Heat of price war shows no sign of cooling down

May 06, 2024 | 16:29
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Amid fierce competition, the price war is heating up, requiring businesses to deliver added value and experiences to customers in order to retain them.

Hanoi - Amid fierce competition, the price war is heating up, requiring businesses to deliver added value and experiences to customers in order to retain them.

Heat of price war shows no sign of cooling down
A store of FPT Shop in HCM City. (Photo: fpthcm.com.vn)

FPT Digital Retail (FPT Retail) posted a positive profit pre-tax in the first quarter of the year, which is outstanding content in the company's consolidated business performance report.

In the first three months, its consolidated revenue reached over 9 trillion VND (355.7 million USD), a 17 per cent increase year-on-year, accomplishing 24 per cent of the yearly target.

Long Chau pharmacy chain contributed more than 5.5 trillion VND, up 68 per cent from last year, accounting for 61 per cent of the company's total revenue.

For the FPT Shop chain, the recent product restructuring efforts have resulted in a 3 per cent gain in gross profit compared to the same period last year. And thanks to accessing loans at favourable interest rates, financial expenses have decreased by 50 per cent year-on-year.

As a result, FPT Retail achieved a profit before tax of 89 billion VND during the period, marking 43 times higher than last year and accomplishing 71 per cent of the 2024 plan. This is also the highest result for FPT Retail in the past five quarters.

The retailer's online revenue witnessed a 10 per cent growth from last year to nearly 1.6 trillion VND.

The achievements bring some relief to FPT Retail's leadership, but they still have concerns due to the painful lessons from the price war in 2023. The company suffered losses as a result of joining the battle.

At a recent Annual General Meeting of Shareholders, the company’s CEO, Hoang Trung Kien acknowledged the difficulties faced in the business of items like smartphones and computers due to the prolonged price war. As a consequence, 30 stores of FPT Retail were closed in 2023, and around 50 more closures are anticipated this year due to inefficiency.

The intense price competition with rivals caused a significant decline in FPT Retail's gross profit margin, reaching a low point of 8 per cent in the second quarter of 2023.

Huge losses in lowering prices race

The price war is believed to have started when the Mobile World Investment Corporation launched the "Too Cheap" campaign in April 2023. Television and household appliance prices were slashed by up to 50 per cent, with some items sold at extremely low prices.

In response, FPT Shop quickly adopted the slogan "Wherever it's too cheap, it's cheaper here”, while other retail chains like CellphoneS and Viet Mobile Tech also had to enter the competition.

Consequently, the Viet Mobile system experienced a modest 10-15 per cent sales growth in the first half of 2023 compared to the same period in 2022, marking its lowest growth rate in years.

CellphoneS struggled to maintain profits amid a price war with other major chains in 2023. As a result, their store expansion plans for the first two quarters were postponed.

Meanwhile, Mobile World also witnessed a historic decline in profits. Chairman Nguyen Duc Tai apologised to shareholders for failing to meet the set targets. Additionally, the company's stock was removed from the VN Diamond index, and several investment funds reduced their holdings of MWG shares, despite previous strong interest.

FRT Retail, recognising the pointlessness of the price battle, declared its withdrawal and shifted its focus towards expanding product categories to stimulate growth in the latter half of the year.

Price strategy continued

Price competition was still a prominent topic at Masan Group's annual shareholders' meeting.

WinCommerce, a unit of Masan Group, is now focusing on changing consumer perceptions of prices at its WinMart and WinMart+ supermarkets. Previously, they didn't prioritise price competition.

In rural areas, WinCommerce offers competitively priced products, even compared to external stores.

The first quarter of 2024 saw WinCommerce generate 7.9 trillion VND in revenue, with 70 per cent coming from minimarts. They reduced store investment costs by 40 per cent through favourable pricing negotiations and equipment optimisation.

Adding value to keep customers

In 2023, businesses faced economic challenges and declining revenue. Following major retailers in technology, electronics and consumer goods, the food and beverage industry also implemented price reductions and attractive combo deals.

Highlands Coffee offered a super affordable deal for 19,000 VND, while KFC and McDonald's introduced budget-friendly combos. Dookki provided a low-priced buffet, and two popular restaurant chains: Bo To Quan Moc and Steaming hotpot Long Wang, reduced prices and offered attractive promotions.

The economic recession poses challenges for the F&B industry, but innovative restaurants can turn them into opportunities.

Currently, price competition is intense. Choosing between profit reduction through price cuts and offering attractive combos is crucial in today's competitive F&B market.

Golden Gate, a service-oriented business, focuses on customer retention, Dao The Vinh, CEO of Golden Gate, told baodautu.vn. Their restaurant chains compete on value, emphasising customer care and creating memorable experiences.

Masan Consumer, identified as a key focus of the Masan Group, also aims to win market share by improving the consumer experience.

It recently introduced a self-heating rice product, following their successful self-boiling hot pot, as part of their restaurant meal replacement offerings.

The new products are significantly higher than the market's instant food options. However, Nguyen Truong Kim Phuong, Senior Marketing Director – Convenience Foods Category, is confident in their success.

Masan Consumer has a track record of elevating the instant noodle experience from quick meals to a delicious and nutritious option. This adds value to their products.

According to Phuong, the new premium products from Masan offer a reasonable price for young people and office workers, delivering not just food but also new experiences.

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