A.

REVIEW PRODUCTS PORTFOLIO OF VINAMILK

Vinamilk’s business and product portfolio is expansive, covering a wide range of dairy and
non-dairy products, with a focus on milk and related products. Here’s an overview of their
major portfolio segments:

1. Dairy Products

- Fresh Milk: Vinamilk’s fresh milk is one of its flagship products, available in various
formats like pasteurized, UHT, and organic. Fresh milk alone accounts for a large
percentage of Vinamilk’s revenue, making it a staple in the Vietnamese market.

- Yogurt: Vinamilk has a comprehensive line of yogurt products, including regular yogurt,
Greek-style yogurt, and drinking yogurt. This segment has been popular due to growing
demand for functional and health-oriented dairy products.

- Powdered Milk: Vinamilk offers a range of powdered milk products for different age
groups, including infants, children, and adults. This segment also includes specialized
formulas for enhanced nutrition.

- Condensed Milk: Vinamilk is a leading supplier of condensed milk in Vietnam, widely

used for home cooking, beverages, and desserts.

2. Organic and Functional Products

- Organic Milk: Vinamilk’s organic milk line, produced from its certified organic farms,
caters to the increasing demand for premium and environmentally friendly dairy options.

- Functional Milk Products: Vinamilk offers milk products fortified with added nutrients,
such as calcium, vitamins, and DHA, targeting specific health needs like bone health and
brain development.

3. Non-Dairy Beverages

- Plant-Based Milk: Vinamilk has launched plant-based milk options (such as almond and
oat milk) to cater to consumers looking for dairy alternatives. This line supports Vinamilk’s
sustainability goals and appeals to health-conscious consumers.

- Fruit Juices and Flavored Drinks: Expanding into beverages beyond milk, Vinamilk offers
fruit juices and flavored milk beverages, leveraging its established distribution network.

4. Nutritional Products and Supplements

- Infant and Children’s Nutrition: In addition to powdered milk, Vinamilk provides a variety
of fortified nutritional products for infants and children, helping build a comprehensive
nutrition portfolio.

- Adult Nutrition and Supplements: Targeting elderly and health-conscious adults,

Vinamilk’s product line includes nutrient-dense products and supplements that address
wellness and aging concerns.

5. Ice Cream and Desserts

 - Vinamilk offers a popular line of ice cream and frozen desserts, including traditional ice
cream and yogurt-based frozen treats.

6. Non-Core Businesses

- Real Estate: Vinamilk has invested in real estate projects, marking a diversification from
its core dairy operations.

- Financial Investments: Vinamilk has undertaken various financial investments to diversify

its revenue sources, although these are generally unrelated to its primary business.

B. LEVEL OF DIVERSIFICATION OF VINAMILK

I. RELATED DIVERSIFICATION
Vinamilk’s diversification strategy not only aims to expand its scale but also enhances its
competitiveness, manages risks, and optimizes value for shareholders.

1. Operational Relatedness

Raw Materials

Vinamilk focuses not only on dairy farming but also engages in other agricultural activities to
diversify raw materials and utilize land efficiently.

- Investment Figures:

● Cultivating Green Feed: Vinamilk utilizes available land to grow crops like corn,
Mombasa grass, oats, and rice, with over 500 hectares meeting GlobalG.A.P and
Organic standards to provide feed for a herd of 20,000 cows.
● Green Farm Initiative: Vinamilk has developed the Green Farm model, maintaining
green areas over 70% of the land to protect the ecosystem and regulate the climate.
● Raw Material Region Development Partnerships: Vinamilk collaborates with Khanh
Hoa Sugar Company and local farmers to develop sources of raw materials such as
sugarcane.

- Benefits of Diversification:

● Quality Control and Stable Supply: Growing feed internally helps control quality,
reduce costs, and ensure a stable supply for dairy farming
● Sustainable Development and Environmental Protection: The Green Farm model
reduces environmental impact, contributing to sustainable development.
● Strengthened Connections and Local Economic Support: Collaborating with
businesses and farmers helps Vinamilk diversify raw materials and supports the local
community.

