Taiwan Today

Economic and marketing changes are forcing traditional family businesses to adapt to the times or close their doors. The Kuo Yuan Ye bakery, established in 1867 and still going strong, shows what it takes to survive.

The small family business is an endangered spe­cies, in Taiwan and everywhere else. But some endangered spe­cies cheat fate. They prove quick on their feet. They adapt. They do what­ever they have to do in order to survive, then retrench and grow stronger. With essentially twentieth-cen­tury niche prod­ucts, such as first-rate hand­made furniture, it may not even be necessary to reinvent the wheel in order to pull through.

But what if your family business is a traditional bakery? This is the question that faced, and nearly floored, the Kuo Yuan Ye bakery, now 129 years old. How did this company grow from a small family shop to modern corporation and venerable local institution? Kuo Geng-yuan (郭景元) , president of Kuo Yuan Ye Foods Co., and a member of the fourth generation of the family to run the busi­ness, is confident he knows the answer. “Kuo Yuan Ye's success comes from the efforts of our ancestors and employees,” he says. “Our transformation was the culmination of all their talents.”

In 1867, Kuo Liang-chen(郭樑楨) left his native home in China's Fujian province, crossed the Taiwan Strait, and arrived in Taipei. He built a squat mud­brick shop at the foot of a bridge in Shihlin, north of Taipei, where he started a pastry business. In memory of his hometown an­cestral hall, he gave his store the same name, “Yuan Ye.” Kuo and his wife made traditional Chinese pastries—thick, square cakes with flaky rice-flour crusts, filled with rich sweet bean or sugar pastes, and sold them on the streets of Taipei. Soon they established a reputation for making some of the finest pastries in the city.

In 1912, during the Japanese occupa­tion of Taiwan (1895-1945), Kuo Liang­-chen passed the business to his son Kuo Pa-chiu(郭拔秋). Together with his wife and eleven children, Pa-chiu kept the busi­ness afloat throughout the occupation, the chaos of World War II, and into the years following the liberation of Taiwan. He died in 1947, and the business passed into the hands of his son Kuo Chin-tin (郭欽定). Those were hard times in Tai­wan, and the Kuo family business had to struggle. Chin-tin's wife pawned her dowry. The family borrowed money from friends, and Chin-tin, who knew little about making pastries, had to run the bak­ery. Fortunately, he proved to be a quick study. As Taiwan's economy stabilized, Kuo Yuan Ye's reputation for making succulent, high-quality pastries began to be re­flected in rising sales, and the store thrived. The backbone of the business proved to be sugar cakes—small, rice-flour cupcakes filled with paste made from rock sugar.

Chin-tin found it hard to choose an heir for the family business. His first son was interested in politics, not pastries, and his second son, although a likely prospect, ultimately decided to seek his fortune in the United States. Chin-tin then turned to his third son, Kuo Geng-yuan, who was still a student in junior college. “I wasn't interested at all,” Geng-yuan explains. “I knew I'd become a slave to the store.” But there was no other choice, since Chin-tin's fourth and last son was serving in the mili­tary. “It seems I was destined to dedicate my life to the pastries business,” says Geng-yuan.

But he often argued with his father over management of the family business One day, after a fierce fight, Geng-yuan angrily left home with his wife and month­-old child, and moved to a small ramshackle house on Taipei's Linsen North Road. Eventually, he rented a 540 square foot attic, hired two experienced bakers and two apprentices away from his father's store, and started his own bakery. Still a novice in the art of pastry-making, Geng­-yuan was both the boss and the delivery boy, and was often embarrassed by his lack of knowledge in front of his employ­ees. But he dedicated himself to his work. “After three years I not only understood how to make pastries, I even knew enough to come up with my own recipes, some­thing that only the master bakers could do before,” he says proudly.

Those three years were tough. People refused to believe that his store was the authentic Kuo Yuan Ye, and at the end of every day, too many of his pastries lan­guished on the shelves. Meanwhile, his father's store had become so well estab­lished that it was unable to meet demand. One day his father said to him, “How capable are you really? You're just medio­cre.” Stung by his father's words, Geng-yuan threw himself into his work with more determination than ever before.

