Tilte business strategy analysis for vinamilk

Vietnam diary industry analyse1.1.Rivalry According to Euromonitor, Vietnam's dairy market reached VND 135,000 billion by 2020, an increase of 8% compared to 2019, thanks to the rapid gr

Viet Nam Naonal University Ho Chi Minh City ECONOMICS AND LAW UNIVESITY

ESSAY

Semester 1/2022 – 2023 FINANCIAL ANALYSIS

Supervisor: Hoàng Thị Mai Khánh

Tilte:

BUSINESS STRATEGY ANALYSIS FOR VINAMILK

GROUP 5

1 Vietnam diary industry analyse 3

1.1 Rivalry   3

1.2 Potenal of New Entrants Into an Industry · 5

1.3 Power of Suppliers · 5

1.4 Power of Customers · 6

1.5 Threat of Substutes 7

2 Vienamilk’s stategy analyse: Cost leadership 7

2.1 Economics of scale, scope, and learnings 7

2.2 Simpler product designs 8

2.3 Lower L&D 8

2.4 Lower costs of input and distribuon 8

2.5 Ecient organizaonal processes 9

2.6 Ecient producon 9

3 Bussiness analyse 11

3.1 Bussiness overview  11

3.2 SWOT analyse 14

3.2.1 Strengths 14

3.2.2 Weak 14

3.2.3 Opportunity 14

3.2.4 Threat 15

4 Conclusion 15

1 Vietnam diary industry analyse

1.1.Rivalry 

According to Euromonitor, Vietnam's dairy market reached VND 135,000 billion by

2020, an increase of 8% compared to 2019, thanks to the rapid growth of the yogurt and milk segment The commodity industries recorded high growth including water milk (+10%), yogurt (+12%), cheese (+11%), buer (+10%) and other dairy products 8% While powdered milk only increased by 4% in value

The water milk segment will achieve a double growth of 7.7% in sales in the period of  2021-2025 thanks to: The increasing demand for water milk due to schools reopened and the Government promoted the "School Milk Program " - Milk is distributed to preschools and elementary schools, with eorts to improve nutrional and physical stature for children

Vinamilk is sll the leader of diary industry in Vietnam thanks to the system of  factories and farms of this unit consisting of 13 large factories and 160,000 dairy cows, giving this business a dicult producon capacity to catch up with

  Vietnamese milk market share 2021 Vietnamese milk market share 2020 Although Vinamilk is leading in market share, other competors are gradually gaining higher market share over the years TH True Milk increased from 7.2% to 11% during

2020 to 2021, and promises to be a heavy competor to Vinamilk in the future The success of TH True milk in recent years is thanks to the brand posioning of FRESH MILK company The success of TH True milk in recent years is thanks to the brand posioning of FRESH MILK TH True milk besides focusing on improving product quality by enhancing producon process with advanced technology instead of cung costs, they also succeed in adversing their dairy products with associated with the image of pure and healthy milk As income and awareness of health care of  consumers increase, it will lead to an increase in the demand for high-quality milk products

According to EMI, the two main segments driving the growth of the domesc dairy industry are liquid milk and powdered milk with a total market value of about 75%,

of which the value of powdered milk accounts for 45% In the segment of high-value products, which is powdered milk, Vietnamese dairy enterprises lag behind foreign companies According to the 2013 stascs of market research rm Euromonitor Internaonal, foreign rms accounted for about 75% of the powdered milk market share, led by Abbo, followed by Mead Johnson, Dutch Lady, Dumex, and Nestlé Only Vietnam's pride, Vinamilk Company, is able to compete with a market share of  approximately 25%

The low swching costs is also another reason explaining the decline in dairy market share of Vinamilk Therefore, the compeon between exisng dairy rms is high

1.2 Potenal of New Entrants Into an Industry ·

Although Vinamilk is at the top of the milk segment, it has encountered many dicules:

+ Competors such as Nufood, Dutch Lady, TH true Milk and VitaDairy launch new products

+ In the powdered milk segment: NuFood and VitaDairy are gradually gaining a good growth market share because of their low average prices compared to their competors

+ The structure of products sold by Vinamilk is shiing towards low-priced products in the rst 9 months of 2020 Middle and high income groups tend to increase consumpon of high-end products such as Abbo, Friesland Campina, Mead Johnson, Nestle

