Dairy giant seeks new markets to offset local slump

Vietnam’s biggest dairy firm Vinamilk is eyeing foreign markets in the hopes of offsetting the declining growth in the local market.

dairy giant seeks new markets to offset local slump hinh 0
Dairy products recorded negative growth for the last three quarters: 3.3% in the fourth quarter of 2017, 7% in Q1 2018 and 5.3% in Q2 2018, according to the Quarterly Market Pulse report on fast-moving consumer goods (FMCG) released by Nielsen Vietnam in August.

Such declines have partly reflected the change in consumption trends of Vietnamese people, who have become more concerned about their health and what they consume, switching to high-nutrient and healthier beverages with more stringent quality requirements.

Vinamilk and other dairy firms are struggling to reach their business targets.

In its second-quarter financial statements, Vinamilk reported net revenue of VND13.7 trillion (US$588 million), up 2.6% on-year, but its after-tax profit declined 8.2% to VND2.68 trillion.

As of the end of June, Vinamilk’s revenue increased 1.7% but profit declined 8.3%, far behind its yearly target of 8.5% for total revenue gains and 4.6% for net profit.

“The company is seeking opportunities for investing in foreign markets via either joint ventures or M&A agreements,” the company’s management board told its 2018 shareholders’ meeting on March 31.

Vinamilk has been actively expanding its reach to new markets through a mergers and acquisitions (M&A) strategy in recent years.

It paid millions of US dollars to establish a joint venture with Angkor Dairy Products in Cambodia in 2014 and acquired a full stake in 2017.
It also invested in Driftwood Dairy in the United States and Miraka Limited in New Zealand.

After two years of investment, Driftwood Dairy contributed 6.5% to Vinamilk’s total revenues, while the project in Cambodia generated US$54 million revenue in 2017.

According to BIDV Securities JSC, expanding overseas markets to increase export turnover is one of the three main growth drivers for Vinamilk by 2020.
At present, the company is focusing on the Philippines, Cambodia, Myanmar, Indonesia and China, expecting an export growth of about 15% per year.

It is seeking opportunities to buy some local companies in Myanmar and  Indonesia, where there is high potential for dairy producers. They all have big and young populations which have high demand for dairy product consumption.

At the same time, per capita milk consumption in these two countries is very low compared to other countries in the region, only around 10-11 litres per person per year, compared to 22 litres in the Philippines and 45 litres in Singapore.

Vinamilk signed a memorandum of understanding with a Chinese partner in May this year, facilitating its exports to China in the near future. The company is looking forward to the soon-to-be-signed China-ASEAN free trade agreement to gain more advantages when exporting to this US$30 billion market.

“Vinamilk is highly interested in the Myanmar and China markets. At present, Vinamilk is exporting to these markets, but if the company wants to do it big, it must execute a perfect chain of suppliers and do it with major partners,” Vinamilk’s executives said.

It said it is working with F&N to study the markets and find suppliers at these markets. It also revealed that in the upcoming time, a group of Chinese authorities will come to Vietnam to inspect facilities and other aspects before granting an export licence to China.

The company is expected to increase exports by 8% in 2018.

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