Q3 2015
www.bmiresearch.com

VIETNAM
FOOD & DRINK REPORT
INCLUDES 5-YEAR FORECASTS TO 2019

ISSN 1749-3072
Published by:BMI Research


Vietnam Food & Drink Report Q3 2015
INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: June 2015

BMI Research
Senator House
85 Queen Victoria Street
London
EC4V 4AB
United Kingdom
Tel: +44 (0) 20 7248 0468
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Email:
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© 2015 Business Monitor International Ltd
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DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.


Vietnam Food & Drink Report Q3 2015
INCLUDES 5-YEAR FORECASTS TO 2019

Part of BMI’s Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: June 2015

BMI Research
Senator House
85 Queen Victoria Street
London

EC4V 4AB
United Kingdom
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:

© 2015 Business Monitor International Ltd
All rights reserved.
All information contained in this publication is
copyrighted in the name of Business Monitor
International Ltd, and as such no part of this
publication may be reproduced, repackaged,
redistributed, resold in whole or in any part, or used
in any form or by any means graphic, electronic or
mechanical, including photocopying, recording,
taping, or by information storage or retrieval, or by
any other means, without the express written consent
of the publisher.

DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.



Vietnam Food & Drink Report Q3 2015


CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 9
Food ....................................................................................................................................................... 9
Drink .................................................................................................................................................... 11
Mass Grocery Retail ................................................................................................................................ 13

Industry Forecast .............................................................................................................. 15
Consumer Outlook ................................................................................................................................... 15
Food ..................................................................................................................................................... 18
Food Consumption ................................................................................................................................ 18
Table: Food Consumption Indicators - Historical Data & Forecasts (Vietnam 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Canned Food ........................................................................................................................................ 20
Confectionery ........................................................................................................................................ 20
Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Pasta ................................................................................................................................................... 24
Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Dairy ................................................................................................................................................... 25
Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Drink .................................................................................................................................................... 27
Alcoholic Drinks .................................................................................................................................... 27
Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Hot Drinks ............................................................................................................................................ 30
Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31


Soft Drinks ............................................................................................................................................ 33
Table: Soft Drinks Sales, Production & Trade (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Mass Grocery Retail ................................................................................................................................ 36
Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Table: Grocery Retail Sales By Format (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Trade .................................................................................................................................................... 41
Table: Trade Balance - Historical Data & Forecasts (Vietnam 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Macroeconomic Forecast ................................................................................................ 43
Economic Analysis ................................................................................................................................... 43
Table: Economic Activity (Vietnam 2010-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Industry Risk Reward Index ............................................................................................. 49
Asia Pacific - Risk/Reward Index ................................................................................................................ 49
Table: Asia Pacific Food & Drink Risk/Reward Index Q315 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Vietnam Risk/Reward Index ....................................................................................................................... 54

Market Overview ............................................................................................................... 56

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Vietnam Food & Drink Report Q3 2015
Food .....................................................................................................................................................

Agriculture ...........................................................................................................................................
Food Processing ....................................................................................................................................
Food Consumption .................................................................................................................................
Drink ....................................................................................................................................................
Hot Drinks ..........................................................................................................................................
Soft Drinks ............................................................................................................................................
Alcoholic Drinks ....................................................................................................................................

56
56
57
57
59
59
59
60

Mass Grocery Retail ................................................................................................................................ 63
Table: Mass Grocery Retail Sales By Format (Vietnam 2006-2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Industry Trends And Developments ................................................................................ 66
Food .....................................................................................................................................................
Key Industry Trends And Developments ......................................................................................................
Drink ....................................................................................................................................................
Key Industry Trends And Developments ......................................................................................................
Mass Grocery Retail ................................................................................................................................
Key Industry Trends And Developments ......................................................................................................

