percent from the same period a year earlier. Profit, at Rp 246.8 billion through the three quarters, was up 14 percent and approaching 2009’s total revenue figure.
This exponential growth has given the company a stronghold on consumers in the world’s fourth-most populous nation. Now, TPS is eyeing a bigger pond as the AEC, and all the opportunities for new markets that it entails, nears reality.
Like many successful companies in Indonesia, TPS started out as a family-run business. The late entrepreneur Tan Pia Sioe started with a cottage industry producing corn-based vermicelli in 1959 in Sukoharso district, Central Java.
Thirty years later, the business was thriving, with Tan’s grandchildren — Joko Mogoginta, Budhi Istanto and Priyo Hadisutanto — retaining his initials to build what is today known as Tiga Pilar Sejahtera, or “Three Pillars of Prosperity.”
The company has since expanded, going into the palm oil and packaged rice businesses, though Joko insists that it remains faithful to its core in the processed-food business.
In 2003, the company enacted a backdoor listing by acquiring noodle company Aisa and went public on the local stock exchange.
“Going public allowed TPS to achieve a lot of the strategy that we had put in place in 2001 and 2002, because now we had a vehicle,” Joko, now the president director of TPS, tells GlobeAsia.
In December last year, TPS spun off its oil palm plantation unit, Golden Plantations, in a public listing. The company is also reportedly mulling plans to spin off its rice subsidiary — TPS Rice — later this year, although Joko declined to give any details about that plan.
Joko has a clear vision for the company’s future in the next five years: by 2020 the company’s snacks division is expected to grow into a $1 billion company; TPS Palm Oil, the plantation unit, will have 200,000 hectares of planted area, from the current 30,000 hectares; TPS Rice will produce as much as two million metric tons of rice annually, accounting for 5 percent of the country’s rice market. As of 2014, its rice output was 480,000 tons per year.
Perhaps the most notable goal of all is that the company aims to control up to 10 companies overseas by 2020.
“That’s what we’re always chasing. We can’t just stay within Indonesia, solely depending on the massive [domestic] market,” Joko says.
“Because the local market has reached a big economic scale, we must have the guts to expand outside. If not, we’ll get beaten by imports.”
Indonesia’s expanding, affluent and youthful middle class has become the main draw for businesses operating in the country, where domestic spending accounts for more than half of all economic activity. Still, a big market also means big competition and for Joko this means being among the top-tier brands.
“Our philosophy any time we enter a new venture is that we have to be number one. Number two, at the very least. If we’re not even number two, then we’ll close up or sell it,” he says.
With that philosophy in mind, TPS aims to maintain above-average growth rates compared to its industry rivals, Joko says. One way to achieve this is through inorganic growth — acquisitions and joint ventures.
Reports of TPS’s planned overseas acquisitions have made headlines in the country, with the company said to be in talks with several companies across Southeast Asia, aiming to complete deals within the course of this year.
Sjambiri Lioe, the company’s finance director, has reportedly said the company will set aside up to $80 million to acquire companies in Myanmar and Vietnam this year. Once those acquisitions close, TPS plans to bring products from Myanmar and Vietnam into the Indonesian market, as well as maintain market share in those two countries.
The company has remained close-lipped about other possible overseas acquisitions.
Growing in all directions
As TPS expands, Joko says it is also looking to increase its presence in premium products, mainly on the back of its most popular product: the Taro snack. TPS bought Taro in 2011 from consumer goods giant Unilever, when the brand had already garnered a massive consumer base.
“The peak of our transformation was when we acquired Taro. The move strengthened our hold, especially since it has a 49 percent gross margin,” Joko says.
“Taro was the moment where we marked our move to premium products, and made an effort to increase our margins continually.”
TPS is now seeking to push its line of packaged rice ahead in another effort to reach the premium market.
This year, the company has earmarked up to Rp 1 trillion for capital expenditure, which will mostly be used to increase production capacity in its rice business.
The company will use up to Rp 500 billion to build its fifth and sixth rice mills in Sumatra and Rp 150 billion to expand its Taro plant in Central Java. It will also spend Rp 250 billion to expand its oil palm plantations in Sumatra, while the remainingRp 100 billion will go toward product research and development.