VinCommerce & Masan Tie Up

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Sometimes I just don’t understand Vingroup. Less than three months ago (here), I wrote about a $500m investment from GIC that the group got in its VinCommerce (VC) group.

So I was surprised that earlier this week, the company said it was merging with Masan Consumer Holdings, which is 86% owned by the parent, Masan Group (I’m not sure who owns the other part). That will create the largest retail chain in Vietnam.

As a reminder: VC has supermarkets and convenience stores, 2,649 of them. It launched 602 in the first nine months of this year, and almost 400 in 3Q. It is growing extremely fast - revenues in 9M2019 were equal to all of 2018. And operations are improving. But the division is not yet at breakeven (it’s still losing money, even with scale).

Masan has lots of consumer goods (seasonings, noodles, beverages), and it also has a large meat (pork, poultry and aqua) division that has 45 stores.

Source: Company data, Vietecon.com

Source: Company data, Vietecon.com

Some thoughts about the merger:

  • Masan gets better distribution for its products almost immediately. It can more prominently place all of its products in VinFast stores. This will likely boost sales.

  • This is also means that Masan doesn’t have to spend a great deal of time and money to build up retail operations. It was looking to partner with shops to put in a store-within-a-store with Masan products, according to the 2018 annual report. Now this can be done through VinMart and VinMart+ stores as well, and quickly.

  • VinGroup will no longer have to invest in the stores, which have been a drag. In the press release, it talks about investing more in technology and manufacturing (phones and cars, I assume).

  • Competitors should be unhappy. A big player in the consumer market has become more vertically integrated. It will have a lot of scale to push down prices from suppliers, and it will also be able to prominently position its own products. Although this brings me to my next point…

  • The new company will have to tread lightly in its relations with its wholesale customers, which are now competitors. It currently sells products in 300,000 stores - these are now competitors to the combined entity. These stores might start to be wary, and could look to highlight competitor products to hurt Masan. The best way to mitigate this is to build up its own brands. Masan already talks about how its brands are much loved. This better be true in order for them to demand good placement in their competitors’ stores. Think of it this way: you are a retailer, and lots of customers come in to buy coke, you sure as hell are going to carry coke. even if you don’t like the company.

  • There are also VinEco assets, which should go well with Masan’s current farm operations.

I can only assume that all of this was in the works for a while, which means that GIC knew that it was buying a stake in a company that would soon merge. (I estimate GIC bought a stake somewhere around 10-14% of VC).

In 9M2019, revenues of Masan’s MeatLife and Consumer divisions were VND22.7tr, while VC had revenues of VND19.3bn, so not that far off. And growth is much faster at VC. However, in terms of gross profit, they were VND7bn at Masan and just VND3.2bn at VC. And VC hadn’t even broken even.

The specific details of how much VinGroup will get for these assets have not been disclosed. It will be interesting to see the split. If it is based on revenues, VinCommerce should get just below half. If profits, Masan could get much more.

Ultimately, Masan Group is a somewhat unwieldy conglomerate with FMCGs (fast-moving consumer goods), retail stores, farms, metal mining/trading and a bank. My bet is they hive off the FMCG, retail and farms into one vertically-integrated consumer-facing retail operation. Then separately, they will have metals and the bank.

Or we could see the FMCG assets and the stores together, but MeatLife separate. But before the separation, Masan would convert all of the MeatLife stores into VinFast stores (or whatever they are going to call it).

No matter how they split it up, it will be a big company, and will likely attract lots of investor interest.