66
66

72
72
81
81

Competitive Landscape .................................................................................................... 85
Table: Key Players In Vietnam's Food Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Table: Key Players In Vietnam's Drink Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Table: Key Players In Vietnam's Mass Grocery Retail Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Company Profile ................................................................................................................ 88
Vinamilk ................................................................................................................................................ 88
Table: Vietnam - Planned Investment In Milk Production Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Table: Vinamilk - M&A Activity outside Vietnam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Table: Vinamilk - Financial Highlights, 2008-2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Unilever Vietnam ...................................................................................................................................
Nestlé Vietnam ......................................................................................................................................
Masan Consumer ...................................................................................................................................
San Miguel Pure Foods Vietnam Co Ltd ....................................................................................................
Hanoi Beer Alcohol Beverage Corp (Habeco) .............................................................................................
Saigon Beer Alcohol And Beverage Corporation (Sabeco) .............................................................................
Carlsberg .............................................................................................................................................

101
104
106
109
111
114

116

Saigon Co-op ........................................................................................................................................ 119

Global Industry Overview ................................................................................................ 122
Table: Food and Drink Core Views - Q115 Roundup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

Demographic Forecast ................................................................................................... 131
Table: Population Headline Indicators (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Table: Key Population Ratios (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Table: Population By Age Group (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Table: Population By Age Group % (Vietnam 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

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Vietnam Food & Drink Report Q3 2015

Glossary ........................................................................................................................... 136
Food & Drink ...................................................................................................................................... 136
Mass Grocery Retail ............................................................................................................................. 136

Methodology .................................................................................................................... 138
Industry Forecast Methodology ..............................................................................................................
Sector-Specific Methodology ..................................................................................................................
Sources ..............................................................................................................................................
Risk/Reward Index Methodology .............................................................................................................


138
139
139
140

Table: Food & Drink Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Table: Weighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

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Vietnam Food & Drink Report Q3 2015

BMI Industry View
BMI View: We hold a positive outlook for the Vietnamese consumer, as the government targets economic
growth through public spending and promoting investment and exports. We forecast real GDP growth at
6.4% in 2015 and 6.6% in 2016, on the back of supportive government policies, as well as a strong outlook
for foreign investment and exports. However, political risks remain in the form of Chinese tensions, which
we believe will continue for some time.

Headline Industry Data (local currency)
■

2015 total food consumption growth: +18.0%; compound annual growth rate (CAGR) 2014 to 2019:
+18.6%.

■


2015 per capita food consumption growth: +17.0%; CAGR to 2019: +17.6%.

■

2015 alcoholic drinks value sales growth: +8.0%; CAGR to 2019: +10.0%.

■

2015 soft drinks value sales growth: +9.3%; CAGR to 2019: +11.0%.

■

2015 mass grocery retail sales growth: +10.8%; CAGR to 2019: +11.5%.

Key Industry Trends

Emerging Middle Class To Drive Sector Growth: Vietnam remains one of our top markets in emerging Asia
over our 2019 forecast period. Compared with its regional peers, incomes are low, with about 17% of
Vietnamese households having annual net incomes below USD1,000 in 2014, compared to less than 5% in
Indonesia and Thailand. Nonetheless, rapid private consumption growth - our Asia Country Risk team
forecasts real private consumption to grow at a compound annual rate of 6.3% over 2014-2019 - will
strongly benefit the food sector, considering the country's low income level. With an additional 6.4mn
households moving above purely subsistence levels between 2014 and 2019 and falling into the USD5,000plus income bracket, we expect the demand for non-essential, branded food products to increase, benefiting
categories such as chocolate confectionery and carbonated soft drinks.

AB InBev Opens First Brewery In Vietnam: In June 2015, Belgium-based beverage company AnheuserBusch InBev (AB InBev) opened its first brewery in Vietnam as part of its strategy to tap the growing
potential of the beer market in South-East Asia. The brewery, covering 100,000sq m, is located in the
Vietnam Singapore Industrial Park, in the province of Binh Duong. It will initially produce 50mn litres of
beer annually. The capacity of the brewery may be doubled in the future based on market demand. The

country is considered the next turning point for AB InBev in South-East Asia, according to zone president

