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evelopment-focused MA’s Foods has not been performing well financially over the past couple of years, says its CEO. But this has never discouraged the company, for which profit is not the number one priority – and they are serious about it.MA’s is a food company that supplies a broad range of organic, fair-trade and ready-touse products including spices, seasonings, curry pastes and sauces to the food manufacturing industry in Sri Lanka and abroad. Over the past 30 years, the family-run company has evolved from a basic ingredient supplier to an ‘inseparable part of every kitchen’, marketing its products under five brands – MA’s Kitchen, Dad’s Garden, Katersafe, Pasta Roma and Happy Home.
The company realized that it was time to restructure its operations and make changes to its management. According to its managing partners, husband and wife duo Mario and Suzette De Alwis, this restructuring is a part of MA’s succession plan. But rather than exploring funding options, MA’s focused on growing its production capacity even at the expense of an increasing outflow. “We didn’t want debt, we were looking for an equity investment,” explains Managing Director Mario. Additionally, MA’s continued its unquantifiable but significant investment in its employees, even at the cost of profits. According to the De Alwis’ eldest son and CEO Maliek, spending on its employees and making a profit takes a balanced approach.
Despite its nine percent EBITDA margin, MA’s recently received an equity infusion of Rs300 million from the Aavishkaar Frontier Fund based in India.
[pullquote]“When we have got to this size, to borrow money to meet our social and business objectives is difficult . We needed a partner who would understand that.”
– Mario[/pullquote]
Aavishkaar is a globally renowned venture capital fund that invests in entrepreneurship-based, development-oriented enterprises working with low-income populations in Southeast Asia’s rural and underserved markets. Aavishkaar, which began with a focus on early-stage enterprises operating in India, now invests in Bangladesh, Indonesia, Pakistan and Sri Lanka, with MA’s Foods being only the second venture from its Frontier Fund. Although managed by an Indian company, the fund’s equity comes from development banks in France, Germany and Holland. Since incorporation in 2002, Aavishkaar has made more than 50 investments, managing $200 million in funds.
Aavishkaar’s partnership with MA’s was a match made by nature.
“When we have got to this size, to borrow money to meet our social and business objectives is difficult, because sometimes our profitability does not make much commercial sense. We needed a partner who would understand that,” Mario explains. The Aavishkaar fund is not only focused on the bottomline in terms of money, but also where the social impact is concerned. “In fact, part of our reporting is on how many people we have employed, how many new farmers, etc.” But he adds that it’s upto the next generation to decide on what level of control they want to continue to have in the company, of which Aavishkaar now holds a minority stake that the Indian fund does not want to disclose.
MA’s, which would like to have an IPO in the distant future, already has plans to put the funding to good use – to open two new factories.
The first is in the north. Recognizing the potential and lack of interest in the north, Mario says opening a factory here is the little MA’s can do as a family business. The company expects to be in working condition by the end of this year and plans to target difficult to employ people such as ex-child soldiers and war widows as its employees. A significant portion of the Aavishkaar investment will be used to provide these workers with benefits like accommodation and food.
The second factory will be in Matale. MA’s hopes to cater to big hotels coming up in the east coast, which otherwise have to source produce from faraway markets like Colombo. The rest of the funds will be used to develop MA’s existing facilities.
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ow a company raking in revenue of Rs700 million, the duo first stumbled into the spices business by accident. Mario was working for the Ceramics Corporation before moving to Dambulla to take over the family business as a goods agent. He fell in love with the area, although it was not the most commercially viable place. “In hindsight, I wouldn’t change anything,” he says, adding “I would do things a little differently because now I am wiser with years, but I would follow the same process.”When he realized that the family business was not ‘his thing’, Mario and Suzette opened a backpackers’ inn to cater to the growing tourism industry at the time. Given his passion and knack for cooking, which he says was nurtured by his gastronomically gifted family, especially his mother, Mario began a routine of looking after the family business by day, coming home at 5pm and cooking for their guests. This well-timed routine led to them devising certain shortcuts to make cooking in a hurry easier, like various mixes. “Getting into spices was the next obvious step,” he says.
MA’s currently has over 300 people working at its main production factory in Dambulla and a canning unit in Minuwangoda. Most of the produce is sourced locally from small farmers who have been with the company over decades while also selling their produce to other markets and MA’s competitors. The company currently works with around 157 farmers mainly in Matale, Kandy, Alawatugoda and Hakmana (off Matara), growing crops like coconut, nutmeg, chili, pepper, cinnamon and fenugreek. “We don’t have a total contract with the farmers, but we basically have an untold agreement where we pay market price plus,” Mario explains.
