CEO Talk: Meet COFCO President Patrick Yu

CEO TALK

Meet COFCO President Patrick Yu

By Echo Zhou

Twenty years after he joined COFCO as a clerk, Patrick Yu (EMBA 2002) is the company's president with responsibility for more than 100,000 employees, 7 listed companies and RMB200 billion in assets. How did he do it? What lessons has he learned along the way and what are his long-term plans for COFCO, a global leader in the food import and export business. Read on for answers in this exclusive interview.

"In 2010, COFCO assets exceeded RMB200 billion. The growth was about 300% between 2006 and 2010; in other words, COFCO tripled in size within 5 years," President Patrick Yu proudly summarises the company's history. This rapid growth is just the beginning, he says. The long-term goal: to realise COFCO's three-generation-old dream of meeting customers' needs "from the fields to dining tables, from raw ingredients to products, from farmers to markets".  Yu is convinced that the Industry Chain Model will be vital in COFCO's bid to remain a market leader in the years ahead.

COFCO's obsession with this model can be traced back to the National Foreign Trading Reform in 1987. Yu explains, "Each generation of COFCO leaders very actively led the group to prepare for external changes, and initiated transitions which ensured that the company was always ahead of the game during the reform." After the changes in 1987, COFCO was suddenly detached from its 30+ branches across the country. It was left alone overnight, with only RMB60 million in assets and about 100 employees. They had to start again, from scratch. "The reform seemed to be a bad thing in the short term, but in the long run, it was actually a good thing," reflects Yu. Stripped of its branches and no longer able to enjoy monopoly status, the business needed to be re-established. Undaunted, COFCO began, after a few adjustments, to develop its upstream and downstream business – establishing new factories, finding new customers and building new network infrastructure. This lasted until around 1992.

From 1992 to 2004, when Zhou Mingchen was Chairman, COFCO began to develop an industry-oriented business parallel to its existing trading-oriented operations. "Chairman Zhou had a metaphor for this – 'borrow boats to sail'. At that time, we adopted the joint-venture model to develop our industry-oriented business," explains Yu. During that time, COFCO invested in flour- and oil mills, malt, and other food processing projects. It also increased its importation of wheat, soybeans and malt. By then, trading was still its main business and the commercial side was relatively small; but COFCO tried to diversify, adding investments in real estate and the financial sector. The core business became a listed company on the Hong Kong stock market in 2000 – COFCO International. "This was our first listed company which helped us to expand and restructure the group in mainland China," recalls Yu.

From 2005 to 2011, COFCO's assets increased from RMB60 billion to RMB230 billion, and profits increased from about RMB1.3 billion to RMB9.4 billion. "Chairman Ning Gaoning had a new vision for COFCO with new strategies and management structure, and this was the beginning of our rapid-growth-phase. The most valuable ingredient he brought to COFCO was his ability to motivate the team and encourage everyone to think about broader issues by asking themselves questions such as: What kind of person do I want to be? What type of life do I want to lead? What can I do to support my family so that they can enjoy a good life?" 

The hard work paid off, and the company has never looked back. Over the last 6 years, COFCO has had nearly 20 mergers or acquisitions. "This not only helped us to adjust our asset structure, but also enhanced COFCO's industry chain," says Yu. In the past, the company's main focus was on exports; now it has roots in the entire industry chain. Its operations include ingredients for food and animal feed; consumer products (Fortune Cooking Oil, Great Wall Wine, Le Conte Chocolate, Mengniu Dairy, Cerealway Foods) and packaged products such as meat, milk, rice, flour and oil. COFCO has also taken advantage of e-commerce, launching websites to sell its products.

Their greatest wish, Yu says, is to maintain consumers' trust. "We hope that consumers have faith in our products," he says. He believes the Industry Chain Model is the key to alleviating fears about food safety issues. "From seeding, planting, collecting, transporting, processing, packing to storing and selling, every single step in the entire process is crucial to food security," Yu stresses. "We have a serial number for every product. We know exactly which field the food comes from and who the corresponding merchant is, where the supplier is located. We will complete this totally traceable system within 2 to 3 years' time."

TheLINK: It took you two decades to grow from a salesman to a president in charge of more than 100,000 employees, 7 listed companies and RMB200 billion in assets. Would you mind sharing your secrets to success with CEIBS alumni? What experience has influenced or benefited you the most?

Patrick Yu: What impressed me the most is a conversation I had with the previous chairman of COFCO Zhou Mingchen. He said to me, "You are different from the other young people with whom you joined the Group. You often see things deeper, and in more detail." I think it's important to have a good personality and work style. Organizational and communication skills are also very important. On one hand, I can calm down and think things through; on the other hand, I can organise people and align everyone's interests. I started from the bottom and I dealt with all types of people in finance, strategy and bursary. For example, when I worked as a futures manager in 1993, my team grew into a futures company by 1997. I was brave to negotiate with the leaders of the Group and trading centres. Communicating with the government's futures- and commercial departments was also crucial.

There were two critical turning points for me: in 1987, after the National Foreign Trading Reform, COFCO was detached from its 30+ branches across the country. When I joined COFCO in 1988, the company was at the initial stage of re-establishment. I had to view things from the perspective of the company as a whole. This broadened my horizons in terms of my professional development.

The second was a study trip to the U.S. between 1991 and 1992. At that time, COFCO had an opportunity to collaborate with the world's second largest food company – Continental Grain. This experience was eye-opening. I got to know the oil market and the world of futures from an entirely new perspective. I benefited tremendously from understanding acquisitions, logistics, world-wide sales, price prediction, futures hedging.

TheLINK: Can you explain how COFCO's Industry Chain Model is going to help alleviate China's food security problems?

