Challenges await Digiworld in distributing functional foods and FMCGs

After a hard time in 2015 due to the collapse of Nokia, Digiworld has gradually restructured its distribution strategy. In early 2017, the company announced to focus on supporting brands which use market expansion services.

Market Expansion Services (MES) helps goods enter the market and achieve the desired market share after a certain period.

Services in MES include market research, strategy building, marketing planning, logistics (import, warehousing, packaging, delivery, etc.), distribution, after-sale support (warranty, consulting).

MES has long been popular in the fast-moving consumer goods (FMCGs) and healthcare products because if the manufacturers build their own system of distribution, human resource management, marketing, etc., they will need a lot of time, investment and the knowledge of the market.

Meanwhile, by hiring a professional service supplier, they can take advantage of their partners to improve efficiency and reduce risks.

Besides, when entering a new market, professional MES will help companies avoid barriers in languages, customs, legal regulations, local procedures, etc.

After the Nokia incident, Digiworld offers MES to some lesser-known low-cost carriers such as Obi and Wiko, which are not enough to offset against the massive gap left by Nokia. It was not until the cooperation with Xiaomi that Digiworld's new mobile distribution system showed positive signals.

However, in the mobile phone industry, the MES market is quite narrow. The main reason is that the largest phone brands such as Apple, Samsung or Oppo have made a good mark on the market. Meanwhile, if Digiworld only provides services to Xiaomi, it may face the risks they had encountered with Nokia before. So, the direction of Digiworld in MES is to encroach on functional foods and FMCGs, which are traditional fields of MES.

According to Roland Roger, MES in Vietnam’s FMCGs sector reaches about $8 billion, equivalent to about 35% of its total value in Vietnam. MES in Vietnam’s healthcare product sector is about $3.5 billion, equivalent to 60% - 65% of its total value in Vietnam. Both areas are much larger than MES in the technology sector.

Digiworld has been involved in distributing functional foods and FMCG products since the end of the third quarter of 2017. This new segment has not contributed much to its revenue yet with only about $1.76 million in the first six months.

However, the MES market in Vietnam does not have much room left. Digiworld's distributing activities will face fierce competition from many multinational corporations.

In the field of FMCGs, it is MESA (MES provider for P&G, Nestle, Obagi, Vietnamobile, Shell Lubes), DKSH (MES provider for Stepan, Nestle), or Phu Thai (MES provider for P&G, Rhoto, Kewpie). In the field of healthcare products, giants include Pharma, DKSH and Mega Lifesciences. Digiworld's efforts to enter a cramped market forecast tremendous challenges in its way to gain market share.