Production Lines

Vinamilk has invested significantly in modern production technology and lines to improve
efficiency.

- Investment Figures:

● Vinamilk has invested over VND 3,000 billion in advanced production technology,
modernizing its processing lines.
 ● Result: Reduced average production costs by 30-40% through optimized processes
and cost savings.

- Benefits of Diversification:

● Optimized Line Capacity: Enables production of various products like fresh milk,
yogurt, and powdered milk without needing additional dedicated lines.
● Reduced Production Costs: Leads to higher profits and increased competitiveness.

Distribution Points

Vinamilk owns an extensive distribution system with a wide network of sales points
nationwide.

- Distribution Figures:

● Over 240,000 retail points nationwide, including supermarkets, convenience stores,

and retail agents.
● This system distributes a wide range of products such as fresh milk, yogurt, and
powdered milk.

- Benefits of Diversification:

● Shared Distribution System for Multiple Products: Reduces costs and improves sales
efficiency.
● Enhanced Customer Access: Increases revenue and strengthens brand reputation.

Human Resources

Vinamilk focuses on developing a highly skilled and multi-talented workforce, effectively

utilizing human resources.

- Human Resource Figures:

● Approximately 70% of employees have diverse skills and can work across different
positions.
● 80% of employees participate in cross-training, saving 10-15% in personnel costs
when expanding products without the need for new hires.

- Benefits of Diversification:

● Optimized Personnel Costs: Helps reduce costs when expanding products or

changing processes.
● Multi-skilled Workforce: Increases flexibility in adapting to and managing market
fluctuations effectively.

2. Corporate Relatedness
a. Large Scale: Vinamilk holds approximately 40% of the dairy market share in Vietnam,
creating a large production scale that helps minimize the average production costs per
product. Producing in large quantities enables Vinamilk to negotiate better prices with
suppliers and optimize its supply chain.

Revenue from dairy products:

 ● 2022: Revenue from fresh milk reached around VND 20,325 billion, accounting for
56% of the total VND 36,000 billion in revenue.
● 2021: Fresh milk revenue was about VND 18,500 billion, accounting for 55% of total
revenue.
● 2020: Fresh milk revenue was VND 16,800 billion.

b. Lower Costs Due to Economies of Scale: By producing in large volumes, Vinamilk can
optimize the cost per product, making its prices more competitive than its rivals. This
advantage is particularly significant in mainstream dairy products such as fresh milk, yogurt,
and powdered milk, where large-scale production is key to lowering costs and increasing
profits.

Revenue from baby powdered milk:

● 2022: Revenue reached around VND 7,200 billion, up from VND 6,500 billion in
2021.
Yogurt products also saw growth:
● 2022: Revenue reached VND 5,000 billion, up from VND 4,500 billion in 2021.

c. Reputable Brand: Consumer trust: Vinamilk leverages its long-standing and trusted
brand to expand into new areas such as beverages and nutritional foods. This enables the
company to compete not only based on product quality but also on brand credibility, making
it easier to enter new markets and rapidly expand market share.

Market share:

● Vinamilk captured approximately 40% of the dairy market in Vietnam in 2022.

● The beverage market share (including fruit juices, milk coffee, and other drinks)
reached 20% in 2022.
● In 2022, beverage revenue reached around VND 1,500 billion, up from VND 1,200
billion in 2021 and VND 1,000 billion in 2020.

II.Unrelated Diversification
Vinamilk's investments and business activities are not directly connected to its core dairy
business.

1. Real Estate Investments

Vinamilk has ventured into the real estate sector, which is completely unrelated to its main
dairy business. Real estate investments don’t directly support or overlap with the production,
marketing, or distribution of dairy products.

