Malaysia’s food, beverage and grocery retail industries continue to attract both domestic and multinational investment, as discussed in BMI’s newly published Malaysia Food & Drink Report for Q408. In the last quarter, Russian baby food specialist Nutritek Group has entered the Malaysian market place, US agribusiness Cargill commenced operations in Kuala Lumpur and Krispy Kreme Doughnuts Inc entered into a franchise agreement with Berjaya Krispy Kreme Doughnuts to develop 20 shops in the next five years. Retail majors AEON and Carrefour continue to invest heavily in the region, with Carrefour opening its 15th store and AEON planning three more stores over the coming 12 months.

These investments signify the growing interest in the region despite rising prices and weakening consumer confidence. It is perhaps not surprising that companies want to invest when per capita food consumption is forecast to reach US$479.52 in 2012 and value sales through modern retail outlets are forecast to increase by 36.2% to 2012. In addition, the Malaysian government has indicated that they are considering relaxing current legislation to allow multinational retailers to expand into the smaller convenience store sector on a franchise basis. Should this amendment to legislation proceed Malaysia is likely to become an even more attractive prospect for investors, providing greater sales opportunities for producers and greater expansion opportunities for retailers.

Malaysia’s thriving halal sector will also appeal to investors particularly with the current tax incentives for halal producers. In August 2008, Nestlé proposed the government introduce further monetary incentives to attract additional business to the region, however, there has yet to be a response from the government in relation to Nestlé’s suggestions. Despite this, Malaysia’s convenient position for exporting to the Middle East, combined with the fact that 52% of its population is Muslim, makes it an ideal location for halal producers.

Another area that is seeing significant foreign investment is the continuation of the global trend towards a more health conscious diet. Nestlé has invested in the production of low fat noodles, while Coca Cola and PepsiCo have both been expanding their healthy drinks portfolio. This quarter Fraser and Neave has also launched its aLIVE range of healthy convenience foods in an attempt to combine healthy eating with the thriving market for processed foods in urban communities.

As quarterly activity shows Malaysia appears to pose a great opportunity for investors. Nonetheless, there are a couple of drawbacks particularly on the food and drink markets side: food import dependency, low alcohol consumption and low per capita food consumption. Despite these risks, there is still a fairly positive food consumption growth outlook as a result of sustained economic growth and an increase in consumer purchasing power.