Marketing strategy for asia food ingredient company in launching non dairy creamer 20112015 master project in business administration phan bao thuy tran ; nguyen thi mai trang advisor ho chi minh city ho chi minh

Giving the fact that there are huge opportunities in Vietnam for NDC products especially in instant coffee segmentation, it is the right time for AFI to make an investment in building th

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TRƯỜNG ĐẠI HỌC MỞ TP.HCM UNIVERSITÉ LIBRE DE BRUXELLES

HO CHI MINH CITY OPEN UNIVERSITY SOLWAYS BRUSSELS SCHOOL

PHAN BẢO THỦY TRÂN

MARKETING STRATEGY FOR ASIA FOOD

INGREDIENT COMPANY IN LAUNCHING

NON-DAIRY CREAMER

2011-2015

MASTER OF BUSINESS ADMINISTRATION

HO CHI MINH CITY

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COMMITMENT

I’d like to confirm for my thesis and the content was written by myself with information studied and obtained from reliable sources I undertake this is my own research project, all information, data and survey results are true and never announce in any other research projects

HoChiMinh City, 11 December 2010

Phan Bao Thuy Tran

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ACKNOWLEDGEMENTS

First of all, I would like to express my gratitude to the support and guidance from my tutor,

Dr Nguyen Thi Mai Trang I appreciate her dedicated guidance and encouragement to fulfill this final project Without her, my project would not have been completed

My grateful acknowledge is extending to Professors from the Solvay Business School and Open University of HCMC for all support throughout the whole program Thanks to Dr Tran Anh Tuan, Mrs Bui Phan Bao Tran, Co-director and Co-ordinator of Vietnam-Belgium program for organizing the program My thanks are also to Mr Serge Bywaski, the enthusiastic co-ordinator, who has been together with us throughout the MBAVB3 course

I would like to express my sincere thanks to Mr Nguyen Thien Truc, General Director of Asia Food Ingredient, for his advices for my thesis I also would like to extend my gratitude to colleagues, Mr Huynh Thanh Lam – Sales Manager in ACC Joint Stock Company, Ms Dang Ngoc Thuy – Sales Executive in ACC, Mr Le Nguyen Doan Khoi, Mr

Le Duy and many customer of different companies who have spent time answering the questionnaires to understand the food market

Last but not least, I wish to express my love and gratitude to my friends in Group 1, my family for supporting me during past 2 years of the course Also, my honest gratitude is conveyed to my best classmate Le Phong Dinh for his encouragement to me and invaluable assistance in whole process of final project

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EXECUTIVE SUMMARY

AFI is a new start up factory in Vietnam as the pioneer in NDC production, was given business license in 2008 and located at My Phuoc industrial park in Binh Duong Province The company is the joint-venture of ACC and Vinamilk, the first NDC producer in Vietnam to invest modern technologies from Europe

Giving the fact that there are huge opportunities in Vietnam for NDC products especially

in instant coffee segmentation, it is the right time for AFI to make an investment in building the factory to meet the local market demand on NDC which is imported from oversea so far As the pioneer in NDC, it is always difficult to penetrate into the market to build up the brand name and can gain market share from existing imported NDC competitors The thesis then goes deeply into analyzing the internal and external environment of the company to find the best marketing strategies for the company

The thesis conducts an external environment assessment to figure out the opportunities and threats Following the external assessment, an internal environment analysis is conducted

to illustrate the strengths and weakness of the company The 4Ps strategy is chosen to build

up marketing strategies for AFI based on the assessment of the company‘s SWOT

Making the thesis more realistic and result-oriented, a customer survey and a depth interview of top management, salesperson in AFI and ACC have been conducted The results of the surveys and information collected are consolidated and refer to the company SWOT’s analysis to figure out 4Ps strategies and some recommendations have been suggested to build up marketing strategies for the company

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TABLE OF CONTENT

COMMITMENT i 

ACKNOWLEDGEMENTS iv 

EXECUTIVE SUMMARY v 

TABLE OF CONTENT vi 

LIST OF ABBREVIATIONS ix 

LIST OF FIGURES x 

LIST OF TABLES xi 

INTRODUCTION 1 

RATIONALE OF THE PROJECT 1 

PROBLEM STATEMENT 2 

PROJECT OBJECTIVE 2 

PROJECT QUESTION 2 

SCOPE AND LIMITATION OF PROJECT 3 

SIGNIFICANT OF THE PROJECT 3 

STUDY METHODOLOGY 3 

CONCEPTUAL FRAMEWORK 3 

SAMPLING 4 

STRUCTURE OF THE PROJECT 5 

CHAPTER 1: LITERATURE REVIEW 6 

1.1  Marketing definition 6 

1.2  Role and function of marketing 6 

1.3  Target consumer, market segmentation and positioning 7 

1.4  Customer buying behavior 8 

1.5  Marketing Mix 10 

1.6  SWOT analysis 11 

1.7  External environment analysis 11 

1.8  Internal environment analysis 11 

1.9  Strategy Formulation 12 

CHAPTER 2: ANALYSIS OF AFI’S EXTERNAL ENVIRONMENT 13 

2.1.  Introduction of Non-dairy creamer (NDC) 13 

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2.1.1  Non-dairy creamer definition 13 

