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Q2 2014 itor com VIETNAM FOOD DRINK REPORT INCLUDES 5 YEAR FORECASTS TO 2018 ISSN 1749 3072 Published by Business Monitor International Vietnam Food Drink Report Q2 2014 INCLUDES 5.Q2 2014 itor com VIETNAM FOOD DRINK REPORT INCLUDES 5 YEAR FORECASTS TO 2018 ISSN 1749 3072 Published by Business Monitor International Vietnam Food Drink Report Q2 2014 INCLUDES 5.
Q2 2014 www.businessmonitor.com VIETNAM FOOD & DRINK REPORT INCLUDES 5-YEAR FORECASTS TO 2018 ISSN 1749-3072 Published by:Business Monitor International Vietnam Food & Drink Report Q2 2014 INCLUDES 5-YEAR FORECASTS TO 2018 Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: February 2014 Business Monitor International Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@businessmonitor.com Web: http://www.businessmonitor.com © 2014 Business Monitor International All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International, and as such no part of this publication may be reproduced, repackaged, redistributed, resold in whole or in any part, or used in any form or by any means graphic, electronic or mechanical, including photocopying, recording, taping, or by information storage or retrieval, or by any other means, without the express written consent of the publisher DISCLAIMER All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of publishing However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the publication All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Food & Drink Report Q2 2014 CONTENTS BMI Industry View SWOT Food Drink 11 Mass Grocery Retail 13 Industry Forecast 15 Consumer Outlook 15 Food 17 Food Consumption 17 Table: Food Consumption Indicators - Historical Data & Forecasts, 2011-2018 20 Canned Food 21 Table: Canned Food Volume/Value Sales - Historical Data & Forecasts, 2011-2018 21 Confectionery 22 Table: Confectionery Value/Volume Sales - Historical Data & Forecasts, 2011-2018 23 Pasta 25 Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts, 2011-2018 25 Dairy 27 Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts, 2011-2018 28 Drink 29 Alcoholic Drinks 29 Table: Alcoholic Drinks Volume/Value Sales - Historical Data & Forecasts, 2011-2018 31 Hot Drinks 34 Table: Hot Drinks Value Sales - Historical Data & Forecasts, 2011-2018 35 Soft Drinks 37 Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018 38 Mass Grocery Retail 40 Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts, 2011-2018 42 Table: Grocery Retail Sales By Format (%) 43 Trade 43 Table: Food and Drink Trade Indicators - Historical Data & Forecasts, 2011-2018 45 Macroeconomic Forecast 46 Table: Vietnam - Economic Activity 49 Industry Risk Reward Ratings 50 Asia Pacific Risk/Reward Ratings 50 Table: Asia Pacific Food & Drink Risk/Reward Ratings Q214 51 Table: Asia Pacific Food & Drink Risk/Reward Sub-Factor Ratings Q214 (scores out of 10) 54 Vietnam Risk/Reward Ratings 55 Market Overview 57 © Business Monitor International Page Vietnam Food & Drink Report Q2 2014 Food Agriculture Food Processing Food Consumption Drink Hot Drinks Soft Drinks Alcoholic Drinks 57 57 57 58 58 58 59 60 Mass Grocery Retail 61 Table: Structure Of Vietnam's Mass Grocery Retail Market By Estimated Number Of Outlets 63 Industry Trends And Developments 64 Food Key Industry Trends And Developments Drink Key Industry Trends And Developments Mass Grocery Retail Key Industry Trends And Developments 64 64 70 70 79 79 Competitive Landscape 86 Table: Key Players In Vietnam's Food Sector 86 Table: Key Players In Vietnam's Drink Sector 86 Table: Key Players In Vietnam's Mass Grocery Retail Sector 87 Company Profile 89 Vietnam Dairy Products Joint Stock Company (Vinamilk) 89 Unilever Vietnam 93 Nestlé Vietnam 96 Masan Consumer 99 San Miguel Pure Foods Vietnam Co Ltd 102 Hanoi Beer Alcohol Beverage Corp (Habeco) 104 Saigon Beer Alcohol And Beverage Corporation (Sabeco) 107 Carlsberg 109 Metro Cash & Carry Vietnam 111 Saigon Co-op 114 Global Industry Overview 117 Table: Food And Drink Core Views 126 Demographic Forecast 127 Table: Vietnam's Population By Age Group, 1990-2020 ('000) 128 Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 129 Table: Vietnam's Key Population Ratios, 1990-2020 130 Table: Vietnam's Rural And Urban Population, 1990-2020 130 Glossary 131 Food & Drink 131 © Business Monitor International Page Vietnam Food & Drink Report Q2 2014 Mass Grocery Retail 131 Methodology 133 Industry Forecast Methodology 133 Sector-Specific Methodology 134 Sources 134 Risk/Reward Rating Methodology 135 Table: Food & Drink Risk/Reward Rating Indicators 136 Table: Weighting 137 © Business Monitor International Page Vietnam Food & Drink Report Q2 2014 BMI Industry View BMI View: Despite slower than expected economic recovery in 2013, our outlook for Vietnam's economy in 2014 is positive Recently released macroeconomic data shows a strong rebound in domestic