Will filter coffee save Trung Nguyen?

Will filter coffee save Trung Nguyen?

As competition in the local coffee market is getting increasingly fierce with the attendance of Nestlé and Vinacafé Bien Hoa (Vinacafé) or new players like The Coffee House, Starbucks, and Highland Coffee, Trung Nguyen managed to maintain revenue at trillions of each year and even pulled away from Vinacafé, despite the long divorce dispute.

According to Trung Nguyen’s latest financial report, its total revenue reached VND4 trillion ($173.9 million), while Vinacafé’s did VND1.7 trillion ($73.9 million). In addition, Trung Nguyen’s pre-tax profit in 2014-2017 has been falling from VND1.3 trillion ($56.5 million) to VND681 billion ($29.6 million), nearly twice as much as Vinacafé’s VND400 billion ($17.39 million).

Still depending on ground and roasted coffee

Despite efforts to diversify its business with the E-Coffee grocery chain, the Trung Nguyen Legend Café chain, as well as entering into co-operation with China-based Shanghai Qinzhou Trade Co., Ltd. to distribute G7 instant coffee products in East China, the revenue of the Trung Nguyen parent company remains dependent on ground and roasted coffee. According to the latest report published by Vietnam Industry Research and Consultancy JSC (VIRAC), the revenue from roasted and ground coffee hit approximately VND1 trillion ($43.47 million), equalling one-third of the parent company’s revenue. Meanwhile, instant coffee only accounted for one-sixth of the total.

The huge interest in filter coffee, which is mainly made from ground and roasted coffee, is the main reason behind this revenue structure.

According to statistics from maybanhang.net, a website specialised in store management solutions, an average number of 2,000 coffee stores each year are launched in Vietnam. Additionally, statistics from Foody.vn show that Vietnam currently has dozens of thousands of coffee stores which mainly serve filter coffee.

The data partly shows that business in ground and roasted coffee still account major proportion. And as an indispensable thing, Trung Nguyen’s revenue mainly comes from the products.

Monopoly no longer

Trung Nguyen is no longer the only one specialised in roasted and ground coffee. Giants like Nestlé or competitor in instant coffee Vinacafé have one-by-one entered the segment.

Accordingly, Nestlé in last September launched its first ground and roasted coffee products in Vietnam. Previously, Vinacafé also launched ground coffee products. In addition, the local ground coffee market also saw new entrants with Starbucks, which offers ground or roasted coffee at all of its stores across the world, including Vietnam, Highland Coffee, The Coffee House, and Phuc Long.

Nestlé’s website claims that ground and roasted coffee products currently account for 90 per cent of the local coffee market. Thus, it is seen as a promising market segment by investors. As a result, Trung Nguyen’s competitors are getting more numerous, reducing its market share.

Amid the divorce and competitors’ promotion programmes and new products, Trung Nguyen may just be left behind.

Losing the crown?

The trillion-VND revenue and the sizeable profit cannot hide the signs of ineffective business operations at Trung Nguyen, as over the past few years, its profit has been in a freefall.

Previously, in 2014, Trung Nguyen Group’s revenue and before-tax profit reached VND4 trillion ($176 million) and VND1.3 trillion ($57.2 million). In fact, the brunt of this was transferred to the parent company by its main subsidiaries (Trung Nguyen JSC specialised in exporting coffee and Trung Nguyen IC specialised in instant coffee processing).

With the slowdown in growth and the fierce competition from old nemeses and newcomers, Trung Nguyen Group has its work cut out for it to balance the damage wrought by the divorce dispute.

Thus, not only instant coffee or café chains, Trung Nguyen’s main business, ground and roasted coffee, is also threatened by competition. Players will definitely make strong efforts to gain market share in the segment, Trung Nguyen, if it continues being dragged down by the divorce, may just lose its crown.