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Vietnam Food & Drink Report Q3 2015

for Asia Pacific, Michel Doukeris. 'It has a strong beer culture, a friendly business environment, very
competitive labour force and is strategically located within the ASEAN region to reach the world's firstclass active trade centres,' Doukeris said, reports the Vietnam News.
Metro Retail Exit Does Not Diminish Positive Vietnam View: In early August 2014, the German cash-andcarry retailer Metro announced it is planning to sell its Vietnam business, potentially pulling in
EUR1.75bn. The decision to leave Vietnam is driven by the need to re-focus on its core Europe business
and strengthen its balance sheet, rather than being based on any major structural issues or re-rating in the
growth profile of the organised food retail sector. Like some of the other major European retailers, namely
Carrefour and Tesco, Metro has had to rein in spending internationally over the past two-to-three years as
retail sales across Western Europe have remained weak while Russia, one of Metro's key markets, slowed
down in 2014. We still see Vietnam as one of South-East Asia's best retail opportunities.

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Vietnam Food & Drink Report Q3 2015

SWOT
Food
SWOT Analysis


Strengths

■

The food processing sector accounts for a sizeable proportion of industrial output and
GDP, with the sector attracting significant foreign investment in recent years from
global industry majors such as Unilever, Nestlé and San Miguel.

■

Vietnamese consumers, particularly the young and affluent, are fairly brand aware by
regional standards. Accordingly, renowned Western products, backed by investment
in marketing and promotions, tend to have highly successful launches.

■

The wealthy urban centres of Hanoi and Ho Chi Minh City now provide highly
receptive consumer audiences.

■

Large and diverse domestic agricultural output aids the stability of ingredient supplies
and prices for local producers - a vital strength during this period of global volatility.

■

Strong economic and private consumption growth will help fuel food consumption
growth.

Weaknesses


■

There are wide income disparities between urban and rural areas, and local
consumption patterns vary significantly according to income.

■

The food processing industry remains largely fragmented, except for a few key
sectors such as dairy and confectionery.

■

The country's agricultural sector has been criticised for being too slow to adapt to
new technologies to be globally competitive in the long term, although the
government is working hard to address this.

■

Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.

■

The lack of white goods among large sections of the consumer base slows down the
development of the high-potential dairy sector.

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Vietnam Food & Drink Report Q3 2015

SWOT Analysis - Continued

Opportunities

■

The government's focus on investment within the manufacturing and exports industry
will help create a regional food and drink trade hub. Vietnam's recent ASEAN
Economic Community membership should provide greater access to both foreign
markets and capital, while making Vietnamese enterprises stronger through increased
competition.

■

Rising income levels and changing lifestyles, particularly in urban areas, are
increasing consumer demand for snacks, convenience and luxury food items.

■

Vietnam's large domestic market, growing export opportunities and low labour costs,
as well as the prospect of acquiring newly privatised food companies, offer further
investment opportunities.

■

The country's agricultural sector is in need of significant investment, and willing

investors can expect assisted entry.

Threats

■

A growing tourism sector fuels interest in convenience categories.

■

Vietnam's WTO membership may result in smaller companies who are unable to cope
with the increased competition being forced out of business.

■

If relations with China deteriorate, the Vietnamese economy will suffer and could lose
a significant political ally and trade partner.

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Vietnam Food & Drink Report Q3 2015

Drink
SWOT Analysis

Strengths


■

Vietnamese consumers, particularly the young and affluent, are fairly brand aware by
regional standards. Accordingly, renowned Western products, backed by investment
in marketing and promotions, tend to have highly successful launches.

■

The wealthy urban centres of Hanoi and Ho Chi Minh City now provide highly
receptive consumer audiences.

■

Alcoholic drinks are widely consumed and have gained popularity in recent years.

■

Competitive pressure is quickly intensifying in the drinks sectors, which is likely to
drive greater sector dynamism and fuel growth.

Weaknesses

■

There are wide income disparities between urban and rural areas, and local
consumption patterns vary significantly according to income.

■

The drinks industry remains largely fragmented, except for a few key sectors, such as

alcohol and soft drinks.

■

Despite the growing presence of multinationals, local firms continue to dominate the
beer market.

■

Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.

■

Establishing separate breweries in different regions is costly but remains one of the
best strategies to overcome the lack of infrastructure.

Opportunities

■

The government's focus on investment within the manufacturing and exports industry
will help create a regional food and drink trade hub.