consumption, which is felt across a wide spectrum of consumer industries The consumer is expected to benefit from rising inflow of remittances and suppressed levels of inflation over the coming quarters While we have maintained our 2014 GDP growth forecast at 6.0%, we see potential for upside surprises Food and drink consumption within the country will grow at a thoroughly impressive based, delivering double-digit annual growth through to our forecast period Headline Industry Data ■ 2014 total food consumption (local currency) growth: +19.2%; compound annual growth rate (CAGR) 2014 to 2018: +15.5% ■ 2014 per capita food consumption (local currency) growth: +18.1%; CAGR to 2018: +14.7% ■ 2014 alcoholic drinks value (local currency) sales growth: +12.0%; CAGR to 2018: +8.7% ■ 2014 soft drinks value (local currency) sales growth: +10.5%; CAGR to 2018: +7.5% ■ 2014 MGR sales (local currency) growth: +13.3%; compound annual growth rate (CAGR) 2014 to 2018: +9.9% Key Industry Trends McDonald's Opens First Ho Chi Minh Restaurant In February: US fast-food restaurant McDonald's, with its partner Vietnam-based company Good Day Hospitality, has forayed into the Vietnamese food market in a bid to compete with its rivals, such as KFC and Burger King Worldwide The company launched its first outlet in the Vietnamese city of Ho Chi Minh on February 2014 Sabeco Begins Construction On New Brewery: Vietnam-based brewer Saigon Beer Alcohol And Beverage Corporation (Sabeco) has started construction on a new brewery in Vietnam's Ninh Thuan region The US $21mn facility will have an estimated annual capacity of 50mn litres of beer The brewery will cover an area of 20 hectares and is expected to address the rising demand for Sabeco products in the south-central region The brewery is scheduled to become operational in the next 12 months Vinamilk Opens US$110mn Milk Plant And Invests In Cambodia: Vietnam-based dairy group Vietnam Dairy Products Joint Stock Company (Vinamilk) has opened a new dairy plant in Vietnam's Binh Duong province, investing US$110mn The plant will cover an area of 20 hectares and have an annual capacity of © Business Monitor International Page Vietnam Food & Drink Report Q2 2014 400mn litres of milk in the first stage The plant will help the company to achieve its goals of raising its annual revenue to US$3bn by 2017 and becoming one of the 50 largest dairy companies in the world, according to Vinamilk's CEO, Mai Kieu Lien The company has also gained an overseas investment certificate from the Vietnamese government to build a milk factory in the Cambodian capital of Phnom Penh with an investment of US$23mn The company will own a 51% stake in the unit, while Cambodia-based Angkor Dairy Products will hold the remaining 49% share Key Risks To Outlook While we expect private consumption to grow at a relatively resilient pace of 5.0% in 2014, we note that the risk of further bankruptcies among SMEs could potentially lead to widespread job losses, especially in export-driven sectors Uncertainties over the outlook for employment could, in turn, prompt households to cut back on spending © Business Monitor International Page Vietnam Food & Drink Report Q2 2014 SWOT Food SWOT Analysis Strengths ■ The food processing sector accounts for a sizeable proportion of industrial output and GDP, with the sector attracting significant foreign investment in recent years from global industry majors such as Unilever, Nestlé and San Miguel ■ Vietnamese consumers, particularly the young and affluent, are fairly brand aware by regional standards Accordingly, renowned Western products, backed by investment in marketing and promotions, tend to have highly successful launches ■ The wealthy urban centres of Hanoi and Ho Chi Minh City now provide highly receptive consumer audiences ■ Large and diverse domestic agricultural output aids the stability of ingredient supplies and prices for local producers - a vital strength during this period of global volatility ■ Strong economic and private consumption growth will help fuel food consumption growth Weaknesses ■ There are wide income disparities between urban and rural areas, and local consumption patterns vary significantly according to income ■ The food processing industry remains largely fragmented, except for a few key sectors such as dairy and confectionery ■ The country's agricultural sector has been criticised for being too slow to adapt to new technologies to be globally competitive in the long term, although the government is working hard to address this ■ Vietnam's infrastructure is still weak Roads, railways and ports are inadequate to cope with the country's economic growth and links with the outside world ■ The lack of white goods among large sections of the consumer base slows down the development of the high-potential dairy sector © Business Monitor International Page Vietnam Food & Drink Report Q2 2014 