Big Cheese Duo Driven Kinh Do

27 October, 2014

After driving Kinh Do to be the leader of domestic confectionery market, the pair of entrepreneurs, Tran Kim Thanh and Tran Le Nguyen are now steering the company to new plans.

Kinh Do, not just confectionery

This year of 2014 marks a memorable year of Kinh Do. Things have changed after 21 years, even though confectionery remains its core position. As the best known confectionery brand in Vietnam, Kinh Do announced its partnership with Vewong, Vocarimex and PhilDeli to expand its business in new areas: noodles, vegetable oil and coffee.

"Once Kinh Do enters a new industry, we have to be in the top three," said Tran Kim Thanh, Chairman of Kinh Do’s Board of Directors at the Shareholders’ Meeting late June 2014.

Apart from the advantage of possessing a strong brand, Kinh Do has now more conditions to realize this ambition.
With over 200,000 retail outlets, Kinh Do is the real champion in the domestic confectionery market without rivals who can attain 30% of its market share.

Last year, the company reached VND 4,560 billion in revenue, a 1.6 times higher than total combined revenues of the next 3 companies in the domestic confectionery market namely Bibica, Huu Nghi and Hai Ha. Despite of a stand-still in purchasing power during the 2014 Mid-Autumn season, Kinh Do’s moon cake consumption still recorded an increase of 15% compared to the same period last year. According to estimates from the company, there were about 7 to 8 mooncakes were from Kinh Do for every 10 sold products in the market.

"Possessing the advantage of a strong brand has helped Kinh Do maintain top leading position in the market and created conditions for strong penetration of new products", according to an analysis from VP Bank Securities on consumer food industry.

With its three factories for confectionery and one for ice cream manufacturing, Kinh Do has widely supplied the market hundreds of products from confectionery to candy, ice cream, yogurt, milk and whey. Having publicly announced its strategic plan for expansion based on M&A, Kinh Do currently holds nearly $140 million cash on hand, and aims to ambitious targets of M&A in near future.

In 2014, Mr Tran Kim Thanh – Mr Tran Le Nguyen have steered Kinh Do to expand new categories besides its core confectionery, which has thriven in the market for the past 21 years.

Established in 1993, beginning as a small household workshop in Ho Chi Minh City, given the growth rate of 30% for many years, Kinh Do’s current market capitalization stands at nearly $750 million.

"The pie for domestic confectionery stays the same at VND 3,000 billion in revenue; an increase of 30% is equal to VND 1.000 billion. If we want to maintain this frog-jump growth rate, the only way is to make a joint venture or to expand into new industries” said Tran Le Nguyen, Kinh Do’s CEO during an interview earlier this year.

Kinh Do’s first step in this new playground is to start cooperating with new partners. Pham Dinh Nguyen, an entrepreneur who spent $ 1 million to buy PhinDeli town in the US and established a namesake instant coffee brand,revealed that Kinh Do bought out more than 50% of the company shares and gained control of the fresh 1-year-old instant coffee brand.

After 2014 IPO heating up in summer, Kinh Do has become the largest shareholder in The National Company for Vegetable Oils, Aromas and Cosmetics of Vietnam (Vocarimex) who controls 95% of the market share of Vegetable oil in Vietnam through its network of subsidiaries, joint ventures, associated companies such as Tuong An Oils, Cai Lan Oils, Nha Be Hope etc.

Kinh Do also publicizes its comprehensive cooperation with Saigon Ve Wong, a noodle company ranks 5th in terms of market share in Vietnam. Accordingly to this partnership, Ve Wong will produce noodles for Kinh Do for sale by lately-2014 quarter.

Mr Tran Kim Thanh and Mr Tran Le Nguyen could have foreseen a closely-watched opportunities in the new playground. According to Euromonitor, the Vietnamese edible oil and noodle markets stand roughly at $1 billion/year in each respective field. In the past five years, the growth rate of each market averaged at 16% -17%.

"Kinh Do’s benefit in joining instant noodle market is to increase the revenue and accelerate the growth of the Group. The idea of investing in noodles is to serve the daily needs of consumers and this product can expectedly be sold well all year round” An analysis from HSC Securities stated that over the years, Vocarimex operated as a state-owned enterprise, would surely improve its performance thanks to Kinh Do’s acquisition, although it might take several years to change the business culture”.

The perfect pair with their lasting imprints

Kinh Do is the largest brand in the domestic confectionery industry, but the new game is not easy. According to the World Instant Noodles Association (WINA), Viet Nam ranks fourth in terms of the total world production. Noodle consumption in Viet Nam in 2013 stood at 5.4 billion units per year, an equivalence of 56.2 packages of noodle /person/year, only behind China, Indonesia and India.