=> These are the reasons that have a very high compeve potenal compared to Vinamilk

The Vietnam dairy industry is promising with many opportunies With the growth in dairy industry capacity, the urbanizaon, the increasing in income level

so that the awareness about the useful of dairy products of people goes up Therefore, dairy is potenal market in Vietnam that can aract more enterprise to enter However, the cost for producon is quite high, especially the technology to produce UTH/ Pasteurized milk and the dryer for making powder milk Addional, the cost for building the farm is considerable and the quality and quanty of milk material depend much on the land and the weather Those reason will deter new entrant get into the business

1.3 Power of Suppliers ·

The input of Vinamilk Dairy Company includes: imported raw materials and raw materials purchased from farmers raising cows and domesc farms Vinamilk's current imported materials are from USA, New Zealand, and Europe

About imported materials: In recent years, the increasing price of raw materials has also been the cause of increasing producon costs of Vinamilk

At the General Meeng of Shareholders in 2022, the Board of Directors shared the dicules when the price of all input materials increased from 37-40% over the same period

To overcome this, Vinamilk increased by about 5% of the average selling price This can lead to a decrease in consumpon of Vinamilk’s product in the future

 Therefore the risk for power of supplier is considerable

1.4 Power of Customers ·

The domesc material resources will adapt 20 -25 % the domesc demand so that the

Vietnam is sll potenal market for dairy with the consumpon increase considerably

Addionally, Vinamilk is an enterprise that has the good distribuon including 250 execuve distributors and 200000 retailers and provides their products through all supermarkets in domesc, so the approach to customer is easier than others peer However, there are many dairy companies in the market, and the price is more

compeve The customer will move to use the others products if the price of the company set high

According to a survey of dairy consumers by IPSARD, the criterion inuencing the choice of dairy products, up to 80% of consumers decide to use dairy products based

on the criteria of nutrional supply Therefore if the quality of dairy products don’t sasfy the need of the the customers, they may choose another dairy brand that good for their health

 The risk of buyer is high

1.5 Threat of Substutes

The reasons of choosing substute products:

- Cow's milk allergy

- Lactose intolerance The product easily replaces milk but sll fully adds nutrients such as nut milk, soy milk, yogurt, cereal, beverage mixed with milk, etc.These products are formed from the needs of consumers with the desire to use fat-free drinks but sll ensure high nutrional value The threat comes from substute products that can reduce Vinamilk's market share

Especially aer the outbreak of the Covid-19 epidemic, plant-based dairy products became more and more popular and led to compeon between many large and small brands The growth rate is forecast at 5.3% year-on-year and is esmated to reach about $593 billion in revenue by 2023

  However, this impact is sll weak because the substute products have a short shelf life, are not easy to drink and use like Vinamilk milk Beside that a majority of  consumers will connue to choose plant-based milk, because these products have high protein content

2 Vienamilk’s stategy analyse: Cost leadership

2.1 Economics of scale, scope, and learnings

Domesc dairy net sales in 2021 recorded VND 51,202 billion, accounng for nearly 43% of the total revenue of Vietnam's dairy market in general (esmated VND 119,300 billion).Moreover, approximately half of domestic raw fresh milk provide for  Vianmilk, so Vinamilk may control on the price of domestic fresh milk. Parcularly in the liquid milk market, Vinamilk holds a market share of about 40%, according to a report by VnDirect

Aer more than 40 years of launching to consumers, so far Vinamilk has built 14 producon factories, 2 logiscs factories, 3 branches of sales oces, a dairy factory

in Cambodia (Angkormilk) and an oce representave in Thailand In 2018, Vinamilk was one of the Top 200 companies with the best revenue over 1 billion USD in Asia Pacic (Best over a billion)

The widest distribuon system in the country with a network of 240 distributors and over 140,000 sales points covering 64/64 provinces Sales through all Supermarkets naonwide Vinamilk products are also exported to many countries in Australia, Cambodia, Iraq, the Philippines and the US

CEO of Vinamilk said that by 2025, the total domesc revenue of Vietnam's dairy industry is esmated at 136,000 billion VND, of which Vinamilk strives to reach 86,000 billion VND, equivalent to more than 63%

