Please explain the history of DDD
The founder, Dr. Sarawut Pornpatanark had a desire to do something different from the family business and launched DDD in 2010. Initially we were focused on OEM manufacturing for smaller domestic brands that were focused on selling on the internet and throughout social networks. We took this period to gather experience before launching our own brand, Namulife Snail White, in 2013. The first product was the facial moisturising cream and we were marketing and selling the product via online channels such as Facebook, Instagram and Line. Even though we started small, in our first year we achieved THB 90 million in sales. What we noticed from our experience doing OEM manufacturing was that some of our customers at one point were popular but subsequently disappeared after three to six months and so we targeted to become more mainstream. This step was taken in 2014 by expanding to modern trade channel such as Boots, Watson and sales have been impressive and our product is still the best selling facial moisturiser in Watsons for four consecutive years.
Please explain DDD's business model today
From this we gradually expanded our product line as we want our brand to be in every step of our customers self-nourishment, thus we launched body lotion, facial cleaners, facial sheet mask, shower scream and sun cream covering five product categories which accounts for 80% of the market. Our aim is to launch three to four new products each year which will drive our sales. Our brand is positioned as a premium mass brand for urban mid to upper income and our customers today are women who are urban, first jobbers and our target is to become the core step of nourishment for our customers. We design and manufacture the products in house with our own research and development team. Our long term aim is to become larger in Thailand's market landscape and to be the leading company. In order to achieve this one brand is not sufficient because it cannot be the answer for all customers. Snail White currently answers the questions for our female customers but not the male customers nor the mass market. Instead of diluting the Snail White brand new we will be developing new brands or acquiring existing wants so that we will have an encompassing brand portfolio to answer the questions for all customers.
How do you communicate to customers?
Currently our target customers are females, middle income, first jobbers in the age range of 25 to 35. They have a desire to move up from using mass brands to a more premium mass brand. In the first two years everything was online because it was the most effective way to reach our customers. If you remember, at the time snail secretion was a very new concept to the market and we had to spend a lot of time educating people the benefits of this ingredient. Utilising the online platforms was the most cost effective marketing strategy because then the celebrities did not charge of reviews, this has changed now, but we still find it to be a very useful channel. As the company became more mainstream we expanded our marketing efforts to make the brand more mainstream and begun utilising the Out-Of-Home Media. Because our target customers are working in offices and most likely have to travel two hours in their cars everyday, we focused on billboards along the tollways and the other key success factor from this is that we are able to capture the inbound tourists as well. We utilise both OOH Media within the city and on the way to the city from the airport, and within the airport itself. When you arrive in Bangkok you will see our our signboard which intrigues the travelers, and as they travel to the city there will be another billboard, and when they visit one of the modern trade stores within the city they may purchase our products and become long term customers.
How will DDD expand into other markets in the region?
We had positive news earlier this year as China's FDA (CFDA) approved three products for mainstream distribution and we hope to have a total of ten products approved. This opens doors for us in China however we understand that there will be difficulties because the market size is 20x bigger than Thailand and we will have to focus on where our customers are because if one were to expand nationwide the costs related to listing fees and marketing would be incredibly high. The more tangible option is to target inbound tourists to Thailand of which 30 million are from China. We estimate that 20% of our sales in Thailand is to tourists and this is still a small figure, and we believe that Thailand can still capture additional benefits from Chinese tourists. So we still see the market opportunity to continue growing. Also there are opportunities with other countries in the region and we are exploring them and have to ensure that our products are adapted to the local market preferences in each respective market.
Will DDD look to expand with new products and/or acquisitions?
In order for us to achieve our plan of being in every persons household requires both organic and inorganic growth. Organically we will expand our product lines at a rate of three to four new products per year in Thailand and throughout the region. Last year we launched a sachet format of 7 ml packs to begin selling in the convenience stores such as 7-11, Family Mart, Tesco Express and sales have again been impressive. So by doing the smaller product at a cheaper price point has proven to be effective. Inorganically we will look for acquisitions such as the recent acquisition of Oxe'Cure which gives DDD a foothold in the dermatological premium mass market segment. This provides us with multiple advantages with a wider product coverage, leveraging our distribution network, utilising our factory capacity and access to a fast growing market segment. Our viewpoint with acquisitions is that they have to complement and add to our portfolio but to also ensure that the additions remain independent with their own message to the market. In the end the decisions will naturally depend upon the return to shareholders because if we can build a brand ourselves at a better return then we shall.
What differentiates DDD from its competitors?
As a company we are local players and understand the local market very well, we do not believe that there is a one single formula for every person. Global players utilise one formula and sell their products throughout the world, but as a smaller player with deep knowledge, for us to be successful we ensure that our products match our customer preferences. For example, snail secretion products were initially brought into Thailand via Korean brands, but Korea's climate is very different from Thailand, the air is colder and dryer and thus when women applied their product, perhaps within five minutes from walking outside it may feel sticky and oil. So we solved this problem with our products by making the product lighter and improved the absorption whilst keeping the benefits of the snail secretion.
What misperception may investors have about DDD?
In the first quarter of 2018 our revenue's grew 5% and profits grew 80%. The market may not be satisfied with the topline growth but we still maintain our targets of 30% revenue growth for the full year. But this does not happen upon a quarterly basis as it depends upon the launch timings of our new products, towards the end to the first quarter we launched Snailwhite Gold and that positively impacted revenue and it should last throughout the year and as we launch additional products throughout the year we expect for our targets to be achieved. Another may be the emphasis placed upon the China market, yes it has a lot of potential, but we are still a small company and there is still a huge growth opportunity within Thailand itself. Right now we have 8 products while the market leader has 80, so in terms of product variety with our current strategy of launching new products annually we can close the gap with the market leader. Finally, last year we had minimal distribution in the traditional trade market which has an estimated 400,000 stores nationwide. Our aim is to increase this from 0% to 5% of the market with our latest product launch, the 7ml sachet, and collaboration with Sino-Pacific for distribution.
What are the biggest risks facing your business?
Domestically we are performing very well, however expanding internationally will have its own sets of challenges and unknowns. In China we already have the CFDA approval but we are looking for the right distributor, and throughout other countries in the region we will have to find strong partners and minimise the risks associated with these partnerships to ensure the long term success of DDD. Also in regards to Magic Skin, there has been no impact to us domestically but the news has made wholesalers and international customers wary on purchasing products from Thailand.
Where do you see DDD in five years from now?
We aim to be the number one in Thailand, especially in the facial market, and to expand our products and brands to truly become a multi-brand multi-product company covering all market segments. We are still a young company and will continue to be compact and dynamic to the market needs and gaining market share in Thailand which is still a large home market for us.