■

Vietnam's recent ASEAN Economic Community membership should provide greater
access to both foreign markets and capital, while making Vietnamese enterprises
stronger through increased competition.


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Vietnam Food & Drink Report Q3 2015

SWOT Analysis - Continued
■

Vietnam's large domestic market, growing export opportunities and low labour costs,
as well as the prospect of acquiring newly privatised drink companies, offer further
investment opportunities.

■

A growing tourism sector is fuelling interest in convenience categories, in addition to
sub-sectors such as soft and alcoholic drinks.

■

In line with consumers' rising disposable incomes, there are opportunities for
premium-branded products in the soft and alcoholic drinks sub-sectors.

■

The global trend towards health consciousness provides an opportunity for drinks
manufacturers to diversify into perceived healthier options.

■


As the Vietnamese state plans to reduce its stake in state-owned brewers, interest
from regional and global brewers will pick up, translating into opportunities to
modernise the sector.

Threats

■

Vietnam's WTO membership may result in smaller companies who are unable to cope
with the increased competition being forced out of business.

■

If relations with China deteriorate, the Vietnamese economy will suffer and could lose
a significant political ally and trade partner.

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Vietnam Food & Drink Report Q3 2015

Mass Grocery Retail

SWOT Analysis

Strengths


■

The potential size of the mass grocery retail market makes it an attractive target for
foreign retailers once improved market terms are granted. Further growth is expected,
especially in the supermarket format.

■

Hypermarkets, supermarkets and convenience stores have all proved popular in
Vietnam, catering for different types of consumers and different shopping occasions.

■

A growing multinational presence in the retail sector has aided the acceptance of
modern retail best practices in Vietnam, particularly things such as added-value instore services.

■

Vietnamese economic growth averaged 6.5% annually between 2000 and 2014,
fuelling a steady middle-class emergence and growing consumerism. The economic
boom has lifted many Vietnamese out of poverty, generating a greater demand for the
higher-value modern retail concepts.

■

The formation of buying groups has proved an effective means of facilitating quicker
expansion among smaller industry players.

Weaknesses


■

Vietnam's retail distribution networks remain underdeveloped, and expansionoriented firms must invest in infrastructural development as well as new store
openings.

■

Regulations governing international participation in modern retail in Vietnam have so
far resulted in slow rates of expansion.

■

Poverty levels among the country's vast rural population hugely inhibit the potential
audience size for modern retail in Vietnam.

■

Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.

Opportunities

■

The hypermarket concept is still in its infancy and, as familiarity with modern retailing
grows, this format will represent an immense growth opportunity.

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Vietnam Food & Drink Report Q3 2015

SWOT Analysis - Continued
■

Modern retail is currently focused on the major urban centres of the north and south,
which still boast space for new entrants. Central Vietnam and the provinces provide
further opportunities still.

■

Modern retail concepts, such as discounting and private labelling, are likely to prove
popular with price-conscious Vietnamese consumers as familiarity with modern
retailing builds.

■

Rapid urbanisation and the development of new housing complexes provide ideal
locations for modern retail outlets.

■

The government's focus on investment within the manufacturing and exports industry
will result in lower production costs for such items, which have the potential to boost
the profits of MGR firms.

■


100% foreign ownership in retail has been allowed since January 2015, following
Vietnam's accession to the WTO and other trade agreements, which will boost foreign
presence.

Threats

■

Rising operating costs, especially hikes in the legal minimum wage, will threaten
retailer profit margins; price increases have to date been passed on to shoppers, but
this cannot continue indefinitely in the price-conscious market.

■

If relations with China deteriorate, the Vietnamese economy will suffer and could lose
a significant political ally and trade partner.

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Vietnam Food & Drink Report Q3 2015

Industry Forecast
Consumer Outlook
We hold a positive outlook for the Vietnamese consumer, as the government targets economic growth
through public spending and promoting investment and exports. However, political risks remain in the form
of Chinese tensions, which we believe will continue for some time.