SWOT Analysis - Continued Opportunities ■ Accession to the WTO, in January 2007, will continue to benefit Vietnamese exporters, with the gradual removal of market barriers and trade restrictions set to increase competition ■ Vietnam's upcoming ASEAN AEC membership in 2015 should provide greater access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition ■ Rising income levels and changing lifestyles, particularly in urban areas, are increasing consumer demand for snacks, convenience and luxury food items ■ Vietnam's large domestic market, growing export opportunities and low labour costs, as well as the prospect of acquiring newly privatised food companies, offer further investment opportunities ■ The country's agricultural sector is in need of significant investment, and willing investors can expect assisted entry Threats ■ A growing tourism sector fuels interest in convenience categories ■ Vietnam's WTO membership may result in smaller companies who are unable to cope with the increased competition being forced out of business ■ Elevated agricultural commodity costs will remain a risk for the profitability of processed-food manufacturers; farmers themselves also view this as a threat ■ Rising unemployment levels are taking their toll on consumer confidence ■ If there is a prolonged slowdown in emerging markets, this will hurt Vietnam's economy both directly and indirectly © Business Monitor International Page 10 Vietnam Food & Drink Report Q2 2014 We believe that there are still opportunities for consolidation in global alcohol, even if the vast majority of the main deals have already taken place We see most of this consolidation focused on Asia, with China probably remaining the main centre of inbound mergers and acquisition investment Asia accounts for about 20% of Carlsberg's annual sales, and the company will very likely look to push this contribution to more than 30% to compensate for the ongoing weakness of beer markets across Europe On the acquisition front, Carlsberg could target Chinese companies such as Beijing Yanjing Brewery or Tsingtao Brewery Governments Taxing Alcohol The increase in alcohol taxes is a core dynamic in the food and drink industry Turkey's alcoholic drinks sector suffered another setback in January following the decision by Prime Minister Recep Tayyip Erdogan's government to impose a 10% tax rise on sales of all forms of alcohol Such a move will further damage the sector, which is still reeling from the introduction of strict anti-alcohol laws in May 2013 Under the new legislation, all alcoholic drink sales in Turkey will now be subject to a 10% tax increase, along with tax hikes for cigarettes, cars and mobile phones The broad-sweeping hike is an attempt to curb rising inflation in the country and the ongoing depreciation of the Turkish lira As opposed to the changes announced in May 2013, such a tax hike does not appear to be wholly targeted at alcohol consumption, and the industry will be hoping that a U-turn may be taken by government later on in 2014 Nevertheless, such a move will severely damage alcoholic drink sales in the country, which have already been hurt by a Turkish economic slowdown and policy changes announced in the middle of 2013 In May 2013, Erdogan's government implemented an anti-alcohol bill that prohibits the sale of alcohol between 10pm and 6am, bans sponsorship from alcohol companies, and places other restrictions on companies' marketing Anadolu Group, which owns the country's most popular beer brand through Efes Beverage Group, has seen its share price stuck in a downward spiral since the announcement Sales of Efes account for 90% of total beer sales in Turkey, and only Turk Tuborg, which predominantly imports foreign beer for domestic sale, is another notable Turkish brewer Major Western European Food Retailers Trying To Fix Business At Home If the era leading up to the global financial crisis in 2008 was characterised by international expansion, with Tesco playing a particularly prominent role under former CEO Sir Terry Leahy, the past two or three years in particular have necessitated a major shift in strategy for both Tesco and France's Carrefour, the second and third biggest food retailers globally © Business Monitor International Page 123 Vietnam Food & Drink Report Q2 2014 Tesco has been under pressure from shareholders to address structural shortcomings exposed by the landmark profit warning it announced in January 2012 This was the moment it became clear that the retailer had to focus a lot more attention on its domestic operations The inevitable fall guy would be part of the international business, with the failed US Fresh & Easy business the obvious target Resurrecting its UK business and ultimately clawing back some of the market share that it has ceded to rivals in the ultra-competitive UK retailing landscape is going to take longer for Tesco than some observers