The risks in new product development

Although it is common practice that all new products must pass the various processes of quality tests during production, including manufacturing, packaging design, tasting, advertising and promotions, which cost substantial amount of money, some of the products were not able to penetrate the market due to the intense competition in the beverage market. The Company increase the level of strictness in the preparation of new product launching in terms of quality control, the alignment of the consumer’s demand, as well as the marketing activities in order to ensure that the new products are able to penetrate the market.

The limitation in raw material sourcing

Due to Company’s commitment to produce only quality products made from premium raw materials, the Company has no policy to purchase those raw materials from only one supplier which may cause shortage or disadvantage in price negotiation. Hence, the Company’s R&D and Purchasing Departments have been looking for more qualified suppliers to maximize our ability in raw material sourcing.

Fluctuation in raw material costs

Certain factors such as the rise in fuel cost, the use of plants as alternative energy, and the drastic demand for raw materials from China and ASEAN Economic Community, have caused the rise in production cost i.e. fuel, transportation, paper fiber, and petroleum packaging which are fluctuated according to the demand and supply in the market. The Company, therefore, has secured medium to long term contracts with the suppliers to avoid possible difficulties.

Competition risks

Competition in the beverage business is quite intense. There have always been high potential new entrants with aggressive marketing activities to penetrate the market. However, the Company strengthens its competitiveness through the image of products by means of effective advertising, marketing and promotional activities. We believe the competition is beneficial to consumers and beverage industry since the growth of market will eventually help the Company’s performance in the business.

Natural disaster risks

The 2011 great flood in Thailand was the most severe disaster caused serious damages to the Company. As a result, the Company realizes the need to divert and prevent the risks of natural disaster. For example, the construction of new production plant at Wung-Muang district, Saraburi province, the construction of a flood wall for the production plant in Navanakorn Industrial Estate and the implementation of contingency plans to ensure the uninterrupted operations in the event of a natural disaster or emergency.

Location for outlet expansion and current location retention

Since location is the key factor for a successful restaurant business while competition is also quite intense. This is considered a limitation for those who aim to increase the new outlet especially in department stores or urban area. Normally, short-term location rental contracts last for 3 years and could be renewed for another 3 years. There is a high risk that some of the rental contracts could not be renewed, or the rental fee might be increased; however, the Company has planned to maintain those rentals by maintaining and making good relationship with the lessor. We also keep looking for other good new location to ensure that the Company will have the places to support the expansion of outlets.

Raw materials and products obsolescence

In operating restaurant business, the Company highly focuses on good quality and freshness of raw materials and products. Over 50% of raw materials and products are meat, seafood, vegetable, fruit and bread, which are perishable. In this connection, lacks of effective raw material management could result in the increase of production cost. In order to avoid such risk, the Company has adopted a policies to make purchase of raw materials on a daily basis and store in temperature-controlled rooms to preserve quality and freshness with the First-In-First- Out (FIFO) inventory control scheme being used.

The limitation in raw material sourcing

Due to Company’s commitment to produce only quality products made from premium raw materials, the Company has no policy to purchase those raw materials from only one supplier which may cause shortage or disadvantage in price negotiation. Thus, the Company’s R&D and Purchasing Departments have been looking for more qualified suppliers to maximize our ability in raw material sourcing.

As for Ready to Cook and Ready to Eat business, the Company highly focuses on good quality and freshness of raw materials and products. Over 50% of raw materials and products are meat, seafood, and bread, which are perishable. In this connection, lacks of effective raw material management could result in the increase the production cost. In order to avoid such risk, the Company has adopted a policies to make adequate purchase of raw materials and maintain its quality and freshness within proper storage, this includes the storage in temperaturecontrolled rooms and First-In-First-Out (FIFO) inventory control scheme. As a result, the limitation of raw material sourcing has low influence on the Company’s business.

Fluctuation in raw material costs and production costs

Some materials were popular among the customers. When there were unexpected situations occur, for example, epidemics in plants and animals, product shortage and price fluctuation are subsequently inevitable. Fortunately, the Company has secured medium to long term contracts with the suppliers to avoid such difficulties. This factor therefore has very little influence on the Company’s business.

Competition risks

Due to the popularity of Japanese food in Thailand, many Japanese restaurant operators emerge constantly. Some competitors open their stores with the same menu and at nearby locations. The Company, however, has no policy to compete in pricing but rather maintaining high quality of products and services as well as enhancing the product images using effective advertising, marketing and promotional activities. We believe the competition is beneficial to consumers and food industry since the growth of market will eventually help the Company’s performance in the business.

Natural disaster risks

The 2011 great flood in Thailand had caused severe damages to the Company’s business. The Company realizes the need to divert and prevent the risks of natural disaster. As a result, we relocated the Central Kitchen to Banbueng district, Chonburi province, and allocated new investments on the location secured from flood and convenient for transportation. We also set up the contingency plans to ensure the uninterrupted operations in the event of a natural disaster or emergency.