In line with our positive outlook for the Vietnamese economy, we forecast real GDP growth at 6.4% in
2015 and 6.6% in 2016, on the back of supportive government policies, as well as a strong outlook for
foreign investment and exports. Real GDP growth came in at 6.0% year-on-year in Q115, which was above
expectations and underpins our view that Vietnam is on a strong growth trajectory. In the industry category,
which accounted for 30.3% of nominal GDP in Q115, the manufacturing sector grew by a robust 9.5% y-oy, while construction growth came in at 4.4% y-o-y. In a sign that the manufacturing sector has the capacity
to sustain its current strong growth momentum, the Purchasing Manager's Index (PMI) came in at 50.7 in
March, marking the 19th consecutive month of industrial output expansion (PMI figure above 50 represents
expansion). On the services side, growth in retail sales has weakened in recent months, from 13.0% y-o-y in
January 2015 to 9.1% in May (see chart below). However, historically low inflation levels suggest that retail
sales continue to expand rapidly on a real basis.

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Vietnam Food & Drink Report Q3 2015

Slower Growth But Sustained Expansion Of Retail Sales
Vietnam - Retail Sales, % change year-on-year

Source: Bloomberg, BMI

We believe that the food and drink industry in Vietnam will benefit from the government's drive to increase
the manufacturing sector for regional and international trade. Vietnam is quickly becoming a regional trade
powerhouse, especially in the food and drink sector, as low wages and tax incentives continue to entice
foreign manufacturing firms to set up production plants in the country. The Vietnamese government has
been making a concerted push to build diplomatic and trade ties with many countries and is negotiating
several free trade agreements. One of the most important ones is the Trans-Pacific Partnership (TPP), which
is increasingly likely to be signed in 2015.


In addition, continued efforts by the Vietnamese government to foster macroeconomic stability will also
help the country to attract greater foreign direct investment (FDI) inflows. The economy is currently resting
on a growth-inflation sweet spot, with consumer price inflation (CPI) coming in at just 0.9% y-o-y in March
(in part owing to the slump in global oil prices) versus the peak of 23.0% in August 2011. Price stability and
positive economic growth prospects will lend support to the Vietnamese dong. The confluence of these
factors will restore and shore up investor confidence, enhancing Vietnam's attractiveness as a place to invest
and do business in.

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Vietnam Food & Drink Report Q3 2015

On the consumer side, we note that a proposed increase in the tax base on food and drink products could be
implemented in July 2015. This would decrease sales of certain food and drink items, predominantly
products such as carbonated drinks and confectionery. If and when this tax increase is confirmed, we will be
adjusting our forecasts accordingly.

In the long term, rapid economic growth in Vietnam over the coming years is likely to translate into higher
income, in turn benefiting consumerism. We forecast strong private consumption growth over the next few
years, at 6.5% in 2015 and 6.4% in 2016. Most exciting is the country's favourable demographic profile:
49.6% of the population is estimated to be younger than 30. This implies potentially dynamic opportunities
for consumer goods players targeting the mass-market segment in particular. Rapid urbanisation provides
additional opportunities for modern retail outlets.

What Vietnam offers investors is arguably one of the most attractive consumer bases in South East Asia
after India. With a youthful population of 92.5mn and GDP growth forecast at 6.4% in 2015, the country

provides attractive demographic potential for retailers keen to capture the vast consumer base. A flurry of
international investment interest in the country over recent years has given continued focus on the merits of
the unravelling consumer story in Vietnam, particularly in its mass grocery retail sector. Overall, we believe
that Vietnam remains one the most exciting mass grocery retail Asian growth stories. With the potential to
outperform regionally in the coming years, the country continues to gradually prove its growing reputation
as Asia's 'little India'.

Risks To Outlook

Major risks are political and stem from the ongoing maritime dispute with China over claims to parts of the
South China Sea and from the impact of any reshuffle of party leadership at the Communist Party Congress.
We nevertheless believe this will not pose a major risk to the current macroeconomic environment.
However, we note that businesses might face potential operational risks stemming from possible delays in
obtaining approvals and permits from government officials for starting their new businesses and major
development projects.

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Vietnam Food & Drink Report Q3 2015

Food
Food Consumption
■

2015 total food consumption (local currency) growth: +18.0%; compound annual growth rate (CAGR)
2014 to 2019: +18.6%.


