Chain business models under spotlight after Egroup woes
Chain business models under spotlight after Egroup woes
Locally-invested private firm Egroup, primarily involved in education and tech, has been bogged down in difficulties due to its heavy investment into two businesses in Vietnam, which are also facing passive losses.
Soya Garden was forced to close dozens of stores and will now concentrate on key locations as well as other business models Photo: Le Toan
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Egroup, one of Vietnam’s largest companies operating in the education sector, is now scratching its head over its investment in popular English language centre group Apax Holdings. Egroup has a hand in the largest English language training centre chain in Vietnam, Apax English, as well as the STEAMe GARTEN bilingual kindergarten system, the Apax Franklin Academy, and even soybean beverage chain Soya Garden.
After pouring investment worth VND100 billion ($43.47 million) via its Shark Tank programme into soy beverage startup Soya Garden – which recently closed 28 of 50 stores across the nation due to bearing great losses during COVID-19 – Egroup also continues to oversee the weak performance of APAX Holdings Investment JSC, in which the group holds 71.4 per cent.
According to one VIR source, Apax Holdings, which runs around 130 Apax English centres across the country since its establishment eight years ago, is facing difficulties to maintain existing centre volume, and even pay its staff full wages.
Apax Holdings recently published its business statement for the first quarter of this year, posting record losses. The company reported a gross loss of VND1.3 billion ($56,500), while in the same period of last year it acquired VND115 billion ($5 million) in profits.
The loss came from the plunge in revenues while sales expenditure soared to VND106 billion ($4.6 million), up 76 per cent on-year. Net revenue also declined by 15 per cent on-year to VND242 billion ($10.5 million).
COVID-19 and school closures for part of the year inevitably played some part in the poor results, but other factors revolving around the growth of English language centres around the country, especially expanding to new locations quickly, also come into it.
Apax is a popular work choice for foreign teachers who come to Vietnam to make money and travel around the country and the rest of Southeast Asia. Apax English centres offer decent pay, low hours, a pre-set curriculum that is easy to carry out, and it also provides in-depth help in visa and work permit paperwork.
As long as a native English speaker has a degree and a teaching certificate that can be attained online, a foreigner can pass a short training course and become an Apax teacher. Teachers who like the company’s security, and are tied to it regardless because of their work permit, can move up from teaching very quickly into more management-type roles.
Staff turnover can be high, with many Apax teachers spending only around a year in the job before moving on to spend time travelling. Apax does offer employment gaps for foreigners in the hopes they can entice them back to teach again after travel.
Some Apax teachers have told VIR that pay issues have stretched back to March, as the company tried to move their operations online during social distancing measures. Employees on the whole, however, are currently understanding and patient about the situation, knowing whatever plans they may have had to move on this month are impossible anyway due to flight restrictions.
It is expected that difficulties will offer an opportunity for Apax to restructure itself for further development.
Financial perils due to the ongoing pandemic are continuing to drag other education establishments down.
That was reflected by the revelation of a lawsuit between hundreds of parents and the Vietnam Australia International School. Due to having no ability to pay operation costs for seven campuses in Ho Chi Minh City during the health crisis, the school decided to collect full tuition fees even though students had to stay at home for several months. The case made a huge stir and similar controversies have also engulfed TAS, Everest, and Newton Grammar School.
After Apax Holdings reported its losses, two private investment funds from South Korea registered to sell 5.1 million shares, equalling a 6.3 per cent stake in this company after holding them for only two months.
Of the two funds, Valuesystem Global Mezzanine Investment is moving nearly two million shares (2.02 per cent stake) and Valuesystem Dae Kwang A Investment wants to ditch over three million shares, or 4.28 per cent. The transaction is expected to be completed on June 27, after which the two investment funds will no longer own any stake in the company.
Risk everywhere
Meanwhile, pay issues and a supposed lack of employee experience are not the factors surrounding the weak performance of another Egroup interest, Soya Garden. A representative of Egroup told VIR that those closures have been carried out in order to restructure its operation and remove ineffective stores.
Soya Garden went into great expense to open a great number of stores in a short time. However, the actual product offerings have failed to gather a sizable local following.
According to Egroup, Soya Garden will retain stores located in the most convenient places, while launching other business models such as small-scale stores and kiosks to decrease cost of staff and land access fees. But if the current prices remain for the actual products, it remains to be seen how introducing new models will make any difference in performance.
A common theme of chains trying to get a foothold in Vietnam has involved pumping huge amounts of capital to grasp the most optimal locations, but the heavy costs often do not seem to match up with the profits these chains can actually make. One VIR source revealed that golden spots in Hanoi and Ho Chi Minh City for outlets such as Soya Garden are offered at tens of thousands of US dollars per month.
Indeed, in May last year, Soya Garden beat coffee, milk, and tea brand Phuc Long to take over a building in Ho Chi Minh City with a monthly lease price of $25,000, nearly doubling what Phuc Long previously paid for it.
Before Soya Garden and Apax Holdings, many businesses have failed in running store chains such as Pho 24, once operated by entrepreneur Ly Quy Trung; The Coffee House’s Ten Ren bubble tea chain; and Huy Vietnam’s Mon Hue restaurant. Specifically, in 2012 Trung sold 70 Pho24 stores to Viet Thai Co., Ltd. After the deal, the chain narrowed to 16 stores, including only one in Hanoi. Ten Ren, with 23 stores, had to close last year after struggling alongside other well-known bubble tea chains.
Sustainable development needed
In order to developing the business chain model, chain founders should collect experiences to build success in both products and service and then carefully open two or three more stores to collect experience in term of management and operation, according to one Vietnamese-based business consultant talking to VIR.
The consultant explained that if money inflow collected from initial stores is enough to open a further one without mobilising from any sources, it shows that the founders have enough capacity in terms of money, management, and operation to justify extending the existing chain.
Nguyen Kim Dung, head of Apollo Vietnam’s Legal, Compliance, and Government Relations Department, said that one of the challenges of running many English centres, and so by extension any type of chain, is how to assure the same training quality of the branches. Moreover, rapidly expanding scale requires such a large investment and also put companies into a struggle balance both operation costs and profits.
“How to balance actual teaching quality for students while benefiting the company itself is the biggest difficulty for any English centre,” said Dung. “The best way to solve this is to assure that everything is prepared for before launching any new branches.”
