Candy market experiences shakeup

In late March, four individual investors spent tens of millions of dollars acquiring major stakes Huu Nghi and Hai Ha. This comes after their parent company, the state-owned Vietnam Tobacco Corporation (Vinataba), registered to exit from the firms.

Two individual investors, Vu Hai and Nguyen Thi Duyen, became the new major shareholders of Hai Ha Confectionery JSC, with respective ownership stakes of 23.7% and 50.9%. Meanwhile two others, Nguyen Van Dung and Luu Thanh Tam, acquired a 20% and 10% stake in Huu Nghi Food JSC. The participation of individual shareholders could now create favourable conditions for the two firms.

Sweeping changes on the horizon

In 2014, Kinh Do JSC, a major player in the domestic food scene, was acquired by US-based Mondelez International. The duration of the power transfer process was considered an opportunity for smaller local players such as Huu Nghi, Hai Ha, Bibica, Trang An, or Pham Nguyen to take their chance in the market.

As state-owned enterprises, these firms were given an opportunity to shorten the development gap with market number one, Kinh Do. However, none of them were able to, least of all Hai Ha and Huu Nghi.

When Vinataba unveiled its plan to fully divest from the two confectionery producers, local giants such as Vingroup, Masan, and Hoa Phat expressed interest. They later withdrew interest however, opening the door for individual private investors to take on the major share.

Huu Nghi Food chairman, Trinh Trung Hieu recalls that rigid state mechanisms had hindered the company’s operation. “If owned by a private investor, Huu Nghi could have capital to invest in brand building to reach a higher market position,” Hieu told his employees.

With the recent move, Huu Nghi is now completely in the hands of individual investors. A company representative said, “We had to set out year-by-year growth, following the state mechanism. The company paid taxes and contributed to the state budget every year, leaving little money for reinvestment. The space is now wide open. There will surely be changes in our growth strategy in the future, focusing on market expansion.”

“The participation of private investors is important to make use of new development opportunities after the state capital divestment. We are eager to take on the opportunity and have made preparations for future changes,” the source unveiled.

Present in the market for more than two decades, Huu Nghi is well known for its assortment of quality confectionery products, including mid-autumn cakes.

In terms of revenue, the company lies just behind Kinh Do, with revenue reaching VND1.44 trillion (US$65.7 million) in 2016. After Mondelez International bought Kinh Do, Huu Nghi took the lead in revenue among domestic firms, claiming an 8% market share.

The company’s goal is to solidify its position in the local confectionery market behind Kinh Do, and maintain pole position among local firms.

A disadvantage is that Huu Nghi has, until now, mainly served the southern market. A company representative recently admitted that winning the northern market has been very challenging due to a different consumption culture. However, it invested in building a modern confectionery plant in the southern province of Binh Duong several years ago.

Huu Nghi is also reported to be making sauces (fish sauce, soy sauce and chilli sauce) now. The company has built a sauce production plant in the northern province of Bac Ninh.

Huu Nghi is also accelerating exports to China, which generates VND300 billion (US$13.6 million) in annual revenue for the company. The firm is also looking to expand to other ASEAN countries, the Republic of Korea, Japan, the US, and India.

Meanwhile, Hai Ha enjoys strong brand recognition and boasts a 60-year track record. Having been on the verge of going bankrupt several times in its history, the company is now operating well, particularly in the northern market.

Despite having established branch offices in the central and southern regions, the company’s key market is the north, and some candy products, such as Jelly and Chewy candies have witnessed fast growth rates and become the company’s major income earners.

To its rivals, Hai Ha is a confectionary heavyweight. However, the company has lagged behind in recent years because it lacked a strong sales network and the human resources required to work towards market expansion.

Market analyses also show that Hai Ha has applied copying tactics in the past, trying to make its own versions of successful products. After time, these products disappeared from the market as it reached saturation however.

The company is now working to improve its product lines, focusing on high-grade products to boost its market share. Last year, pie products made up 48.7% of production and the candy line consumed the remaining 51.3%. The company plans to balance these products out in upcoming years.

Hai Ha also produces food supplements, teaming up with several large pharmaceutical firms.

Growing pressure from imports

Vietnam is now home to about 20 large-scale confectionery businesses, and several hundred small enterprises, with some major importers and distribution companies also joining the market.

Established brands such as Mondelez, Kinh Do, Bibica, Hai Ha, Huu Nghi, Trang An, Hanobaco, and Pham Nguyen currently hold a 60-65% market share.

There are also several foreign businesses operating in the field, such as Kraft, Meiji, Glico, Orion, and Lotte.

Since January 1, 2015, imported confectionery from ASEAN countries enjoyed a zero percent tax rate in the Vietnamese market, under the ASEAN-India Free Trade Agreement (AIFTA). The products from Thailand, Indonesia, Malaysia, and Singapore have therefore inundated the domestic market.

According to the market observers, Vietnam’s confectionery market still remains very lucrative to foreign players. Mergers and acquisitions (M&A) are expected to take place more frequently in the future, putting significant pressure on local firms like Hai Ha and Huu Nghi.