Getting big while staying small

By Zsarlene B. Chua

A billion pesos worth of flavored fries is a lot of potatoes.

The figure comes from an ABS-CBN story back in March, which said Potato Corner, the food cart business, had hit over P1 billion in sales since last year, a number which Jose P. Magsaysay Jr., president and CEO of Cinco Corp. — the company behind Potato Corner — declined to confirm during an interview with BusinessWorld.

Potato Corner, which started in 1992 based on a concept by Mr. Magsaysay’s three partners, has grown from a single kiosk in SM Megamall to a behemoth with 560 branches nationwide and an estimated 120 in countries including Indonesia, United States, and Panama, with several more on the way.

“We’re a large company doing micro- business,” said Mr. Magsaysay in an interview on April 4 at the company headquarters in Pasig City.

When they started the business, each partner — Jorge Wieneke, Danny Bernejo, Ricky Montelibano and Mr. Magsaysay — had to invest about P35,500, which he had to borrow as it was quite a sum at the time, Mr. Magsaysay said.

“[It was a humble beginning] as our first office was at my mother’s garage and our first filing cabinet was a used oven of my mom,” he said.

But things moved quickly as the concept — selling flavored french fries as if they were popcorn — proved to be quite revolutionary, and popular.

“We’re practically the first concept to set up this kind of shop in malls. It was not difficult because there are kiosks in malls,” he said, before adding that a month after they opened, they already achieved their return on investment. And requests for franchises started to pour in.

And it was franchising that paved the way for the company’s growth.

Just three months after opening the very first kiosk, the second outlet opened — it was a franchise and it was a handshake agreement.

“What was different was how we grew… if not for franchising and if not for sharing the brand with others, we wouldn’t have grown this way and we wouldn’t have been able to block people who copied the concept,” he said.

Franchising was a way to keep their competitors in check. In the first two years, they grew from zero branches to 70 (“it was a phenomenon back in 1994”) and at the same time more and more competitors sprang up. “We counted — there were at least 300 doing flavored french fries… [but] we franchised and we grew and we dominated the market because to me, who the first mover wasn’t important anymore, the dominant player [is the one with most branches]… it’s a numbers game,” said Mr. Magsaysay.

“You have no choice but to grow as fast as you can… because everybody knows how to cook french fries and flavor them,” he added.

It wasn’t always smooth sailing for Potato Corner — things slowed down during the late 1990s economic crisis and briefly in the mid-2000s, but since 2010 they’ve been growing by leaps and bounds, with Mr. Magsaysay Jr. describing the company as having entered “hyper growth.”

Fry Biz: Potato Corner employees at work.

While their 2015 growth target was just at 20%, “[In 2015] we grew 70% compared to 2014,” he said.

Their 2016 target is 50% growth in the number of kiosks.

BusinessWorld Research reported that Potato Corner’s sales grew 104.28% in 2012-2013.

Currently, about 25% of all Potato Corner stores are company owned, while the rest are franchises.

“The right time to franchise is when people ask for a franchise because people want to franchise you when they know that your business model is good,” said Mr. Magsaysay.

POTATOES, CAMOTE, AND GOING GLOBAL
While unable to say exactly how many fries they’ve sold through the years, Mr. Magsaysay Jr. did provide a vivid image — “we’ve sold enough fries already that if you connect all those we sold you can go to the moon and back 16 times.”

Potato Corner’s spuds are sourced from Belgium and the US.

“We’ve studied [sourcing our potatoes locally] but, sad to say, local potatoes are not for french fries — they’re small and the water content is high and they’re more expensive than imported ones because our farming technology and climate is not compatible for potatoes,” he said, before adding that they do source their sweet potatoes (camote) locally and these are sold in the US.

“Sweet potatoes are doing well in the US because they perceive it as a healthier alternative to french fries,” he said.

In 2006, the first Potato Corner outside the Philippines opened in Indonesia.

“Indonesia is like the Philippines, though they have spicier taste palates,” said Mr. Magsaysay, who explained that they do tweak their products to suit different territories’ preferences.

Their partner in entering Indonesia had been pestering them to open a branch there since 2003, said Mr. Magsaysay, a time when going outside the Philippines had not entered their minds yet. Through sheer persistence they gave in, and in 2006 Potato Corner entered the international market.

Today the brand has about 80 stores in Indonesia and “30 to 40 stores” in the US.

Fry Biz: one of over 560 local branches.

“My advice for those expanding abroad is get good lawyers — locally. Not your lawyers in the Philippines… but lawyers [from the country you’re entering],” he said.

They are now looking for partners in order to enter Europe. with Mr. Magsaysay saying that he would like to have a store in Belgium — the country where french fries originated.

Locally, they plan on opening “a hundred more stores” within the year.

“We’re either buying other brands or creating other brands — we bought Kiss King of Balls (which specializes in local street food such as fish balls), Turkische Shawarma, [Kuya’s Special Lumpiang Sariwa],” he said before adding, that they are “best at the [micro-business] level.”

“Other people [who start with kiosks] create other ventures, which is good — because people want to grow — but our business model is to grow at the micro level,” he said.

And throughout all of the territories they are in, their market has always remained the same: children.

“Children love french fries… I’ve said this before but flavored french fries is the popcorn of the 21st century,” he remarked.

A NEW BUSINESS MODEL AND THE FUTURE
Because children are their target customers, Mr. Magsaysay noted that the kiosks located in schools are their best performing, while admitting that they have barely scratched the surface in this market as, by his reckoning, they are only present in about one percent of the schools in the country.

But it isn’t easy entering schools, so Mr. Magsaysay proposed a different business model — offering all the earnings of the store to the school, with Potato Corner making its revenues from the supplies provided.

“If it makes us enter more schools then that’s going to be our business model for schools and all profits go to schools,” he said.

He also noted, when asked about the future of the company, that they are not the kind of company that looks too far ahead but he did say they are considering going public.

“What we’ve been doing is taking care of the brand… and doors just keep on opening and when doors open, we go in. We don’t really plan to say ‘We’re going IPO three years from now’… we just do our best right now to take care of the company and then as we run along… the future will take care of itself for us,” he said.

“The four of us were able to be innovative… [we were] trailblazers. So we continued with that kind of character — that kind of corporate personality up to now,” he remarked.