Cover Story / September 2016

Going Vertical

By Albert W Nonto

As a significant player in the cake business, Mount Scopus Indonesia with its popular Harvest Cake brand is setting new directions to maintain its lead. Founder and owner Lal de Silva plans to streamline the business with a new production center and plans to enter the retail market. By

At Harvest Cake’s head office in Jl. Walter Monginsidi in South Jakarta, queues of people wait for interviews to fill new positions at some of its new outlets or as additional staff at some of its existing stores. One of the workers at the office says this kind of situation has been occurring for a long time, in line with the company’s growth trend over the past five years.

Founder-owner Lal de Silva Chandra confirms the growing need for workers to meet the company’s expansion plan. A production facility at Sentul in Bogor will need hundreds of new employees, joining the total workforce of 12,000 at more than 43 outlets throughout Indonesia.

Established in 2004, Lal says Harvest Cake has outgrown his expectations, although the past two years have seen slower growth due to the rupiah’s weakness against the US dollar. A majority of ingredients is imported and paid for in foreign exchange while income is in local currency, squeezing margins. The economic slowdown has also cooled the company’s stellar rise but in normal times, says Lal, growth of 35% a year can be expected.

For the founder, 12 years makes Harvest Cake is no longer an infant in the industry and, he believes, this is the right time to think more progressively and grow in terms of outlet and - most importantly - to think about vertical growth.

“We have been thinking of streamlining our business, by developing a new Rp40 billion production facility on a hectare of land where all cake-making processes will be located in one hub. At the same time, we are also thinking of going into the retail market to fill the market demand for these products,” Lal told GlobeAsia.

Harvest Cake, operated under PT Mount Scopus Indonesia, will make sure to maintain its keys to success that have allowed it to dominate the market: high standards of hygiene, an efficient distribution system, good taste and strong positioning as a lifestyle business. As a product driven by strong marketing, Lal is optimistic that demand will recover with a new definition of the product as not merely a ‘food’ but also as a ‘gift’.

Lal, a former chef at five-star hotels in Australia and Indonesia, believes that hard work and strong passion are essential. “I work like any other employer here. I am fortunate because my home is just near my office, so I can work until night,” says the former executive pastry chef at Jakarta’s Aryaduta Hotel.

Being on top of the market has made Lal ponder deeply the way to maintain that position and groom the brand to occupy a prominent place in the customer’s mind. “It has not been easy to make this happen and I don’t want to become an ‘old’ brand that will soon slip from people’s minds, so maintaining quality, innovation in taste and ingredients is the basic formula,” he says.

Consolidating and moving forward

Many people have raised their eyebrows as they watched Lal’s aggressive expansion. Opinions have been aired that someone with huge reserves of cash is backing him to get his business where it is today. Many fingers have pointed to Tomy Winata and his family as the real power behind the business.

Lal’s close friendship with Rommy Winata, Tomy’s younger brother, in Lamborghini Club Indonesia (LCI) is the main reason for this suspicion. Lal is chairman of LCI and loves driving expensive cars, while Rommy has been the main figure behind the club and the sale of the luxury car in Indonesia.

“I have always heard that rumor and many people have talked about it, but for sure I am the only one who own this business,” says Lal. “Nobody owns the outlets and it is all managed under PT Mount Scopus Indonesia.” And, adds Lal, the expansion of his business is a long-term vision and plan, not least because each new outlet requires investment of about Rp8-9 billion, mostly for building rental and renovating the buildings.

With a strong foothold and confidence in the domestic market, in the past Lal planned to enter the European market through his investment arm Mount Scopus British. But he postponed the plan as the British economy and most of Europe hasn’t recovered yet. For the time being he plans to expand in potential cities like Makassar and Batam. He is also eyeing other countries in Asia such as Myanmar or Vietnam. “But I still see domestic demand is still growing and the market segment is still promising. I have requests from other places and cities in Indonesia to open outlets,” he confides.

Lal started out in the food business a long time ago. He started Seven Grain, another bakery business, with veteran investment banker Lily Widjaja but they have not expanded and it still has only a single outlet. “Seven Grain is no longer my focus,” admits Lal.

On the completion of the new Harvest production facility, people will be able to find its products easily as they will be present in malls and even convenience stores. The Harvest Deli brand has been the trail-blazer with cakes, food and drinks. Lal believe with a retail concept Harvest will stay close to its customers.

There have been problems. US company The Cheese Factory sued him for using a similar name in Jakarta, but Lal won the suit because the American firm did not find enough proof that he had broken copyright law.

Mass production

Lal understands that macroeconomic conditions will always impact the performance of his company. He believes the government’s new economic team gives positive signals to the market and that in 2017 the economy will start to move forward more quickly.

He recalls that up to 2014 his company made record sales but business started to slow down in 2015 and now is beginning to return to its fundamental strengths. He credits the new cabinet members with giving more credibility to market confidence and believes this will impact the overall economy and consumer confidence. “If the government is credible then people will start to spend their money,” he states.

Lal sees positive trends in the food industry as many people, ranging from home industry operators to medium-size companies are investing in the sector and creating a sizeable business in Indonesia. GlobeAsia’s research found that there are hundreds of small to medium companies producing cheesecake, for example, although no more than ten have become customers’ favorites.

Online research on the most commonly mentioned brands in social media or search engines like Google found Lal’s brands such as The Cheese Factory, Harvest and Seven Grain are among the top products, leaving other brands such as Lady Alis Tea Room, Garcon and Ohlala down the list.

Customers also have their favorites among cake stores. In Jakarta the names most mentioned on social media include Lal’s Harvest Cake in the top ten. Other contestants include Secret Recipe, an international brand that is already present in at least nine countries, Coleta & Lola belonging to the Ismaya Group, Pipiltin Cocoa, which was founded by an experienced chef specializing in cocoa- based cakes, while for the upper end of the market, Paul Bakery and Patisserie at Pacific Mall offers exceptional recipes and taste.

In the mass market, BreadTalk, owned by hair stylist Johny Andrean, is more aggressive, with outlets in malls and business centers. In some malls, BreadTalk along with others brands in the food and beverage business like Bakmie Gajah Mada have become catalysts that attract other operators to open stores.

At the moment BreadTalk operates more than 140 outlets in Indonesia and some in Malaysia and Singapore. Despite having a different concept and business model compared to the premium cake stores, the variety of offerings has awakened consumer consciousness.

Independent food and beverage industry observer Steven Atmadja applauds the positive trend of some middle-up cake-makers and shops in Indonesia. Compared to other players in the industry, he sees Harvest Cake as a powerful solo player.

From the marketing perspective, he says, individual stores help to boost brand recognition and awareness. Combined with essential factors such as taste, packaging, ambience and service, the result is high value in terms of market perception. However, from the operational side this needs huge investment because of the need to spend on buildings, decoration and - most importantly – on marketing and promotion.

Steven points out that individual production facilities at each outlet also represent a challenge for quality as different people will make small differences in production that will produce a different taste. Using a single production facility will help to control quality, taste and reduce cost structure. As a strong brand, Steven believes The Harvest Cake and its brand portfolio has aimed for and reached the right target market.

The Indonesian Bakery Association estimates that in total the market was worth between $2 and $3 billion in 2015, but agrees that growth has slowed over the past two years. As a majority of ingredients are still imported currency rates and energy prices impact the industry. For starters, Indonesia still imports more than 1.7 million tons of flour, the single largest ingredient.