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In the early 1980s, a minor accident injured Chen Keming, founder of Keming Noodle Co., Ltd., in his finger. A well-liked local carpenter, he found himself without work. At 32, he decided to start his own business.

In 1984, he tried his hand at rolling noodles in Nan County, opening a small workshop that produced at most 200 jin of noodles a day, which he peddled through the streets on a cart. Twenty-nine years later, he had built a listed company selling dried noodles, with annual revenue exceeding 1 billion yuan and net profit over 100 million yuan.

At the border of Hunan and Hubei provinces lies a remote small county. In this county, there is a man who has been making dried noodles for 29 years, focusing solely on this craft, and has become the national leader in the industry.

His name is Chen Keming, now 61, founder of Keming Noodle, a listed company on the SME board, known as the “Noodle Fanatic.”

Across from the reporter, Chen Keming has a ruddy complexion and speaks with a strong, energetic voice. He laughs heartily from time to time, exuding an optimistic demeanor. Compared to his earlier life of burying himself in noodle-making, he now occasionally plays badminton at the gym and takes walks, which he considers quite enriching.

Of course, he also reads books. However, his reading is limited to finance and management, and he occasionally attends training sessions. Recently, Chen Keming has been reading books on domestic and international mergers and acquisitions.

Chen Keming told reporters, “The company is considering acquiring some suitable enterprises, but suitable ones are hard to find; we are still searching.”

By next year, Keming Noodle will have been established for 30 years. Having made noodles for 29 years, he is far ahead in the industry. However, the industry's concentration is not high, and how to further expand market share remains a key issue for Keming Noodle.

But next, this will be a challenge for Chen Keming's younger brother, Chen Kezhong. As early as 2001, Chen Kezhong joined the company, and Chen Keming stopped overseeing market sales.

In 2012, Keming Noodle was listed on the Shenzhen Stock Exchange, and Chen Keming further delegated company operations.

“Now all decisions are made by the board; we can't make decisions alone,” Chen Keming said. “After listing, the company has become more standardized. In a small enterprise, the founder can do as he pleases, but for the next generation, that would be dangerous. To build a century-old brand, we must operate and manage in a standardized way.”

As a company that had avoided venture capital to maintain control, Keming Noodle had to change after listing, and Chen Keming began gradually relinquishing power.

From Carpenter to Noodle King

It must be said that Chen Keming has magical hands. You might not imagine that Chen Keming, who makes excellent noodles, was originally a carpenter.

In 1969, at age 17, Chen Keming went to Nan County, a city he had long admired, and began working as a carpenter in the Education Bureau's construction team.

“At that time, I yearned for the city; I felt that urban living conditions and welfare were several times better than in rural areas.” After arriving in the city, Chen Keming did many jobs, with carpentry being the longest. Little did he know that 15 years later, a small accident would turn his life upside down.

During a project, Chen Keming injured his hand and couldn't work for a while. Pressured by life, he started scouting the market for opportunities before his hand fully recovered.

One day, as usual, Chen Keming was wandering the market in Nan County, looking for opportunities. In his search, he witnessed a scene.

At a noodle shop, a customer asked the owner if they had Shanghai noodles. The owner replied bluntly, “No.” Then the customer asked about Hubei noodles. The owner also said no. The customer shook his head and left disappointed.

“At that time, it was the planned economy era, but part of the market had already opened. Noodles from other places were sold at a premium, relatively high prices, yet many people still bought them.”

At that time, Nan County held a sacred place in Chen Keming's heart; having not seen the outside world, he thought Nan County was the best place. So he felt indignant: why didn't anyone eat noodles made in Nan County?

Thus, the idea of winning honor for Nan County noodles took root silently, and the thought of making noodles good enough for Shanghai also sprouted.

As soon as his hand healed, Chen Keming started making dried noodles. He bought a hand-cranked machine and began cranking.

“It was really hard work cranking by hand; after cranking a pack of noodles, I was out of breath. So I started improving it, replacing it with an electric motor, which was much more comfortable.” Chen Keming laughed and gestured to show how he cranked noodles back then.

At that time, the gross margin for noodles was very low, with a profit of five cents per pack. Flour cost 20 cents per jin, and noodles sold for 25 cents per jin, a 20% profit margin, including labor costs.

