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Vietnam Food and Drink Report Q1 2012
Business Monitor International, Nov 2011, Pages: 91
Business Monitor International's Vietnam Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Vietnam's food and drink industry.
The State Bank of Vietnam’s aggressive monetary tightening measures are expected to take the steam out of domestic demand over the coming quarters. While inflationary pressures are continuing to moderate, BMI remains concerned about the lagged impact of monetary tightening on consumer spending. However, given the positive dynamics of low unemployment and strong tourism growth, there is still considerable scope for optimism in the country’s domestic demand picture in the near term. Over the longer term, the domestic demand picture for Vietnam looks brighter. A massive youthful population, sector immaturity and a plethora of macroeconomic driving factors make the Vietnamese consumer goods sector a highgrowth prospect. In particular, the mass grocery retail sector is forecast to experience strong growth as it continues to attract considerable attention from international retailers, despite the challenges involved in doing business in Vietnam. Given that it has one of the highest mass grocery retail growth forecasts in the Asia Pacific region, it is not hard to see why.
Headline Industry Data
- 2011 food consumption growth = +11.2%; compound annual growth forecast to 2016 = +5.1%
- 2011 alcoholic drink value sales = +20.9%; compound annual growth forecast to 2016 = +10.5%
- 2011 soft drink volume sales = +7.4%; compound annual growth forecast to 2016 = +6.3%
- 2011 mass grocery retail sales = +15.1%; compound annual growth forecast to 2016 = +12.5%
Key Industry Trends
Coffee Potential Perking Up Sector Investments
Masan Consumer has launched a bid for a 50.1% stake, valued at around VND1.07trn (US$51mn), in the Vietnamese coffee producer Vinacafe Bien Hoa Joint- Stock Company. By acquiring a controlling stake in Vinacafe, Masan clearly wants to put itself in a strong position to leverage on the exciting demand dynamics in the Vietnamese coffee sector. According to the Vietnam Coffee and Cocoa Association, Vinacafe is the country’s second largest coffee exporter, and Masan could tap into Vinacafe’s expertise and brand name to grow its presence in the domestic coffee sector. Reflecting Vinacafe’s strength in the Vietnamese coffee sector, the coffee producer consistently grew its revenues over the past five years and recorded an impressive 30% compound annual average growth in its headline sales between 2006 and 2010. Also looking to capitalise on Vietnam’s coffee potential, Nestlé plans to increase its coffee sourcing from local farmers in Vietnam and has committed to a new coffee factory in the country. The US$270mn factory will be constructed in the south-east province of Dong Nai and will produce Nescafé-branded products for the domestic and international markets from 2013.
Rural Market Potential Firmly In The Sights Of Consumer-Facing Players
Fast-growing rural sales at Masan Consumer have attracted the sights of global private equity firm Kohlberg Kravis Roberts & Co (KKR). KKR agreed to acquire a 10% stake in Masan Consumer in April 2011 for US$159mn. In another example, Vietnamese spirits major Halico’s expansions in the rural market caught the attention of UK spirits producer Diageo, which agreed to acquire a stake of around 24% in Halico for GBP33.0mn in March 2011 (US$53.9mn). These investments underline the fantastic fundamental long-term growth prospects in the Vietnamese rural market, which ties in nicely with BMI's wider outlook on the country’s domestic demand story.
Key Risks To Outlook
Downside risks to BMI's economic outlook for Vietnam, which includes a sputtering economic recovery in the US, sovereign debt concerns in the eurozone and a potential hard landing in China, have escalated significantly in recent months. BMI's country risk team has recently downgraded its real GDP growth forecast from 6.3% to 6.0% for 2011 to reflect a deteriorating economic environment that it expects to persist through the coming months. As weak economic momentum spills into H112, this could weigh on consumer sentiment and domestic demand growth.
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