VietNamNet Bridge – Food processors tend to spend more money on marketing and the distribution networks.

An economist has noted that the food processing sector has been dominated by the private capital. Almost the leading enterprises in the field in Vietnam are private owned.

Vinamilk is still a state owned enterprise. However, the state’s ownership ratio in the enterprise has been decreasing following the government’s policy to reduce the state’s capital contribution through the equitization process.

Private investors have proved that they are completely capable to run food processing companies in the small and medium scales. However, it would be a big challenge to grow more to become as big as Vinamilk or Masan.

The consumer growth in Vietnam in the next five years is believed to rely on the young customers and the group of customers with the average income of $5,000 a year.

Meanwhile, the consumer habit and the consumer style of both the groups of consumers would be influenced by the brand recognition and the convenience to obtain the products, or the distribution network.

Analysts have noted that it is getting more and more costly to develop brands and make brands more popular and recognizable to consumers.

The report of a foreign market survey firm showed that Vietnam has 12 domestic brands which have the turnover of over $100 million a year, or VND2.1 trillion.

The costs for branding have been increasing so rapidly with the amount of goods sold per every ad unit has been decreasing dramatically.

This has been attributed to the consumer habit changes. In the economic recession, people tend to fasten their belt and spend less money on daily items.

However, analysts believe that the more important reason behind this is the small scale of the retail industry in Vietnam in comparison with that in South East Asia. The Vietnamese retail industry is believed to be equal to ¼ of that of Indonesia.

“In order to compete with multinational groups and foreign invested enterprises, we still have to spend money on branding, despite our limited budget,” a businessman said.

Kinh Do, after withdrawing capital from the projects in different fields and deciding to gather its strength on the core business fields – sweets manufacturing – have allocated big budgets on moon cake and cream branding.

Bibica, a smaller manufacturer spent VND24 million in 2011 and 2012 on advertisement campaigns, which was equal to 1/3-1/2 of its yearly post tax profit.

Posting ad pieces on TV remains the most popular choice for food processors. Banderoles hung over the streets and leaflets delivered to every consumer have also been chosen. Meanwhile, the processors do not choose billboards because of the high costs.

The well-known brand of Vinh Hao was also the main reason because of which Masan Consumer accepted to pay VND85,000 for every share of the mineral water producer. The price was 3.5 times higher than the Vinh Hao share price on the OTC market at the same time.

Masan Consumer plans to raise the revenue of Vinh Hao mineral water products to VND4 trillion a year from the current modest revenue of VND500 billion. One of the ways Masan Consumer would do to reach that end is to take full advantage of its 176,000 retail points.

Businessmen in Vietnam all understand the important role of the distribution networks in the business performance of enterprises. Philippe Serène, who was the general director of Proconco, when asked about Proconco’s secret to success said that one old woman and one flat winnowing basket would be enough to serve as a sales agent of Proconco.

DNSG