To avoid hazardous foods sold in the market, consumers now tend to find safer sources of food. Foreseeing this demand, many businesses have stepped up the application of models produced fresh food like the 3F model in livestock and VietGAP, GlobalGAP in crops. The common point of these models is that food safety is assured in the whole supply chain, from production (livestock breeding, or crop cultivation at the farm) to processing factory and products distribution to final consumers.
Enterprises join the food industry in different forms, depending on their strength and their own. Some businesses invest in a synchronous production chain; others choose to specialize in one step of the supply chain. Recently, the market has witnessed also different M&A in the food sector.
Big companies and investment strategy on closed and complete safe food supply chain
Vingroup - one of biggest companies in Vietnam is now famous in the safe food market with the modern distribution channel of safe food through their supermarkets and food shops under the brand VINECO, with ambition of repositioning the Vietnamese vegetable market. Just started in March, 2015 but up to now, VINECO have formed their closed and modern production areas in many provinces. In general, outputs of VINECO meet quality standards like VietGAP, GlobalGAP and are distributed to consumers through supermarkets and convenient shops Vinmart+, which belong also to Vingroup. The system of Vinmart and Vinmart + is considered as strategic tools of Vingroup to complete the supply chain from production, harvesting and transport to retail products. It not only optimizes the cost, but also ensures quality of all VINECO’s agricultural products. Owning retail system brings great advantages for Vingroup in comparison to the majority of enterprises, which produce safe food but by a passive way because of lacking a solid distribution network of their own products.
The brand name of Hoang Anh Gia Lai group (HAGL) is expected be soon famous in the beef market of Vietnam, thanks for a big plan of clean production and professional market development of the Group for their own beef product. HAGL has joined in the livestock sector since 2008, and have now 120,000 bulls in modern farm system, using specific formula feed. The emphasis in beef production chain of HAGL is that all feed is taken from the other production segments of the HAGL. With the closed material area, HAGL can save about 50% of feed costs compared with market prices, and control feed quality. The group expects that in 2016, the HAGL’s beef brand will be launched to the market through their private store chains instead of selling beef to outside slaughterhouse. This plan will complete their 3F model (Feed - Farm - Food) for beef. This is also the first 3F model for beef product in Vietnam.
Owning complete production chain is the ideal business plan because it helps to ensure the highest quality and stable output throughout the chain as well as to radically reduce intermediate costs and enhance the competitive advantage of enterprises. However, this business strategy is suitable only for large enterprises with strong financial strength. This is understandable because investment in agricultural production is risky, requiring big and long-term capital. Management skills, experiences in multidisciplinary development are also necessary to the smooth implementation of the synchronous steps supply chain.
Besides, in order to implement the investment strategy of complete production chain, owning large enough production land size is a difficult problem for many businesses. HAGL is one of the rare cases having large production land at low cost in Laos. Many others faces now with difficulties in looking for large size production land, e.g. the case of the project for closed supply chain for shrimp tilapia production of Minh Phu Seafood Corporation. Moreover, to be successful, enterprises also need a strong and efficient distribution chain for their own products (Vingroup) or food materials with very low costs (HAGL).
Small business and the trends of linking in the supply chain
In case of small companies with limited capital, the better solution is cooperating with other stakeholders in the supply chain. For example, the Green Food brand is the result of cooperation of members including the Thaiway Feed, the Phuong Hien poultry breeding company, the Tien Phuong livestock company, the livestock and shareholder services cooperative, the Lan Vinh food processing and slaughtering company. These members form a closed supply chain products.
In the field of processed meat and livestock products, Vietnam Limited Company of Animal Products Technology (Vissan), De Heus Company Limited and Fresh Studio Innovations Asia Company (DHFS - Safe Pork) will jointly set supply chain for safe meat. In this supply chain, De Heus is in charge of the supply of animal feed, DHFS supplies domestic animals and livestock herds while the responsibility of Vissan is to ensure safe slaughter and distribution of products to the market.
However, the links between different stakeholders in the supply chain may create a number of potential risks and the linkage may be easily disrupted. On the other hand, the quality - a vital element of the supply chain requires all stakeholders to work for the common goal and keep close cooperation on the basis of protecting the interests for the whole chain.
The weakest segment of the chain is now the distribution. Products of the chain usually only be sold at a small number of outlets, no broad market coverage or to detour through the intermediary distribution channel so that the product becomes less competitive.
Market penetration through M&A
Some businesses use financial tools, acquired food companies in order to quickly dominate the market. We can take the example of the consumer goods conglomerate Masan Group, who acquired Ancon and Proconco-two feeding companies, to become the second biggest company in the feed sector of Vietnam's, with the entire farm system of two processing enterprises to realize the ambition of building the 3F model. Recently, Masan Group has offered sausage products - a product resulted from acquisitions of Proconco and Anco.
Fresh food market with high growth potential is attractive for investors, however, but potential is not without challenges. The rapid increase in the number of businesses involved fresh food market with categories that supply to the market will help consumers have more choices. On the side of the enterprise, the level of risk from the market is still relatively high and the competitive pressure is increasing. To become famous fresh food supplier in the market is not simple, requiring businesses to have long-term resources, conduct coordinated investment, strict application of the production process and persistence in the market penetration.