A combination of perseverance and adherence to his father's standards of qual­ity proved to be the recipe for success. Geng-yuan's reputation spread by word of mouth and business improved to the point where he was able to open a second store, in Taipei county. Four years after the split with his father, who was becoming too old to manage the original Kuo Yuan Ye, Geng­-yuag’s three brothers had wound up running the old store. In 1983, after several years of deliberation, the brothers agreed to merge the separate Kuo Yuan Ye operations into a single family business. But the happy oc­casion was overshadowed by problems.

Traditionally, business for most Chi­nese bakeries revolved around special occasions and temple activities throughout the year. Cakes and pastries, some as large as serving platters and denser than any fruitcake ever made, were in high demand from people who gave them as gifts at weddings and New Year, and as offerings to the gods at temples during religious holi­days, such as the birthday of the Earth God on the second day of the second lunar month. Geng-yuan sums up the situation for his store and others like it: “In the old days, our shop's survival relied on activi­ties at local temples.”

In the 1980s, Taiwan’s traditional bakeries suffered a sharp decline in business. Changing lifestyles and tastes resulting from Taiwan's rapid economic development caused sales of tra­ditional pastries to dry up. Temple festivals became less relevant to Taiwan's on-the­-go professionals. Traditional weddings and other celebrations came to be regarded as too troublesome and were simplified. Concerns about diet caused many people to eschew the rich, high-cholesterol treats once enjoyed by their parents. And young people, the growth market for many busi­nesses, distracted by the fast-paced, high-fashion allure of modern products and glitzy stores, lost interest in musty old tra­ ditional shops.

There were other complications—the rise of Taiwan's economic fortunes saw a corresponding rise in the cost of labor, as well as flour and other ingredients needed for producing baked goods. Not only were sales down, but overheads were climbing fast, and the demands of doing business in the new Taiwan marketplace were becom­ing more than the limited resources of the family business could bear.

The company hit a watershed in 1986. Chin-tin retired completely, and Geng-yuan decided that it was time to make some radi­cal changes. He wanted to break with the tra­dition of producing and packaging pastries by hand in the shop, because he realized that automated production lines would save con­siderable time and money. But some of his ideas were even more controversial.

“There comes a time in any family busi­ness when relying on the family alone be­comes a liability,” says Geng-yuan. “I knew we had to bring in finance and management professionals, and start operating more like a modern corporation and less like a mom and pop store, but my family was afraid of changes like that.” Internal opposition came as no surpriseto Geng-yuan.

Allowing outsiders to be involved in the management and finances of a family business was, and still is, anathema to many Chinese businesspeople. But having seen the success of a friend who had adopted similar changes in his business, now one of Taiwan's largest dairy compa­nies, Geng-yuan continued to push his ideas, and was finally able to convince his brothers that his was the only solution to their troubles. “I refused to rely on relation­ships, whether with friends or family, as a basis for running the business,” he says. “My only criteria was talent. My father came from a more traditional and con­servative generation. He would never have done what I did.”

Kuo Yuan Ye built a pastry factory on an acre of land in Shihlin, installed auto­mated production lines, and started on the road to becoming a corporation. “When my father found out that we had begun to automate our operations, he was shocked,” says Geng-yuan. “‘Why are you making so many cakes?’ he asked me.‘Who will eat them?’ I understand why he felt that way. He could only relate to business on a small scale. He felt that all these extra cakes, and the money that went into making them, would just go to waste. I had to make sure that it worked and prove myself right.”

In 1987, Kuo Yuan Ye established a corporate identity system that tar­geted many aspects of its operations. Aims in­cluded renewing the com­pany's trademark, and establishing training, edu­cational, and recreational programs for staff. The company also wanted to develop a new image that would be reflected in the designs of its offices, factory, and retail stores, and expressed in the packaging and quality of its products. The ultimate goal of the system was to help the company cement its bonds with older customers, while attracting Taiwan's growing, mostly young, middle class.

How was it done? By marketing an image at once modern and traditional­—one that both appealed to young people, and tapped a rich vein of nostalgia in their elders. Kuo Yuan Ye's fan-shaped logo, for example, is green with pink trim, and is based on the shape of a lace-wing phoe­nix-eye cake—a sweet, tiny, delicate tra­ditional Chinese pastry, like a crumbly cookie made of rice flour, and no larger than a person's eye. According to Geng­yuan, green was intended to be a break with the red that dominates so much of tra­ditional Chinese culture. “Our logo sym­bolizes the principle behind our company—renewing ideas from tradition, and adding ancient style to modem,” he ex­plains. “Green represents youth, concern for the environment, and nature.” Interest­ingly, phoenix-eye cakes have all but dis­appeared from modern Taiwan, and can now only be found in the island's oldest, and most traditional towns and villages.

