Vietnam’s food, drink and mass grocery retail industries continue to hint at their immense potential, without yet attracting the sort of explosive investment flurries that have occurred in the region’s other high-growth hot spots. Discounting the booming alcoholic drinks industry, which continues to develop at pace thanks to both internal and external investment, investors appear unwilling to commit vast sums to Vietnam, preferring to see how the economy and in turn consumer demand develop. In BMI’s latest Vietnam Food & Drink Report for Q308 we examine why this is the case. Multinational grocery retailers – particularly Tesco and Wal-Mart – have been linked with entry to Vietnam’s fledgling retail industry for some time. Although neither has dismissed the links, both have been silent on a possible market entry timetable. In fact, with the exception of new breweries, news on major structural investments within the industry has been fairly limited of late. Vina Kirin Acecook Beverage Co – the new soft drinks joint venture between Japanese brewing giant Kirin and noodle producer Acecook – confirmed that it expected to commence local manufacturing in mid-2009, but that it would make its initial market foray via a third-party distributor. South Korean confectionery giant Lotte Confectionery, meanwhile, upped its stake in local snack food firm Bibica, but has had yet to announce new manufacturing investments. A shortage of major expansion investments, or high-value M&A activity, might seem surprising within the context of the local economy. Domestic demand is being fuelled by sustained economic growth, which reached 8.5% in real terms in 2007, and this has driven our optimistic growth forecasts for key industry indicators. Vietnam has one of the region’s highest mass grocery retail sales growth forecasts; at 123% to 2012. Likewise, BMI’s prediction of 92% value sales growth in the Vietnamese confectionery industry reflects the bright outlook for non-essential convenient and snack food products. However, just as this outlook represents an enormous opportunity, so are there some major risks to consider. Firstly an investor must consider the very low starting point from which these impressive growth forecasts are occurring. Even if category sales double over a five-year period, a producer might still be looking at a tiny market in per capita terms, particularly given the size of Vietnam’s population. Furthermore, there is the issue of investment in distribution infrastructure. The country is still sufficiently under-developed to require significant logistical spending to complement manufacturing investments and this makes the likely wait on returns problematic for all but the most cash-rich of investors. Finally, there is the looming threat of inflation, which BMI forecasts will run to 20% in 2008. In a market in which consumer goods are only just beginning to find a regular audience, price hikes might see consumption habits swiftly reserve, leaving producers forced to cushion costs at the expense of their profits.