2.1.2  Non-dairy creamer characteristic and its component 13 

2.1.3  Non-dairy creamer’s benefits and applications 14 

2.2.  Macro environment analysis 15 

2.2.1  Economic factors 15 

2.2.2  Demographic and income 16 

2.2.3  Social-cultural 16 

2.2.4  Food industry overview 17 

2.2.5  Beverage and drinking overview 17 

2.2.6  Coffee outlook 18 

2.2.7  SWOT analysis of beverage industry in Vietnam 18 

2.3.  Micro environment analysis 20 

2.3.1  Non-dairy creamer market overview in Vietnam 20 

2.3.2  Competitors analysis 21 

2.3.3  Customer analysis 25 

2.3.4  Buying behavior 27 

2.3.5  Supplier analysis 28 

CHAPTER 3: ANALYSIS OF AFI’S INTERNAL ENVIRONMENT 29 

3.1.  Introduction of AFI 29 

3.1.1  AFI history 29 

3.1.2  Stakeholder analysis 29 

3.1.3  Organization structure 29 

3.1.4  Vision & Mission 31 

3.1.5  Competitive advantages 31 

3.1.6  Technology 32 

3.1.7  SWOT analysis 33 

CHAPTER 4: MARKETING S TRATEGY FOR AFI’S NDC PRODUCT 36 

4.1  Company Goal 36 

4.2  Marketing objectives 36 

4.2.1  Break-even point 36 

4.2.2  Short-term 36 

4.2.3  Long-term 36 

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4.3  Marketing strategy formulation 37 

4.3.1  Cost leadership 37 

4.3.2  Brand strategy 38 

4.3.3  Market segment 38 

4.3.4  Target market strategy 39 

4.3.5  Positioning strategy 39 

4.4  Marketing program 40 

4.4.1  Product strategy 40 

4.4.2  Price strategy 40 

4.4.3  Distribution strategy 42 

4.4.4  Promotion strategy 43 

4.5  Budget and Implementation plan 46 

REFERENCES 49 

APPENDIX 50 

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LIST OF ABBREVIATIONS

SME Small and Medium Enterprise

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LIST OF FIGURES

Figure A: Thesis model 4 

Figure B: Project research process 4 

Figure 1.1: A model of business buyer behaviour 9 

Figure 1.2: The four P components of the marketing mix 11 

Figure 2.1: The relation of GDP and inflation in Vietnam (2004-2010) 15 

Figure 2.2: The quantity of NDC were imported from 2005-2010 21 

Figure 2.3: Lanscape of main competitors’market share, 24 

Figure 2.4: The marketshare of using NDC from end-consumers 26

Figure 2.5: The evaluation result of NDC suppliers from customers 28

Figure 3.1: Organization chart of AFI 30 

Figure 3.2: The process of producing NDC 33 

Figure 4.1: The marketshare of NDC consumption by application 39 

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LIST OF TABLES

Table 1.1: Steps in a business buying decision 10 

Table 2.1: Ingredients constitute non-dairy creamer 14 

Table 2.2: Food consumption indicators - Data & Forecasts 17 

Table 2.3: Food and Beverage commercial indicators - Data & Forecasts 17 

Table 2.4: Production and consumption of coffee in Vietnam 18 

Table 2.5: Total demand of NDC was imported monthly in 2010 23 

Table 2.6: The total demand of NDC from end-customers 26 

Table 3.1: Summary of SWOT analysis 35 

Table 4.1: Break-event point 36 

Table 4.2: Segmentation of NDC market by product application 38 

Table 4.3: Net cost price for NDC production 41 

Table 4.4: The selling price from some NDC suppliers in Vietnam 42 

Table 4.5: Implementation plan 47 

Vietnam’s Non-dairy creamer (NDC) product consumption grew from about 4,900MT of NDC in 2005 to 12,000MT in 2009 The growth rate was estimated at about 25-30% per annum The main source of this product in Vietnam market is imported from Thai Lan, Indonesia, Malaysia, China during many last years

Over the next 5 years, it is forecast to be the ASEAN region’s fastest growing economy, with rates of between 6% and 8% per annum This growth will be driven by new foreign investment in businesses that create new jobs for the Vietnamese, and positively booming local demand for consumer products, including processed food and drinks It will further boost household incomes in Vietnam that will result in another boom in demand for locally produced and imported raw materials

Recognition the needs of producing domestic raw materials will develop in next 5 years, AFI saw through this opportunity and decided to invest the first factory to produce NDC

by modern technology worldwide With the aiming to meet local demand of NDC, AFI also want to utilize some local advantages such as labor force, tax preference to bring the benefits to Vietnamese

This study was performed to identify competitors, customers, market environment and build the marketing strategy for NDC’s development from 2011-2015

RATIONALE OF THE PROJECT

Asia Food Ingredient (AFI), the joint-venture with ACC and Vinamilk, was set up since

1998 This is the first and pioneer manufacturer producing cream powder or non-dairy

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creamer (NDC) used for foods and beverage such as instant coffee, milk tea, chocolate drink, bakery, soup etc

In Vietnam, the demand of consuming food and beverage is increased year by year In

2010, around 1,500 to 2,000 MT/month imported NDC are consumed in Vietnam market

At present, all NDC used by local companies are imported from Thailand, China, Indonesia and Malaysia With such growing demand for NDC, the establishment of a local company to produce NDC is seen to be a great success

Therefore, aiming to penetrate into the market and sustain in long term, the requirement of AFI must have the marketing strategy to build awareness and company brand name to customer’s mind

PROBLEM STATEMENT

As a pioneer manufacturer producing NDC in Vietnam, AFI should be faced many challenges at the beginning because very few of customers know about AFI’s brand name and product quality Market awareness is the biggest problem and challenges for AFI as a mission have to succeed The company has to fight against many competitors who experienced long time ago in Vietnam market such as Kerry, Kievit, Thailand and Chinese company Therefore, AFI has to build the marketing strategy to penetrate the NDC market and make customers to recognize and acknowledge the AFI’s image

This project has to define the following questions:

- What is the competitive environment of NDC market in Vietnam?

