On 13 January 2020, we visited Vietnam (Ho Chi Minh City), which is Food Empire’s second largest market. Food Empire’s sales in Vietnam is mainly anchored by its star product, Café Pho and their variants. Currently top 3 in terms of value in the 3-in-1 coffee mix subsegment, Food Empire captures c.80% of their sales through General Trade.
KEY HIGHLIGHTS
Company Background
Food Empire Holdings (Food Empire) is a food and beverage (F&B) company that manufactures and markets instant beverage products, frozen convenience food, confectionery and snack food. In FY18, beverages constitute 86.8% of their topline.
Food Empire’s products are sold to over 50 countries. Its key market, Russia accounts for 40% of its revenue FY18, followed by Indochina (18%), Kazakhstan (13%) and Ukraine (9%). Food Empire was listed on 25 April 2000 on the main board of SGX at $0.13. The Group operates 8 manufacturing facilities in India, Malaysia, Myanmar, Russia, Ukraine and Vietnam.
Site Visit Highlights
Investment Actions
No stock rating or price target provided, as we do not have coverage on Food Empire.
The report is produced by Phillip Securities Research under the ‘Research Talent Development Grant Scheme’ (administered by SGX) and has received monetary compensation for the production of the report from the entity mentioned in the report.
An introduction to Vietnamese (instant) coffee market. Vietnam’s tropical climate is well-suited for growing coffee. Being the world’s second-largest producer and exporter of coffee, coffee has become an indispensable contributor to Vietnam’s economy as it provides over 500,000 farmers with income growth. According to Mordor Intelligence, the Vietnam coffee market is expected to grow with a CAGR of 8.07% from 2019-2024 as the population of c.96mn grows at c.1% YoY. Currently, 74.8% of the domestic coffee consumption is roast and ground coffee products while instant coffee is only 10.2%. Based on statistics from the International Coffee Organisation, Vietnam showcases a higher consumption of soluble coffee per capita when compared to other countries in Asia over a decade. |
Growth in the instant coffee market is expected to be boosted by urbanisation in Vietnam. Supported by longer working hours and busy lifestyles, it is easier for consumers to switch from fresh ground coffee to instant coffee mixes. According to Statista, the instant coffee market in Vietnam is expected to grow annually by 10% (CAGR 2020-2023). |
Market share grew 2.5x within 6 years Vietnam’s 3-in-1 coffee mix market is mainly dominated by a few major players – Trung Nguyen, Masan Beverage, Nestle and Tran Quang. Post-acquisition of Vinacafe Bien Hoa, Masan’s products – Wake Up and Vinacafe – commands around c.28% of the market share which is the largest by volume in FY19. Currently, Food Empire’s MacCoffee brand owns about c.11.4%. It is within the Top 5 by volume and Top 3 by value. Started out with a c.4.4% market share by volume after the launch of Café Phố in 2014, Food Empire’s market share in the 3-in-1 coffee mix market has grown 2.5x ever since. |
Pushing Café Phố, the star product In general, Vietnamese coffee tends to be sweeter and thicker as compared to the taste of coffee in Singapore. Finding a gap in the market for a coffee mix that tastes as concentrated after ice has been added, Café Phố, their star product was created after series of testings to ensure that it was a product that was approved by the Vietnamese. In order to match the taste and retain sufficient margins from the product, Café Phố was launched as a premium 3-in-1 instant coffee mix. It is specifically designed for locals who crave for a cold coffee fix. |
Food Empire emphasizes on marketing through general trade as general trade contribute c.80% of its total sales. To cater to locals with less disposable income, Food Empire sells Café Phố ’s products and their variants in individual sachets apart from the usual packaging of boxes and bags while offering them to retailers at the same price points per sachet. Prices may differ from store to store depending on the individual retailer’s marketing tactic. Generally, Café Phố retails at 3000-3500VND (S$0.18-0.21) per sachet. In comparison, Nescafe retails at 2500-3000VND (S$0.15-0.18) per sachet. This offering from Food Empire provides consumers with greater flexibility to purchase according to their consumption and expenditure capacity, as it is priced at premium above that of its competitors.
