TH Milk Corporation grapples with challenge of huge investment plans

Upon its first introduction in 2010, TH Milk confidently announced that they would create a breakthrough in Vietnamese dairy market with its focus on fresh milk, a field that was being dominantly controlled by large businesses like Vinamilk and FrieslandCampina.

Since its appearance, the firm has attacked the market vigorously with the largest dairy project in Asia and the largest dairy factory in Southeast Asia, which have a total investment of $ 1.2 billion.

This powerful strategy has helped TH Milk to speed up their development.

Only five years after its first products, in 2015, TH Milk became the corporation owning the largest dairy cow in Vietnam with a total of 45,000 cows on a 8,100ha farm in Nghia Dan district, Nghe An province.

TH Milk also received a $100 million support package from the Israeli government, which will be disbursed between 2013 - 2022.

Currently, TH Milk is developing some other farms in different provinces such as Ha Giang, Phu Yen, Soc Trang etc. aiming to reach the size of 137,000 dairy cows by 2020.

Besides the rapid development of raw materials, TH Milk also successfully diversified its product portfolio. Since its first products, TH Milk is now having nearly 60 different kinds of products including fresh milk, yogurt, cheese and butter and fresh cream.

According to a report by AC Nielsen, TH Group disclosed that in 2016 it held about 40 percent of the dairy market share in Vietnam and it aims to reach 50 percent in 2020.

Thai Huong, Chairwoman of TH Group, bets on the “True Milk” strategy, which uses fresh milk instead of importing milk powder and mixing it with water.

In order to assert the brand quality and create their own sales channels, TH also establishes its own retail systems, TH true mart with up to 200 stores in the country, in addition to the traditional distribution channels.

Since 2015, TH Group announced investment in milk production and processing in Russian Federation, in order to sell its products major markets such as Russia, China and other countries in Asia-Pacific region.

Russia is considered as the most important market. In late January, the organisation opened its first dairy farm in Russia, planning to invest $2.7 billion in Russia for 10 years.

In addition, China is also on the list of major markets that TH Milk wishes to conquer in the future. Recently, the company has opened a representative office in China.

Late last year, the company kicked off a $110 million hi-tech dairy project in Ha Giang province and will continue to invest in additional farms in other provinces around Vietnam - China border.

TH Group is currently operating its dairy business through three subsidiaries including TH Milk Food, which develops dairy farms and provides raw materials, TH Milk, which produces different milk products and TH Food chain, which distributes TH products.

These three companies generate a closed production chain for TH Group dairy products to be available on the market. With the number 45,000 dairy cows, TH Group can be considered as the largest fresh milk production in the country.

According to TH Milk, the company is currently investing actively to expand its farm and also spending generously on high tech machinery from many countries around the world, which may make the current financial results looking pessimistically.

According to a source, by the end of 2016, the accumulated losses of these three companies add up to few hundred million dollars. Also, TH Food Chain reported a loss of over $44 million in 2016 only.

However, looking on the bright side, the revenue of TH Milk in the period of 2014 to 2017 increased over 20 percent.

According to a representative from TH Group the company's investment plan is part of the group's business plan.

Thanks to cost control and effective resource management, TH Milk's revenue has grown better than originally planned.

Compared to other companies in the industry, the steps of TH Milk proved to be very methodical when the company applied high technology to their production and aimed towards the self-control of raw materials thereby managing the quality of the final products.

However, the combination of self-developing raw materials (increasing the number of cow herds), self-producing and self- distributing dairy products have been a financial burden for the company.

Additionally, considering the low growth rate of the dairy market of only five percent to seven percent per year together with the increasing price of raw materials, it has also had a significant impact on the dairy sector as well as TH Group.

Nevertheless, according to TH Group, the growth rate of its dairy milk products in the past three years reached 20 percent, suggesting that the consumption preferences of Vietnamese people have changed from powder milk to fresh milk.

Thus, TH hopes that their challenging investment plan will be effective, helping Vietnam’s dairy products to be able to compete with other countries that have competitive advantages in dairy production.