2.2 Simpler product designs

Vinamilk has focused on designing new and appropriate packaging designs Packaging design is simple with white and blue tones making

up the majority

In parcular, Vinamilk is a pioneer in packing milk into Fino (bag milk) bags Considering the specic condions in Vietnam, businesses have 2 advantages: Firstly, the cost of bag packaging is cheaper than box packaging, helping to reduce producon costs Secondly, the important thing is that the selling price of milk has been reduced to consumers compared to box packaging

2.3. Lower L&D

Research and development is the extremely importance activities for food production, especially dairy products that require the absolutely accurate criteria Vinamilk has a good research and development department with highly qualified staffs and the research methodological and technical is upgrade to meet the international standard Besides, Vinamilk coordinate closely with the national institution of nutrition and

other nutrient and medical centers like DMS, ARLA, and so on to perfectly complete the standard quality for milk’s products The research and development is also the  place to examine the characteristic of raw material to build up suitable standard for  reserve and using them For the existing products, this department always checks again the quality to enhance the value of those products Moreover, with the trait  point of raw material, Vinamilk investigate the new ingredient along with the tendency of customer to create the new products that satisfy the demand of users and exploit maximize the value of dairy products.

2.4 Lower costs of input and distribuon

To reduce the product cost Vinamilk has focused on expanding dairy cow farm and limited producon with imported powdered milk to help reduce costs in Vietnam Vinamil has 13 large factories and 160,000 dairy cows, giving this business a dicult producon capacity to catch up with

Currently the company has 2 distribuon channels:

Distribuon through tradional channels: (220 independent ferry operators in 64 provinces and cies and more than 200,000 retail points naonwide) distribute more than 80% of the company's output Vinamilk has opened 14 product showrooms in major cies

Distribuon through modern channels: (supermarket system, Metro, Coopmart ) Vinamilk has the advantage through a system of invested dairy factories in many localies throughout the country With a network distributed evenly throughout the country as well as other direct channels such as: hospitals, supermarkets, schools Vinamilk has the ability to transfer disadvantages from external suppliers to customers

Vinamilk have strong distribution channel to assess both urban and rural residence With the development on distribution channel, Vinamilk will keep the quality of products to  bring the healthy one to the user and can expand their products to the rural area In 2012, Vinamilk conduct to building the sale online system by associating with Viettel Company By doing that, the product’s information is more instant to approach customers It is anticipated that this system will help Vinamilk improve the operational management on retailer and distributor and can control strictly sales volume

2.5 Ecient organizaonal processes

According to Vinamilk's organizaonal structure chart, the company's levels are straed in the following order: supreme management level, intermediate management level, grassroots management level and employee level

- Divisions in the organizaonal structure of Vinamilk will receive direct instrucons from a superior leader This means that the work is centralized in

a single point, employees can easily exchange and report

- The company's sta will fully promote the advantages of specializaon in each funcon and posion

- The clear decentralizaon helps the HR department to simplify the training of  human resources

- The transparent organizaonal structure facilitates the closer and more connuous inspecon of daily work

2.6 Ecient producon

Producon line technology: The applicaon of scienc and technical advances to milk producon in order to improve the designs and packaging, increase the variety and quality of products, and improve compeveness with other dairy products Vinamilk has used many types of modern technology in the world, with high investment costs and high cost, such as: - UHT high-temperature sterilizaon technology to produce milk

Vinamilk focuses heavily on informaon technology and is currently successfully applying ERP Oracle EBS 11i, SAP CRM (customer relaonship management system) and BI (informaon system soware)

Vinamilk also investst in the training and improvement of managerial capacity for managers and energy managers in key energy-using units on economical and ecient use of energy

In input material Vinamilk aims at expanding and enhancing producvity in livestock acvies to meet the growing demand for raw milk The roadmap for supplying raw milk for the period of 2019-2021 is as follows:

In order to achieve this roadmap, the exisng farms such as Tay Ninh and Organic in

Da Lat and Thong Nhat - Thanh Hoa farms are completed in construcon and expanded Moreover, the orientaon of developing more farms in Laos, Quang Ngai and some localies with appropriate soil