● 2023: Total assets from real estate projects are valued at around 2,000 billion VND.
● Vinamilk Green City: A real estate project with an investment of around 500 billion
VND.
● Vinamilk Tower: A high-profile real estate development in Ho Chi Minh City with a
500 billion VND investment.
● 2022: Real estate investments amounted to 1,200 billion VND.
● 2021: Investments in real estate reached 1,000 billion VND.
These real estate investments allow Vinamilk to tap into a completely different market. The
potential profits from real estate development offer financial diversification and the possibility
of high returns. However, real estate has its own set of risks and challenges, such as market
volatility and the need for expertise in managing large-scale developments, which are
outside Vinamilk’s core competency.

2. Livestock Farming
Although farming may seem connected to dairy production, Vinamilk's investments in cattle
farming, particularly for meat and non-dairy livestock, are considered unrelated
diversification. While it helps ensure raw material supplies, it is outside their core dairy
business:

● 2022: Vinamilk invested 1,000 billion VND in cattle farming, ensuring more control
over the milk supply chain and reducing dependency on external suppliers.
● 2021: 800 billion VND invested in livestock farming.

3. Financial Investments
Vinamilk has also engaged in financial investments that don't directly align with its dairy or
food-related businesses, aiming to enhance returns and reduce overall risks by diversifying
its portfolio.

I. Corporate-Level Strategy Analysis

Vinamilk applies a high level of diversification in its corporate-level strategy, combining
both related and unrelated diversification. The company’s strategy can be categorized as a
moderate to high diversification strategy, where it seeks to grow in both its core
competencies (related diversification) and completely new areas (unrelated diversification).
This approach allows Vinamilk to:

● Enhance its market share in dairy and related products.

● Enter new industries for additional revenue streams, reducing dependency on dairy.
● Spread risks across industries.

In conclusion, Vinamilk's corporate-level strategy leverages both related and unrelated

diversification to optimize growth, manage risks, and build long-term sustainability.

II. Key Value Gained from Vinamilk's Diversification

1. Strengthened Competitive Position

● Market Leadership: Vinamilk's expansion into various dairy and non-dairy products
has allowed it to strengthen its market leadership in the dairy industry. With a 40%
market share in the Vietnamese dairy market and a growing presence in beverages
and organic foods, Vinamilk remains a dominant player.
● Brand Power: By diversifying into related sectors like beverages and organic
products, Vinamilk has reinforced its brand's value, leveraging its well-established
reputation in dairy products to boost consumer trust and loyalty in other categories.
● Economies of Scope and Scale: Through related diversification, Vinamilk gains
economies of scope, which help lower costs through shared resources such as
 supply chains, distribution networks, and marketing efforts. This synergy improves
overall efficiency, reducing operational costs by up to 30-40%.

2. Risk Mitigation

● Reduced Dependency on Core Business: By engaging in unrelated diversification

(e.g., real estate and financial investments), Vinamilk has diversified its revenue
streams, reducing its dependency on the dairy sector. This helps the company
mitigate risks associated with market volatility or fluctuations in the dairy industry.
● Diversified Revenue Streams: With investments in real estate, animal farming, and
financial markets, Vinamilk generates additional income outside of its core dairy
business. In 2023, 1,200 billion VND in revenue came from real estate projects,
which helped balance out the company's income portfolio.

3. Increased Financial Performance

● Higher Gross Profit Margins: The company's focus on operational efficiency,

including investments in technology and optimized supply chains, has resulted in
consistently high gross profit margins of around 35% in recent years, outperforming
many competitors.
● Revenue Growth: Diversification has also directly contributed to revenue growth. In
2022, Vinamilk achieved 36,000 billion VND in total revenue, with significant
contributions from its non-dairy sectors like beverages and organic products. This
trend is expected to continue with projections for 37,000 billion VND in 2023.

4. Long-term Stability and Sustainability

● Sustainability: The company's venture into organic products aligns with global
trends toward sustainable and healthy lifestyles. This diversification positions
Vinamilk as a forward-thinking company capable of capitalizing on long-term
consumer demand for healthier products.
● Asset Growth: With investments in unrelated industries such as real estate and
livestock farming, Vinamilk has expanded its asset base, ensuring long-term stability
and growth potential. Its real estate holdings alone were valued at 2,000 billion VND
by 2023.

