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How to Invest In Vietnam's Explosive Growth

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Vietnam’s population is young, wealthy and thirsty. That makes it a market of vast potential for beverage firm THP Group, one of the country’s top producers of fast moving consumer goods.

The company’s founder, Tran Qui Thanh, has been through many iterations in his business career. That’s seen him shift from recycling Army surplus as an industrial ingredient to make yeast, through lives as a sugar refiner and brewer, and on to today as a herbal tea infuser.

There have been trying times and good times. Now the company is seeking international investors in a bid to build itself up to $1 billion in revenue.

“Every time we fail we learn something new,” Tran explains. “Then we are able to bring that experience to do better next time.”

I met with Tran and the THP Group at their base in Saigon, touring their factory facilities. I also visited their new factory in the Cu Lai free-trade zone, where the company has deployed an aseptic production line of which it is very proud. It imported the technology from Germany to ensure absolutely no impurities make their way into the drinks.

The THP Group, known as the Tan Hiep Phat Group in full, makes Vietnam’s top-selling herbal tea, as well as soymilk and sugar-heavy, caffeine-charged energy drinks that are the local spin on Red Bull.

The company is the country’s largest private sector beverage company, with close to half a billion dollars in annual revenues. It nevertheless sees plenty of potential to expand its sales as Vietnamese incomes rise, and lifestyles change. Society is moving away from the culture of “cook water,” drinking water that’s simply boiled to make it safe, to “ready-to-drink” products in plastic or glass bottles, and cans.

The next goal for the THP Group is to conquer the world – bit by bit, at least. With more than 90% of sales within Vietnam’s borders, the company has barely touched the surface of the international market.

“We are quite clear about what we want – to have the company to go global and be a Vietnamese brand,” deputy CEO Phuong Tran, the founder’s elder daughter, says.

“Dr. Thanh,” as he is universally known, founded the beverage maker in 1994. He’s the subject of something of a personality cult among the company’s 4,000 employees, and clearly takes a paternalistic approach in looking after them.

Vietnam’s youthful population of 94 million is driving strong growth. The economy should expand by 6.6% this year, and is due to maintain a pace of over 6% every year into the next decade, according to Oxford Economics. That’s not far off China’s current pace of 6.7%.

Yet economic progress fell an entire percentage point in a year between 2011 and 2012, causing much consternation. That brought GDP growth to 5.2%, a level last seen in the wake of the Asian financial crisis in 1999.

THP’s sales stagnated in 2016 as the country’s economy cratered – before ramping up dramatically this year. Revenues were flat in 2016 but have risen rapidly in 2017, at a pace of 20% to 30%, bringing their total sales to around $450 million for the year.

Tran was born into a middle-class family. His mother died when he was 11, leaving him at the mercy of his stepbrothers who were muscling in on her inheritance. His father sent him away to an orphanage in rural Vietnam, where he learned from nuns and picked up a flair for karate in a bid to cement his personal safety. Tran returned to Saigon at age 14, and learned from his father, a mechanical engineer, going on to study that subject at Saigon’s Technical University. 

Tran’s first business was entirely opportunistic, a characteristic that has marked his career. In 1973, he bought surplus U.S. Army hammocks left over from the “American War” and began using the heavy-duty nylon for layering in a yeast-making machine. That helped him triple production. Meanwhile, Tran was squirreling away any profits he made in gold bars that he buried in his garden to keep them from the avaricious government.

Rampant inflation running at 300% forced him to shutter the yeast business, switching to sugar production. That lasted through 1990 until inflation and a drop in demand forced another change in approach.

The beer business began in 1994 as Tran took advantage of Vietnam’s disused bridges as a source of scrap metal to help furnish his factory floor. Each truck shipment also required the driver to run his vehicle over a specific piece of floor to flatten it out. Tran lived on the grounds, sleeping alongside his wife and two daughters at the back of the factory.

The company expanded into energy drinks in 2000, and added soya milk to the product line the following year. Tran designed the packaging and logo for the Number 1 Energy drink himself, soon one of Vietnam’s best sellers. Like Red Bull, it’s supercharged with caffeine and sugar, and popular with long-distance truck drivers. 

When beer sales provided unprofitable due to a “special tax” from the government, THP focused instead on green tea and ultimately “Dr. Thanh Herbal Tea,” now one of its best sellers.

Tran claims to drink 10 bottles a day of his eponymous herbal tea himself, not letting a drop of water touch his lips. The herbal tea draws on nine natural ingredients from the Vietnamese countryside, including licorice, prunella and chrysanthemum flowers. It’s based on a folk medicine from Vietnam’s north that is designed to reduce the “inner heat” humor that can produce so many ills in those it afflicts.

While most of THP’s drinks are chock full of sugar, which together with water are normally the first two ingredients, there’s a sugar-free version of the tea. The company also produces Zero Degrees Green Tea, oolong tea. There’s also artificial fruit juices such as passionfruit and soursop under the Juicie brand name.