■

2015 per capita food consumption (local currency) growth: +17.0%; CAGR to 2019: +17.6%.

Vietnam will remain one of the most attractive investment opportunities in the region over our forecast
period to 2019 and beyond. Domestic consumer expenditure will continue to grow, and the country is a
major regional hub for exports. The food sector represents a large and growing portion of the country's
manufacturing output.

We expect per capita food consumption to grow at a fast pace, by 17.0% in 2015 and by a compound annual
rate of 17.6% from 2014 through to 2019. An attractive demographic profile, rapid urbanisation and rapid
expansion of country's mass grocery retail sector will fuel this growth over the longer term.

Currently, income levels in Vietnam are a long way behind those enjoyed in developed economies, and
consumer purchases remain largely centred on food staples and daily necessities. However, with an
additional 6.4mn households moving above purely subsistence levels and falling into the USD+ income
bracket, consumer tastes and preferences are expected to calibrate towards the higher-value food and
beverage segments, which will be very likely to guarantee a receptive and growing audience for branded
food and beverage products in the medium term.

The massive potential provided by the burgeoning middle class in Vietnam is already attracting the sights of
major consumer-facing players in the country. The ongoing expansion of the mass grocery retail industry
will drive up per capita food consumption levels, provided goods sold through such outlets remain
competitively priced. Ultimately, food consumption growth will be driven by the government's ability to
harness rural spending power and by modern retailers' ability to find a model that stirs consumer interest,
without forgetting that price will remain the major purchasing determinant.

As a regional manufacturing and trade hub, we also highlight Vietnam's strong food processing sector as an
ongoing investment driver. Food products account for 21% of all of Vietnam's manufacturing output, which
in itself makes up 19% of GDP. The manufacturing sector will expand robustly in the country on the back

of an improved macroeconomic and investment climate, a growing domestic market, and an abundant
working age population with competitive wages relative to regional peers.

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Vietnam Food & Drink Report Q3 2015

Food Consumption
(2010-2019)
1,500,000

20

17.5
1,000,000
15

12.5
500,000
10

2019f

2018f

2017f


2016f

2015f

2014

2012

2010

2013

7.5
2011

0

Food consumption VNDbn (LHS)
Food consumption, VND, % y-o-y (RHS)

f = BMI forecast. Source: National sources, BMI

Table: Food Consumption Indicators - Historical Data & Forecasts (Vietnam 2012-2019)

2012

2013

2014


2015f

2016f

2017f

2018f

2019f

441,792

497,188

584,569

689,882

819,323

976,205

1,160,243

1,372,053

Food
consumption,
VND per capita


4,865,777

5,423,100

6,316,385

7,387,372

8,698,529

10,279,986

12,124,185

14,233,630

Food
consumption,
USD per capita

233

258

298

344

406


484

576

683

Food
consumption,
USDbn

21

24

28

32

38

46

55

66

Food
consumption,
VND, % y-o-y


11

13

18

18

19

19

19

18

Food
consumption
VNDbn

f = BMI forecast. Source: National sources, BMI

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Vietnam Food & Drink Report Q3 2015

Canned Food

■

2015 canned food value sales (local currency) growth: +9.1%; CAGR to 2019: +8.4%.

Canned food sales are forecast to experience robust growth in Vietnam, in line with increasing urbanisation
and growing affluence among consumers. Between 2014 and 2019 we forecast volume growth of 32.0%,
and value growth of 49.8%. Indeed, demand for higher-value products such as canned foods is expected to
pick up on the back of rising disposable incomes.

Vietnamese consumers are experiencing a growing awareness of hygiene concerns and food origin as their
living standards improve and as numerous health scares lead to increased caution. This will further
encourage consumers to purchase processed foods over fresh produce, and strong investment in this sector
from both domestic and international operators will be very likely to help to fuel sales growth. Meanwhile,
city workers are increasingly cutting back on restaurant meals and opting for canned and processed foods in
order to save money, with major retailers such as Saigon Co-op reporting a recent spike in sales.

Confectionery
■

2015 confectionery value (local currency) sales growth: +7.5%; CAGR to 2019: +9.1%.

■

2015 chocolate value (local currency) sales growth: +9.5%; CAGR to 2019: +11.6%.