His 15 years of carpentry gave Chen Keming strong hands-on skills; he modified and upgraded many machines himself, saving a lot of costs.

“I started building drying rooms; I couldn't afford complete equipment, so I took discarded equipment and modified it to dry noodles.”

By 1988, Chen Keming finally moved out of renting and built two rooms of his own, with a 20-square-meter drying room on the roof. A few months later, he built a 60-square-meter drying room. A year later, he added another 40-square-meter drying room.

At that time, Chen Keming also did something very right: building a brand.

“Back then, noodles were wrapped in newspaper because it was cheap; other materials were too expensive. I thought newspaper wrapping made it hard to identify, so I carved a stamp with the words 'Chen Keming Noodles' and stamped it on the paper.”

The awareness of branding came after several embarrassing incidents where customers complained about quality for noodles that weren't even his own production.

So Chen Keming went to the Industry and Commerce Bureau to register. At that time, awareness of enterprise registration was low; it took five years from submission in 1990 to successful registration.

“I believe my registration was the first in Nan County; my company was the first enterprise in Nan County, and later the first to go public. I've achieved many firsts for Nan County,” Chen Keming said with pride.

It wasn't until 1997 that this truly family-run enterprise was formally established, marking the first step in Chen Keming's journey to become China's top noodle maker.

The Aggressive and the Steady: Two Brothers

Initially, Keming Noodle was run only by Chen Keming and his wife, Duan Juxiang. In 1990, as the company gradually grew, Chen Keming began inviting relatives and friends to help.

“At that time, making noodles was entirely to solve my own employment problem; after that, it was to solve employment for relatives and friends. Many relatives had nothing to do and couldn't earn money. So hiring was about taking care of relatives and friends.”

The position of Chen Keming's family in Keming Noodle is clear from the top ten shareholders. Chen Keming, his wife, and his younger brother hold 61.39% of shares, while his sisters Chen Xiaozhen and Chen Yuanzhi each hold 5.42%.

Chen Keming and his younger brother Chen Kezhong are the two core figures of the enterprise. Before Chen Kezhong joined, Chen Keming handled everything alone, including raw materials, technology, and market. After Chen Kezhong joined, Chen Keming handed over all market business to him and focused on internal company affairs.

“Actually, we complement each other well; I'm more aggressive, and he's very steady,” Chen Keming said, not hiding his affection for his brother.

“In thirty years, I've never been cheated because I have no greed.”

Chen Keming's use of the word “greed” also well explains why he has only made noodles for thirty years.

“Many people from real estate came to me, but I didn't do it. Real estate is profitable, but I can't earn that money. Honestly, I don't have that ability. Real estate is about networks; you need to get land, develop the project, and manage relationships with various departments. That's not my strength. I can't bring myself to give gifts or do such things,” Chen Keming said with a laugh. “And I don't want to.”

“I believe that only money I earn through hard work is truly mine; money others earn shouldn't be mine.” This is a saying Chen Keming firmly believes in.

Although outsiders see Keming Noodle as a family business and Chen Keming as conservative in operations and investment, his younger brother Chen Kezhong sees him as aggressive.

“My brother often throws cold water on me; he only lets me do things after thorough analysis. Every time he raises an objection, it greatly promotes my reflection. I will consider precautions.”

Except for the listing, generally, for development plans proposed by Chen Keming, Chen Kezhong would first pour cold water to calm him down.

“He poured cold water when expanding factories and building facilities, worrying that after building, we couldn't digest it, depreciation would affect profits. He first rationally analyzes pros and cons, then plans.”

“Now the company's annual growth is steadily between 20% and 30%. On my brother's pace, I feel it's a bit slow; I want to push forward. But my brother thinks that if we rush too fast, current profits will decline.”

For Chen Keming, his brother's greatest role is keeping him from making mistakes. Although they may disagree, they never argue because their starting point is always the company's good, so they eventually reach consensus.

“Some things I want to do, he'll say to do slowly. For example, I wanted to implement software and electronic information systems; I said do it immediately, but he said we can't yet, do it gradually. He assesses risks well and is steady, so we haven't made mistakes.”

Ten-Year Plan: 10 Billion Yuan

In 2012, Keming Noodle achieved operating revenue of 1.002 billion yuan, a year-on-year increase of 18.95%, with total profit reaching 100.73 million yuan, and dried noodle sales volume of 217,000 tons, up 13.55% year-on-year.

