Secret Roast-Pork Recipe Tests Value of Real Estate

Kay Lee Roast Meat Joint Owner Betty Kong
Betty Kong, owner of Kay Lee Roast Meat Joint, is seen through a window as she prepares food at the restaurant in Singapore. Photographer: Sam Kang Li/Bloomberg

How much is a recipe worth?

About $1.8 million, according to the owner of Kay Lee Roast Meat Joint, who boosted the sale price of her Singapore eatery by that amount when she put it on the market this year.

Betty Kong and her husband want S$3.5 million ($2.8 million) for their 60-plastic-stool establishment, a premium over the S$1.25 million assessed value of the site. The price includes the property, their recipe for roasting duck, pork ribs and crispy pig skin as well as other Cantonese-style classics, plus three months of cooking lessons -- and, presumably, the loyal clientele that lines up outside, sometimes for more than an hour.

“I have the heart to run it, but the body isn’t willing any longer,” said Kong, the 66-year-old proprietress with frosted hair, cleaver in hand, and a gait burdened by decades of work. “I’m on my feet for eight hours a day and it’s becoming tedious now.”

The premium being sought is more than 20 times the amount for comparable restaurants, raising the issue of whether trade secrets can increase the value of real estate, said Lee Ai Ming, a partner at Rodyk & Davidson LLP in Singapore.

“It’s a very compelling example of the value of intellectual property,” she said. “It’s an example of the price of real estate reflecting the brand and goodwill associated with a location of a successful business, and I’m sure we’ll see more.”

Unless It’s KFC

In the U.S., recipes and training are almost always part of the deal when selling a restaurant, according to Fred Miller, a partner at the Atlanta Restaurant Exchange Georgia. His firm recently brokered a “classic soul food restaurant,” a 40-seat, “highly profitable” business listing for $400,000, including equipment, furnishings and “tried and true recipes” for fried chicken, corn bread, collard greens and sweet potatoes. Sales typically exclude the properties themselves, which are rented.

“The price, as a rule, is tied to a multiple of net income,” Miller wrote in an e-mail. “Facilities and intellectual property are seldom even considered. They would not add very much in the way of value even if they were treated separately. Unless it is the recipe for Coca-Cola or for Kentucky Fried Chicken, there are few formulas that would garner a $2 million premium.”

At Singapore’s Roast Meat Joint, Kong’s husband, 62-year-old Har Wai Kay, reigns in the kitchen, rising at 4 a.m. daily to start the dishes his father, whose roots are in Guangzhou, China, used to cook for his family in the 1950s. They want to retire, she said. Neither their son who moved to Australia nor their daughter, a special-needs teacher, wants to take over.

Too Lazy

“She’s very lazy, says ‘I don’t want to do this work,’” said Kong, pausing to sit at one of her yellow-laminate tables, clad in the flip-flop sandals she wears daily and surrounded by framed food reviews and photos of local actresses, TV hosts, a member of Parliament and the Taiwan rock band Energy on the glazed-tile walls.

Kong says her property and recipes warrant the premium in part because her roast pork, unlike her ubiquitous competition found on Singapore’s streets for about S$3.50 or less a plate, uses special herbs and ingredients. She charges S$5.

The Roast Meat Joint generates sales of around S$2,000 a day, she said, or S$620,000 annually, assuming it’s shut one day a week and three days for Lunar New Year holidays. Profit margin is 60 percent, according to her broker Raymond Lo at Knight Frank LLP. The asking price is 5.6 times annual sales, compared with the 1.1 multiple for the Singapore benchmark Straits Times Index. It would take six years to recoup the recipe premium.

Hungry Airmen

The shop started in the 1970s in Chinatown, on the edge of Singapore’s financial district. It moved about 12 kilometers (7.5 miles) to the city’s eastern Paya Lebar suburb in the early 1980s, down the street from its current location where it moved in 2003.

Located about midway between downtown and Changi International Airport, the Meat Joint stands along a row of similar two-story food outlets in a bustling commercial area with offices, hotels, industrial parks, schools and the Singapore Air Force’s Paya Lebar Air Base, which hosts about a dozen U.S. military personnel as part of the U.S. Air Force 497th Combat Training Squadron. The nearby airmen once called up for 200 orders, Kong said.

