Village leverage
Pushing deeper into Vietnam's countryside, Unilever takes a long-term gamble
No one's getting rich quick in Binh Quoi.
In a thatched shack in the rice-farming village deep in
Vietnam's Mekong delta, Truong Thi Nao ekes out a
daily profit of 10,000 dong (71 cents) selling sticks of
raw sugar cane, small sacks of detergent and
thumb-sized packets of cooking oil. "People are used
to buying just enough for today or tomorrow," explains
Nao, squatting on a low plastic stool. Dangling
overhead are sachets of shampoo that sell for just 500
dong.
But where some might see hardship, others see victory.
"Look, we have 100% market share," exclaims Tran
Nam, sales manager in the Mekong delta for Unilever,
the Anglo-Dutch consumer-products giant that is
expanding aggressively across Vietnam. Ducking into
the shack, Nam grasps a few sachets of Unilever-brand
shampoos, Clear and Sunsilk, and fingers the sacks of
Viso detergent. "Imagine the result if we have 100,000
shops like this." His glee fades slightly when he spies
sachets of a competitor's shampoo. After quizzing Nao,
he learns that selling the rival brand brings the vendor
one cent of additional profit over Unilever's brands.
For Unilever, every cent counts in building a loyal
customer base. By pricing its products among the
cheapest in Asia, the company seeks to dominate
Vietnam's relatively untapped market--particularly in
the rural areas where three-quarters of the country's 76
million people live. While other foreign companies
concentrate on the wealthier urban areas, Unilever is
redoubling its efforts to penetrate the countryside,
dispatching salesmen by boat, motorcycle and tricycle
to reach far-flung village retailers.
As a result, the firm's distribution network is second to
none, analysts say. That goes for its advertising blitz,
too. This year it will pour $23 million into media
campaigns in Vietnam, up sharply from $15 million last
year. And last year's expenditure was already more
than three times as much as any other firm spent,
according to a survey by ACNielsen Vietnam. But
while Unilever has emerged as the darling of ad
agencies, television stations and market-research firms,
its ambitious strategy may test the patience of
shareholders.
After five years in Vietnam, the company registered
$130 million in sales last year. It expects that figure to
rise to $170 million this year. Still, "the level of profit is
fairly low," says Unilever Vietnam Chairman Michel
Dallemagne. "When you go for growth you sacrifice a
little bit of your return and the bottom line." Without
revealing numbers, he reckons that it will take "10 to 15
years before we get a return that the shareholders are
expecting for the investment." Unilever Vietnam is not
listed, but shares in its parent trade in London.
In seeking new inroads into rural markets, Dallemagne
is taking his cue from the success of Hindustan Lever,
Unilever's subsidiary in India, where net profit hit 5.5
billion rupees ($120 million) in the first half of this year,
up 25% from a year earlier.
Dallemagne's multinational competitors, however, are in
no hurry to follow him into the villages. "We are
attempting to get down to the district and subdistrict
level, but we are not attempting to get down to the
village level, because the costs are prohibitive," says
Sam Fischer, general manager of Colgate-Palmolive
(Vietnam). Erwin Elechicon, general manager at Procter
& Gamble Vietnam, says his company is focusing on
urban areas but is studying ways to expand rural
coverage.
Detergent and toothpaste are Unilever's top sellers in
Vietnam, helping bankroll the rural marketing of other
items. While no breakdown of market share exists for
the entire country, in an October 1999 survey by
research firm Taylor Nelson Sofres Vietnam, 59% of
consumers in Hanoi and Ho Chi Minh City said
Unilever's Omo was their main brand of detergent;
43% said Unilever's P/S was their main brand of
toothpaste.
In the countryside, sales managers like Nam in the
Mekong delta are striving for blanket availability of
Unilever brands, prodding retailers to offer the full
range of its products, from soaps and shampoos to tea
and pricey skin-whitening creams. At the same time,
distribution costs, which Unilever will not discuss in
detail, must be kept to a minimum.
That's not easy in these expansive waterways, which
are targeted as one of the company's chief growth
areas. Home to 16 million people, the Mekong delta
spans 12 provinces spread over nearly 40,000 square
kilometres in the far south of the country. Hundreds of
thousands of people live in hamlets accessible only by
boat. GDP per capita in the delta is a meagre $250.