Despite of this great potential, the market now has more than 600 brands. According to Euromonitor, the three “giant" known as Ace Cook, Masan, Asia Food take control of 80% market share, far ahead of other competitors such as Vifon (5.4%) and Saigon Ve Wong (5.1%).

The “competition” in coffee is no less intense when the majority of market share is led by three giants namely Nestle, Vinacafé Bien Hoa and Trung Nguyen.

Has Masan Group been successful with Vinacafé Bien Hoa brand, Vinamilk - a giant in the food industry had to give up this game with its Moment coffee brand. Kinh Do’s success in the vegetable oil market is still a big unknown, as former CEO of Masan Consumer Truong Cong Thang acknowledged in the shareholders' meeting in 2013 “Even Masan Consumer – a food company with the market value of $ 2 billion in 2013, just after Vinamilk, could not find an adaptable business mechanism when input material is mostly imported."

"For me, the two brothers Thanh and Nguyen have made themselves a perfect pair in Kinh Do. They complement for each other very well and build up a name that others could hardly follow. I believe they will score greater success in the coming time", said Mai Huu Tin, former Chairman of the Vietnam Young Business Association.

Mr Thanh, born in 1960, and his 8-year-younger brother started doing business in 1993 with a small manufacturing facility with initial capitals derived from borrowings and several dozen taels of accumulated gold. The idea was simply to produce the "Made in Vietnam" snack to substitute products imported from Thailand which heated up the market at that time.

However, Kinh Do quickly out-performed and stretched out of the scale of family business thanks to the ingenuity of the chinese-born Vietnamese brothers and their determination to invest in innovative technologies and import production chains.

The new plant was built in 1996, several years after the business startup. Since then, Kinh Do has witnessed a steady growth and dominated domestic confectionery market with innovative products. The company’s revenue and profits have sharply risen. In 1996, Kinh Do launched its cookies. In 1997, the company launched fresh bun produced on industrial chain for longer storage and usage. In 1998, it successfully produced traditional moon cakes on modern industrial chain, packed in sealed container and distributed nationwide, making Kinh Do brand widely known in the market.

In 2003, Kinh Do made a resounding success in domestic market when it bought Wall's ice cream from Unilever. Mr Nguyen said when we had heard Unilever wanted to sell, he went to visit the ice-cream factory for a round and made the decision to purchase as soon as he went out of the factory gate. He had the opportunity to participate in many food equipment exhibitions, he was fully aware that this project was a worth investment.  

They have knowledge and experiences about the food industry since they seized the opportunity promptly" said Don Lam, CEO of VinaCapital – a partner who contributed capitals to Kinh Do in this acquisition affair.

For the pair of Tran-family-name entrepreneurs, the acquisition of Wall's ice-cream was a landmark decision which helped the company to expand beyond confectionery to frozen category. In Vietnamese franchise market, the deal has gone down in history as the first-time-ever local company could acquire an international brand as well as its success story after M&A.

Kinh Do was one of the first private companies to be listed on the stock market. The pair entrepreneurs accessed quite openly to high standard financial services even at the rudimentary time of the Vietnamese stock market. Mr Nguyen said, in 2000, he had the opportunity to visit NASDAQ and realized that if Kinh Do wanted to go beyond a family size business, they had to raise fun and change management by listing on the stock market which made up the stock's liquidity.  Kinh Do was quickly able to welcome new shareholders such as Vina Capital, Prudential, Citigroup Global Market Ltd., Deutsche Bank AG London, etc and became one of the blue chips.

After a period of skyrocketing, Kinh Do’s biggest challenge during the 2008-financial-crisis was a loss incurred due to the setting up of provision funds for non-core investments.

During 2008-2011, Kinh Do entered into a restructuring phase by disinvesting from the majority of real estate projects and inefficient investments and concentrating resources on its confectionery core business. The company also started up cooperation with new partners in the peer industry such as Ezaki Glico from Japan.

New Challenges

As a pioneer with rich experience in M&A and other types of business venture and cooperation, Kinh Do has recorded a  great success with Wall's ice cream, especially the association landmark of NKD, Ki Do and Vinabico into KDC.
Will the breakthrough in 2014 help Kinh Do accelerate new height?

A comment by HSC Securities stated: "Kinh Do has much to do in the next few years. Therefore, operational risks are higher than before despite of better potential benefits",

The insider, Tran Le Nguyen says: "without a handshake, it is hard to go further. We have to venture if we want to aim higher”.".

By Phu Kiet (Vietnam Investment Review)