- Who are the key players driving the market? What are their SWOT?

- Who are the company target customers? What are their behaviours, buying decision and process?

- How to build a marketing strategy to position AFI’s brand awareness?

- What are the company strategies in terms of product, price, distribution, promotion, service?

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SCOPE AND LIMITATION OF PROJECT

With the limitation of time, I just focus on building the marketing strategy for AFI’s Non dairy creamer in B2B customers, particularly manufacturers in food and beverage

SIGNIFICANT OF THE PROJECT

This particular project have important role to the managements and sales team of AFI It can help to have better understanding of the external and internal environment, competitor, market demand, customer’s behavior toward non-dairy creamer product

Primary data was collected by in-depth interview and a survey questionnaire The target interviewees for in-depth interview are the top management and sales person from AFI, ACC, Trung Nguyen, Vinacafe The question for qualitative information is described in Appendix 1 with the purpose to identify customer needs, explore perceptions, generate idea and describe behaviour

The quantitative information was conducted by doing survey 30 selective companies in food and beverage producer to understand their business buying behaviour and expectation

on NDC product The questionnaire also aim to define the position of competitors and then help to build a suitable launching marketing strategy

CONCEPTUAL FRAMEWORK

The model of this study is the business strategic - planing process as described

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Figure A: Thesis model

Source: Kotler et al (2002, p.29)

The marketing research process also follow: define the problem (set research objective); develop research plan (identify needed data, determine how to collect data); collect relevant infomation (qualitative, quantitative); develop findings (analyze data, present result); take marketing actions (implement recommendations, evaluate results)

Marketing research process as following:

Figure B: Project research process

SAMPLING

Characteristics of data sample are the participants for the survey are identified and selected

on the following criteria:

- For conducting questionnaire survey, customers or companies have consumed Non-dairy creamer product such as purchasing department, R&D department, manager from some company in coffee and food manufacturers such as Trung Nguyen, Vinacafe, Nutifood, Bibica, Bich co, ect

- Another target group for in-depth interview are management and salesman of AFI, ACC company

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- This project is studied in B2B, so the sample size was able to conducted with 30 selective companies for questionnaire survey

STRUCTURE OF THE PROJECT

This study report is presented in four chapters as follow:

Introduction part provides a brief introduction to food and beverage industry, overview

of AFI company, the project problem, project objectives, scope of the study and structure

of the study

Chapter 1 - Literature Review provides some conceptual definitions of marketing and its

function Also it define segment and target market, customer behavior Introduction of marketing mix and strategy formulation which can be applied during the study

Chapter 2 – Analysis of AFI’s external environment introduces non-dairy creamer

product and its benefit as well as application Then it describe external macro environment analysis including GDP, income, culture, food and beverage overview, coffee, SWOT industrial analysis In micro environment analysis, it give information of competitive analysis customer and supplier analysis

Chapter 3 – Analysis of AFI’s internal environment presents the description of AFI

organization structure, vision, mission, competitive advantage, SWOT analysis

Chapter 4 – Marketing strategy for AFI’s NDC product describe company marketing

objective, market segmentation, target market and positioning product Then build strategy formulation and marketing program with 4Ps, implementation, budget, break-even point

Conclusions and Recommendations summarizes and discusses the key findings of

marketing strategy, then suggests recommendations for the development of NDC to entrance the market in long-term

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CHAPTER 1: LITERATURE REVIEW

The marketing concept holds that the key to achieving organizational goals consists of the company being more effective than its competitors in creating, delivering, and communicating customer value to its chosen target markets

The marketing management are as the analysis, planning, implementation and control of programmes designed to create, build and maintain beneficial exchanges with target buyers for the purpose of achieving organizational objectives Thus, marketing management involves managing demand, which in turn involves managing customer relationships

1.2 Role and function of marketing

1.2.1 Function of marketing

Theodore Levitt of Harvard drew a perceptive contrast between the selling and marketing concepts: “Selling focuses on the needs of the seller; marketing on the needs of the buyer Selling is preoccupied with the seller’s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.”

The selling concept takes an inside-out perspective It starts with the factory, focuses on existing products, and calls for heavy selling and promoting to produce profitable sales The marketing concept takes an outside-in perspective It starts with a well-defined market, focuses on customer needs, coordinates activities that affect customers, and produces profits by satisfying customers

1.2.2 Role of marketing towards corporate

Marketing plays a key role in the company's strategic planning in several ways First,

marketing provides a guiding philosophy - company strategy should revolve around

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serving the needs of important consumer groups Second, marketing provides inputs to strategic planners by helping to identify attractive market opportunities and by assessing the firm's potential to take advantage of them Finally, within individual business units,

marketing designs strategies for reaching the unit's objectives

Within each business unit, marketing management determines how to help achieve strategic objectives Marketing plays an important role in strategic planning It provides information and other inputs to help prepare the strategic plan Strategic planning is also the first stage of marketing planning and defines marketing’s role in the organization The strategic plan guides marketing, which must work with other departments in the organization to achieve strategic objectives