The 2013 semi-annual report shows revenue of 560 million yuan, up 18.67% year-on-year. Chen Keming has an even grander plan: to achieve 10 billion yuan in sales within 10 years.

To this end, Chen Keming has already begun laying out his strategy.

“Currently, raw materials account for the main cost and are controlled by the state. The state has raised prices twice, and we have to follow, with no room for negotiation. I want to gradually adjust in the future, like having a water tank, to make reserves for 3 to 5 months. When prices rise, we won't have to raise ours immediately; if national grain prices go up, we don't need to raise prices the next day.”

Previously, all raw materials for Keming Noodle were purchased from upstream suppliers. Because of this plan, Chen Keming worked on the board members.

“They worried about risks in raw materials and low profits. I said profits are low now but will gradually increase. Currently, flour can yield a 10% return. We are moving upstream; making good flour benefits raw material reserves.”

Chen Keming fully affirmed that building a flour mill would benefit the company's future development and persuaded directors who originally opposed self-built flour mills.

“Building a flour mill: first, as a large flour user, I don't need to worry about sales; currently, products are hard to sell, so this solves a big problem. Second, with our own flour mill, we can control quality and use our own technology. Third, putting the flour mill and noodle factory together reduces transportation and loading costs, lowering overall costs.”

Chen Keming aims to diversify the entire dried noodle industry, and the business has been streamlined, with noodle seasoning business spun off to partners.

Additionally, Keming Noodle has begun external investments.

“We've started to touch other industries; last year we took a stake in Guotai Capital. From talks to cooperation took just a few months. We met in May and signed the cooperation in August. This is an investment project; we don't manage operations.”

From initially rejecting venture capital to now venturing into other industries, Chen Keming feels it's natural.

“Previously, I rejected venture capital because I didn't appreciate their operating style. Now that we're listed, development is like taking an elevator; learning capital market operations is necessary.”

Besides business expansion, market sales channels are Chen Keming's biggest concern.

“Keming Noodle's market share has reached 18% in supermarkets, but not necessarily in farmers' markets because our products are relatively higher priced.”

In addition to maintaining existing sales channels, the next step for Keming Noodle is to leverage the internet, improve sales networks, increase sales investment, refine key market and segment market divisions, and build brand recognition.

Next Step for the Industry: Consolidation

Currently, there are about 1,000 noodle enterprises in China, mainly producing low- to mid-end products. There are many enterprises but few leaders.

“The domestic industry's concentration is low; consolidation is needed,” Chen Keming sighed.

The European market is mainly pasta; in Korea and Japan, the noodle industry is relatively concentrated.

“In Japan, there are three flour companies; in Korea, probably two. There are only a few noodle makers; some have been doing it for decades but remain small workshops because the population is small. Japan's best noodle factory has excellent quality, low ash content, and their gross margins are higher.”

Ash content is a mineral in noodles; low ash content makes noodles feel smooth in the mouth. Controlling ash content is a difficult technique, and Keming Noodle is working on it.

Currently, Keming Noodle's average gross margin is 20%, which Chen Keming finds satisfactory. “In a fully competitive market, it's already good, but I hope we can be more competitive.”

“This industry is developing; originally, noodles were made with rolling pins, now they're made by machines. Since Chinese society isn't standardized, equipment isn't mature and doesn't meet requirements; there's room for development.” Chen Keming continues to explore industry opportunities. “We still need to strengthen our internal capabilities and improve technology.”

As for Keming Noodle's dried noodle technology, besides improving new equipment, much has been discovered through Chen Keming's own trial-and-error methods, such as the high-temperature drying technology he has always insisted on, and a newly discovered, yet-to-be-announced technology that has already obtained two national invention patents. Chen Keming is very proud.

Although he masters the most advanced technology in the noodle industry, Chen Keming still respects competitors. “Different competitors have much to teach us in many aspects; these help us examine ourselves and improve.” But he then shifts, “Of course, we believe our biggest competitor is ourselves; the biggest challenge for enterprise development comes from within.”

Currently, Keming Noodle's overall market share is less than 10%, but among the top ten noodle enterprises, few have more than 5% market share. China's annual noodle market demand is over 4 million tons.

“We're only at 240,000 tons now. There's still a long way to go to reach the goal,” Chen Keming concluded.

Via: Money Week

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