The brightness and warmth of Kuo Yuan Ye stores have also proven attractive to people picking up snacks on the way home or to work. Outlets in shopping malls offer seating and tea, and appeal to people looking for a clean, comfortable place to relax, chat, and enjoy something—sweet­ a perfect oasis for Taiwan's legions of shoppers. Few traditional stores have the kind of cutting edge that catches the eyes, and patronage, of Taiwan's youth. But the ambience of an airy Kuo Yuan Ye shop, modern yet decorated in graceful, old Chi­nese style, is distinctly different. “Kuo Yuan Ye is very old, but its image is young and vibrant,” says Geng-yuan. “We sell fresh food, not antiques. Our image has to reflect that.”

Geng-yuan also recognized early on that it was dangerous to rely too heavily on business from festivals and special oc­casions. The company needed products that could fit into people's daily lives. Kuo Yuan Ye began to produce new pastries, based on traditional varieties, with those same flaky crusts and sweet paste fillings made from red and green beans, lotus seeds, egg yolks, and taro. But it tailored them to suit modern lifestyles and diets. “I've always tried to maintain a clear pic­ture of our customers in terms of age, sex, and occupation,” says Geng-yuan. “For example, young female consumers tend to be concerned about their figures, so they prefer lighter, low-calorie, low-fat foods. Many people are busier these days, and tend to eat less than before, so we also pro­duce a wide range of bite-sized products to satisfy them. And most people are be­coming more concerned about cholesterol, so we've cut that back as well.” So what's the recipe? “That's a secret,” he laughs.

But Kuo Yuan Ye has not forsaken its original product line. It continues to offer a wide range of moon cakes for Lunar New Year. The company's engagement cakes, still an immensely popular feature of tra­ditional Chinese courtships, are as large as dinner plates and full of thick, sweet bean pastes wrapped in golden, delicate crusts. And Kuo Yuan Ye produces many other pastries for family occassionas and festivals throughout the year.

A lot of water has passed under the bridge since Geng-yaun revealed his vision for the Kuo family business. Chin-tin has passed away, but has his son proven him­self right? From a company with four stores and sixteen staff in the mid-1980s, Kuo Yuan Ye has grown into a corporation with forty-four outlets employing over seven hundred people around the island, eight retail stores in the United States. Annual sales turnover has risen from US$2.2 million to more than US$48 million.

Over the last ten years, Kuo Yuan Ye has also successfully diversified its opera­tions into other businesses such as trade, investment, manufacturing, the food and beverage industry, and construction. Geng-yuan's eldest brother is chairman of the company, number two is in charge of overseas operations, and the youngest is Kuo Yuan Ye's vice chairman. But it is Geng-yuan who is the driving force behind the business. Even so, he does not drive it by fiat—department managers and other sen­ior staff participate in management deci­sions and help to determine the direction of the business. “Kuo Yuan Ye is now a cor­poration, but it's still a family business,” Geng-yuan explains.“A company is like a boat. The oars are talent and money. If you learn how to use the oars, you can control the boat well, and go where you want. If you can't control it, you'll end up on the rocks.”

The future looks promising. Under Geng-yuan's direction, Kuo Yuan Ye has become big business and is seeking to ex­pand even further. In addition to its stores in the United States, the company now has plans to open outlets in Mainland China, Southeast Asia, and Europe. “It's our goal to internationalize Kuo Yuan Ye,” Geng­ yuan says bluntly. “We say that people can taste the flavor of China in every bite of Kuo Yuan Ye's pastries. My hope is that one day, wherever you find Chinese peo­ple, you'll also find Kuo Yuan Ye.”

So the question inevitably arises: When the time comes, will Geng-yuan hand the business over to one of his sons? “I will transfer my business to talent,” he says. “I'd be happier if my children didn't take over the company. It's really hard work. I'd like them to go into academia, and perhaps be able to enjoy an easier life than I ever did.” A benign hope—but if Geng-yuan changes his mind, he will cer­tainly not be the first Chinese businessman to have vowed to open up a family concern to outside interests, only to find, when it comes down to the wire, blood really is thicker than water.