Vietnamese firm offers lessons in ‘competing with giants’

The family-owned Tan Hiep Phat Beverage Group hopes to increase its revenue to US$3 billion by 2027 – and its focus is almost entirely on targeting consumers in an increasingly sophisticated domestic market

 

We’re sitting by the ocean, a wayward thump of a beach volleyball from one of Danang’s swankier resorts, and Tran Uyen Phuong is talking up her country’s advantages. Given the setting, some of its physical attractions are strikingly obvious. Equally, however, one needn’t ponder long to understand what might excite a company like that of Phuong’s family about Vietnam’s fast-growing middle class consumer market.

The 35-year-old Deputy CEO of Tan Hiep Phat Beverage Group – the company her father, Tran Qui Thanh, aka Dr. Thanh, launched in 1994 – belongs to a post-war baby-boomer generation that is increasingly aspirational. And as the firm’s heir apparent, her understanding of that demographic may well be key to its chances of delivering on a target of increasing revenue – from domestic business alone – to US$3 billion by 2027 from last year’s US$500 million.

“The population of Vietnam is concentrated in the 15-40 age group,” she says. “As incomes grow, our research shows younger people are becoming more and more conscious of what they consume. They care about their health. How can I live better, perform better? They want to consume less sugar. Some companies try to undercut one another on price. We’re not interested in that game. We are positioning ourselves as a good-for-health brand in a way that connects with our consumers’ lifestyle choices.”

THP, whose principal products are a lemon-flavored green tea, a combination herbal tea and a vitamin-based energy drink, sold more than a billion liters of its beverages last year, making it second only to Coca Cola in terms of drinks sold in Vietnam (“For healthy drinks, we are number one,” says Phuong). It exports to 16 countries around the world, but its main focus remains at home, where it has spent the last two years expanding its manufacturing muscle, adding three new factories around the country to an existing HQ plant in Ho Chi Minh City, with a fourth due to become operational later this year. All of the company’s processing lines deploy “aseptic” technology, which results in full sterilization of THP’s made-on-site plastic bottles, eliminating the need for preservatives.

“We are the first company in Asia to invest in this technology,” says Phuong. “And again, it’s in response to what consumers want – with 21st Century technology, you can have all-natural ingredients and nutrients.” She adds that the new factories significantly reduce transportation costs for a company whose operations are vertically integrated to quite an exceptional degree. “Our distribution system is expanding too. Right now we have almost 300,000 outlets, and our aim is to make our drinks available within 50 meters of consumers nationwide.”

Dr. Thanh tells Asia Times that he expects the company to grow 30% this year alone. But the 64-year-old entrepreneur’s path has not always been so gilded. Indeed, prior to the 1990s, it was one beset with pernicious levels of government interference and downright bad breaks.

With the Vietnamese economy grinding almost to a halt in the immediate aftermath of The Fall of Saigon, he quickly built a profitable business in the city making yeast to sell to the socialist government now in power across the reunified nation. An unstable currency, runaway inflation and the threat of confiscation meant he opted to convert his money to gold and stash it in the ground. A collapse in yeast prices then prompted a switch to sugar processing but his small operation was ultimately crushed by government competition.

THP initially launched as a brewing company, but margins were later affected by a beer tax, again prompting a change of tack. The company was helped, however, by a loosening of state control of the economy from 1992, and also by the lifting of US sanctions on Vietnam in 1995.

Nowadays, it is tempting to characterize Dr. Thanh and THP as having at least a foothold in the country’s establishment. In 2010, he was awarded a Certificate of Merit from the Vietnamese Prime Minister for “achievements in developing socialism and defending the country.” And every October, THP holds a concert for its 4,000-strong workforce that is broadcast around the country.

When it is put to Dr. Thanh that he would appear to enjoy a certain degree of celebrity in Vietnam – after all, the company patriarch’s face appears on all branding for Dr. Thanh Herbal Tea – he waves the suggestion away. In interview, he responds slowly, carefully, and in Vietnamese, for Phuong to translate. His voice, deep and characterful, is that of a chain-smoker – any health damage from which is offset, he believes, by consuming six bottles of the above-mentioned herbal tea every day.

So, would he now describe the government of Vietnam as a friend to business? “Things have improved significantly,” he says. “There is still a need to improve a lot of areas of the law to make things clearer in terms of regulation around doing business. But we try to avoid any conflict in this area. Our most important friend is the customer.”

Expanding on that theme, Phuong adds: “If we know who we are and who our consumers are, we’ll keep gaining ground and remain competitive.”

Later this year, she will publish a book, in Vietnamese and English, titled Competing With Giants in a Local Market. “That is the main issue facing a lot of Vietnamese companies,” she says. “We are competing in terms of capital and resources with global companies. A lot of companies here are young and they face a lot of obstacles. The book is based on my father’s experience and the story of THP. We want to share that experience to show others what they can achieve.”

As for THP itself, besides domestic growth Dr. Thanh sees potential for expansion in export markets. “If exports grow faster, we will achieve our targets faster,” he says. “Globally, people are concerned about health, so our brands can do well. In that respect, we are very much open to partnering with companies that can help us in other markets.”

For now, the business remains 100% family-owned. Dr. Thanh says a “global company” offered to pay US$2.5 billion for THP in 2015. “We’re already within sight of taking revenue to US$1billion,” he says. “If that is achieved, I would estimate the value of the company would be about US$5 billion. All I can say for now is that if I had sold the company there would be nothing left to discuss.”

Source: http://www.atimes.com/article/vietnamese-firm-offers-lessons-competing-giants/?utm_source=The+Daily+Brief&utm_campaign=37a29b1eb1-EMAIL_CAMPAIGN_2017_06_09&utm_medium=email&utm_term=0_1f8bca137f-37a29b1eb1-21552319

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