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Vietnam’s sausage market full of potential

access_time May 18,2017 chat_bubble_outline 27 views

In August last year, South Korean food conglomerate Daesang Corp. spent $32 million on purchasing the Duc Viet Food Joint Stock Co., to the surprise of many. Duc Viet had revealed it was in negotiations over a sale but did not provide any further details. Daesang has now confirmed it completed the full purchase of the Vietnam-based meat processor and distributor and plans to increase its market share in the years to come. 

New ground

Vietnam’s sausage market full of potential

The deal has its origins in late 2015, when Daesang decided to learn about Vietnam’s sausage market and about other food companies in the country. 

In January 2016, together with Miwon Vietnam, it began to look at Duc Viet Food. After thorough research on market potential development capacity, Daesang decided to purchase Duc Viet Food at a price of $32 million. 

The deal is a step in helping the South Korean food producer find new growth opportunities. 

While average sausage consumption in China is 2.2 kilograms per person per year and 1.5 kilograms in Indonesia, consumption in Vietnam is just 208 grams. 

Vietnam therefore holds a great deal of potential. According to Kantar Worldpanel, sausage is a good growth item (13 per cent) and attracting many urban consumers. 

The decision by Daesang is not difficult to understand, because Duc Viet possesses the second-largest fresh food market share in northern Vietnam, at about 150 tons a month, surpassing brands such as AnCo, VietFoods, Ha Long, and Vissan. 

Moreover, it was the first enterprise to produce and trade German-style sausages using Vietnamese ingredients. 

Over the years, the company’s sausage products became popular and solidified their position in the market, becoming the apple of Daesang’s eye. 

“There are many reasons why Daesang conducted this merger and acquisition,” said Mr. Cho Nam IL, CEO of Duc Viet Food JSC, including its experience, coverage, and brand value. 

Investing in the fresh sausage market is a wise move for Daesang. According to Mr. Van Duc Muoi, former General Director of the State-owned food processor the Vietnam Meat Industries Limited Company (Vissan), the sterilized sausage market is approaching saturation point. 

Although Vissan leads the southern market with a share of 40 per cent, Mr. Muoi acknowledges that fresh sausages will soar in the future, not sterilized sausages. 

Daesang was founded in 1956, initially producing Miwon MSG. In 1969, Miwon was listed on the South Korean stock market and a year later joined the feed business with its subsidiary, Sewon. Miwon engages in many fields, such as coffee and consumer food production. In 1997, Miwon and Sewon merged and became Daesang. 

Since then, Daesang has been constantly expanding its markets, especially in the field of consumer food. 

In June 2006, the company entered into a joint venture with Kirin, a famous Japanese brewer, and invested $80 million in a spice factory in Indonesia. 

In October of the same year, it spent $100 million buying the Chongga kimchi brand and some other brands from domestic rival Doosan. 

Southward advance 

In its business strategy, Daesang wants to develop Duc Viet Food in a more diverse manner. 

“Duc Viet is very strong in the north but in the south, rivals such as C.P. Vietnam (CPV) and Japan’s Nipponham dominate the market,” said Mr. Cho. “Therefore, our strategy is to develop to the south.” 

He also pointed out that Duc Viet currently only has manufacturing facilities in the north, so distribution has certain limitations, so strengthening distribution will also be part of its strategy. 

Another weakness of Duc Viet was that it focused too much on sausages, making its product catalogue quite narrow, Mr. Cho said. 

The biggest problem facing Daesang in the near future is expanding its business and coverage. Plans to improve machinery and equipment at its facilities are also in train, to concentrate on the production of clean and diversified products. 

With competitive factors such as brand value, quality, and broad market coverage, Mr. Cho hopes to be able to develop Duc Viet into a leading enterprise in Vietnam specializing in clean food. 

“In order to achieve this goal, we are stepping up our investment in infrastructure and human resources to expand the market, improve our competitiveness in terms of quality and price, and increase efficiency,” he said. 

“As a country with a growing pork industry, I expect Vietnam’s meat processing industry to continue to grow.” 

Vietnam’s food processing industry will be a fast-growing industry in line with the development of Southeast Asia’s food processing industry, Mr. Cho believes. 

In the near future, multinational corporations will also invest more in the market, mainly based on factors such as supermarkets being modernized, improvements in distribution infrastructure, increased demand for meat and meat products, and high economic growth. 

Competitive field

Vietnam’s fresh sausage market is also quite fierce and presents many challenges for new players. It’s no coincidence that more and more players are involved in producing and trading sausages. 

The business results of Vissan, well-known both domestically and internationally for its various foodstuff products such as sausages, canned and processed foods, ham and frozen meat, suggests why sausages are becoming increasingly attractive to many businesses. 

Early last year, Masan Group subsidiary the Agro Nutrition Company (Anco) offered VND126,000 ($5.66) per share and bought 11.3 million shares for $64 million to become a strategic investor in Vissan. 

It is expected to strengthen the brand and remain committed to the company for the next five years. 

Though Vissan and Duc Viet are major and seasoned sausage manufacturers in the local market, they still face stiff competition from heavyweight opponents, including CPV, which supplies both sterilized and fresh sausages. 

“With over 20 years of experience, CPV is proud to be the pioneer in researching and successfully applying the self-contained production chain called Feed-Farm-Food, or 3F,” CPV Marketing Director Ho Doan Quoc Bao told local media. 

CPV currently owns nine manufacturing facilities producing animal feed, in Hanoi, Can Tho, and Dong Nai, Binh Duong, Tien Giang, Ben Tre, Dak Lak, and Hai Duong provinces, with an annual capacity of 3.8 million tons. 

According to Mr. Bao, applying the 3F model means that the business covers all production processes, from producing animal feed, building farms, and processing food from those farms.

Both CPV and Vissan agree that the most important thing for food producers is to ensure food safety. 

Vissan has built a food processing plant on an area of 22.4 ha in Ben Luc district in the Mekong Delta’s Long An province, with total investment of $150 million. 

The factory operates in a closed production chain, linking slaughtering, processing, packaging, and storage.

Many other food producers are also aggressively pursuing the 3F model, including the Dabaco Group and the Masan Group. 

As Vietnamese consumers are often confused by information about food contamination, the 3F model helps businesses obtain a competitive advantage as consumers tend to buy products with clear origin. 

However, developing the 3F model requires businesses have strong financial capacity, good infrastructure, and an extensive distribution system. It is therefore the common goal of all market players. 

VN Economic Times

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