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.
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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. |
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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). |
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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. |
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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.
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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. |
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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.
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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
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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. |
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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. |
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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.