The high sugar content is simply what the Vietnamese public wants, Phuong Tran argues. “Vietnamese coffee, food, everything is sweet,” she says. When asked, people say they value healthy products, but they don’t follow through. “People say something but the action and behavior is very different.”

Phuong Tran says she recently gave up candy in a fitness bid. “In order for me to do that, I have to do detox,” she says. “In order for me to lower my sugar level I had to eat porridge for nine days, no sugar, no salt, it was like torture for me.” The no-candy rule has stuck — but there’s plenty of sugar in the rest of the food she cooks and eats at home. “Everyone wants healthy, that’s easy to say, but it’s not easy to change,” she says.

The company currently has around 100 products in development. “I love the idea of being able to bring the freshness of Vietnamese farmers to consumers, without any preservatives,” Bich Tran, the founder’s younger daughter, says. “That helps the farmers as well.”

THP is not above launching a product on a hunch, then withdrawing it if it doesn’t prove a success. That was the case with its VIP line of ready-to-drink coffee.

Vietnam is a coffee-lover’s paradise, a legacy of the French occupation leaving a lasting love of slow-drip coffee sweetened with condensed milk. But instant coffee didn’t prove popular in a culture where coffee is for sitting around to savor, and the product didn’t catch on. Six months after its 2010 launch, the company stopped making the VIP line and withdrew the product.

“I’m proud to say that is the best quality of the ready to drink coffee,” Phuong Tran, the elder daughter, says. “But you can have the best quality and the market isn’t there, it doesn’t work.”

The company is currently examining the viability of producing dried fruit. “That’s where the strength of Vietnam is, it’s a tropical country,” she notes.

Not that the company doesn’t test its products. It only goes ahead with a launch if the drink proves popular with at least 70% of consumers in a blind taste test. It typically takes around two years from idea germination to launch.

Vietnam has an income of $1,689 per person, as measured by GDP per capita. With that sum rising rapidly, consumer-goods manufacturers are also seeing their fortunes rise. Some 80% of Vietnam’s population still drinks “cook water,” traditionally sourced in lakes and streams and boiled before use. Only 20% of the market is ready-to-drink beverages, “so there’s huge potential there,” Bich Tran says.

She takes a particular interest in product development. “People will need more healthy food and healthy drinks,” she says, as Vietnam becomes wealthier. “People need more convenience in food, because they spend more time for working. You’ll see that the women working in Vietnam is quite high. We are a young country, we don’t want to stay at home anymore.”

She has another theory too. During the American War, the men were off fighting, while the women were in charge of the households. There’s a national day that Vietnam celebrates each year in honor of these “Hero Mothers.” 

Around 30% of THP’s employees are women, and 36% of the top management. As a result of the wartime roles, “women in the workforce has never been an issue,” Bich Tran says.

In a way, the THP Group is already global. It gets around 10% of its sales internationally, selling in 16 countries as diverse as Sudan and the Maldives, as well as Canada and the United States.

But the penetration is not deep, and the company would like a multinational partner to aid it in tapping new markets.

The company has considered going public on the Ho Chi Minh City Stock Exchange. But the Trans fear this would place too much emphasis on short-term profit. 

“With the investment and the high risk that we are taking, it will have more benefit for us to be a family owned company,” Phuong Tran explains. “We can make decisions our own. This time is a time for investment in the quality of the products, for the future of the business – not to get the return on investment.”

Phuong Tran says she and her sister and her father have met with “many, too many” investors to explore the future direction of the company. But most simply wanted to invest capital and generate returns, showing little interest in the beverage business itself.

“What we need is a specific offer to help us achieve our vision,” Phuong Tran says.

At one point, in 2011, they were in protracted talks with The Coca-Cola Company  (KO) . While teaming up with such a huge expert in fast-moving consumer goods had its definite attractions, Coke also had stipulations that THP couldn’t bear. One of the conditions would have been that the group could no longer export or develop new products, which sounds suspiciously like an attempt to close down a competitor rather than invest in its future.

“They gain market share from the purchase and they stop investing in the brand of these local companies,” founder Tran says, noting that Coke wanted a roadmap that would see it build to a majority position in the company. “Hence their brands have no competitors.”

Both parties walked away after a year of discussions. THP Group did however find out that according to Coke’s outside assessment, the company was worth $2.5 billion back then.

Tran believes that the company can grow to $1 billion in sales, more than double its current rate, within the next four to five years. That, Tran believes, would double its value to $5 billion.

It believes the local market can support that, growth it can achieve on its own, while a foreign partner could help the company broaden its reach outside Vietnam’s shores.

“If we are looking for outside investors it is not for capital reasons,” founder Tran insists. “It’s because we want to have a partnership, to mutually support and create a stronger business, have better governance, and export the products.”

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