The Magic Formula for Nguyen Duc Tai’s Success: Transforming Bach Hoa Xanh into a Mini-Supermarket Chain with an Emphasis on Branded Produce, Meat, and Seafood.

After a period of “working harder, losing more,” in Q2 2022, The Gioi Di Dong’s Chairman, Nguyen Duc Tai, declared: “Bach Hoa Xanh will ‘hit the gym’ in 2022 to prepare for expansion into the Central and Northern markets from 2023 to 2025. We don’t want to take stimulants to immediately lift heavy weights or experience explosive growth. Instead, we want to gradually train and develop our muscles to build a truly healthy body and go the distance.”

As a result, in the first seven months of the year, the chain of grocery stores generated 23,000 billion VND in revenue, a 40% increase compared to the same period last year. In July alone, revenue reached over 3,600 billion VND, a nearly 28% increase year-over-year. Both the fresh produce and FMCG categories maintained double-digit growth during this period.

The average revenue per store in July was 2.1 billion VND. Currently, the chain has 1,704 stores, an increase of 3 stores compared to the end of June 2024.

After two years of system-wide training, Bach Hoa Xanh is starting to reap the rewards, and Mr. Tai has also found the “formula” to replicate the success of his retail chain.

Bach Hoa Xanh’s Formula for Success

A report analyzing Bach Hoa Xanh’s success formula by KB Securities attributed MWG’s sweet success to its restructuring policy, including repositioning the brand from a “modern market” to a “mini-supermarket.”

This formula stems from the strategy of “reducing quantity and increasing quality,” as emphasized by Mr. Tai in recent shareholder meetings. After a period of diligently closing down unprofitable stores, Bach Hoa Xanh started reopening mini-supermarkets in Q2 2024.

“With the mini-supermarket model, Bach Hoa Xanh can increase revenue by competing with traditional markets by offering a more convenient and transparent product source,” the KBSV report states. It also predicts that Bach Hoa Xanh could open between 45 and 95 stores this year and maintain revenue before expanding northward in 2025.

In addition to “reducing quantity and increasing quality,” one of the critical factors contributing to Bach Hoa Xanh’s success is the change in the product mix. Currently, the retail giant’s product portfolio includes approximately 3,000 SKUs, with a 40% share of fresh produce and 60% fast-moving consumer goods (FMCG).

The high proportion of fresh produce helps Bach Hoa Xanh attract customers from traditional channels. However, this can also reduce the gross profit margin due to the lower profit associated with fresh produce compared to consumer goods.

Similarly, a report by FPT Securities (FPTS) states that compared to other mini-supermarket chains (WinMart+, Satrafoods, Co.op Food), Bach Hoa Xanh offers a more diverse range of products in both fresh produce and FMCG.

This competitive advantage helps Bach Hoa Xanh attract new customers and increase the purchasing frequency of existing ones. Additionally, fresh produce acts as a conduit for customers to buy more FMCG products with higher gross margins.

Previously, SSI also praised the appeal of fresh produce at Bach Hoa Xanh. In their report, they noted that in Q2, revenue per month per store continued to grow due to a favorable product mix, with more vegetables in urban stores, more imported fruits in rural stores, and more branded meat and seafood.

Additionally, reducing transportation costs is a crucial factor in helping the grocery chain achieve its goal of “bringing money home to mom.” Bach Hoa Xanh transitioned from large distribution centers to mini warehouses and built a network of surrounding stores. The company optimized travel time and increased vehicle load to 70%, reducing logistics costs/revenue to below 4%.

The KBSV analysis team believes that the retail chain could further optimize logistics costs/revenue to 3.5% in 2024.

Having a Successful Formula Doesn’t Mean Rushing to Open New Stores

At the Annual General Meeting, Mr. Nguyen Duc Tai, Chairman of The Gioi Di Dong, stated that the company is cautious about opening new stores and has not set a specific number.

“Opening stores en masse to meet given targets is a lesson we’ve learned from the past. Such things will not happen again. Now, we only open stores if the conditions are right; otherwise, we won’t,” said Mr. Tai.

Regarding the plan to expand northward and into the Central region, the head of MWG stated that when the first profits are made, the plan to expand into these regions will be implemented. However, until then, the plan must be approached with caution and at a slower pace.

While not opening many stores, Bach Hoa Xanh focuses on improving the quality of its goods and diversifying its fresh produce offerings to compete with its rivals. Regarding dry goods, Mr. Tai assessed that the quality of Bach Hoa Xanh’s dry goods is “almost on par” with that of supermarkets. For fresh produce, Bach Hoa Xanh is working to enhance its quality to match or even surpass that of traditional markets.