Yu: In the Industry Chain Model, each part of the chain has different customers. The traders face downstream customers; the food ingredient dealers face the food manufacturers; consumer products companies face customers. There are very high requirements for all teams.

COFCO Group has a very diverse commercial model. If we can better integrate the system with information resources, we will have an unbeatable competitive advantage. Customers' needs can be directly conveyed to the supply source. For instance, we will know what to buy, when to buy and how much to buy. We know how to optimize the combinations and how to smoothen out the process. If we can stick to this, COFCO has a bright future. We will grow stronger to cope with the changing market.

On a larger scale, if COFCO can boost the grain and oil market and increase its market share, we will be able to improve our export service and our control over exports.

TheLINK: What particular management measures will COFCO take to address the problem of food safety, an issue that's often in the spotlight?

Yu: The core objective of COFCO's industry-chain development roadmap is to solve the problem of food safety, a problem which is the biggest headache for customers now. We need to pick things up from each link and mechanism, and incorporate the feedback of each distributor, client and customer into our system, so that our quality system can be continually improved. This is not something that can be accomplished in one or two years, it will take the efforts of several generations.

According to current food safety laws and regulations, whoever is the ultimate producer of the product takes all the responsibility for the entire industry chain. And what's worse, in China today you cannot find large-scale, compatible enterprises in the upper industry chain, which inevitably leads to COFCO's involvement in many upstream business areas, as we try to ensure food safety from the very beginning. For example, Mengniu has now begun to invest heavily in aquaculture, and each year COFCO has to spend over RMB10 billion in the development of aquacultural and agricultural bases like piggeries, chicken farms, vineyards, tomato orchards, and wheat fields. In the meantime, COFCO is setting up its total quality management, installing such advanced quality safety management systems such as HACCP, ISO22000, and TQM. COFCO is not investing for investment's sake, but to find a way to establish teams of large-scale intensive agricultural management and a better pattern for the future combination of social investors and farmers.

Logistics, distribution and storage are also extremely important in ensuring food safety, and in these areas we introduced as our partners the companies representing the highest standards in the global food industry. In April 2011, COFCO and Keystone from the USA jointly started COFCO Stone Supply Chain Investment, which will be employed in China's domestic food logistics and supply chain management businesses. Keystone has been providing manufacturing and customized distribution services for top global catering businesses, food producers and retailers like McDonald's and KFC for nearly 50 years.

TheLINK: Could you share some of COFCO's other objectives in its industry-chain development roadmap?

Yu: In terms of logistics, our next goals are how to offer satisfying services to our customers, and provide added value to them. For example, KFC and McDonalds are both COFCO clients who not only buy our products but also require distribution, and also hope that COFCO can participate in the development and design of some of their foods and recipes. Keystone's most successful case is it's design of filet o' fish for McDonalds. All the procedures before actual cooking – including materials, seasoning, refrigeration, and logistics – are completed by Keystone. This is the direction in which we want to go.

In terms of consumer brands like Mengniu and Wu Gu Dao Chang, we need to promote them and maximise their usefulness, and we must do business according to the standards of safety, nutrition, and taste. These are the problems that we need to solve in the next phase of our industry-chain development roadmap. COFCO is currently planning an RMB3.2-bilion investment to establish our own nutrition and health research institute. We hope to be a leading organization in China's health industry by combining the two core concepts of food safety with nutrition and health, and developing innovative products through R&D based on Chinese consumers' eating and spending habits.

Our industry-chain development roadmap also includes considerations about food and oil industry safety, because in the future China may rely on imported, food items. The challenge for us is how to establish a stable supply chain system overseas.

TheLINK: Many customers nowadays are willing to pay more for food whose quality they can trust. How will COFCO build customer trust?

Yu: Today COFCO has been paying increasing attention to communicating with customers, and we try very hard to explain how we ensure food safety through the supply chain system and systematic management. In future we'll engage in further communication with customers about COFCO's inspection and checking systems – which are higher than industry standards – and its logistics and distribution systems which are on par with international levels. We'll explain how we guarantee the safety of our products in the series of procedures from their growing in the fields to being served at the dinner table.

COFCO's branding campaign started in 2009, so we've been doing it for three years in a row. COFCO must pay attention to the fostering of the concept in our customers that our industry-chain development is an advantage. We must promote the COFCO brand and we hope that any COFCO product will enjoy customers' trust.

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Career Highlights of Patrick Yu

1988: Bachelor of Economics, University of International Business and Economics;
1988-1991: Clerk, Department, Food, Oil & Fodder, China Food and Oil Import & Export, General Office
1991-1992: Clerk, Continent-COFCO Cereals, USA　
1992-1993: Clerk, Cereal Department, COFCO Food, Oil and Fodder Import & Export
1993-1995: Manager, Futures Department, COFCO Food, Oil and Fodder Import & Export
1995-1997: Deputy GM, Futures Trade Department, COFCO
1997-1998: GM, COFCO Futures Brokerage
1998-1999: Assistant President, COFCO & GM, COFCO Futures Brokerage
2000-2004: VP and GM, COFCO & GM, COFCO Futures Brokerage
2004: Received CEIBS EMBA Degree. Says Yu, "My learning experience at CEIBS helps a lot in my current job in corporate management."
2004-2007: VP and GM, COFCO & Chairman, COFCO Futures Brokerage (Executive President, Board Member and GM of COFCO Holdings)
Present: Member of COFCO Party Group, Board Member and President of COFCO, & Executive President and GM of COFCO Holdings (0606HK), Vice Chairman of Mengniu Dairy (Group) (02319.HK), Chairman of Inner Mongolia Mengniu Dairy (Group), and Chairman of COFCO Meat Investment