Customers are attracted by promises and held by satisfaction Marketing defines the promise and ensures its delivery However, because actual consumer satisfaction is

affected by the performance of other departments, all functions should work together to

sense, serve and satisfy customer needs Marketing plays an integrative role in ensuring that all departments work together towards consumer satisfaction

There are three stages of strategic marketing planning: first, the strategic plan and its implications for marketing; secondly, the marketing process; and thirdly, ways of putting the plan into action

1.3 Target consumer, market segmentation and positioning

1.3.1 Target consumer

To succeed in today's competitive market place, companies must be customer centred - winning customers from competitors by delivering greater value However, before it can satisfy consumers, a company must first understand their needs and wants So, sound marketing requires a careful analysis of consumers

Companies know that they cannot satisfy all consumers in a given market - at least, not all consumers in the same way There are too many kinds of consumer with too many kinds of need, and some companies are in a better position to serve certain segments of the market

As a consequence, each company must divide the total market, choose the best segments and design strategies for profitably serving chosen segments better than its competitors do This process involves five steps: demand measurement and forecasting, market segmentation, market targeting, market positioning and competitive positioning

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1.3.2 Market segmentation

If the demand forecast looks good, the company next decides how to enter the market The market consists of many types of customers, products and needs The marketer has to determine which segments offer the best opportunity for achieving company objectives Consumers are grouped in various ways based on geographic factors (countries, regions, cities); demographic factors (sex, age, income, education); psychographic factors (social classes, lifestyles); and behavior factors (purchase occasions, benefits sought, usage rates) The process of dividing a market into groups of buyers with different needs, characteristics

or behaviour, who might require separate products or marketing mixes, is market segmentation

1.3.3 Positioning

After a company has decided which market segments to enter, it must decide what 'position' it wants to occupy in those segments A product's position is the place the product occupies in consumers' minds If a product were perceived to be exactly like another product on the market, consumers would have no reason to buy it

Market positioning gives a product a clear, distinctive and desirable place in the minds of target consumers compared with competing products Marketers plan positions that distinguish their products from competing brands and give them the greatest strategic advantage in their target markets

1.4 Customer buying behavior

1.4.1 Definition

All buying decisions, whether personal or on behalf of an organisation, are made by

people, and, though it may often seem to be irrational, buying behaviour is , on the whole,

purposeful and goal-directed Understanding the buying behaviour of its customers is crucial to a firm's success The firm that can anticipate how its potential customers will respond to its marketing strategies will have a competitive advantage

Generally, buyers are classified either as consumers or business buyers Consumer

behaviour has been defined by Summers et al (2003, p 24) as:

Processes a consumer uses to make purchase decisions as well as to use and dispose of purchased goods and services; also includes factors that influence purchase decisions and the use of products

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Contrast this definition with that which Summers et al (2003, p 67) provide for to-business marketing:

business-The marketing of goods and services to individuals and organizations for purposes other than personal consumption So the basic distinction between the two is whether or not the purchase is for personal consumption

1.4.2 B2B Business buying processes

Kotler provided a useful model of business buyer behaviour as below

Figure 1.1: A model of business buyer behaviour

Source: Kotler et al (2004, p 288)

The buying centre concept is useful in understanding the various influences on the

business buying process The business marketer, such as a port, terminal or shipping service, needs to be aware that in any purchasing situation there is not only the buyer, but users, influencers, deciders and information gatekeepers as well These are discussed for you on pages 292-293 of Kotler et al (2004) All these roles comprise the buying centre, and its size and composition vary depending on the nature of the purchase as well as the type of business

The buying decision process has a number of major steps that vary from text to text The

following table, as you will observe, has close counterparts to consumer buying:

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Table 1.1: Steps in a business buying decision

1 Anticipate or recognize a problem/need/opportunity and a general solution

2 Determine the characteristics and quantity of a needed good or service

3 Describe precise product specifications and critical needs

4 Search for and qualification of potential sources

5 Acquisition and analysis of proposals

6 Evaluation of proposals and selection of suppliers

7 Selection of an order routine

8 Performance feedback and evaluation

Source: Based on Boone and Kurtz (2005, pp 299-301)

1.5 Marketing Mix

Marketing mix according to Kotler er al (2001, p13) is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market As shown in Figure 4, McCarthy classified these tools into four broad groups that he called the four Ps of marketing: product, price, place, and promotion

Robert Lauterborn suggested that the sellers’ four Ps correspond to the customers’

four Cs.14

Product Æ Customer solution

Price Æ Customer cost

Figure 1 2: The four P components of the marketing mix

1.6 SWOT analysis

The SWOT analysis is the overall evaluation of a business’s strengths, weaknesses, opportunities, and threats SWOT analysis consists of an anlysis of external and internal environments

1.7 External environment analysis

There are many factors affect of company business to earn profit, a business unit has to monitor key macroenvironment forces (demographiceconomic, technological, political-legal and social-cultural) and microenvironment factors (customers, competitors,

distributors and suppliers)

1.8 Internal environment analysis

It is one thing to discern attractive opportunities and another to have the competencies to succeed in these opportunities Thus, each business needs to periodically evaluate its internal strengths and weaknesses in marketing, financial, manufacturing, and organizational competencies Clearly, the business does not have to correct all of its weaknesses, nor should it gloat about all of its strengths The big question is whether the

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business should limit itself to those opportunities in which it possesses the required strengths or consider better opportunities to acquire or develop certain strengths

1.9 Strategy Formulation

According to Kolter et al (2001, p.31), goals indicate what a business unit wants to

achieve; strategy describes the game plan for achieving those goals Every business

strategy consists of a marketing strategy plus a compatible technology strategy and sourcing strategy Although many types of marketing strategies are available, Michael Porter has condensed them into three generic types that provide a good starting point for strategic thinking: overall cost leadership, differentiation, or focus

➤ Overall cost leadership: Here the business works to achieve the lowest production and

distribution costs so that it can price lower than competitors and win more market share Firms pursuing this strategy must be good at engineering, purchasing, manufacturing, and physical distribution; they need less skill in marketing

➤ Differentiation: Here the business concentrates on achieving superior performance in an

important customer benefit area, such as being the leader in service, quality, style, or technology—but not leading in all of these things

➤ Focus: Here the business focuses on one or more narrow market segments, getting to

know these segments intimately and pursuing either cost leadership or differentiation within the target segment

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CHAPTER 2: ANALYSIS OF AFI’S EXTERNAL ENVIRONMENT

2.1.1 Non-dairy creamer definition

Non Dairy creamer are liquid or granular substances intended to subsitute for milk or cream as an additive to coffee or other beverages They do not contain lactose and are therefore not dairy products, is suitable for some people are allergic They impart a desirable cream-like flavour, as well as the desired body, flavour and colour to the food Non-dairy creamers have several advantages over the dairybased creamers, including:

• Longer shelf-life

• Ease of storage and handling

• Lower cost of production

2.1.2 Non-dairy creamer characteristic and its component

Nestle coffee-mate, introduced in 1961, was the first powdered non-dairy creamer To replicate the mouthfeel of milk fats, non-dairy creamers often contain vegetable-based fats Each ingredient in a non-dairy creamer formulation serves a characteristic function which, when combined, optimally assists in producing a superior non-dairy creamer The functions of each major component are briefly described below:

Vegetable fat: generally from 20-80%, used in place of milkfat Give the creamy texture, rich flavor and opacity

Sweeteners: Corn syrup, glucose syrup or maltodextrins are most commonly used Sodium caseinate: A milk protein which gives opacity, solubility, heat stability, a mild dairy flavour and rich mouth feel

Emulsifiers and stabilisers: Mono- and di-glycerides play the main emulsifying role in dairy creamers; helping to create a simple oil-in-water emulsion Lecithin is also often used

non-in powdered creamers, maknon-ing the product soluble even non-in lukewarm beverages

This is percentage of the main ingredients to produce NDC:

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Table 2.1: Ingredients constitute non-dairy creamer

Non-dairy creamers substitute for milk or cream, primarily in hot beverages such as coffee

and tea Advantages of non-dairy creamers include their convenient packaging, long

shelf-life and the fact they contain no lactose or milk sugar, an important feature for

lactose-intolerant individuals

Unlike milk and cream products from animals, non-dairy creamers contain no cholesterol

Cholesterol builds up on the inside of your arteries, contributing to blockages that lead to

heart attacks While some factors such as genetics contribute to your overall cholesterol

level, eating cholesterol-rich foods, such as cream or high-fat milk, can also increase your

levels If you have high cholesterol, your doctor may recommend eating less fat and

cholesterol from meat and dairy products to help lower it Substituting the cream or milk in

your coffee with a cholesterol-free non-dairy creamers can help lower your cholesterol

levels Most major brands of non-dairy creamers, such as Coffee-Mate, Coffee-Rich,

Safeway brand, Hood, Hannaford and Anthem are all cholesterol-free

Applications

Non-dairy creamers are used in a wide range of applications, besides their traditional use

for instant drinking as whitener in coffee 3 in 1 which contain 35-40% of NDC and tea

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include of 18-20% of NDC It is also being used more and more in many other products as well such as formulated milk powder, ice cream, bakery, confectionary industry like candy, chocolate, pudding Non dairy creamer even can be used in the industry of instant noodle, instant food soup seasoning and baked goods

2.2.1 Economic factors

Vietnam’s gross domestic product (GDP) growth rates in the first nine months of 2010 was posted at 6.52 percent over the same period of last year, according to the statistics released

by ministry of planning and investment

Figure 2.1: The relation of GDP and inflation in Vietnam (2004-2010)

GDP growth and Inflation in Vietnam (2004-2010)

GDP growth (%) Inflation (%)

Source:Vietnam statistics data, www.gso.gov.vn

This is the first time that Vietnam has reported achieving GDP growth rate of over 6.5 percent within this year In details, within the period of January-September, GDP growth in agriculture, forestry and seafood sector surged by 2.89 percent, industry and construction

up 7.29 percent and services of 7.24 percent

Vietnam's inflation rate this year may stay below 7 percent, below earlier government as forecasted Vietnam government's inflation targets for this year to 8 percent from 7 percent, and the central bank will increase liquidity in the economy by boosting money supply The monthly consumer price index in January-August rose an average 8.61 percent from a year ago, while annual inflation in August eased to 8.18 percent from 8.19 percent

in July and 8.69 percent in June 2010

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Government urged businesses to pay more attention to expanding retail sales in order to stabilize domestic markets in the remaining months of this year and avoid unexpected price changes caused by intermediaries and central bank devaluation of the dong did not affect the country's consumer price index The Vietnamese government has also projected inflation next year at around 7 percent and the economic growth at 7.5 percent

For GDP, Vietnam expects economic growth to pick up from next year The main task for 2010's socio-economic development plan is to try to achieve a GDP growth of 6.5-7 percent Vietnam’s government proposed the gross domestic product targeting for this year be lowered to about 5 percent, although it’s expected to be be a difficult mark to hit as the global economic recession pushed the Southeast Asian country's first quarter GDP growth to its lowest level in years

Last year, GDP growth was 6.2 percent and in 2007 it was 8.5 percent Vietnam is also setting an economic growth target of between 7 and 8 percent a year in the 2011-2015 period, lowering by half a percentage point the floor of the range as compared with its target for the previous five years Vietnam's economy grew at an average annual rate of 7.5 percent between 1996 and 2005, according to the Ministry of Planning and Investment and Vietnam government target for gross domestic product growth in the five years from 2006

to 2010 was 7.5 percent to 8 percent

2.2.2 Demographic and income

The feature of today's Vietnam is a young population with high density Household income

in recent years has also been improved, hence the quality of life is higher than before In the future, Vietnam will become a potential market for branded products of food and beverage to ensure food safety and sanitation

With average economic growth of 7.3% per year over the past 10 years, the proportion of middle class population is increasing in Vietnam, followed by increasing consumer demand for food According to the reports of BMI, there was more optimistic assessment about Vietnam's growth that reached 4.4% compared with the initial forecast of 2.9% Vietnam will return to growth trajectory in 2011

2.2.3 Social-cultural

In today's modern life, people are increasingly busy with more work, so they will tend to choose fast and convenient food and beverage products like instant noodles, coffee, tea etc

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2.2.4 Food industry overview

Business Monitor International (BMI) has studied food consumption data in Vietnam in the second quarter of 2008, together with data on household expenditure from General Statistics Office (GSO) These figures reflect expenses on food and beverage GSO also provided other information sources to have the most accurate assessment of the prospects

of food consumption in Vietnam from 2006 to 2014

Table 2.2: Food consumption indicators - Data & Forecasts

Food consumption

(USD billion) 11,23 12,75 14,6 14,35 14,68 16,75 19,13 21,75 24,75 Food consumption

per capita (USD) 133,1 148,9 168,3 163,1 164,6 185,3 208,8 234,3 263,1 The total food

consumption

growth (annual) 13,12 13,49 14,58 6,36 7,74 14,19 11,16 10,62 10,58 Growth of food

consumption per

capita (annual) 11,51 11,9 13 4,92 6,29 12,66 9,68 9,17 9,09 Food consumption

(% GDP) 18,94 18,31 16,23 15,51 14,92 15,14 15,1 14,91 14,8

Excluding beverage consumption e / f - estimated / forecasted data of BMI

Source: General Statistics Office Vietnam, BMI

2.2.5 Beverage and drinking overview

The key elements that positively impact non-alcoholic beverage industry include: economic growth, urbanization process, foreign investment and tourism development Although consumers in Vietnam are still quite interested in healthy lifestyle and despite Western influences affecting consumption habits, BMI believe that canned non-alcoholic beverage will gain highest growth in the beverage industry in Vietnam from now to 2014

Table 2.3: Food and Beverage commercial indicators - Data & Forecasts (USD million)

2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f Export 8,097 9,074 10,585 9,706 10,747 11,833 13,050 14,412 15,938Import 2,693 3,065 3,479 3,206 3,502 3,804 4,136 4,501 4,903Trade

balance 5,404 6,010 7,106 6,500 7,245 8,029 8,914 9,911 11,036

e/f = BMI estimation/prediction Source: UNCTAD, BMI

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2.2.6 Coffee outlook

Though Vietnam is a major exporter of coffee and second only to Brazil, our coffee industry only has advantages in exports while domestic consumption accounts for only a

very small proportion of primarily urban However, with the industry's efforts in increasing

value and profitability, domestic consumption tends to increase and is predicted to occupy

about 10% of total crop output in 2009 The stability of coffee price in the world has created more opportunities for farmers and exporters of coffee in Vietnam, contributing

about 42% of total output in the period 2004 to 2008 Also during this period, domestic

consumption has increased 3 times

Opportunities still open to coffee producers in Vietnam GDP strong growth has boosted

the demand for foods and beverages In addition, Vietnam's population is quite young, so

the habit of going to coffee shops is more and more popular BMI is forecasting that the

sales of beverages (including coffee and tea) will continue to rise by 67.6% in value during

the period 2009 to 2014 thanks to people’s consumption habit as well as advertising campaigns and marketing businesses

Table 2.4: Production and consumption of coffee in Vietnam

Notes: *: estimated; **: forcasted; Sources: USDA, Vicofa, BMI ,

2.2.7 SWOT analysis of beverage industry in Vietnam

Strengths:

Consumers in Vietnam, especially the young and wealthy, pay more and more attention to

the product brand Currently, the known products of the western countries, with strong investment in marketing programs and promotions, are very popular in Vietnam market

The luxury urban centers of Hanoi and Ho Chi Minh City is becoming a market of potential customers and customers are more interested in the quality of the products and

ready to pay more for better healthy drinks and target with branded products

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Weaknesses

There is great disparity in income between urban and rural areas, creating the difference in consumption based on income

Food processing industry in general is still very fragmented, except in some key areas such

as dairy and confectionery

Infrastructure of Vietnam is still weak Roads, railways and ports do not meet the

economic growth of the country as well as links with the outside world

Opportunities

Vietnam’s joining WTO in January 1/2007 will continue to be profitable for the exporters

of Vietnam by gradually removing market barriers and trade restrictions to increase competition

Large domestic market, increased export opportunities, low labor costs along with the successful privatization of food companies offer many more investment opportunities in Vietnam

The tourism industry which is booming increases profits for all kinds of packaged convenience goods in general, including alcoholic beverages and soft drinks

Consumers’ income increase means that branded beverage products bring more growth opportunities, especially alcoholic beverages and soft drinks

The general trend that consumers worldwide are moving towards is to ensure their health Grasping this opportunity, beverage manufacturers have diversified products that are

beneficial to consumer’ health

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2.3 Micro environment analysis

2.3.1 Non-dairy creamer market overview in Vietnam

Vietnam is quickly becoming a top sourcing destination for the industry’s leading companies and the most rapidly developing market in Asean region As statistic report, ingredients consumption increased by over 40% in Vietnam in the last five years The processed food industry is growing by 28% annually The retail sector is expanding rapidly, fuelled by increasing consumer awareness and purchasing power Therefore, The Vietnamese economy is growing at an impressive 7.2% per annum and 34% of average growth rate in processed food consumption over the last 5 years

The demand for non-dairy creamer is increasing in the world, especially in South East Asia and Vietnam In Vietnam, around 1,500 to 2,000 tons/month imported NDC are consumed

in Vietnamese market and the growth rate is 25-10% per annum as the ACC’s internal estimation

Moreover, Vietnam is one of the biggest exporters of instant coffee in over the world Therefore, the demand of NDC for producing export processing coffee will increase At present, all NDC used by local companies are imported from Thailand, China, Indonesia and Malaysia There’re always a shortage of supplying NDC in domestic Hence, the demand of NDC will be predicted surely increase in next 5 years and the establishment of a local company to produce NDC like AFI is seen to be a great opportunity as a pioneer to capture the local market

The data show that consuming quantity of NDC imported from 2005-2010

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Figure 2.2: The quantity of NDC were imported from 2005-2010

Source: Import statistic from ACC

After data survey from ACC’s import statistic in terms of the current NDC which ACC import from Thai Lan, China, Malaysia, there’re always shortage of supplying NDC in domestic Hence, the demand of NDC will be predicted surely increase in next 5 years.The establishment of a local company to produce NDC is seen to be a great success

2.3.2 Competitors analysis

There are so many companies producing NDC over the world exporting to Vietnam for many years Until now, there are about 10 companies providing NDC Some of them are manufacturers, some are distributors and 1-2 of small companies are produce NDC by mixing raw materials in manual technology With the present of many NDC’s producers, the level of competition in food industry become more and more fierce in terms of price, quality and service

Key player have largest market share are Thanh Binh (38%) and SIM (26%)

Thanh Binh is a trading company which is sole distributor for Kerry, supply high-end and good quality of NDC named Kerry Kreem 35, with origin in Malaysia Kerry penetrate into Vietnam market for many years, have close relationship with R&D, purchasing department

in Trung Nguyen and some other major food & beverage companies where the consumption output is very high Currently Kerry accounts for the biggest NDC market share of 38% in Vietnam and a well-known brand name Taking the advantage of huge

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palm oil source from Malaysia to reduce it raw material cost and gain the big market share compared with the key customers like Trung Nguyen, Bibica

SIM is a sole distributor for Kievit from Indonesia The product brand name is Vana Blanca 35C with best quality compared in market They also have good relationship with top management in Vinacafe, Trung Nguyen Customer uses Vana Blanca product and they are loyal to it According to the customer behaviour survey, customer using Kievit product are seldom to change new or another products because of good quality as they are concerned that would impact their product quality Kievit – belong to Friesland Campina Group with fine reputation in the food materials industry - exports the products to Viet Nam through S.I.M Co., Ltd exclusively The company has been the silver medalist in the NDC market with 26% market share in Viet Nam with the key customers such as Vinacafe, Tran Quang

Only Minh Duong is small company producing NDC in Viet Nam with primitive assembly line from China So the products are lowest quality than other branded products and they are penetrating the market with price advantage They gained a low level market of 5% for main purpose of saving cost-in-use

Besides the two main competitors, the remain of the market is shared among the other competitors who import the raw materials from Thailand, Malaysia, Singapore, China and distribute to local manufacturers (such as ACC, Lam Tam Vy, GBCO, Orient, An Huy, G.B.C.O, Negase, Tan Nhat Huong, Huong Lieu Phuong Dong) accounting for less than 30% market share of the product imported from Thailand, Malaysia, China, Indonesia and some from un-known market) They target to the mid and low-end industrial food market with the medium or low quality materials at a much lower price Summarize the market share of other competitor as the following:

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Table 2.5: Total demand of NDC was imported monthly in 2010

Competitor

Average Quantity (MT/month)

Percentage (%)

Source: Import statistic data and sales review of ACC

AFI sets a target to the high-end market, competing directly to Kerry and Kievit and their

distributors in Vietnam - the key competitors but at a more competitive and reasonable

price by getting advantages from low local labor, materials cost and minimum

transportation and warehouse expenses

Figure 2.3: Lanscape of main competitors’market share, Source: The statistic data from ACC and market survey

Competitors Distributors Market

share (%)

Product Features

Brand name

Origin Strengths Weaknesses Aggressiveness

(High, Medium, Low)

Threat Level (High, Medium, Low)

Kievit S.I.M 27 NDC35

Vana Blanca 35C Indonesia

Good reputaion worldwide, best quality, good service Close relationship with customer

Highest price, not flexible on packaging High Medium

Kerry Thanh Binh 39 NDC35

Kerry Kreem

35 Malaysia

Good reputaion worldwide Stable price due to utilize the local sources of palm oil in Malaysia Good relationship

Higher price than NDC from Thai Lan

Can't sell to small company due to

Yearrakarn ACC 12

NDC33, NDC35

NDC33, Creamer Plus 36 Thai Lan

Leading trading, good relationship and service

Flexible policy, good salesforce Unstable price High Medium

Thai Lan,

Malaysia Lam Tam Vy 4 NDC33 Thai Lan, Malaysia

Good price, flexible in down invoice, The salesman is also an owner of compnay Unstable quality low reputaion Medium Medium

Singapore G.B.C.O 4 NDC33

Thai Lan, Singapore

Good price, main customer is small produce Medium quality Medium Medium

Good relationship with small manufacturer, cheap price Unstable quality Medium Low

Malaysia An Huy 4 NDC33 Malaysia

Good relationship with small manufacturer, cheap price Unstable quality Medium Low

Vietnam Minh Duong 5 NDC30 Vietnam

Cheap price, produce NDC as customer request Recently, pay attention on improve quality Low quality Medium Medium

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The market of NDC have categorized in 3 levels of quality (Fat level): NDC35 is ranked as premium (Kerry, Kievit), NDC33 is considered as medium (Thai lan, Malaysia), NDC28 and NDC30 is considered as low level (China, Vietnam)

The market demand tends to premium category product with high fat level with cheaper price and adaptable making the competition hasher and this is also the great opportunity for AFI to start its factory to produce NDC domestic market in Vietnam

Look at the competitor analysis, there are three main players dominating market counting for 80% of the market The revenue is steady from their own traditional coffee, food and berverage companies

2.3.3 Customer analysis

From application of NDC, it can be used mostly in coffee 3 in 1 which contain 30% of NDC,

in milk tea is 10-15% of NDC and others applications such as bakery, instant noodle, confectionary, formulated milk powder

Hence, the key customers are coffee producers which typically are Vina café, Trung Nguyen, Tran quang These customer account for nearly 70% of NDC consumption in Vietnam market, the others are milk tea, cereal powder and SME tradings

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Table 2.6: The total demand of NDC from end-customers (2009)

Customer

Quantity (MT/month)

Market share (%)

Product feature

Thai Lan, Malaysia

NDC33, NDC28, NDC 30

Thai Lan, China, Vietnam

NDC33, NDC

Source: From ACC’s data

Figure 2.4: The marketshare of using NDC from end-consumers

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2.3.4 Buying behavior

As the literature review, some elements affect business buying behaviour such as product feature, supplier choice, order quantities, commercial term (delivery terms, time, payment terms, service terms)

Based on the survey result as shown in appendix 3, there are 70% of the responses prefer to buy brand name products Among of them, 45% is Kerry (Thanh Binh), 27% is Yearrakarn (ACC), 23% is Kievit (SIM) and 5% is Preserve (Lam Tam Vy)

Figure 2.5: The evaluation result of NDC suppliers from customers

In the consideration of buying decision, the three most important criteria are product quality (33%), price (32%) and services (16%)

Most of the customers are loyal to the supplier they are working with as they trust the quality and the stability of the supply sources Sometime, they expect to search for new qualification from potential sources by taking the technical analysis proposal from other NDC suppliers A sample evaluation process is needed to choose the best NDC suppliers and this process would take around one to two months before customer can announce a selection and start to make an order routine

As the survey result, the quality of NDC products are mainly based on the fat level, color, flavor and taste These elements will make the unique features to generate a product to make it

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differentiation on the market However, there’s not much difference of product feature, customer just refer to its origin where it was produced and will mainly compete on pricing factor

Commercial model is also important in the decision making process where customer can enjoy

a flexible business model with a agree credit term or multi-year agreement contact where NDC supplier can guarantees on the stable quality, material sources and fixed price for a period of time A join cooperation will make the business commitment and will make customer to be loyal to the supplier they chosen

2.3.5 Supplier analysis

Currently, in the early stages of manufacturing operations, all materials from AFI have to be imported from foreign countries to ensure stability and quality of the product The material that accounted for 60% of NDC production formula is Glucose Syrup, which is imported from Thai Sugar company This company is a leading Thai company specializing in manufacturing Glucose Syrup from Tapioca resources

Another material that accounted for 30% to fabricate NDC is Palm oil (HPKO) which is imported from Cargil company, manufactured in Malaysia Cargil is also a leading company specializing in supplying many kinds of food ingredients Palm oil is one of key materials have more competitive than others country thanks to abundant resources in Malaysia

Other ingredients are those such as Sodium Caseinate imported from Lactoprot - Germany So most of the input materials are from the famous manufacturers and have many experiences in the market The pricing from the companies are very competitive because only AFI fabricates NDC in Vietnam There should be more supplying than demanding which brings advantages

in price dealing This is not to mention domestically Glucose Syrup can be produced by Bourbon Tay Ninh Sugar company Therefore, overall speaking material resources to manufacture NDC are quite plentiful

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