Most of the farmers operate their own farms of one or two acres. Coconut farms are significantly larger, but produce like nutmeg is grown by small households. “One of our most successful farmers is a fourth generation farmer who grows nutmeg. He has around 90 trees on one and half acres of land. His income is around Rs6 million.” [For those scrambling to plant nutmeg, Mario cautions that it takes around 30 years to reap nutmeg.]
[pullquote]“We need to be updated in our certifications to be able to market and export our products. It’s the key feature that says how good our products are.”
– Sheran[/pullquote]
Produce that is delivered to the Dambulla factory are manufactured into easy-to-use products like seasonings, curry powders, sauces, sambols and mixes, and sent to markets like Colombo. Of MA’s total business, one-third is the retail trade, one-third is sent to industrial kitchens of hotels, MNCs and fast food chains, and the remaining one-third is exported to countries like Japan, Germany and Holland (MA’s also enjoys a good presence in European markets). “We also want to go to Australia and Canada,” Mario says hopefully, adding “Most of our exports are to service Sri Lankan expatriates, but we also sell in general supermarkets.” He reveals the company’s vision as being to change its market mix to 50% exports and 50% the rest, although they also hope to tap into a significant industrial market once international hotel chains set up shop in the country.
In catering to these markets, quality becomes the top priority. Maliek’s younger brother Sheran is the company’s chief compliance officer. When looking at quality and organic prduce, traceability is the most important thing – where is the raw material coming from, what type of activity has been put into growing it, etc. “Currently we have over 10 certifications that require audits every six months. We need to be updated in our certifications to be able to market and export our products. It’s the key feature that says how good our products are,” Sheran explains. Following standards is not Sri Lanka’s strong suit, but MA’s is committed to quality and taste. Sheran is in charge of keeping MA’s factories, which are regularly visited for quality checks and audits by their export clients, in top shape. Sheran also looks after the interests of the farmers through the company’s special agri business sector. “The farmers are certified for fair trade, which covers all practices,” he explains. Even these farmers are visited by MA’s extension officers who conduct production quality checks and advise the farmers if necessary.
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unique feature of the company is its management style. During his time at Ceramics Corporation, the early partner to Noritake and Lanka Walltiles, Mario was exposed to the Japanese style of business management. “They had a very aesthetic approach,” he explains. The workers were offered lifetime employment, there was no hierarchy and families were united. “Basically, they brought in this old Asian industrial culture, where industries were built around people and their families.” In addition, these companies provided living quarters and meals for their employees, had open ended communication where everything was discussed openly, and business was very transparent. “The only secretive thing was the financial performance.” Analyzing the success of this close-to-culture attitude, Mario decided to emulate this model at MA’s. What he didn’t realize at the time was that Sri Lanka already had a working close-to-culture model, temporarily forgotten by its people due to the prevailing colonialism.In the early 90s, MA’s started building facilities for its employees alongside their factory in Dambulla. “We gave them meals and offered a lifetime job. One thing we are very proud of is that to-date, at noon, all of us would be eating a meal prepared by this company or paid for by the company (it is not a part of their salary),” Mario says proudly. At the factories, families of workers are also offered the same privilege. Children can live there until 21 years. “It’s like a campus, we have our own playground, laundry and cafeteria.”
The duo, however, do not take any credit for this way of doing business. Rather, they say it was already a natural method of doing business in Asia, where the stronger sectors of society would build communities and industries that could sustain everyone.
“(Investing in employees) is something we’ve always done. We are not giving food only when we are profitable; it is part of our fixed costs,” says Maliek. And their reasoning behind it makes perfect sense. “By making sure the requirements of everyone working in the factory outside of work are met as much as possible by the company makes life easier for them because it’s one less thing that have to worry about. This makes them more productive at work.” He adds that most people find this way of management hard to understand, but MA’s majority long-term employees appreciate this approach. It’s a win-win.
[pullquote]“[Working directly with farmers] is a connection we have to keep building, because this is going to be key in the food chain going forward.”
– Maliek[/pullquote]
“Education is number one for us as a couple and we have always worked for the future generation. We want to see this continuity even for the people who work for us. We want them to be able to afford something more than their parents,” Mario stresses. In line with this, MA’s provides all stationery items required by the children of these farmers as well as their factory employees.
They also provide the country’s only full worker compensation insurance scheme. “Any injury caused while on site is compensated for the farmers and their workers,” explains Sheran.
Going forward, Maliek admits that the management style of the company may change, but not the ethics or social concepts built up by his parents. “We want to remain as a family-run, and grow our people and the company.” He feels working directly in farming areas and having direct access to the produce is important now and will be very important in the future. “It’s a connection we have to keep building, because this is going to be key in the food chain going forward.”