might have hoped However, despite the issues Tesco is facing at home, it still needs to capitalise on growth opportunities abroad when it can identify them Indeed, the retailer has been first out of the blocks in India after the retail sector was opened up to foreign companies; Tesco announced in December 2013 that it was awaiting the go-ahead to invest US$110mn in a joint venture with the Tata Group conglomerate India is ultimately going to be an enormous opportunity, and even if the UK is the short-term priority, India's potential cannot be ignored Tesco will be joining forces with multinational Tata, which has a strong track record working with foreign multinationals in joint ventures, with recent examples including Starbucks The big three global food retailers Walmart (until recently), Carrefour and Tesco have traditionally operated wholesale businesses in India In the aftermath of the 2012 reform announcement, they have mainly focused on trying to get a better grip on the unique requirements of operating in India, while likely also trying to lobby the government to make the proposition more attractive India is fundamentally an attractive market given the current dominance of mom-and-pop-type stores and the fact that retail sales are growing from a reasonably low base Over the past few months, India made some small concessions that it hopes will make its food retail sector more attractive Recent amendments include stipulating that half of the first US$100mn invested in the first three years has to be directed to back-end infrastructure Restrictions on what type of local suppliers can be used have also been relaxed, allowing retailers to maintain suppliers that generate more than US$2mn in assets, which was not permitted in the original stipulations These small suppliers must account for about 30% of overall supplies Previously, once a supplier grew past US$1mn in assets, it could not be retained By comparison, single-brand retailers such as IKEA not face the vast majority of these hurdles, meaning there is still a major and perhaps unique distinction made by India between single- and multi-brand retailers © Business Monitor International Page 124 Vietnam Food & Drink Report Q2 2014 Potential Impact Of Government Legislation We reported in December 2013 that a recently published research paper has put the spotlight back onto the risks associated with energy drinks, causing Monster Beverages, the largest public energy drinks company in the world, to issue a statement defending its practices A team from the University of Bonn in Germany argued that energy drinks can change the way the heart beats As such, it recommends that children and people with certain health conditions should avoid such drinks altogether The report is the most recent development in a long battle between energy drinks companies and their detractors, with the controversy coming to a head in the middle of 2012 following the death of a 14-year-old girl The related lawsuit against Monster attributed no responsibility to the energy drinks manufacturer; however, investor confidence was seriously dented, causing the company's share price to fall considerably at the time Rumblings still persist over the health implications of energy drink consumption, with UK retailer Morrisons banning the sale of such drinks to consumers younger than 16 Monster, which is the market leader for energy drinks in the US, has called the university's report 'alarmist and misleading' The company goes on to argue that the conclusion reached by the scientists is not wholly accurate, and that mistakes are made in the report Though this report will add fuel to the ongoing controversy, we doubt that the public will have any significant response in terms of energy drink consumption Indeed, we believe the functional drinks segment, which includes energy drinks, will outperform in terms of global soft drinks consumption Premium Whisky An Outperformer A new long-term view introduced in this overview relates to premium whisky, which has been one of global alcohol's best performing areas over the past few years Investment into Irish and Scottish distilleries in particular has been picking up, driven in large part by booming demand for luxury spirits in emerging markets, most notably China It is no surprise that global spirits behemoths Diageo and Pernod Ricard are ramping up investment into whisky Premium blends of Scotch whisky are particularly popular in countries such as China and India Another key growth area for whisky is the US, where Irish whiskey is performing particularly well Irish whiskey's growth in the US comes at a time when spirit sales in general are growing strongly, with younger consumers in particular increasingly opting for spirits over beer Irish whiskey is particularly well suited to this target market, with its smooth and light taste (in comparison with Scotch) making it more