Kinh Do Company (KDC) officially sets foot in food and staple product market. This is not hot off the press that the leadership team has revealed sometimes by M&A or incorporation with partners to expand their business into this field. Nevertheless, most investors and competitors have concerns on how and who KDC is going to cooperate with.
From “Confectionery” to “Food and Flavor”
Presently, KDC’s core products are confectionary and close by daily habits of people such as bread, AFC cracker, Solite cake, ice-cream, yogurt, and moon cakes or cookies on special occasions. To uphold the sustainable development, Kinh Do, known as the leader of confectionarey in Vietnam, has been mapping out its strategy to expand into “Food and flavor”, consisting of food and staple products in order to boost their growth speed and meet the wide range of consumers’ demand.
The first new product is instant noodle. After years of preperation, KDC has decided to fully cooperate with Saigon Vewong Ltd, a Taiwanese direct investment company and famous for an instant noodles brands A-One. As both sides agreement, Vewong will first produce instant noodles, porridge and pho for KDC and in turn KDC helps Vewong to distribute seasoning products through their distribution channels. In the third quarter of 2014, these products will formally be introduced in the market. Then, KDC and Vewong continues to consider and detemine some seasoning products to escalate their cooperation with this mechanism.
Instant nooldes market has quite many grand manufacturers such as Vina Acecook (With brands: Hao Hao 100, De Nhat, Lau Thai), Masan (With brands: Omachi, Kokomi, etc.) and Asia Food (Instant noodles, porridge, pho, hu tieu with brands: Gau Do, Hello, Vfood, Soi Pho Vang, Gau Yeu). Lately, there is an emerging racer – Nissin who invested about $ 41 mn to build a 60,000-square-meter factory.
Supermarket chains besides their main function of merchandise distribution, has also jumped into this field by OEM the local manufactures with their own brandname. Domestic companies possess brands in the value to the mainstream segments; meanwhile, high-end brands are mainly imported from Korea and Japan. As a new comer, Kinh Do strives to have an unconventional approach to success and break into the new markets.
Besides instant noodles, KDC are also joining cooking oil market by purchasing shares of an available company. Furthermore, KDC buys shares of an existing coffee company in the market.
Confectionery is still the foundation of KDC, but with those brand-new products, KDC is able to meet the consumer’s all-day need: breakfast, lunch, snack, dinner, supper, and dessert.
Which opportunities Kinh Do would take advantage toward new entrance?
There are some judgements in the market around the business shift of KDC that come into opposite opinions – for and against, but merely based on intuition. At the moment, there are not any appropriate reports that show the scale and growth potential of instant noodles – seasoning, cooking oil and coffee market as well as challenges an enterprise may encounter once heading into. On the other hand, KDC has not broken the news about its detailed plan, so it would be too early to put any negative verdicts.
KDC has its own reason to act with caution. In the 2013 annual report, Mr. Tran Le Nguyen, Chairman of KDC said: “More than anyone, we understand the harsh competition when joining new categories. Thus, we must be careful in every move.”
KDC has been known with its brand name and distribution system as their greatest strength. In domestic martket, KDC has built up a system of distribution with nearly 300 food and cold distributors and 200,000 sales outlets. For instance, could each retail seller sell 2 packs of instant noodles costing of VND 4,000 a day, KDC may add up VND 48 bn in revenue each month.
It is said that KDC must have spent a tremendous amount of money on marketing to launch new products, but KDC has lucidly enough ability to afford this plan. Especially, after selling shares to 5 strategic investors, KDC has kept the on-hand cash over VND 4,000 bn. However, Kinh Do, a locally pretigious brandname with over-20-year experience in retail, is wholly able to control the marketing cost at the lower rate compared to others.
It is rather crucial to appraise that KDC still has a possibility to skyrocket in new markets. According to DTCK, the instant noodles market size in 2013 was VND 22,340 bn. As can be seen, earning 1% of the market share is already a remarkable amount, but it is not the ambitious figure KDC is heading to.
Purchasing power is still low, but the economics in 2015 offers a prospect of better growth. The more potential the market size will be, the more chances KDC as a newcomer would have. Furthermore Vietnam is a developing country with young population, its local demands for staple products has risen rapidly.
For the cooking oil industry, in 2013 the market size was more than VND 22,300 bn, with the annual growth of 7-9%. KDC’s target is to offer a share purchase of an existing company to cooperate and utilize both sides’ strengths.
For the coffee market (grain and ground coffee), the total consumption in 2013 was VND 4,757 bn, with the annual growth speed of 15-20%. Though there are many big brands both domestic and international such as Vinacafe, Nestle, Bien Hoa Vinacafe, Trung Nguyen, Maccoffee, Highlands Coffee, and Mê Trang, the growth capacity is quite large. KDC intends to join this market by buying the share of a company in Viet Nam to continuously use their both strengths to develop.
Even the 2013 economics was conspicuously tough, KDC strived to accomplish their 4th stage of the company’s reconstruction process, as known goal “Growing with benefit”, by earning nearly VND 4,561 bn in turnover and VND 619 bn in EBT. In the first quarter of 2014, KDC’s turnover was VND 739 bn and their EBT was VND 51 bn, an increase of 5.5% compared to the period last year.