Collagen-maker Vinh Hoan dares to dream big

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Unbroken optimism

Vinh Hoan’s collagen business recorded a revenue of VND28 billion ($1.23 million) in 2016, performing far below the projected VND138 billion ($6.07 million).

The numbers suggest that the company’s hope for an upsurge in collagen and gelatine sales has not materialised. In 2015, sales of these products earned VND26 billion ($1.14 million).

However, Vinh Hoan was undeterred. In 2017, once again hoping for a significant boost thanks to these new products, Vinh Hoan is setting a revenue target of VND118 billion ($5.19 million), 4.2 times as much as 2016’s actual revenue.

Vinh Hoan owns 90 per cent of a collagen and gelatine production facility which has a capacity of 2,000 tonnes per year and began operation in 2015, after one year of construction. At the time, the company announced that its collagen business would sell both raw ingredients and finished products, taking advantage of having its own supply that could provide 60-70 per cent of the factory’s input.

Before Vinh Hoan, no Vietnamese company has been able to extract collagen, especially from the skin of the pangasius catfish. Previously, all inputs for the collagen industry had to be imported. Many seafood companies have been monitoring Vinh Hoan’s new activities to plan their course. Therefore, the fact that Vinh Hoan’s results fell far behind its targets sawed hesitance to pursue opportunities in these new products.

However, speaking to VIR reporters, director of Vinh Hoan Collagen JSC Vo Phu Duc remained confident in the company’s ambitions.

Duc said, the company produced 150 tonnes of collagen and gelatine in 2016 and is targeting 500 tonnes this year.

“The more challenging the market, the more Vinh Hoan is determined to develop it, because we are the only ones in the market to offer these products and can take advantage of our own supply source,” explained Duc.

It should be noted that it is difficult to obtain key quality certificates for this product demanded by different markets. Vinh Hoan spent a year to complete all procedures to export to Europe. Drug companies take three years.

“Even though last year the actual revenue did not meet expectations due to unexpected regulatory hurdles and the lengthy experimentation process, we believe we will meet the target this year,” Duc added.

Expecting orders a hundred times as large

Nguyen Vo Vi Tam, CEO of Vinh Hoan, is also optimistic when talking about new collagen orders.

In 2016, Vinh Hoan had only found a small pocket of demand among potential customers. Collagen sales needed a far longer term plan than simple pangasius catfish or shrimp products.

With the gelatine and gelatine collagen market set to grow by 9.4 per cent annually to reach $11.15 billion in 2025, Vinh Hoan has reasons to dream big.

First, Vinh Hoan remains the only company in Vietnam to produce collagen extracted from its own supply of pangasius catfish. This ensures that the company can prove the origin of its input. Several other companies have entered this market, but lack access to a stable source of input.

Second, compared to collagen extracted from cow or pig skin, catfish collagen is known to have the best absorption and bioavailability due to their smaller particle sizes. (Bioavailability determines the efficacy of any nutrient one ingests.)

Moreover, this product does not raise religious concerns, especially in Islamic markets, so opportunities are abundant. In fact, Vinh Hoan is now exporting 100 per cent of its products.

Third, Vinh Hoan tops the industry in terms of the catfish supply it has access to. In its recent general meeting, Vinh Hoan announced expanding the portion of supply from its own farm from 55-60 to 65 per cent of the total, significantly reducing input costs.

Vinh Hoan will continue to expand its number of farms to 240 with new investments of VND500 billion ($22 million) in 2017.

“The company has a large source of credit with a stable interest rate, which helps us retain significant profit, so we have no plans to further raise capital,” Tam said.

Not all Vietnamese companies have this strength. Thus, “after 500-kg orders will come the 50-tonne orders,” Tam forecasted boldly.

According to her estimates, when Vinh Hoan can operate at 70 per cent of its factory’s capacity (about 1,400 tonnes), the company will start generating profit.

Now, the factory is only operating at 30 per cent capacity. Most of its products are exported to manufacturers of cosmetics and supplements, or to manufacturers in other markets, such as Japan, South Korea or Thailand.

“For now, the first quarter revenue from collagen and gelatine was $700,000. Last year’s revenue from these products was $1 million, but we will reach $5 million this year,” Vi Tam said.

Vinh Hoan’s 2016 annual report said the project will break even in early 2019. The company has advantages but also keeps an eye out for major domestic competitors.

In May 2014, Meiji Amino Collagen, the leading collagen company in Japan, selected pharmaceutical company Thien Thao as its exclusive importer and distributor.

In September 2014, Proto-Col, a UK company that makes skincare and anti-aging products, also signed an exclusive distribution agreement with BCP Field Marketing.

Meanwhile, several Vietnamese drug companies have entered the market, such as Sao Thai Duong, the maker of the Tay Thi collagen line which includes creams, skincare collagen serums, and collagen supplement capsules.

Pharmaceutical company Danaphar chooses to import ingredients from the US, France, and Italy to produce a series of products, such as Collagen Cap, Collagen Nano, CollagenSol, and Vieskin S. Therefore, Danaphar’s products are in a higher price range than imported products.

Meanwhile, the company that has made the largest investment so far is Binh An Seafood Company (Binhanfishco), which makes collagen drinks. However, the company’s website does not mention collagen.

Vinh Hoan will meet many challenges in realising its goal.