suitable as a © Business Monitor International Page 125 Vietnam Food & Drink Report Q2 2014 mixer in cocktails This is a trait it shares with US bourbons, but Irish whiskey is generally less sweet, marking a clear point of difference and preventing it from simply being seen as a bourbon alternative In addition, the country's large American-Irish population of more than 35mn offers a great impetus to Irish whiskey sales Table: Food And Drink Core Views Short-Term Outlook Grain prices are expected to remain steady over the first quarter of 2014 Consumer sentiment in Western Europe and the US expected to continue improving through 2014 Discount retailing will continue to outperform supermarkets and hypermarkets across Europe in 2014 Long-Term Outlook Companies with strong emerging market exposure will largely continue to outperform in sales growth, although the best opportunities may now be beyond the BRIC countries of Brazil, Russia, India and China Multinationals will increasingly pursue opportunities in frontier markets Provenance will become increasingly important, particularly in Western Europe following the 2013 horsemeat scandal Emerging-market-based firms will increasingly pursue developed-market investments for the purposes of diversification and access to stellar brands Private equity interest in food and drink companies in frontier regions such as Sub-Saharan Africa will increase Hypermarkets will underperform in developed markets, where convenience, discount and online retailing are the strongest opportunities Conversely, hypermarkets remain a great opportunity in less developed retail markets, particularly adjacent to shopping centres/malls Investment in innovation will increase as producers seek differentiation; emphasis will be placed on protecting innovations Bottled water, juices and energy drinks will be outperformers in global soft drinks Government legislation will play an increasing role in marginalising unhealthy food and beverage products Governments will increasingly pursue alcohol as an effective means of raising revenue through higher taxes Whisky, particularly Scotch whisky, will be an outperformer in global premium spirits Functional foods and energy drinks will provide considerable opportunities globally Source: Bloomberg, BMI © Business Monitor International Page 126 Vietnam Food & Drink Report Q2 2014 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is key to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail Vietnam's population pyramid for 2013, the change in the structure of the population between 2013 and 2050 and the total population between 1990 and 2050, as well as life expectancy The tables show key datapoints from all of these charts, in addition to important metrics including the dependency ratio and the urban/rural split Population Pyramid 2013 (LHS) And 2013 Versus 2050 (RHS) Source: World Bank, UN, BMI © Business Monitor International Page 127 Vietnam Food & Drink Report Q2 2014 Population Indicators Population (mn, LHS) And Life Expectancy (years, RHS), 1990-2050 Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 ('000) 1990 1995 2000 2005 2010 2013e 2015f 2020f 68,910 76,020 80,888 84,948 89,047 91,680 93,387 97,057 0-4 years 9,315 9,323 7,128 6,898 7,229 7,152 7,012 6,575 5-9 years 8,606 9,212 9,253 7,023 6,791 7,052 7,181 6,968 10-14 years 7,857 8,541 9,162 9,117 6,899 6,619 6,757 7,147 15-19 years 7,359 7,788 8,492 9,050 9,011 7,686 6,866 6,726 20-24 years 6,644 7,222 7,673 8,333 8,874 9,148 8,936 6,802 25-29 years 6,006 6,470 7,065 7,471 8,112 8,528 8,772 8,837 30-34 years 5,138 5,890 6,352 6,910 7,286 7,703 8,022 8,680 35-39 years 3,888 5,065 5,803 6,242 6,763 7,011 7,208 7,940 40-44 years 2,463 3,826 4,994 5,719 6,147 6,472 6,685 7,127 45-49 years 2,017 2,409 3,753 4,935 5,648 5,894 6,054 6,589 50-54 years 1,968 1,959 2,346 3,700 4,855 5,306 5,521 5,926 55-59 years 2,046 1,891 1,885 2,237 3,542 4,278 4,677 5,330 60-64 years 1,669 1,934 1,790 1,734 2,068 2,795 3,352 4,444 65-69 years 1,412 1,522 1,771 1,610 1,562 1,673 1,906 3,104 70-74 years 1,028 1,216 1,322 1,530 1,399 1,360 1,379 1,695 Total © Business Monitor International Page 128 Vietnam Food & Drink Report Q2 2014 Vietnam's Population By Age Group, 1990-2020 ('000) - Continued 1990 1995 2000 2005 2010 2013e 2015f 2020f 75-79 years 752 819 984 1,080 1,263 1,219 1,167 1,160 80-84 years 430 536 597 732 815 919 964 900 85-89 years 224 261 336 385 483 517 546 654 90-94 years 71 108 132 177 210 245 268 306 95-99 years 16 25 41 53 74 83 89 115 100+ years 12 17 21 24 30 e/f = BMI estimate/forecast Source: World Bank, UN, BMI Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 1990 1995 2000 2005 2010 2013e 2015f 2020f 0-4 years 13.52 12.26 8.81 8.12 8.12 7.80 7.51 6.77 5-9 years 12.49 12.12 11.44 8.27 7.63 7.69 7.69 7.18 10-14 years 11.40 11.23 11.33 10.73 7.75 7.22 7.24 7.36 15-19 years 10.68 10.25 10.50 10.65 10.12 8.38 7.35 6.93 20-24 years 9.64 9.50 9.49 9.81 9.97 9.98 9.57 7.01 25-29 years 8.72 8.51 8.73 8.79 9.11 9.30 9.39 9.11 30-34 years 7.46 7.75 7.85 8.13 8.18 8.40 8.59 8.94 35-39 years 5.64 6.66 7.17 7.35 7.60 7.65 7.72 8.18 40-44 years 3.57 5.03 6.17 6.73 6.90 7.06 7.16 7.34 45-49 years 2.93 3.17 4.64 5.81 6.34 6.43 6.48 6.79 50-54 years 2.86 2.58 2.90 4.36 5.45 5.79 5.91 6.11 55-59 years 2.97 2.49 2.33 2.63 3.98 4.67 5.01 5.49 60-64 years 2.42 2.54 2.21 2.04 2.32 3.05 3.59 4.58 65-69 years 2.05 2.00 2.19 1.89 1.75 1.83 2.04 3.20 70-74 years 1.49 1.60 1.63 1.80 1.57 1.48 1.48 1.75 75-79 years 1.09 1.08 1.22 1.27 1.42 1.33 1.25 1.19 80-84 years 0.62 0.70 0.74 0.86 0.91 1.00 1.03 0.93 85-89 years 0.32 0.34 0.42 0.45 0.54 0.56 0.58 0.67 90-94 years 0.10 0.14 0.16 0.21 0.24 0.27 0.29 0.32 95-99 years 0.02 0.03 0.05 0.06 0.08 0.09 0.10 0.12 © Business Monitor International Page 129 Vietnam Food & Drink Report Q2 2014 Vietnam's Population By Age Group, 1990-2020 (% of total) - Continued 100+ years 1990 1995 2000 2005 2010 2013e 2015f 2020f 0.00 0.00 0.01 0.01 0.02 0.02 0.03 0.03 e/f = BMI estimate/forecast Source: World Bank, UN, BMI Table: Vietnam's Key Population Ratios, 1990-2020 Dependent ratio, % of total working age Dependent population, total, '000 1990 1995 2000 2005 2010 2013e 75.8 71.0 61.3 50.8 42.9 41.4 2015f 2020f 41.3 41.9 29,712 31,567 30,734 28,617 26,741 26,860 27,293 28,655 Active population, % of total 56.9 Active population, total, '000 58.5 62.0 66.3 70.0 70.7 70.8 70.5 39,198 44,453 50,154 56,331 62,306 64,820 66,094 68,402 Youth population, % of total working age 65.8 Youth population, total, '000 60.9 50.9 40.9 33.6 32.1 31.7 30.2 25,778 27,076 25,544 23,038 20,918 20,822 20,950 20,690 Pensionable population, % of total working age Pensionable population, total, '000 10.0 10.1 10.3 9.9 9.3 9.3 9.6 11.6 3,934 4,491 5,190 5,579 5,823 6,037 6,343 7,965 e/f = BMI estimate/forecast Source: World Bank, UN, BMI Table: Vietnam's Rural And Urban Population, 1990-2020 1990 1995 2000 2005 2010 2013e 2015f 2020f Urban population, % of total 20.3 22.2 24.4 27.3 30.4 32.3 33.6 36.9 Rural population, % of total 79.7 77.8 75.6 72.7 69.6 67.7 66.4 63.1 Urban population, total, '000 13,958 16,867 19,716 23,175 27,064 29,632 31,384 35,771 Rural population, total, '000 54,952 59,153 61,172 61,773 61,983 62,048 62,003 61,286 e/f = BMI estimate/forecast Source: World Bank, UN, BMI © Business Monitor International Page 130 Vietnam Food & Drink Report Q2 2014 Glossary Food & Drink Food Consumption: All four food consumption indicators (food consumption in local currency, food consumption in US dollar terms, per capita food consumption and food consumption as a percentage of GDP) relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/ section Off-trade: Relates to an item consumed away from the premises on which it was purchased For example, a bottle of water bought in a supermarket would count as off-trade, while a bottle of water purchased as part of a meal in a restaurant would count as on-trade Canned Food: Relates to the sale of food products preserved by canning This is inclusive of canned meat and fish, canned ready meals, canned desserts and canned fruits and vegetables Volume sales are measured in thousand tonnes as opposed to on a unit basis to allow for cross-market comparisons Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products Chocolate sales include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum; and sugar confectionery sales include hard-boiled sweets, mints, jellies and medicated sweets Trade: In the majority of BMI's Food & Drink reports, we use the UN Standard International Trade Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and Vegetable Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits Where an alternative classification is used due to data availability, this is clearly stated Drinks Sales: Soft drink sales (including carbonates, fruit juices, energy drinks, bottled water, functional beverages and ready-to-drink tea and coffee), alcoholic drink sales (including beer, wine and spirits) and tea and coffee sales (excluding ready-to-drink tea and coffee products that are incorporated under BMI's soft drinks banner) are all off-trade only, unless stated Mass Grocery Retail Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by companies with a network of modern grocery retail stores and modern distribution networks MGR differs from independent or traditional retail, which relates to informal, independent-owned grocery stores or traditional market retailing MGR incorporates hypermarket, supermarket, convenience and discount retailing, and in unique cases cooperative retailing Where supermarkets are independently owned and not classified as MGR, BMI will state so clearly within the relevant report © Business Monitor International Page 131 Vietnam Food & Drink Report Q2 2014 Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of general merchandise goods (non-food items) and typically more than 2,500m² in size Traditionally only found on the outskirts of town centres, hypermarkets are increasingly appearing in urban locations Supermarket: Supermarkets are the original and still most globally prevalent form of self-service grocery retail outlet BMI classifies supermarkets as more than 300m², up to the size of a hypermarket The typical supermarket carries both fresh and processed food and will stock a range of non-food items, most commonly household and beauty goods The average supermarket will increasingly offer some added-value services, such as dry cleaning or in-store ATMs Discount Stores: Although most commonly between 500m² and 1,500m² in size, and thus of the same classification as supermarkets, discount stores will typically have a smaller floor space than their supermarket counterparts Other distinguishing features include the prevalence of low-priced and private label goods, an absence of added-value services, often called a no-frills environment, and a high product turnover rate Convenience Stores: BMI's classification of convenience stores includes small outlets typically less than 300m² in size, with long opening hours and located in high footfall areas These stores mainly sell fastmoving food and drink products (such as confectionery, beverages and snack foods) and non-food items, typically stocking only two or three brand choices per item and often carrying higher prices than other forms of grocery store Cooperatives: BMI classifies cooperatives as retail stores that are independently owned but club together to form buying groups under a cooperative arrangement, trading under the same banner, although each is privately owned The arrangement is similar to a franchise system, although all profits are returned to members The term is becoming more archaic, with fewer cooperatives remaining that conform to this model Most cooperative groups now have a more centralised management structure, operate more like normal supermarkets, and are thus classified as such in BMI's reports © Business Monitor International Page 132 Vietnam Food & Drink Report Q2 2014 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined Common to our analysis of every industry is the use of vector autoregressions Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis Such single-variable analysis is called univariate modelling We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA) In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting BMI mainly uses ordinary least squares estimators In order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary During periods of 'industry shock', for example when poor weather conditions impede agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately selected regression models BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account ■ Testing the directional movement and magnitude of coefficients ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Page 133 Vietnam Food & Drink Report Q2 2014 BMI uses the selected best model to perform forecasting Human intervention plays a necessary and desirable role in all of BMI's industry forecasting Experience, expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Sector-Specific Methodology Within the Food & Drink industry, issues that might result in human intervention might include but are not exclusive to: ■ Significant company expansion plans; ■ New product development that might influence pricing levels; ■ Dramatic changes in local production levels; ■ Product taxation; ■ The regulatory environment and specific areas of legislation; ■ Changes in lifestyles and general societal trends; ■ The formation of bilateral and multilateral trading agreements and negotiations; ■ Political factors influencing trade; ■ The development of the industry in neighbouring markets that are potential competitors for foreign direct investment Example Of Food Consumption Model (Food Consumption)t = β0 + β1*(GDP)t + β2*(inflation)t + β3*(lending rate)t + β4* (foreign exchange rate)t + β5*(government expenditure)t + β6*(food consumption)t-1 + εt Sources BMI uses the following sources in the compilation of data, developments and analysis for its range of Food & Drink reports: national statistics offices; local industry governing-bodies and associations; local trade associations; central banks; government departments, particularly trade, agricultural and commerce ministries; officially released information and financial results from local and multinational companies; cross-referenced information from local and international news agencies and trade press outlets; figures from global organisations, such as the WTO, the World Health Organization (WHO), the UN Food and © Business Monitor International Page 134 Vietnam Food & Drink Report Q2 2014 Agricultural Organization (FAO) and the