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Vietnam Food and Drink Report Q3 2008

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Report Summary

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.

Table of Contents

Executive Summary ......7

Business Environment ..8

Regional Food & Drink Business Environment Ratings .... 8

Table: Asia Pacific Food & Drink Ratings – Q308 .... 11

Vietnam’s Food & Drink Business Environment Rating ...... 11

Table: Vietnam’s Global Food & Drink Business Environment Ratings Peer Group 13

SWOT Analysis 14

Food And Drink 14

Vietnam Food And Drink Industry SWOT . 14

Mass Grocery Retail ...... 15

Vietnam Mass Grocery Retail Industry SWOT ... 15

Macroeconomic Outlook 16

Table: Vietnam - Economic Activity . 18

Food ....19

Industry Forecast Scenario . 19

Food Consumption 19

Table: Food Consumption Indicators – Historical Data & Forecasts 20

Canned Food . 20

Confectionery . 20

Table: Value/Volume Sales Of Selected Food Sub-Sectors – Historical Data & Forecasts 21

Trade .. 21

Table: Vietnam Food & Drink Trade Indicators – Historical Data & Forecasts ...... 22

Industry Developments . 22

Market Overview 24

Agriculture. 24

Food Processing ... 25

Food Consumption 25

Drink .....26

Industry Forecast Scenario . 26

Alcoholic Drinks ... 26

Soft Drinks . 26

Table: Vietnam Drinks Industry Indicators – Historical Data & Forecasts ...... 27

Industry Developments . 27

Market Overview 29

Soft Drinks . 29

Alcoholic Drinks ... 30

Agriculture At A Glance ..31

Table: Vietnam Agricultural Sub-Sector Production Data (‘000 Tonnes, Unless Stated) ... 31

Table: Vietnam Organic Agricultural Data 31

Table: Vietnam Dairy Industry Data (‘000 tonnes) .... 31

Agricultural Commodity Price 32

Retail .33

Industry Forecast Scenario . 33

Table: Vietnam MGR Indicators – Value Sales By Format (US$bn) – Historical Data & Forecasts ... 34

Table: Grocery Retail Sales By Format – Historical Data & Forecasts .. 34

Industry Developments . 35

Market Overview 36
Table: Structure Of Vietnam's Mass Grocery Retail Market By Estimated Number Of Outlets . 38
Table: Structure Of Vietnam's Mass Grocery Retail Market – Sales Value By Format (US$mn) 38
Table: Average Sales Per Outlet By Format (US$mn) 38
Competitive Landscape ..39
Key Players. 39
Food And Drink 39
Table: Key Players in Vietnam's Food & Drink Sector, 20 39
Mass Grocery Retail ...... 40
Table: Key Players in Vietnam's Mass Grocery Retail Sector – 2007 40
Company Analysis ...... 41
Food ... 41
Vietnam Milk Joint Stock Company (Vinamilk) . 41
San Miguel Purefoods Vietnam Co Ltd ..... 42
Drink ... 43
Saigon Beer Alcohol and Beverage Corporation (Sabeco) .. 43
Carlsberg... 44
Mass Grocery Retail ...... 45
Metro Cash & Carry ...... 45
Saigon Co-op . 46
Deep US Recession Scenario ..47
Global Scenario 47
Table: World GDP Growth ..... 47
Table: US GDP Growth, Investment Growth, and Private Consumption Growth ...... 48
Table: Eurozone GDP Growth 49
Table: Asia, Excluding Japan, GDP Growth ..... 50
Table: China GDP Growth ..... 51
Table: Mexico GDP Growth ... 51
Table: Africa GDP Growth ..... 52
Asia Pacific Food & Drink Scenario .... 53
Table: Impact of Deep US Recession On Total Food Consumption (US$bn) In Selected Asia Pacific Markets – Cumulative US$ Impact Over
5yr Forecast Period 55
Appendix ....56
Food & Drink Business Environment Ratings ....56
Ratings Methodology . 56
Ratings Overview 56
Ratings System ...... 56
Indicators... 56
Limits Of Potential Returns ..... 57
Risks To Realisation Of Potential Returns 58
Weighting... 59
Weighting... 59
BMI Food & Drink Industry Glossary .60
Food & Drink . 60
Mass Grocery Retail .. 60
BMI Food & Drink Forecasting & Sourcing .62
How We Generate Our Industry Forecasts .... 62
Sourcing ... 63