Fiercely competitive food market

The Statistics Office in HCM City reported that while some industries’ growth dropped last year, the food processing industry attained impressive growth of 7.1%.  In the first two months of 2014, it has continued the trend and has grown by 1%, while four key industry indices also rose 1.3%.

Price competition

Analysts attribute foreign direct investment (FDI)  to the growth in the industry. As an example, they cite HCM City and point to the emergence of world food processing giants, such as Acecook, Lotte and Meiji and the heavy investment they have made in the city.

Domestic food producers in HCM City have a number of advantages including lower costs and clear origin of products. They continue to pour much investment in modernized technology to produce higher quality products with higher added value and in branding their products to differentiate them from the competition.

Vissan Company leads in transforming themselves in the marketplace. Its General Director Van Duc Muoi says his company put forward a strategy to change completely. It used to control all phases of production, ranging from husbandry, food animal, and slaughtering to distribution.

Now its market strategy is more narrowly focused on finding its niche in the marketplace limiting its attention to higher added value slaughtering, production and wholesale and divesting itself of investment in lower added value product lines.

A complicated issue is that many domestic businesses find it difficult to align themselves to form a chain of shops to collectively promote a brand name due to limited capital and related difficulties in locating good business locations, which generally are more expensive. FDI businesses do this better, as they have more ready access to investment for such start-up costs.

A director of a domestic food business in HCM City says domestic samples and designs are not as attractive as foreign ones, a direct consequence of lack of investment in the designs.

Furthermore, consumers are paying more attention to standards and parameters on production date, expire date, origin of products, and Hazard Analysis Critical Control Point (HACCP), and many domestic businesses don’t include these parameters.

Including this type of information on packaging requires an initial investment which companies simply don’t have.  Even though the initial investment will result in long term returns, that more than offset the initial investment many times over.

Therefore, domestic businesses are forced to compete with foreign rivals based on price and are forced to reduce prices substantially in order to do so.  In fact, prices of domestic products are often 5-10%, even 20% cheaper than imported ones.

Tran Thi Thanh Huong, Director of Quoc Huong Technology Company, says price competition is just suitable for those which have abundant products. Domestic businesses suffer from losses in a long-term.

State’s involvement needed

Huong analysis is that small businesses often pay too much attention solely to price competition. Some are passive in updating information and even do not care for HACCP and other standards in circulation. Thus, they will suffer losses when exporting products to demanding markets.

Huong reveals that her company is striving to obtain reputable certificates to create special products to attract customers.

Vissan also can afford 80% of input materials and will pay more attention to origin of products in the future, Muoi says.

Regarding a food strategic project by 2020, Muoi says businesses are not strong enough to conduct survey for the project. The State should be involved in order to have a completed project for the food processing sector.