Food Empire employs the use of hangers and chains to secure maximum visibility for their products as well. By displaying chains of sachets on hangers to be hung on pipes or poles near the ceiling, Food Empire’s products capitalise on empty ‘air spaces’ instead of getting stacked and hidden by piles of various products sold in a local retailer. |
To date, Food Empire engages 135 third-party distibutors to distribute their products across 101,000 outlets in Vietnam and 540 sales representatives (SRs) to ensure that the stores are well-stocked and provide maximum visibility for Food Empire’s products. Food Empire’s SRs are incentivised to ensure that the local stores perform as they earn commissions on top of their basic salary when they hit the monthly stipulated target. Retailers are also rewarded when they promote Food Empire’s products, given that they obtain a lower cost per unit whenever purchase in bulk. The SRs visit their stores on a weekly basis to re-stock, effectively tracking the sales made per store covered while maintaining their relationship with the store owners. By maintaining this relationship, the SRs and retailers are more willing to push sales for Food Empire’s products together. |
For emerging brands like Food Empire to compete in a coffee industry where there are incumbent coffee manufacturers, Food Empire invests in advertisements to gain brand awareness through social media, billboards and posters. Through these advertisements, Food Empire solidifies Café Phố’s brand image of being fun and revitalising. Food Empire also refreshes the packaging and displays of their products and hangers regularly to celebrate festive seasons with the locals. Most recently, Food Empire collaborated with Tóc Tiên, a local pop celebrity, to celebrate the Vietnamese New Year, through a Youtube music video which garnered 50mn views in 2 weeks.
Food Empire also ventured into variations of Café Phố to increase sales and compete with its competitors for market share in different submarkets. Post Café Phố, Food Empire rolled out Café Mê and Café Kết (hot coffee, 3 in 1) to compete in the mass market segment, Café Phố Đen Đá (ice coffee, 2 in 1) to compete with Nescafe’s Café Viet, and Café Phố Nhà Làm (ice coffee, 3 in 1) which is more premium than Café Phố. As Vietnam’s population remains young and dynamic with millenials comprising 35% of Vietnam’s population, Food Empire is currently experimenting on creating uniquely flavoured energy drinks targeted to refresh and ‘buff’ young gamers in Vietnam. |
Overall, we see success in Food Empire’s venture in Vietnam with Café Phố. In spite of the price difference and a smaller brand presence vis-à-vis competitors, Café Phố was able to gain market share in the 3-in-1 market against reputable Vietnamese coffee products like Nescafé and G7 over the years to become the top 3 coffee brands by value in FY2019
Loyal coffee-drinkers Brand and shop loyalty is very evident in the people living in Vietnam, especially when it comes to General Trade. Most of the shops we visited sell goods of similar varieties along the same street or market. Given the locals’ hectic lifestyles and life on bikes, most locals do not window shop. They would visit the shops that they patronise, transact with the shop keeper and head off to their next destination. Hence, it is imperative for Food Empire to constantly market their brand and products through online and offline approaches in order for greater brand stickiness and eventually to become the locals’ choice of coffee. Like how there are numerous coffee shops in Singapore where we find Singaporeans drinking instant beverages, Vietnam has many coffee joints which allows locals to sit and enjoy their day’s worth of coffee. These joints usually charge approximately 3 times more for ready-made hot coffee (S$0.59), and an extra 2000VND (S$0.12) for iced coffee. Even so, we do see locals drinking or buying coffee from these shops regardless if it is day or night. |
Modern trade, a shelf space challenge When it comes to modern trade, we find that the shelves in the supermarket are generally dominated by bigger established brands like Nescafe and G7. They promote their products by placing them at eye level, with many different variants positioned in the centre of the coffee selection. In comparison, we found Food Empire’s products (Café Phố and Café Me) located at the top shelf, closer to the end of the coffee selection where it is less prominent. Given that it is more costly to list their product in supermarkets and convenience stores, it was more economical for them to focus on general trade. Modern trade constitutes only 20% of Food Empire’s sales. However, as Vietnam continues to urbanise, we believe that Food Empire will need to tweak its marketing strategy to shift towards modern trade in order to stay relevant to consumers. |
Relieving packaging bottleneck through automation |
During our visit, the factory in Vietnam was operating 24 hours 6 days work week. It upgraded its packing operations to be able to produce c.4.5x more cartons in a month. Given that the factory is equipped to operate 24/7 and that they are able to meet any surge in demand by tapping on their neighbouring factory in Malaysia, Food Empire should be able to take on more capacity when required.
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note: