IN between the usual shots of single-malt whiskey and chatter with longtime business friends, Tito hit rock bottom: What’s the future going to be like?
It was 1997 and the Asian financial crisis had hit Philippine soil.
Tito and his barkada, who were all then affiliated with the local steel industry, were pondering their business plans as the construction sector was down on its knees.
Tito was part of the original group that established NSC as a result of the government takeover of the assets of Iligan Steel in 1974.
He held various positions in the state-run firm, including assistant vice president and marketing director.
“Due to the slowdown in the construction industry, the question came about: What industry would prove to be resilient even in times of economic crisis?” Anthony “Tito” S. Dizon tells the BusinessMirror in the bistro lounge of Makati Sports Club.
“And the answer soon became obvious—that despite all the financial difficulties, the most resilient industry is the food industry,” Dizon adds and takes a sip of single-malt whiskey on a rainy September Friday.
“No matter how many times, people would still need to eat,” he said.
So, what about food?
The idea was brilliant, Tito’s friends said to him. But there was a roadblock: their careers were spent most in the steel manufacturing industry.
No one in their drinking group had a knowledge or two about the food industry.
“Nobody in the group knew anything about food processing. Therefore, it became a rather tall challenge if we were to start studying food processing at that point in time, considering we were in our middle ages,” he laughs.
After glasses of whiskey, the eureka moment came to Tito: If there’s food, then where would you store it?
“The next possibility that came to the fore was providing services to the food manufacturing industry by way of performing activities needed to be done to bring products from the manufacturing sector to the consumer,” he recalls. “And that time it seemed easier to learn.”
Enter the perishables
A few months after that drinking session, Tito came up with a proposal: put up a facility that would provide third-party cold chain management services to the food manufacturing industry.
Tito’s friends liked the idea. And since the group had been into property development, they already had an area where to kick-start the plan: Imus, Cavite.
Tito’s group had set aside a 15-hectare land for real-estate development in Imus.
Within that area, a 2-hectare space was reserved for the group’s new project: a cold chain company.
Coincidental or even providential?
The group’s new venture was able to get a few incentives from the Board of Investments (BOI) through the Omnibus Incentives Act.
During that time, government provided duty-free importation of capital equipment and income tax holidays, among others, to businesses that would be put up related to agriculture or agribusiness.
But then came the funny part, Tito recalls: the group applied for a loan from Far East Bank of about P50 million, half of the capital they would need for the cold chain business.
“When our equipment manufacturer told us that they accepted our order and we should send our letter of credit…things became rocky,” he said.
“The bank told us that interest rates have gone up to 24 percent from the initial 16 percent we signed. We did not know if we wanted to push through with it or not, because we did not even project that the business would earn 24 percent annually,” he added.
Still, the project pushed through despite the ghosts of the Asian financial crisis that haunted the used-to-be-steel-manufacturers drinking buddies.
Koldstor Centre Philippines Inc. (Koldstor) opened in June 1 of 1998.
“It was probably coincidental or even providential that the site of the project was strategically close to the manufacturing facilities of San Miguel. There were three San Miguel manufacturing facilities within our 15-kilometer radius,” Tito said.
Here come the hot dogs and legs
The location of Koldstor may have been fortuitous for Tito’s new venture as proximity proved to be key to their business growth.
Koldstor submitted an unsolicited proposal to San Miguel’s hot-dog making unit Campo Carne to be its third-party service provider.
And as Tito puts it: in a time of crisis, every idea that would provide additional value or advantage is welcome. More so, if that idea would save a firm more money while the economy is reeling from a financial crisis.
“The business model we presented to San Miguel was different from what they’ve been used to. Our proposition was that the moment their goods enter our warehouse we will take full responsibility for its quality management and quantity management,” he explained.
“And it was the advent of third-party logistics. We also provided a distribution network for them by tapping trucking operators to provide a seamless package of services,” he added.
The proposal was approved in no time. Soon enough, Koldstor found its second client in the form of KFC Philippines (KFC).
That time, KFC had started importing chicken leg quarters as one of the business opportunities opened up by the accession of the Philippines to the World Trade Organization (WTO) in 1995.
As the imported chicken leg quarters came in frozen form, KFC needed a place where to thaw and cut the poultry meat for their restaurant operations. And it was right where Koldstor made their presence felt.
“It was coincidental that during that time, 1998, they just started to use imported leg quarters. So, we came in at the right time,” Tito said. “They do the cutting of chicken parts to service the KFC outlets within our facility. We provided them the right avenue to maintain the quality of the chicken and do their things efficiently, Tito added.
Globalization and food
By 1999, Koldstor undertook its first expansion, which effectively more than doubled their warehousing capacity to 5,000 metric tons from 2,000 MT.
From thereon, Tito says, Koldstor’s “history was linear.”
“It turned out our business model developed as envisioned. And we would continue to grow within the same area,” he said. “Over the past 20 years, we have expanded and undertaken six expansions,” he added.
And this growth, primarily anchored on the development of the food industry, was fueled by the advent of the globalization, through the establishment of the WTO.
The opening up of markets, which resulted in freer trade of food products, opened a lot of opportunities for Koldstor.
“By 2001, meat imports had started to come in and increase. It became conducive for Philippine businesses to import. So, every time there is an imported food, there is a need for a cold chain warehouse,” Tito said.
22 ‘fortuitous’ years
Koldstor’s profits have been growing at an annualized rate of at least 10 percent in the past 22 years, Tito said.
There may have been some hits and misses along the way, such as unforeseen increased in power costs, but the firm weathered external factors due to Filipinos’ whetting appetite for food, Tito added.
“Apparently, our assumption that the food industry would withstand crisis was proven correct. Food demand continued to grow alongside population growth,” he said.
“WTO agreements [paved the way] for [the increase] in import volumes. Whenever you import food, there is an opportunity for cold storage,” he added.
Today, Koldstor’s portfolio includes the country’s major food processors, manufacturers and importers.
If given the chance, would Tito change a thing or two with what happened in 1997? He says he will not.
“The answer is a resounding yes,” he said when asked if the Asian financial crisis have been “for2ui2ous” for him and Koldstor—22 years after.
“Now, we have seen the value we have been able to instill in the industry. We have been able to pursue a consistent growth curve of at least 10 percent. Our strategies have been successful,” he concluded.
Image credits: Jasper Emmanuel Y. Arcalas