Political and Economic Risk

In 2016, the political situation in Thailand appeared to show good signs. Nonetheless, the Company is affected by the economic status, such as the rise of raw material costs, labor costs, and household expenses, as well as the reduction of consumer’s consumption. These factors affect overall performance of food business.

Despite of the abovementioned risk, as we have been closely monitored and set up the appropriate strategy and marketing plan to cope with the uncertain situation, the Company’s business are not affected by this factor.

Fluctuation in raw material costs and production costs

At present, the sales volume of Ready to Cook and Ready to Eat products are not quite high comparing to the size of the overall market. Therefore, the management of production in the manufacturing plants of Oishi group of companies is not utilized to its full capacity resulting in the rise of production costs. The Company therefore set up guidelines for all the relevant units e.g. Purchasing, R & D, Production, and Sale to cooperate in managing the production capacity and budget control effectively. Moreover, the Company emphasizes on expanding distribution channels to generate more of the sales volume which may result in the reduction of production cost and other

Competition risks

The competition in Ready to Cook and Ready to Eat Business is very competitive. The distributors from our distribution channels were starting to produce the products under their own brands. Inevitably, for the business owner, not only they have to perform research and development to be able to compete in term of the product, they are also have to have the bargaining power in negotiation the trade. To reduce and prevent such risk, the Company gives priority to the development and maintaining quality of products as well as promoting our brands’ popularity and creditability.

Development of new products

As the convenience stores are still the main channel of distribution for Ready to Cook and Ready to Eat product, there is a need to develop the products continuously. Despite such awareness, the consumer’s consumption behavior is very dynamic, certain products or flavors may not meet market demand as well as the target group. Our product development team therefore emphasizes on the innovation and development of product to reach the market demand and satisfy the dynamic of consumption behavior.

The Company has initiated “Vision 2020” strategic roadmap to become one of the leading food and beverage business operators in ASEAN. Although the strategic roadmap has been carefully reviewed and considered, there could be internal and external factors which may affect the execution of the strategy and cause the operating performances of the company to fail the set targets.

However, to manage such risks, annual business plans are conducted in alignment with the long-term strategies of the Company. The Board of Directors take major roles in reviewing and adjusting such strategies. In addition, implementation of the strategies will be constantly monitored and reviewed to ensure that strategies and business operations are keeping up with the change of business conditions.

The Company has estimated distribution proportion to companies within Thai Beverage Public Company Limited group of companies (“ThaiBev Group”) of around 90% of total sales revenue in beverage business which is one of the most efficient channel with the most areas coverage. However, Thai Beverage Public Company Limited (“ThaiBev”) is the major shareholder of the Company holding 79.66 % shares. Hence, distribution of beverage products group is inevitably dependent on the major shareholder’s group which may possess some risks and affect the Company’s operation in case there are changes in shareholding structure by the major shareholder or refusal in distributing the Company’s products.

However, there have always been good business cooperation with the major shareholder’s group for very long time and the Company’s operation is in alignment with the international standard. In addition, the distribution of Company’s products through the companies within ThaiBev Group is considered to be very efficient in terms of managing and utilized resources. In this connection, the Company has secured medium term distribution agreements with the major shareholder. Should there be any restructures within shareholder’s organizations, they will be obligated to be our distributors throughout term of agreements. So there is a time period for the Company to prepare and assign other new distributors.

Risks from the controlling by the major shareholder

As of August 26, 2016, ThaiBev is the major shareholder of the Company with 79.66% shareholding in the paid-up capital. Therefore, ThaiBev can control the resolutions of the Shareholders’ Meeting including the appointment of directors, approval on other matters that require a majority votes of the Shareholders’ Meeting and agendas which by laws or by the Articles of Association of the Company, require 3 out of 4 votes of the Shareholders’ Meeting. Hence, other shareholders might not be able to collect enough votes to counter the agendas raised by the major shareholder.

Nevertheless, for transparency and good corporate governance, the Company has set an organization structures consisting of personnel with knowledge and capability. The role and responsibility are clearly set. Moreover, The Company has appointed the Audit Committee consisting of 3 independent directors, which have no interest in the Company in order to review Company’s operation and protect the interests of minority shareholders. This results in appropriate check and balance and verifiable system.

Risks from low free float of the Company’s securities which may results in transaction liquidity in the Stock Exchange of Thailand

As of August 26, 2016, the Company has free float of 20.341% which result in relatively low liquidity transaction of the securities listed in the Stock Exchange of Thailand. Shareholders may have some risks of not being able to sell the Company’s shares immediately at desired price.

However, the Company will continue to monitor and maintain appropriate free float level for shareholders on an on-going basis.