With an annual turnover exceeding RM100m, FOM now owns a 15% market share of the edible oat products in Malaysia
By SHAHEERA AZNAM SHAH
Oatmeal was not part of any typical Asian breakfast menu 50 years ago.
In fact, in Malaysia, when someone buys the exotic grain, which only grows in temperate climates, it’d be more likely destined to become a festive cake than breakfast gruel.
But, over the years oats have crept into the Malaysian diet and even gained popularity among the health conscious, and has even become trendy food among millenials.
The cereal has come a long way since the first oat milling company in South-East Asia was founded in 1965 — to feed fancy horses.
“When we started milling oats in 1965, Asians did not know how to eat it. So, we had to produce for the thoroughbred breeders in Hong Kong and Japan. Now, Malaysia is manufacturing for the largest edible oat brand in the world,” Federal Oat Mills Sdn Bhd (FOM) ED Michael Chew told The Malaysian Reserve.
The company is now the only oat milling factory in South-East Asia with automated machinery and complete facilities to manufacture different types of oats for human consumption.
FOM only started experimenting its own line of edible oats called “Captain Oats” in the 70s.
Some four decades later, the company has managed to achieve a compounded annual growth rate of 28.7%, with the export market contributing 82.3% to its total revenue in 2017.
With an annual turnover exceeding RM100 million, FOM now owns a 15% market share of the edible oat products in Malaysia.
The company has been selling 90% of its production to more than 35 countries across South-East Asia, South Asia, Middle East, Africa and China.
“Our biggest clients are the South-East Asian and South Asian markets, which import 50% of our finished products. Apart from that, certain African countries, such as Nigeria, Ghana and Congo have started to import our products.
“Now, we are exporting 40% of Captain Oats to the continent. I know the government is improving on Malaysia’s tie with African countries, and I foresee the demand would increase in the future,” he said.
According to Zion Market Research, the global oat market is expected to reach US$2.5 billion (RM10 billion) by 2022.
Going forward, Chew said China would be the prime market that the company is looking at to solidify its market presence.
“Greater China is a market that we have not fully tapped into yet and we know the brand can do a lot better there. We know China’s market would be opened to anything, as long as the product is worthy of their money. For example, our durian has been doing well in the mainland,” he said.
According to oatinformation.com, China imported approximately 200,000 metric tonnes of raw oats in 2016 due to the staggering growth in consumption.
Apart from its own brand of oats, FOM has also secured a manufacturing licence to be the original equipment manufacturer (OEM) supplier for one of the world’s dominant oat brands.
“In the 60s, the demand for edible oat products was very poor. But, with the machinery that we had, we managed to land a manufacturing deal with American food conglomerate, the Quaker Oats Co, that has assigned us as the OEM for the company’s South-East Asian market,” he added.
The company’s growth so far has been accompanied with different set of challenges. As the company continues to transform, the challenges that it has to face also evolve.
Chew said that during the company’s initial year, its challenges were mainly on how to market edible oats in a society that was still bound by tradition, including the food that was consumed.
“It was the Western world that brought oats to Malaysia, and we did not know how to eat it. Oats used to be a prescription meal that hospitals would include in dietary plans, particularly for patients with cholesterol and diabetic complications. Now, it is preferred by the younger generation,” he said.
He added that exporting the product was also not as breezy, as it was not supported by efficient shipping ecosystem, as well as trade agreements that Malaysia had now formed with many countries.
“Exports in the 70s was not easy. With longer shipping time and yet to be established free trade agreements, our export market was limited.
“It was tough for a small company to survive in that kind of environment. But we’d managed to venture out and today we are reaping the reward,” he said.
However, Chew added that the company is now facing a different set of challenges.
Although FOM has managed to survive for 40 years, Chew said it is always deemed second to Quaker.
“Secondary brand commands a lot less leverage. Being a local brand in the food and beverages market, we also face a higher entry cost at the supermarkets.
“When it comes to brand leader- ship, retailers tend to favour the Westerners as they are more established and had gained the market’s confidence. Big brands have a way of negotiating to lower the entry cost. It will be harder for local or smaller brands to do the same,” he said.
Chew added that the retailers view the local brand as a risk as they do not want unsellable names taking up their shelves.
On the other hand, global demand for raw oats has seen a surge, which is largely a result of increased consumption in China.
However, Chew said it has created a rivalry among oat miller companies to secure adequate amount of grains to maintain their operations.
“Within the Asian context, we source our oats from Australia, Finland, Germany, the UK and Ireland. Due to the increase in global consumption, we have to compete with other companies to acquire enough amount for our production.
“While the global demand has been on a surge, farmers have not been producing enough,” Chew said.
According to AC Nielsen 2016 report, Captain Oats ranked second in terms of total sales generated from oat products in Singapore and Malaysia.
“In 2016, Malaysia’s oats consumption was worth about RM70 million in retail sales, or 8.16 million kg,” he said.
Milling for More
Chew said the company has invested RM150 million in building a new manufacturing plant in an effort to expand its production capacity that would capture the increasing oats demand.
Estimated to take up 2.7ha of land, the new factory would be a part of the Penang Science Park — North, under the Penang International Halal Hub Food Zone.
Chew said the new plant would require 100 personnel, including skilled engineers that would man the company’s research and development department.
“We are building a new plant that could increase our production capacity up to five times from what we can produce today.
“The plant is also designed to fit advanced technological design and equipped with facilities that would appeal to the millennials today,” he said.
The Penang facility is expected to be ready for production in the final quarter of 2019.
Over the last five years, Chew added that FOM has also spent more than RM15 million in building its internal capabilities by upgrading its current plant located in Butterworth, Penang.