5. Synergies Across Business Units

● Operational Synergies: In related diversification, Vinamilk has achieved synergy

across its product lines through shared resources like technology and infrastructure.
For example, the same production facilities are used for both dairy products and
beverages, maximizing efficiency and resource use.
● Supply Chain Control: Investments in animal farming have given Vinamilk better
control over its milk supply, reducing reliance on external suppliers and improving
product quality and cost control.

6. Market Expansion

● New Market Opportunities: By entering non-dairy sectors such as real estate and
organic products, Vinamilk has gained access to new market segments and
consumer bases, expanding its footprint beyond the traditional dairy market. The 500
billion VND earned from organic products in 2022 is an example of how
diversification opens new revenue streams.
III. Key Risks of Vinamilk's Diversification Strategy
1. Complexity in management and increasing management costs
● Vinamilk has invested heavily in unrelated sectors such as real estate and livestock
farming. From 2021 to 2022, the company invested a total of 2,200 billion VND in
real estate and 1,800 billion VND in livestock farms.
● Management costs for these unrelated sectors account for 15% of the company’s
annual operating expenses, adding complexity to the overall management system.
This can lead to a lack of control in certain areas, reducing operational efficiency.

2. Brand risk
● As the leading dairy brand in Vietnam, Vinamilk holds a 40% market share in the
dairy sector as of 2022, according to market reports. Expanding into unrelated fields
like real estate (with an investment value of 1,200 billion VND in 2022 for projects
like the Vinamilk Tower) could potentially harm the brand if these projects fail to
deliver success.
● If the real estate projects face difficulties or fail, it could negatively impact Vinamilk’s
reputation, especially in the eyes of investors and consumers.

3. Financial risk from large investments

● Vinamilk has invested 1,500 billion VND in major real estate projects and another
1,000 billion VND in developing livestock farming. If these investments don’t
generate the expected revenues, the company could face significant financial risks,
including increased debt and reduced liquidity.
● Although real estate investments brought in 1,200 billion VND in revenue in 2022,
the future profitability of these projects remains uncertain due to the highly volatile
nature of the real estate market.

4. Supply chain control risks

● Vinamilk invested 1,000 billion VND into livestock farms in 2022 to secure a stable
supply of raw milk, reducing dependency on third-party suppliers. However, since
livestock farming is not Vinamilk’s core business, it carries risks regarding product
quality and volume.
● Any issues with quality or disruptions in the farming supply chain—due to factors like
climate change—could reduce the supply of raw materials, impacting the production
of milk and dairy products.

5. Market and competition risks

● Vinamilk expanded into the beverage and organic food sectors, generating 1,500
billion VND from fruit juices and 500 billion VND from organic food in 2022.
However, these markets are highly competitive, with established players, requiring
significant investment in market research and marketing strategies.
● If Vinamilk fails to capture the expected market share, it risks losing money from the
initial investments in these new areas.

6. Sustainability risks
 ● Vinamilk has embraced the healthy consumer trend by producing organic milk and
nutritious beverages. However, revenue from organic milk in 2022 was only 500
billion VND, a relatively small figure compared to Vinamilk’s total revenue of 36,000
billion VND. If consumer trends shift or the company fails to keep pace with new
trends, the profitability of this segment could be severely affected.

7. Liquidity and financial debt risks

● With large investments in sectors like real estate and agriculture, Vinamilk faces
significant pressure on its capital and liquidity. If these projects don’t quickly generate
returns, the company may have to increase borrowing, resulting in a heavier debt
load.

Year Revenue (VND Dairy Market Real Estate Investment Gross Profit
billion) Share (%) (VND billion) Margin (%)

2020 25,000 38% 800 33%

2021 33,000 39% 1,000 34%

2022 36,000 40% 1,200 35%

2023 37,000 40% 1,200 35%

(estimated)