Organisation for Economic Co-operation and Development (OECD) Risk/Reward Rating Methodology BMI's Risk/Reward Ratings (RRR) provide a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market The RRR system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development This is further broken down into two sub categories: ■ Industry Rewards: This is an industry-specific category taking into account current industry size and growth forecasts, the openness of market to new entrants and foreign investors, to provide an overall score for potential returns for investors • Country Rewards: this is a country-specific category, and the score factors in favourable political and economic conditions for the industry Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that call into question the likelihood of expected returns being realised over the assessed time period This is further broken down into two sub categories: ■ Industry Risks: This is an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry, and the relative maturity of a market • Country Risks: This is a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score We take a weighted average, combining industry and country risks, or industry and country rewards These two results in turn provide an overall Risk/Reward Rating, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall rating a weighted average of the total score Importantly, as most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our rating is revised on a quarterly basis This ensures that the rating draws on the latest information and data across our broad range of sources, and the expertise of our analysts In constructing these ratings, the following indicators have been used Almost all indicators are objectively based © Business Monitor International Page 135 Vietnam Food & Drink Report Q2 2014 Table: Food & Drink Risk/Reward Rating Indicators Rewards Industry rewards Food and drink consumption per capita, US$ Indicator denotes overall breadth of market Wealthier markets score higher Per capita food consumption growth, fiveyear compound annual growth, % Lead Food & Drink growth indicator Scores based on compound annual growth over our five-year forecast period Market fragmentation Subjective score reflecting how relatively developed the industry is Higher score reflects a more fragmented industry Country rewards Population size, mn Indicator denotes size of market GDP per capita, US$ Proxy for wealth Size of population is important but needs to be considered in relation to spending power High-income states receive better scores than low-income states Youth population, % 0>15%, % of total working age population Younger populations are generally considered to be more desirable Risks Industry risks Mass grocery retail penetration, % The proportional contribution of the organised food retailing sector; higher scores reflect better developed routes to consumers and more efficient internal trade systems Regulatory environment Subjective rating based on the industry-specific regulatory environment and the presence of potentially restrictive legislation Country risks Short-term economic growth Rating from BMI's Country Risk Ratings (CRR) It evaluates likely growth trajectory over a two-year forecast period, based on BMI's forecasts and projections of business and consumer confidence Income distribution Middle 60% of population, % of total spending Higher score is an indicator of incomes being spread more equitably Lack of bureaucracy From CRR It evaluates the risks to business posed by official bureaucracy, the broader legal framework and corruption Market orientation Subjective rating from CRR to denote predictability of openness to foreign investment and trade Physical infrastructure From CRR Poor power/water/transport infrastructure act as bottlenecks to sector development Source: BMI © Business Monitor International Page 136 Vietnam Food & Drink Report Q2 2014 Weighting: Given the number of indicators/datasets used, it would be inappropriate to give all subcomponents equal weight Consequently, the following weights have been adopted: Table: Weighting Component Weighting Rewards 60% - Industry rewards 30% - Country rewards 30% Risks 40% - Industry risks 20% - Country risks 20% Source: BMI © Business Monitor International Page 137 ... Page 28 Vietnam Food & Drink Report Q2 2014 Drink Alcoholic Drinks ■ 2014 alcoholic drinks volume sales growth: +5.9%; compound annual growth rate (CAGR) 2014 to 2018: +4.5% ■ 2014 alcoholic drinks... Page 44 Vietnam Food & Drink Report Q2 2014 Table: Food and Drink Trade Indicators - Historical Data & Forecasts, 2011-2018 2011 2012 2013e 2014f 2015f 2016f 2017f 2018f Exports of food and drink, ... in food and drink, US $mn Balance of trade in food and drink, US$, % change y-o-y e/f = BMI estimate/forecast Source: UNCTAD, BMI © Business Monitor International Page 45 Vietnam Food & Drink Report