'Pepper king' Phuc Sinh turns to coffee due to plummet of pepper price

Phuc Sinh Corporation (Phuc Sinh) is one of the largest pepper trading companies in Vietnam. In 2015, sales of Phuc Sinh reached about $250 million, most of which came from pepper exports.

It accounted for about 20 per cent of Vietnam's pepper exports value ($1.25 billion) and made up for about eight per cent of global pepper exports. However, there was a scandal in which Phuc Sinh was said to export poor quality pepper having pesticide levels that exceed the allowed one at that time.

Not long after that, Phuc Sinh was able to regain the trust of importers. In 2016, the company's revenue reached about $300 million, a growth of about 20 per cent compared to that of 2015.

In spite of high sales volume, the profit margin of the company was very low as the main activity was purchasing, preliminary processing, packaging and exporting. The gross profit margin of Phuc Sinh was just over three per cent.

In 2016, the company earned a net profit of $9.1 million and after minus financing costs and selling expenses, Phuc Sinh got nearly $2.8 million - pretax profit. In the previous year of 2015, the profit before tax was $642.000.

From last year, pepper price has been gradually lower. In 2017, although Vietnam exported 215,000 tons, increasing sharply from 178.000 tons of 2016, the value was only $1.1 million, down by 22 per cent.

Statistics from General Department of Vietnam Customs show that the average price of pepper for export last year was $5.2 per ton, 35 per cent - lower compared to 2016 and it is the lowest average price since 2013.

In 2018, the price is even worse. The average export price for the first half of 2018 is estimated at $3,4 per ton, down 61 per cent year over year due to oversupply.

Phuc Sinh is influenced by this trend and facing bleak prospect, it chooses to change to coffee field. In fact, the company also exported coffee with the quantity reaching 65,000 - 70,000 tons each year.

The new move shows Phuc Sinh's ambition of engaging more deeply into domestic coffee market which now has a fierce competition of many international companies.

The representative of Phuc Sinh said that the company will sell K Coffee branded products which are 100% pure roasted and are certificated by two European standards UTZ and BRC that are still not reached by any other Vietnam's product.

In early November, the company juts officially launched the Phuc Sinh Son La factory with the investment capital of $4.3 million and its capacity is 20,000 tons of fresh coffee per year. To make the large investment plan, Phuc Sinh has continuously increased its charter capital for the past few years. From $6.6 million in 2016, the company's current chartered capital is over $15 million.

Coffee retailing in the domestic market is expected to bring better margins than export activity but it is not easy to switch from a specialized exporter to a local producer and retailer.