The Roast Meat Joint’s bright yellow sign with Chinese characters draws the eye of passersby on the Upper Paya Lebar Road strip, as do the roast ducks, pigs and ribs hanging on hooks in the front window.

Uniquely Honey-Browned

Customers give the fare rave reviews on the local food site and say that it’s uniquely honey-browned in a city where most roast pork, known as char siew, is red-barbeque colored.

“The main draw to this rustic restaurant is its char siew and its boisterous lady boss,” wrote a reviewer under the name Waragaw. “For those who like really fatty pork (think decadent charred pieces of pork belly glistening with oil and honey), this is one institution you should not miss.”

Another, Ratatouille, wrote: “Like what other reviewers mentioned, the char siew blows my mind.”

On a recent afternoon, Lee Ai, a 35-year-old designer who has been patronizing the 1,300-square-foot establishment for five years, said she would still come even if it’s sold -- as long as the recipe remains unchanged.

“I love the food here,” she said.

Better Things

While the food may be good, a buyer could find better things to do with the more than S$2 million premium than become the owner of some roast-pork recipes, writes Singaporean food blogger, K.F. Seetoh, who appears regularly on TV and writes under the name Makansutra.

“I can buy about four UNESCO World Heritage houses, and perhaps an existence to go with it,” he wrote. “With that amount I will also be treated like royalty in the casinos around the world.”

“Or, I can buy that char-siew and roast-meat business,” he concluded, “and work tirelessly in the fiery kitchen, forever.”

Another Cantonese-food vendor, the 83-year-old proprietress of the Nam Seng Noodle House in the heart of the financial district, Leong Yuet Meng, said she also finds the asking price extreme.

“Two million dollars for a recipe? Too much,” said Leong, known by patrons as Grandma or ‘Poh Poh,’ shaking her head in disbelief and counseling against giving up a line of work she herself has been doing for 53 years. “You will start developing dementia if you stop working.”

Too Far-fetched

Broker Raymond Khoo with HSR International Realtors Pte in Singapore said that he has brokered sales that charged a premium of as much as S$100,000 on behalf of other small food outlets and salons that had built up a brand and goodwill.

“Never heard of someone asking for this much money for a recipe,” he said. “It seems too far-fetched, especially since it isn’t a multichain operator or a franchise.”

Already, Singapore has more than 15,000 similar food shops, most of them take-out counters and grouped into what are called hawker centers with common seating. With such cheap and plentiful dishes -- reflecting Singapore’s immigrant communities from India, Malaysia and China and typically costing S$3-$5 -- sit-down restaurants with waiter service struggle in Singapore. Sales at restaurants declined 2 percent in February from a year ago, according to data from the Singapore statistics department.

Higher housing rents and oil costs, expensive private transportation and unemployment at a 14-year low have kept prices rising. Singapore’s inflation will average 3.5 percent to 4.5 percent in 2012, according to the central bank.

Below-List Offers

Clearly the sweat equity Kong and her husband have put in has some value. So far, they have received a few offers below their asking price, Lo said. The best has been a S$2.5 million bid for a 70 percent stake. The potential buyer also insisted the owners stay on as advisers for three years with a 30 percent stake, Lo said. Kong says she wants a full exit.

Other offers include a bid for S$2.8 million, and another for S$2.5 million from a wealth manager of a bank, Lo said. Kong says she won’t accept.

“I have put in my blood and sweat, effort and toil into this business,” Kong said.

Her knees are giving out, she said, and she can’t have replacement surgery because it takes four months to recover. Instead, she plans to start closing for two days a week, Mondays and Tuesdays. And to keep dreaming of an easy retirement -- visiting her son in Australia, and eating someone else’s food for a change.

“Fish and chips in London, Kentucky Fried Chicken in America,” she mused, insisting on maintaining the fortitude that has helped her build her business. “I won’t haggle over the price. I will stick to it.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE