Limited distribution channel a study from ladofoods in the southern region

In which, Vang Dalat and Chateau Dalat have consolidated the position of an internationally standard brand that is widely preferred by both domestic and international wine lovers.. In mo

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-PHAN THI MINH NGOC

Limited distribution channel: A study from Ladofoods in the Southern region

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2021

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-PHAN THI MINH NGOC

Limited distribution channel: A study from Ladofoods in the Southern region

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Assoc Prof Dr NGUYEN THI MAI TRANG

Ho Chi Minh City – Year 2021

CONTENTS

LIST OF TABLES v

LIST OF FIGURES v

1 COMPANY OVERVIEW 1

1.1 History 1

1.2 Strategic vision 3

1.3 Organizational chart 4

2 PROBLEM IDENTIFICATION 6

2.1 Problem context 6

2.1.1 Economic factors affecting the wine industry 6

2.1.2 Social factors influencing the wine industry 7

2.1.3 Customers’ analysis 8

2.1.4 E-commerce channel supporting the wine industry 9

2.2 Symptom 11

2.3 Potential problems 12

2.3.1 The first potential problem: Wine frauds 13

2.3.2 The second potential problem: Limited distribution channel 15

2.3.3 The third potential problem: Low brand value 17

2.4 Main problem validation 21

2.4.1 Eliminating pressure in wine frauds and low brand value 21

2.4.2 Illuminating limited distribution channel as the main problem 22

2.5 Potential causes 25

2.5.1 Traditional channel 26

2.5.2 Conflict within the channel 29

2.6 Cause Validation 30

3 ALTERNATIVE SOLUTION 33

3.1 Alternative solution 1: recruiting human resources to develop other sales channels 33

3.2 Alternative solution 2: Built an e-commerce channel 35

3.3 Solution justification 37

3.4 Action plan 38

4 EXECUTIVE SUMMARY 41

5 SUPPORTING INFORMATION 42

5.1 Secondary data 42

5.2 Primary data 42

APPENDIX 1: QUALITATIVE RESEARCH 46

APPENDIX 2: QUANTITATIVE RESEARCH 54

REFERENCES 61

LIST OF TABLES

Table 1: Average population by residence in Ho Chi Minh city 23

Table 2: Estimated cost of recruiting human resources 34

Table 3: Estimated cost of creative an e-commerce channel 36

Table 4: Action plan 39

Table 5: Qualitative: Initial Understanding 43

Table 6: Qualitative: Problems 43

Table 7: Quantitative: Problems 44

Table 8: Qualitative: Causes 44

Table 9: Qualitative: Solution 44

LIST OF FIGURES Figure 1: Chateau Dalat 2

Figure 2: Organization chart of Ladofoods 5

Figure 3: Annual International Wine Imports in Vietnam (4) 7

Figure 4: Percentage contribution to revenue by customer type between 2017 – 2019 9

Figure 5: The market share of online B2C segment in Vietnam is growing in the period 2014-2020 10

Figure 6: Sales revenue of Ladofoods 11

Figure 7: Vietnamese imports of wine by country 12

Figure 8: Recognized the right brand of Chateau Dalat 14

Figure 9: Where customers by Chateau Dalat 16

Figure 10: Gender of respondents 18

Figure 11: Age of respondents 18

Figure 12: Occupations 19

Figure 13: Cause-and-Effect map 21

Figure 14: Chinese distribution channel system 24

Figure 15: Fish bone diagram of main problem and potential causes 26

Figure 16: Ladofoods product portfolio does not support e-commerce purchases 27

Figure 17: Product flow diagram of Ladofoods distribution channel 29

Figure 18: cause-and-effect map 32

1 COMPANY OVERVIEW

1.1 History

Lam Dong Joint Stock Company inherits the know-how and experience in making wineries

on the basis of the French Lafaro winery built in 1933 which has developed continuously (1)

In 1999, Vang Dalat, the first official wine product of Vietnam, was launched Since then, the brand name Vang Dalat has been popular with wine lovers

Ladofoods has officially established LADORA WINERY – Vietnam’s first professional winery in early 2015 (1) At the same time, Ladofoods Trading Service One Member Co., Ltd was headquartered at 8th floor, KICOTRANS building - 46 Bach Dang, Ward 2, Tan Binh District, Ho Chi Minh City and Representative Office in Hanoi Especially, Ladora Farm Ninh Thuan Company (Ladora Winery vineyard) was located at Phu Thuan village -

My Son - Ninh Son - Ninh Thuan

Ladofoods has made efforts to research and bring back to Vietnam the varieties most suitable to the soil characteristics of Vietnam were found in cooperation with European experts in 2008

The Ladofoods wines are perfectly combined by grape growing techniques, wine fermentation process, among other advanced technologies transferred from leading companies and experts from the cradles of wine in Europe The goods are also inspired by the love for wine and the desire to mark Vietnam as a wine destination on the global map (1)

Nowadays, millions of bottles of Ladofoods wines are consumed yearly in Vietnam and exported to foreign markets In which, Vang Dalat and Chateau Dalat have consolidated the position of an internationally standard brand that is widely preferred by both domestic and international wine lovers In more detail, Vang Dalat is the first wine brand in Vietnam whereas Chateau Dalat is a fine wine brand with a class that can rival international wines

Figure 1: Chateau Dalat

(Source: image of Chateau Dalat)

Milestones:

1999: Vang Dalat was the first official wine product of Vietnam

2006: Vang Dalat was chosen by the Government to serve at APEC 2006

2016: Chateau Dalat Signature Shiraz, which is a product of Ladofoods, won the Cathay Pacific International Wine & Spirit Competition 2016 There was the first time that Vietnamese wine had been listed on the wine world map

2017: Chateau Dalat was elected by the Government to serve Heads of States at APEC

2017

2018: Chateau Dalat and Vang Dalat were accepted as National Brands 2018

2019: Dalat Wine Cellar which was the largest underground wine cellar and the first European-standardized wine cellar in Vietnam was inaugurated The property represented continuous efforts of Ladofoods to affirm its position as Vietnam’s No 1 Winemaker

1.2 Strategic vision

Vision

“To build, develop and remain the position of Ladofoods as the No 1 brand in domestic

wines and products made from vines in Vietnam, expanding to regional as well as global markets” (2)

Core values

Quality:

Ladofoods has always put the top priority on "Wine meeting international standards"

The wine of Ladofoods is beautiful blend fermented by the souls and skillful hands of Vietnamese people With the definite passion for wine, Ladofoods is committed to provide customers with wines and related products that meet international standards and are safe for health At the same time, Ladofoods is gradually building up the winery culture in the community, contributing to the enrichment of Vietnamese culinary culture

Innovation and creativity:

Ladofoods considers innovation and creativity as the foundation for sustainable development, the leverage of innovation, and the distinction that creates the pioneering strength of the company

To keep pace with market growth, Ladofoods encourages the spirit of continuous innovation and creativity, advanced application in science and engineering, and technology

of production and management in order to improve quality of products and services

Human Resource:

Defining people as the foundation of the company's success, Ladofoods always strives to build a professional and dynamic working environment Moreover, we appreciate the cohesion so that employers always try their best and achieve their goals

Strategic orientation

To develop and maintain the pioneering and leading position of Vietnamese wine brands

To constantly innovate, revolute, practice, and create values to deserve the position as the first official and leading Vietnamese wine brand

To protect and develop brand reputation; build and continuously enhance the cultural identity of the company as well as the wine brand; encourage creativity to maintain diversity; ensure high competitiveness; and always adapt to business environment and sustainable development

To always focus on customers’ satisfaction; cooperate closely with partners in the sense of trust, respect, and equality for common success

To actively contribute to the overall development of society to build a good and civilized community, thereby promoting local and national socio-economic development

1.3 Organizational chart

The Board of Directors consists of 09 members, the Supervisory Board includes 05 members, the Directors 03 people, the Chairman and Board members mostly hold key positions in the company, from the Head of Operations Department and equivalent above

The company has 5 professional offices, 2 representative offices in Ho Chi Minh City and Hanoi The company's organizational apparatus operates on a functional organizational structure Average number of employees in 2019 was around 3.962 people, of which women accounted for nearly 80%, college-secondary level and technical workers accounted for 12%, the rest 88% of workers with low education, of which 42% workers with skilled workers level 2 or higher Average income of employees increased from 10%

to 20% per year

Note: direct relationship

interactive relationship

Figure 2: Organization chart of Ladofoods

(Source: Ladofoods internal information)

2 PROBLEM IDENTIFICATION

2.1 Problem context

2.1.1 Economic factors affecting the wine industry

Vietnamese wine companies are facing the risk of fiercer competition due to the free trade market for many products Many foreign companies are importing wine into Vietnam leading to consumers have more choices at lower prices which create a fiercely competitive market for domestic businesses

According to the General Statistics Office (GSO), Vietnam's gross domestic product (GDP) increased 7.02 percent in 2019 Especially, in 2019, total export and import revenue of goods and services is equivalent to 210.4 percent of the GDP, indicating that Vietnam has managed to capitalize on the domestic economy's advantages and make use of global markets, the official said (3)

The alcohol export sector also increased by 10.7% compared to 2016 and it is forecasted

to continue to increase (4) Moreover, residents' consumption also continued to increase by nearly 11.9% (3)

According to Duc, the import tax on wine in Vietnam is quite high at 90% including import tax 50%, special consumption tax 30% and value added tax 10% (5) Although the import tax on wine in recent years is still maintained at such a high level, the amount of wine imported into Vietnam has increased rapidly In more detail, the wine imports to Vietnam were 155,793,110 USD in 2016 after that there was slightly increase to 189,717,902 USD

by 21.8% in 2017 It is noticeable that the figure for the year 2018 dominated that of 2019 ($292,172,544 and $312,360,717, respectively) (4) Meanwhile, the ability to export Vietnamese wines is still limited

Figure 3: Annual International Wine Imports in Vietnam (4)

2.1.2 Social factors influencing the wine industry

The Vietnamese people's civil rule education has improved a step significantly The economic conditions of the people have been improved, leading to increased demand and consumption The tastes of customers have also changed towards a higher desire, requiring better and more diverse products The changing cultural life helps many people to have new habits following the trend of internationalization, and use wine instead of other traditional beer and wine, this is an advantage for increasing consumption of Ladofoods

socio-The urban population with high purchasing power is increasing with the speed of urbanization As part of this development, it has undergone considerable urbanization, as the proportion of the population living in urban areas increased by 50% between 2000 and

2018 (6) Compared to 2009, there were 6.7 million migrants, accounting for 8.5% of the Vietnamese population The per capita target in urban areas is also 2.5 times higher than that in rural areas Furthermore, the urban population is projected to increase by about 50%

The tourism industry in 2019 increased by 16.2% compared to 2018 in international arrivals and 85 million domestic tourists (7) In addition, the number of days of stay of guests will also be longer due to the strong investment in tourist attractions across the country In recent years, many foreigners come to Vietnam to travel and do business, this

is the main target for wine consumption

Nevertheless, most of the rural population has a habit of using rice alcohol, due to low income and less influence by Western culture A small part of the urban population tends

to use wine, but the knowledge of wine consumption is limited This is because consumers choose products based on price and place of manufacture There is a few with high income and knowledgeable levels about wine is very strict in choosing products and often tend to choose imported wines

Moreover, counterfeiting is still popular in the Vietnamese market The law on that issue

is lax and the penalty level is quite weak The infringement of industrial property rights on trademarks is still common, affecting the efficiency of production, infringed businesses and legitimate interests of consumers

In conclusion, social and economic factors are both threats and opportunities for Ladofoods

2.1.3 Customers’ analysis

Ladofoods is operating in both business-to-business (B2B) and business-to-customer (B2C) sectors However, the company is still working towards the development of the first group of customers because of the second group of customers there is only one showroom

on Dien Bien Phu street

Looking to the figure 4 in more detail, we can see that contribution to total revenue of Ladofoods by B2B accounted a dominant position In the year 2017, the percentage of contribution to revenue B2B made up 73% contribution to revenue whereas that of B2C constituted 27% This trend had a slight change in two years from 2017 to 2019 Even

though the proportion of contribution to revenue B2B decreased to 70%, that of customers still higher than B2C rate

Figure 4: Percentage contribution to revenue by customer type between 2017 – 2019

(Source: Internal Data)

Although B2B customers are more than B2C customers, we can see that this B2C audience

is on an upward trend Hence, this thesis will focus on the B2C target group

2.1.4 E-commerce channel supporting the wine industry

There is a broad range of Internet-based Electronic Commerce (e-commerce) applications that firms may utilize to develop business strategies in the digital age Such initiatives can bring about significant changes of business processes or even industry structures, as early examples have demonstrated

This is essential to link the business model to a marketing model – the nature of the competitive advantage, the positioning of this advantage, the marketing mix and the product–market strategy One area that has received attention from the beginning of the commercial use of the Internet was the online retailing of wine Together with website and

online retailers such as Winecellar, TMwine and other e-flatforms emerged early on as an example of innovative

Moreover, e-commerce channels are also a lifeline for wine producers during the

Covid-19 epidemic situation, not only other products but also wine products If companies do not grasp the market and change, it will be difficult for businesses to overcome this external factor

Figure 5: The market share of online B2C segment in Vietnam is growing in the period

2014-2020

(Source: VND RESEARCH, DELOITTE 2019)

Even though, retailers are struggling to survive in the short term, the crisis also presents opportunities; retailers who invest heavily and promptly in their online business are likely

to become market leaders

B2C group revenue (left) % Retail sales (right)

2.2 Symptom

In order to clarify more about Ladofoods' abilities, I conducted an exploration of the internal and external possibilities According to Ladofoods’ annual report, the line chart illustrates the figure for sales revenue of Ladora Winery between 2017 and 2019 It can be seen that there was a downward trend in a number of sales revenues of Chateau Dalat during the period of 3 years Looking the information in more detail, we can see that it is noticeable that the figure for sales revenue in 2017 reached the highest point which exceeded that of 2018 (586,780 million VND, 549,215 million Vietnam dongs, respectively) After that, this trend continues decline to 306,729 million VND in 2019 Overall, Ladofoods dropped 47.7% in sales revenue from 2017 to 2019

Figure 6: Sales revenue of Ladofoods

(Source: Ladofoods’ annual report) Nevertheless, the imported wine market has never felt down In the past few decades, the volume of wine imported into the Vietnamese market has been constantly increasing Despite years of difficult economic conditions, the output of foreign wine has steadily

grown up This shows the importance and the influence of wine on Vietnamese life and culture Imported wine market in Vietnam is currently popular with wines from Chile, France and Italy, in addition to other countries In general, the wine market has a diversity

of types and price so users can easily choose the type of wine that suits the needs and purposes

Figure 7: Vietnamese imports of wine by country

(Source: Trade map)

To sum up, the fact that Ladora Winery cannot be successful in its sales revenue even though the foreign wine consumption is increasing in Vietnam As a result, this symptom

is the starting point for deeper analysis of the current problem of Ladofoods

2.3 Potential problems

In order to find out the causes that lead to the symptom of Ladofoods, the depth interviews were conducted with staff that are related to Ladofoods’ symptom from inside and outside The summary of informants’ profiles can be listed as bellows:

Mr Thanh Long – Director in southern region has worked at Ladofoods around 15 years, CEO & Founder at HGM Traseco, experience in trade marketing at British American Tobacco around 6 years and field supervisor at Perfetti Van Melle for 3 years

Mrs Phi Nga – one of the Production Director has worked at Ladofoods since 2012, used

to work as a marketer for 10 years

Mr Quoc Bao – leader of Business department southern region has worked at Ladofoods nearly 6 years, used to work as branding specialist at SCB around 3 years

Ms Anh Thu - Marketing specialist has worked at Ladofoods for 3 years, Founder at Tap Hoa Co An, used to worked as Marketing executive at Mia Fruit in 2 years

2.3.1 The first potential problem: Wine frauds

Counterfeiting and the relabeling of inferior and inexpensive wines to greater high-priced manufacturers is a form of wine fraud (8)

Due to high profits, many domestic individuals, establishments and enterprises intentionally produce fake wine with famous and reputable brands of both domestic and foreign wine to deceive and cause confusion for consumers

More importantly, this will reduce wine consumption not only affects businesses in the wine industry, but also affects partners, suppliers and restaurants which lead to tens of thousands of workers There is no job, especially in the service business, affecting social security In particular, when sales volume decreases, sales also decrease The decrease in revenue leads to a serious decrease in taxes such as special consumption tax, corporate income tax, value added tax, and personal income tax

Mr Thang Long – Director in southern region continued that

Some of the wine production and trading facilities in Dalat always follow closely to compete and act "mimic" on many aspects, from the way of pricing, product development, packaging design to other promotional activities that make it difficult for stakeholders and consumer confusion [Supporting information – page 46]

Fake wines are not just the work of a few criminal rings but a sizable underground industry (9) While some of these flash-in pan wines are created by the Vietnamese themselves, others are being created by Australians in search of short-term profit and they will hurt Australia’s excellent reputation in this market (10)

According to my survey in supporting information (page 54), this is true that 96.1% recognized the right brand of Chateau Dalat Still 4.6% confused with Dabeco Dalat and 5.9% mistaken for Langbiang Dalat wine

Figure 8: Recognized the right brand of Chateau Dalat

(Source: Collected data from the survey)

Overall, it has been found that even basic knowledge about wines is limited in Vietnam and is mostly concentrated amongst middle to high income groups Consumers tend to have little to no knowledge about wines (11)

All thing considered, Ladofoods is facing other alcohol companies to divide market share

is a difficult obstacle for them Besides that, the current Vietnamese wine market is not really popular Moreover, counterfeiting is still a big problem and has not been completely dealt with, which can affect the company's reputation

Chateau Dalat Dabeco Dalat Langbiang Dalat

2.3.2 The second potential problem: Limited distribution channel

Limited distribution channel is established when a wine manufacturer contracts with one

or a limited number of wine distributors

Currently the company has only one showrooms in Ho Chi Minh City, the remaining sales are based on distribution channel level 2 and level 3 In addition to the company's products, the Ladofoods showroom also sells other foreign products However, the number of foreign wines is being limited to import Since it used to sell foreign wines to make acquaintances

to customers, but now the company has a reputation, it gradually limits the marketing of non-Ladora Winery products

Mr Quoc Bao – leader of Business department southern region pointed out that

Marketing and sales activities are mainly based on existing distribution systems, implementing competitive pricing strategies and organizing major promotions to stimulate sales agents Moreover, the sales policy has not stimulated distributors due to low profits compared to other competitive products [Supporting information – page 50]

Besides that, Ladofoods have to compete fiercely with traditional wine countries like France, Italy and Chile, in addition to other countries as Figure 7 mentioned above This means less shelf space and less opportunity for wineries to sell their own brands (10) Moreover, this low investment is also partly required by the distributors

According to Ms Anh Thu - Marketing specialist

The coordination with intermediate customers like agents which develop markets and expand the sales network of new products is not harmonious with interests [Supporting information – page 51]

During the period of state ownership, the investment in a brand was low, which prevented the company from fully implementing its long history and branding It is also only sold through two major distributors in the North and the South

The role of distribution is to provide a company with the possibility "to accomplish product delivery at a right time, to the right place, and with the right quantity at a minimum cost" (12) Typically, manufacturers, intermediaries and end users are perceived as the key actors

of a distribution channel (13) However, since this thesis focuses only on B2C customers, the limit distribution channel of Ladofoods here can be understood as a single showroom

in the southern region

According to my survey in supporting information (page 56), customers can easy to buy Chateau Dalat in Showroom had 76.3%, compared to 24.6% in supermarket, followed by 12.8% in mini mart Therefore, we can see that most of customers who want to buy Chateau Dalat come to the company's showroom

Figure 9: Where customers by Chateau Dalat

(Source: Collected data from the survey)

In conclusion, the marketing policy has not really attracted distributors because they have not met the requirements of their partners Furthermore, there is no diversity of distribution systems for wine selection customers

2.3.3 The third potential problem: Low brand value

Branding is a combination of elements that uniquely identify a product from a certain manufacturer and thus distinguish it from competing products Branding generally includes

a specific name, logo, and symbol or design that the customer then associates with a specific manufacturer A brand is essentially a seller's promise to consistently offer certain features, benefits and services to buyers In addition, a brand stands for promises about what a product, service or a company can offer Furthermore, a successful brand is an identifiable product, service, person or place that is supplemented in such a way that the buyer or user perceives relevant unique added values that are more appropriate to their needs (14)

According to the American Marketing Association (AMA), a brand is a name, term, sign, symbol, or design, or a combination thereof, that is intended to identify and benefit from the goods and services of a seller or group of sellers the competition (14)

I had collected data which were 108 responses from Ladofoods customers, so it was in line with the analysis requirements Based on the survey results, we can summarize the issues and opinions of consumers of Ladofoods' Chateau Dalat products as follows:

− The frequency of demographic information is concluded as below charts:

Figure 10 illustrates the percentage of male, female and others respondents in gender of survey In particular, there are 60.2% males provide their respondents, nearly 40% males and roughly 1% other gender

Figure 10: Gender of respondents

(Source: Collected data from the survey)

Figure 11: Age of respondents

(Source: Collected data from the survey)

Male 60%

Female 39%

Gay 1%

18-24 35%

25-35 45%

36-50 16%

Over 50 4%

18-24 25-35 36-50 Over 50

Figure 11 illustrates the figure for respondents’ age According to the proportion from the smallest to the largest, over 50 accounted for over 4% The age 36-50 had 16% compared

to 34.6% in 18-24 and 44.2% in the age from 25 to 35

Figure 12 showed that the percentage of different occupations in this survey There are over a third in officer while the proportion of individual business occupied 16.7%, which are potential customers

Figure 12: Occupations

(Source: Collected data from the survey)

− On the frequency of using: Most 46.7% of customers only use it every few months,

and 13.6% of customers have used it regularly

− Chateau Dalat is used in many different occasions: Often used in family meals,

holidays, gifts, parties occupied under 40%

− Main drinking place: Drinking at home with family or friends made up for 61.4%

while using at restaurants accounted for 45%

− Reason for deciding to buy Chateau Dalat: High quality product occupied 53.5%,

compared to 34% in competitive price and 35.3% of easy to buy

− When mentioning Chateau Dalat, customers think about: A specialty of Dalat

City had 53.7%, follow by 41.9% from famous Vietnamese wine brand compared

to 37,9% of high-quality products

− 96.1% recognized the right brand of Chateau Dalat Still 4.6% confused with

Dabeco Dalat and 5.9% mistaken for Langbiang Dalat wine

Mrs Phi Nga – one of the Production Director point out that

The current brand value of the company is not high due to the high prejudice of customers about Dalat Wine in the past, so it needs more time to change customers' mindset about the new wine line of Ladofoods [Supporting information – page 49]

A wine business can no longer simply be price competitive The need for stronger, more value-laden brands are now more important than ever and is one of the most viable ways

of countering the commoditization of the regional wine and grape products (15)

To sum up, it can be seen that the number of women using wine accounts for an impressive number Moreover, the data also shows that the current Z gene has also had more wine users; in other words, HENRYs is also a potential customer of Chateau Dalat Then, the numbers also indicate frequency, place of use, occasion of use and so on Last but not least, the brand value is quite low which means the BOD should pay more attention to brand value of Chateau Dalat

Overall, the Cause-and-Effect map is below:

Figure 13: Cause-and-Effect map 2.4 Main problem validation

Although Ladofoods is a leader in the domestic wine market, Ladora Winery just has the only one showroom in the Southern region Therefore, the symptoms of the sales revenue decline in the past 3 years play an important role in the growth of Ladofoods However, since Ladofoods has two product lines Vang Dalat and Chateau Dalat, this report focuses

on only one Chateau Dalat products Then, the identification of the main problems in the three identified problems above plays a vital role in proposing possible solutions for Chateau Dalat

2.4.1 Eliminating pressure in wine frauds and low brand value

These, wine frauds should not be the main problem leading to the decline in sales revenue First of all, we could not control the market dominated by smuggled alcohol, but fortunately the Vietnamese law was increasingly amended in the direction of enterprise protection, against unfair competition and monopoly The legal and administrative systems are increasingly reformed to create conditions for businesses to develop, produce and do

Wine frauds

Limited distribution channel

Low brand value

Symptom

Sales revenue decline

business For example, Ladofoods successfully hosted the APEC conferences in 2006 and

2017

The increasing purchasing power of urban residents is reflected in Vietnam’s consumption

of wines and spirits of 70 million liters in 2015; This figure has increased to 100 million liters by 2020 (11) Thereby, this is also an opportunity that Chateau Dalat can capture to develop the brand

Mr Thanh Long – Director in southern region also suggested

Financial solutions to develop the market because the company have not previously had a target policy due to the possibility of rapid and complicated changes of the outside business environment [Supporting information – page 46]

As for branding, Ms Phi Nga – one of the Production Director also asserted that

The company is importing French grape varieties, so it is expected that it will be favorable The soil in Ninh Thuan and Binh Thuan is also highly appreciated by foreign experts for wine growing Vietnamese [Supporting information – page 49]

In short, the external challenges will gradually change positively over time if Chateau Dalat changes the quality of its brand value The company is also planning and on the right track

in which import grapes from abroad to not only improve the user experience but also develop the Chateau brand The foreign tendencies of citizens are also a potential market for Ladofoods in the future

2.4.2 Illuminating limited distribution channel as the main problem

According to the General Statistics Office (GSO), the population of Ho Chi Minh City has increased by 434 thousand people (16)

Table 1: Average population by residence in Ho Chi Minh city

Unit: thousand people

(Source: General Statistics Office)

We can see that the percentage of people migrating to urban areas is increasing while that rate is decreasing in rural areas It also means that a large number of potential customers will have the opportunity to come into contact with Western culture It makes urban areas ideal for wine production

Furthermore, as the region’s tourism demand increases, the suppliers of wine tourism experiences shift the focus to resource usage, both the tourists’ consumption of and the suppliers’ access to and use of resources such as land access and facilities (17) This is because they are also a part of the reason for the development of the wine drinking habits

of local people, especially in developing tourism countries like Vietnam

Buying alcohol can happen in different types of stores and commercial consumption can happen in different places All parties must continually adapt in response to the evolving wine demand for the combination of quality and key trends in food consumption and purchase Changes in merchant consumption relate to the different types of services and the way wine is served

Take China distribution channel system as an example, although the two countries are different in terms of area, population as well as different alcohol consumption needs, as China, Vietnam is an emerging wine market so it will have some similarities here

Figure 14: Chinese distribution channel system

(Euromonitor, 2010 and Wine China online & Wines-info.com)

In addition, Vietnam’s domestic wineries distribute their wine mainly by three channels:

• Ho.re.ca

• Supermarkets and liquor stores by securing transactions with the help of agents; There are also a number of state-owned distributors that deliver nationwide

• By setting up a large warehouse in major cities and having dealers or businesses approach them to purchase directly In this case, Ladofoods can be understood as showroom

Moreover, during B2C wine sales boom, the websites will educate consumers and increase knowledge about grape wine and stimulate grape wine sales in the long term Some B2C sites such as Lazada or Tiki do not specialize in selling grape wine, but list grape wine as one of their product categories on their website Some websites have evolved into wine experts, such as Winecellar and TMwine Moreover, some wine information about wine and brand history and flavor feature which help consumers choose wines Thus, people become more knowledgeable about grape wines Regular promotions on the website have also been a goal to attract and retain customers, while contributing to the elevation of future wine consumption However, Ladofoods has lost its competitive advantage from this website and this will be explained more clearly in the causes section Moreover, they only focus on traditional sales channels through restaurants and other retailers

This is true that everything will get more complicated if each consumer is obligated to buy each item at its source (18) Therefore, by reducing transaction costs and providing purchasing services to consumers, distribution channels enable increased sales, cash flow and profitability (19) An efficient distribution system can help the sustainable development of nations (20)

In summary, enhancing the Ladofoods distribution system is an issue that needs to be resolved immediately

2.5 Potential causes

As identified above, the main problem is that limit distribution channel results in sales revenue declines Therefore, due to the following reasons that could affect this number

Figure 15: Fish bone diagram of main problem and potential causes

2.5.1 Traditional channel

Traditional sales channels or in other words indirect channels, mainly through wholesalers, retailers and agents In particular, managers face a significant challenge in determining the most efficient routes of a product to the end user due to the large number of distribution channel types available, the wide range of distribution channels available and possible channel configurations (21)

2.5.1.1 Lack of e-commerce system

According to the current official website of Ladofoods, it does not support e-commerce purchases Although there is a lot of promotional information about the products, there is

no place for customers to click and buy This causes the loss of a number of potential customers who have the habit of using electronic products for purchases such as smartphones, laptops and tablets Although the Ladofoods website features links to

Lack of e-commerce

systems

Shortage young human resources

Traditional channel

Limited distribution channel

Conflict within the

channel

Price

Distribution area

Facebook, Zalo and Twitter, it does not have the ability to respond to 24-hour customer messages Over time, customers' desire for products will decrease because they will have more time to think, compare prices and influence external psychology

Figure 16: Ladofoods product portfolio does not support e-commerce purchases.

(Source: Ladofoods website)

Furthermore, the special thing is that when typing the company's product name on Google, the results show up as a different e-commerce platform or other distribution systems instead

of the official Ladofoods website

Mrs Phi Nga - one of the Production Director explained that

It is very difficult to develop e-commerce as if you put the purchasing power into the website, it can be prone to errors Generally, traditional retail channels are still

more popular in Vietnam, thereby, Ladofoods just wants to focus on here [Supporting information – page 49]

Moreover, the company's staff are not specialized in the website, so adjusting is quite complicated In addition, if we use external partners, it will cost an arm and a leg

Base on literature, e-commerce has upended the traditional way of doing business, including the areas of purchasing, shopping, and selling directly via online shops and platforms (22) Furthermore, the terms of usage of web sites for providing information, facilitating e-commerce, and facilitating relationship and community building By more complex functions, we would say that the winery should use its website to facilitate e-commerce and to build relationships with consumers rather than just providing information (23)

2.5.1.2 Shortage young human resources

Supporting the information of this cause is that the company only focuses on traditional marketing such as free wine tasting, festivals, and sponsorships Ms Anh Thu - Marketing specialist complain that

In the last 2 years 2015 and 2016, the company paid too much money to promote Chateau Dalat, so they had cut staff a lot Consequently, young employees leave and retain extremely longtime employees who do not have knowledge of e- commerce system [Supporting information – page 52]

In recent years, the company has to pay a little bit to invest, they have been slowed to respond to external factor like Covid-19 Although there are some smaller companies than Ladofoods that already have new features to support sales, Ladora Winery remains unchanged

Informing consumers is arguably the most basic purpose and most wineries will have the expertise and resources to complete (23)