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Malaysia Food and Drink Report Q3 2008
Business Monitor International, July 2008, Pages: 63
Our Malaysia Food Drink Report provides independent forecasts and competitive intelligence on Malaysia's food and drink industry.
Malaysia remains an often confusing and contradictory market for food and drink investors. On the one hand, a small population and relative industry maturity pose real challenges to investors, on the other, find a niche for yourself and this increasingly consumer-oriented and resource rich market can provide handsome returns. The dual prospects – discussed at length in our newly-published Q308 Malaysia Food & Drink Report – go some way to explaining Malaysia’s mid-table position in our Food & Drink Business Environment Ratings; strong opportunities do exist, they just are not necessarily as easy to find as in other, more attractive regional markets.
A number of events from the past quarter highlight this trend. Leading brewers Carlsberg Malaysia and Guinness Anchor Berhad have continued to temper positivity surrounding their interim results with statements about how challenging the future remains; repeated government excise increases, a thriving black market for alcoholic drinks and spiralling input costs the stated black clouds. Meanwhile food and beverage producer Yeo Hiap Seng (YHS) has taken the opposite approach, stating positivity when performance points to the contrary; YHS has struggled with unsuccessful product launches and a lack of penetration in higher value, innovative channels and posted a loss of US$6.2mn in 2007 – a loss it plans to reserve in 2008.
However, while fierce competition in the comparatively small food and beverage market might prompt the need for caution, the level of investment being poured into Malaysia’s mass grocery retail industry suggests that consumerism is still alive and well. French giant Carrefour has recently pledged US$374mn towards doubling its hypermarket business and potentially entering the convenience sector, while multinational rival Tesco has confirmed a US$240mn investment in opening 11 new hypermarkets in the country; convenience major 7-Eleven Malaysia, meanwhile, plans to open a further 100 stores.
Examining the expansion plans of these leading retailers in more detail, seems to reveal more about what is at the crux of achieving success in this competitive market; simple expansion is not a viable growth path in such a small market, expansion needs to be targeted and tailored closely to consumer needs. Tesco, Carrefour, Dairy Farm and AEON have all pledged significant investment towards the development of private label brands in Malaysia, such products representing the perfect balance between the aspirational consumer’s desire to participate in modern retail and the inevitable price barriers that exist in what is still an emerging market.
The performance of Swiss giant Nestlé this quarter further illustrates the importance of targeted growth. The speed with which Nestlé spotted Malaysia’s potential as an important global hub for halal produce has allowed it to get a head-start on its rivals and it is product development in this category in particular that is thought to have driven export sales growth of 32% to US$60.3mn in Q108.
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