INVESTOR RELATIONS

At 8.30 am on a normal day, the Bach hoa Xanh store in Le Trong Tan Street, Tan Phu district, Ho Chi Minh City, is busy serving a lot of local customers, mostly housewives. They are the store’s regular customers and previously did all their shopping at traditional markets. Though launched two years ago, the store is now one of the fastest-growing among the 300 in the Mobile World JSC (MWG)’s Bach hoa Xanh chain. Effective model MWG Chairman Nguyen Duc Tai has kept plans for the Bach hoa Xanh chain on track over the last two years. The company identified a successful formula for the chain after completing a pilot in 2016. The chain established important foundations last year and this year is the time to boost its development. In the first stage, average monthly revenue at each store was expected to be about $22,000 but is now around $57,000. The figure at the Le Trong Tan Street store is about $100,000, Mr. Ngo Trung Duc, Manager of the Bach hoa Xanh chain in Tan Phu district, told VET. Average monthly growth per store in the district is about 20 per cent. CEO Tran Kinh Doanh said during the pilot period that the expected profit rate was 15 per cent on $22,000 in revenue each month. The rate is low for a concern with dozens of stores but substantial when hundreds of stores are involved, as is the case with Bach hoa Xanh. As such, MWG set an ambitious target for the fast-moving consumer goods (FMCG) field, planning to blanket Ho Chi Minh City with 1,000 Bach hoa Xanh stores this year. It’s important that Bach hoa Xanh has positioned the brand in the market and is gradually creating different values and attracting sufficient numbers of customers to its stores who previously shopped at traditional markets. “With the mini-mart model, we have made efforts to create a more modern shopping environment than at traditional markets and more interesting than at grocery stores,” Mr. Tai told local media. “We listened to the demands of consumers and the market.” According to Mr. Tai, 30 per cent of consumption in fresh and processed products is supplied by supermarkets and 70 per cent by traditional markets. Bach hoa Xanh aims to reach 10 per cent of the 70 per cent in traditional markets. The chain, indeed, will not compete with other supermarkets like Co.op Foods and Satrafoods or convenience stores like Circle K and Family Mart. Its strategy is to focus on broad coverage and to be similar to traditional markets but with better services and a more diverse range of food and goods. “The purpose of opening the chain is to encourage customers to buy food from us for 20 days a month and from traditional markets or supermarkets for the remaining days of the month,” Mr. Tai told an analyst meeting in February. Industrial insiders said that the successful factor in its model is it targeting low to medium-income earners and setting up stores of less than 200 sq m on small streets in order to better approach customers. Making it work Vietnam’s retail market holds significant potential, with estimated revenue of $60 billion annually. Its promise has resulted in the emergence of tough competition, with the presence of major foreign retailers from Thailand, Japan and South Korea as well domestic counterparts like Vingroup. As a newcomer, MWG is forecast to face a range of challenges in the market, despite being the pioneer in the mobile and electronics market. Half of all food and goods at Bach hoa Xanh stores are fresh vegetables, fish and meat, and the remainder FMCG. The challenge is how to resolve the inventory question and offload products approaching their use-by date, as well as buying safe products when needed and at cheap prices. These are, of course, issues for all retailers, not just Bach hoa Xanh. MWG has also recorded notable results in its thegioididong.com and Dien may Xanh chains, thanks to adopting smart and flexible solutions to meet demand among local consumers while cutting operational and other costs. “The strength of the company is customer services and chain management,” said Mr. Doanh. “I haven’t seen any company in Vietnam that does this better than MWG.” 2017 revenue, MWG chains   Despite only a few Bach hoa Xanh stores earning a profit, the chain will be a driving force for MWG’s growth over the years to come. Though the leading mobile and consumer electronics retailer attracted attention from local and overseas retailers and investors by completing its acquisition of the Tran Anh Digital World and Phuc An Khang pharmaceutical chains, the concern for Chairman Tai this year is the Bach hoa Xanh chain. Understandably, growth in mobile and consumer electronics is slowing, coming in at 9.3 per cent and 15.1 per cent, respectively, in 2017 according to the ACB Securities Company (ACBS). Instead of opening “two stores every day” as MWG did before, the company plans to cease opening new thegioididong.com stores and instead open 50-100 new Dien may Xanh stores this year. The retail market also has the most potential in terms of investment expansion. Vietnam ranked sixth among the Top 30 developing countries in retail expansion in the Global Retail Development Index, released by A.T. Kearney in 2017. There were 800 supermarkets, 150 shopping malls, 9,000 traditional markets, and about 2.2 million retailers in Vietnam at the time the Index was prepared. Convenience stores and mini-marts are the fastest-growing segments in the market. Japanese retailers like Family Mart, 7-Eleven, and Takashimaya, and South Korean retailers like Lotte Mart and GS25 are flooding into Vietnam and plan to open thousands of stores and dominate the market. Thus, Mr. Tai and MWG also plan to develop the Bach hoa Xanh chain as soon as possible, having 1,000 stores in Ho Chi Minh City this year. Future picture Bach hoa Xanh recorded revenue of VND1.38 trillion ($60.9 million) in 2017, contributing 2.1 per cent to MWG’s total, but didn’t post a profit. It is now making greater efforts to improve operations and attract more customers. It will review its 1,000-store plan after implementation and plans to open 5,000-6,000 stores in other major cities such as Hanoi and Da Nang over the next five years. In assessing such plans, ACBS reported that expansion will not be easy in second-level cities and rural areas and the retailer needs to be cautious about the speed of its network expansion over the next few years. Meanwhile, the Vietnam-focused private equity firm Mekong Capital expects the company will be successful in ramping up to several thousand locations. “MWG focuses on the customer experience and they do a better job of it than most of their competitors,” Mr. Chris Freund, Partner at Mekong Capital, told VET. His comments are based on solid facts and figures, as his company’s Mekong Enterprise Fund II (MEF II) completed its divestment of 100 per cent of its holding in MWG after more than a decade of investment. “It was one of the most successful private equity investments in the history of Asian private equity,” Mekong Capital has said. While the reason MEF invested in MWG was the energy and commitment of the five co-founders and its growth potential, Creador, a South Asia and Southeast Asia-focused private equity firm that invested $43.8 million in the local retailer in February, said it sees a strong track record of growth in multiple store concepts and the opportunity for consistent growth going forward. “We think the team led by Mr. Tai is truly world-class and has tremendous capabilities to build a very large business,” Mr. Brahmal Vasudevan, CEO of Creador, told VET. “Their historical growth trend has been amazing. I see the potential for this company to record 20-30 per cent growth over the next five years.”

“The new sector of mini-marts has tremendous room for growth as Bach hoa Xanh has just a few hundred stores compared to 9,000 wet markets in Vietnam. We also think the management team has the capacity to launch additional verticals over time as they are constantly thinking about new spaces and ays to grow the company.”  Mr. Brahmal Vasudevan, CEO of Creador   “It’s my intention to invite MWG to invest in some of our investee companies in the future, but of course there is no guarantee they would choose to do so. The big investment that MWG made in building their culture is similar to the investment that our new investee companies are now making in building their cultures, so there would be a cultural fit between MWG and our other investee companies. Also, a strong culture makes it much easier for companies to grow fast and achieve their long-term goals.”  Mr. Chris Freund, Partner at Mekong Capital