Unilever's operation in the delta has grown to 46
exclusive distributors, 2,000 wholesalers and 20,000
retailers, from only seven exclusive distributors and
7,000 wholesaler-retailers in 1995.
A vision of Unilever Country unfurls on the drive
southeast from the town of Can Tho to Soc Trang
province: House after house is strung with flapping cloth
banners for one or another of the company's brands.
But while all that colourful free advertising may pay off
in time, for now the margins are minimal. Nam says
more than 70% of sales in the delta are of products that
cost less than $1.
Major flooding in some areas of the delta this year has
disrupted distribution and slightly slowed sales, Nam
says. But in much of his territory, sales have increased
despite a sharp decline in rice prices, which cuts
farmers' disposable income. That's because salesmen
are helping ensure availability of products, offering
promotions and persuading retailers to stock new
brands, especially those tailored to local tastes.
In July, for example, Nam's sales force flooded local
markets with a new brand of salty toothpaste,
P/S-Muoi. The product's appeal plays on the
Vietnamese custom of using salt to clean teeth. "Now,
in the whole Mekong delta, we're selling more than
seven tons a week," Nam says. "It's already selling
more than Close-Up," another Unilever toothpaste. The
new brand also retails at 1,000 dong more than the old
P/S. Foreign analysts detect an attempt to push
consumers into buying more premium products, as
Unilever Vietnam extends its grip on market share and
brand-awareness.
Indeed, critics contend that Unilever is growing
arrogant as it expands its market dominance. Dang
Ngoc Hoa, general director of the Daso-Dacco
Group--a Vietnamese competitor in consumer
products--fumes over the "unhealthy competition"
waged by the multinational. In the Mekong delta last
year, Hoa watched his turnover in Can Tho plunge
35%, and complains that shopkeepers nationwide are
being bullied by Unilever salesmen not to display his
products prominently. Yet a number of shopkeepers
interviewed in the delta say they shifted to selling only
Unilever's Viso detergent because that's what their
customers are buying. Unilever denies pressuring
shopkeepers, but does offer incentives such as
motorbikes and refrigerators to encourage favourable
display of its brands, a standard practice in other
countries.
Hoa is even more disturbed by Unilever's efforts to
ensure that Vietnamese companies follow the letter of
the law. In June, the Ministry of Trade reacted to a
Unilever complaint by ordering Daso-Dacco to revise a
negative toothpaste commercial. And last August,
Unilever Vietnam complained to the Ministry of Health
that Daso-Dacco's new ginseng shampoo was being
marketed without legal registration. In response, the
government forced Hoa to pull the product from shop
shelves and to stop advertising it. Unilever Vietnam
subsequently received long-awaited approval to launch
its own brand of ginseng shampoo.
But Unilever's leverage has its limits. After running ads
that claimed the World Health Organization and the
Vietnamese Dental Association recommended only P/S
toothpaste, the company obeyed the government's
demand to change the endorsement's exclusive
wording. "It was a mistake in translation from English to
Vietnamese, nothing more," says Dao Tuyet Mai, the
company's corporate-relations director.
Backing up high-priced ads with low-cost delivery is
Nam's job in the Mekong delta. His new squad of
"motorbike cowboys," as he calls them, earn a 2%
commission on sales as they zoom up and down dirt
roads with a jumble of products piled at the back. After
paying for petrol for a battered 10-year-old Honda
supplied by a Unilever distributor, salesman Le Thai
Xuan earned 600,000 dong ($42) in June, his third
month on the job. It's still an easier living than farming,
says Xuan.
Meanwhile, the company pays its new team of boat
salesmen a slightly higher 2.5% commission on sales,
because of the hardships they endure plying the
Mekong for customers. Phan Phuoc Tho says he sleeps
and cooks on his small wooden boat for 10 days at a
stretch, covering 180 retailers on his route. After resting
for two days, he returns to the water. His monthly
income: 1.5 million dong. But the 23-year-old remains
hopeful. His family poured savings of 5 million dong into
the boat purchased jointly with the distributor, and he
looks forward to the day when his monthly turnover hits
100 million dong. Like Unilever, Tho is settling in for
the long haul.
By Margot Cohen - Far Eastern Economic Review - August 17, 2000.
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