■

2015 sugar confectionery (local currency) sales growth: +5.9%; CAGR to 2019: +7.5%.

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Vietnam Food & Drink Report Q3 2015

Confectionery
(2010-2019)

2019f

2018f

2017f

0
2016f

0
2015f

2

2014

100,000

2013

4


2012

200,000

2011

6

2010

300,000

Confectionery sales, tonnes (LHS)
Confectionery sales, tonnes, % y-o-y (RHS)

f = BMI forecast. Source: National sources, BMI

The longer-term outlook for the Vietnamese confectionery market is positive. Factors such as rising
purchasing power, favourable demographics, growing health awareness and continued investments in the
sector will support confectionery demand, especially with regard to chocolate.
■

Rising Disposable Incomes: Rapid wealth accrual is likely to translate into a greater discretionary
appetite for premium confectionery products. As an increasing number of domestic confectioners expand
their upmarket product ranges, this is likely to bolster value sales growth over the coming years.

■

A Massive Youthful Population: Almost half of the Vietnamese population is estimated to be younger

than 30, and the maturation of this demographic group means that there are dynamic opportunities in the
mass market. Moreover, this demographic group is generally more receptive to Western tastes and
innovative products, which will give an impetus to confectionery demand.

■

Growing Health Awareness: Health awareness is prompting shifts of consumption habits towards
functional and healthy confectionery products. Capitalising on the growing trend, domestic confectioners
such as Tan Tan Food & Foodstuff and Vina Mit are expanding their functional product offerings.
These products typically carry higher price tags, and their rising demand is likely to translate into higher
value sales in the sector.

■

Continued Sector Investments: Sustained competition levels in the Vietnamese confectionery sector
ensure that dynamism in the market is unlikely to cool off any time soon. Nabati Indonesia, a leading
Indonesian biscuit producer, recently announced plans to start distributing its biscuit products in Vietnam

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Vietnam Food & Drink Report Q3 2015

- a testament to the attractiveness of the sector. In November 2014, Mondelez International, a global
leader in snacks and confectionery, acquired a 80% stake in domestic confectioner Kinh Do.

However, while we highlight the positive consumption picture, we caution that growth- especially in the
burgeoning chocolate sector- could be restricted by supply issues.


Interest in Asia's cocoa and chocolate sectors is rising, with many local and international players entering
the cocoa grindings and chocolate making business in the region. While there is no traditional culture of
eating chocolate in the region, the Vietnamese are one of the largest chocolate eaters per capita amongst
Emerging Asian countries, with consumption per capita at 0.6kg a year, while Indian and Thai consumers
eat 0.1kg a year.

Attracted by these enticing consumption trends, cocoa grinders are investing heavily across Asia, especially
in Malaysia and Indonesia.

Other Asian countries where chocolate demand is growing have also recorded investments in their grinding
capacity. Countries like Vietnam and Thailand mainly import cocoa powder due to their lack of processing
plants. This corresponds well to the taste of consumers in emerging countries, who usually prefer milder
chocolate products based on cocoa powder (cakes, biscuits and drinks) rather than cocoa butter-based
products which tend to be stronger (melt-in-your-mouth products such as chocolate bars and ice cream).

In spite of strong demand fundamentals for the cocoa and chocolate sectors in Asia, headwinds are growing
in the processing industry. First, the ongoing wave of investment in cocoa processing plants has led to
overcapacity in Malaysia and Indonesia. We believe the fast development of capacity will have a lingering
impact on cocoa grinders' profitability in the coming years, with margins in the industry remaining in the
doldrums. The second challenge facing the sector is the dwindling supply of cocoa beans coming Indonesia,
which has traditionally been Asia's main supplier. Cocoa production in Indonesia has been declining since
2012/13, as the government's ambitious plan to double output has been a failure so far. Seeds supplied by
the Indonesian Coffee and Cocoa Research Institute are producing defective cocoa trees that yield poorquality pods and small, discoloured beans. The scarcity of locally grown bean is being exacerbated by the
fast development of the grinding sector. Indonesia's cocoa production surplus is steadily narrowing and is
expected to come in at a low 119,600 tonnes in 2013/14, compared with the five-year average of 274,000
tonnes.

Not only have beans exports fallen recently, hampering the processing sector in Asia, but Indonesia is now
forced to import higher-quality beans from Africa. In addition, grinders in Indonesia are lobbying to lower


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Vietnam Food & Drink Report Q3 2015

the import tax on cocoa beans in order to increase domestic supply. This would put further pressure on
Indonesian cocoa bean farmers, as they would have to face stiffer competition from African beans, which
are cheaper and of better quality. Many Indonesian cocoa farmers could be pushed out of business, limiting
production further in the future.

We believe the growing scarcity of Indonesian beans, on which many Asian grinders were counting to
supply their plants, will put the development of the chocolate making sector in Asia in jeopardy. The
stagnation in beans output will leave the world dependent on a single source of cocoa, West Africa, known
for its unstable production. This is likely to lead to volatile and slim margins in times of elevated cocoa
prices. Decreasing supply from Indonesia should limit the global production surpluses in the coming years,
leaving cocoa prices at high levels compared with historical averages.

Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2012-2019)

2012
Confectionery
sales, VNDmn

2013

2014


2015f

2016f

2017f

2018f

2019f

22,411,421 24,585,828 26,778,261 28,782,683 31,111,184 34,399,891 37,570,130 41,342,067

Confectionery
sales, VND per
capita

246,833

268,171

289,345

308,210

330,299

362,250

392,596


428,881

Confectionery
sales, USDmn

1,074

1,169

1,263

1,341

1,450

1,619

1,785

1,983

Confectionery
sales, tonnes

167,980

172,517

180,658


190,430

198,988

210,276

219,619

230,966

Chocolate
sales, VNDmn

3,703,892

3,998,109

4,409,229

4,828,784

5,334,638

6,058,586

6,795,230

7,631,842

Chocolate

sales, USDmn

177

190

208

225

249

285

323

366

Chocolate
sales, tonnes

47,449

48,047

50,905

54,602

58,170


62,978

67,336

72,163

Chocolate
sales, kg per
capita

1

1

1

1

1

1

1

1

Sugar
confectionery
sales, tonnes


114,301

118,201

122,465

127,062

131,159

135,886

139,645

144,026

Sugar
confectionery
sales, kg per
capita

1

1

1

1


1

1

2

2

Sugar
confectionery
exports,
tonnes

29,615

30,790

32,019

33,294

35,689

36,648

39,271

40,789

Sugar

confectionery

15,089

16,156

17,249

18,424

19,997

21,066

22,710

23,997

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Vietnam Food & Drink Report Q3 2015

Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Vietnam 2012-2019) - Continued

2012

2013


2014

2015f

2016f

2017f

2018f

2019f

14,526

14,634

14,770

14,870

15,692

15,582

16,561

16,792

6,231


6,269

7,288

8,766

9,658

11,412

12,638

14,777

0

0

0

0

0

0

0

0


1,177,461

1,262,945

1,528,238

1,876,719

2,144,309

2,657,737

3,087,572

3,783,516

12,968

13,776

16,513

20,096

22,766

27,988

32,264


39,250

56

60

72

87

100

125

147

181

imports,
tonnes
Sugar
confectionery
balance,
tonnes
Gum sales,
tonnes
Gum sales, kg
per capita
Gum sales,

VNDmn
Gum sales,
VND per capita
Gum sales,
USDmn

f = BMI forecast. Source: National sources, BMI

Pasta
The Vietnamese pasta market is underdeveloped, although the product has become more recognisable in
view of Westernisation of lifestyles, particularly in urban areas. Around half of the retail market is
dominated by Barilla, with other prominent importers including Italpasta and Pasta Zara.

However, the market for instant noodles is well established, with the market supplied by a mixture of
locally made (by companies such as Masan Consumer and Acecook Vietnam JSC) and imported products.
Goods are receiving strong marketing and advertising support, especially as the more challenging economic
times have prioritised non-discretionary spending. Instant noodles are expected to remain very popular, on
account of their affordability, versatility as a cooking ingredient, wide-ranging availability and convenience.

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