Next stop, Vietnam

Vietnam

Exploring opportunities in the F&B Industry

Next stop, Vietnam: Exploring opportunities in the F&B Industry 2

Located in the centre of Southeast Asia, Vietnam is the 14th

most populous country in the world with a population of

over 92 million people and a median age of 30. Vietnam’s

shifting and dynamic environment is reflected in a young

population, changing consumer attitudes, greater mobility,

growing wealth, and urbanisation which are all encouraging

a period of change in the country.

Economic Outlook

Vietnam is in an increasingly promising economic position with the fastest projected economic growth in Asia maintaining a 6-7% annual GDP growth over the past 10 years. Led by free trade agreements (FTAs) which have aided Vietnam’s integration into the global economy, and an increasingly deregulated business environment, the country continues to develop a strong economic position.

Vietnam has a population of 92 million, 60% of which are of working age. The young, educated, digitally-savvy workforce continues to grow with 40% of the population under 25 years of age. This, combined with some of the lowest labour costs in Asia, make Vietnam an ideal production base for companies thinking of diversifying outside of China.

To support the country’s developing economic position, Vietnam’s government is committed to creating an attractive business environment for foreign investors. The projected growth also creates the need for further large scale infrastructure which creates new investment opportunities.

Market Overview

In recent years there have been significant shifts in investments in Asia, with Southeast Asia attracting

more foreign direct investments (FDIs) than China between 2013 and 2016 inclusive. Vietnam

leads the region in FDIs, surpassing both Malaysia and Thailand. With a rising middle class and a

deregulated economy, Vietnam is increasingly open to new opportunities including manufacturing,

while a network of free trade agreements is enhancing investment opportunities. While there are

viable opportunities for local and international businesses in the food and beverage industry,

there are obstacles to penetrating the local market including cultural and language barriers.

Trends and opportunities in the food and beverage industry in Vietnam can be segmented into local consumer trends and economic opportunities for foreign companies. Let’s consider both segments and how they inform each other.

Consumer trends and opportunitiesVietnamese consumers are increasingly concerned about health, hygiene, and food safety. As the average household income continues to grow, these factors come together to inform consumer preferences. The ongoing expansion of the mass grocery retail industry in both large cities and smaller towns is bolstering food consumption as consumers can obtain products at competitive prices.

With an increasing interest in the safety and quality of products, Vietnamese consumers are willing to pay higher prices for organic products, environmentally conscious options, and products from foreign brands. International companies can build trust with Vietnamese consumers, and highlight the safety and high quality of their products.

Food is central to Vietnamese culture, with natural and fresh local ingredients at the heart of culinary habits. To be attractive to Vietnamese consumers there are various opportunities for food and beverage companies in packaging. To give the consumers the experience of food being fresh and natural, clear packaging can be employed, as can clean labels to promote transparency in ingredients and the processing chain.

Business opportunitiesThe food and beverage manufacturing market in Vietnam is dominated by small companies with less than 50 employees, accounting for 84% of the sector. Over the past five years food processing has been growing steadily at 7%, while the growth of food consumption increased by 9.4% and beverage consumption by 6.7%. With factors including a young population, improving incomes, and the increasingly popular habit of buying processed foods, Vietnam is predicted to be among the top three countries in Asia in terms of F&B development.

The urban population of Vietnam is set to increase by 34% to 40% between 2015 and 2025, which will draw higher associated investments to urban areas. With higher spending capacity in urban areas compared to that of rural areas, this will be a key consideration for foreign companies.

Vietnam is the leading producer and exporter of a variety of agricultural products including rice, fruits and vegetables, cashews, and coffee. However, the country imports large amounts of agricultural and food products to meet the growing demand for both human and animal consumption. Beyond direct to consumer products, in order to meet the demands of a growing economy, Vietnam is also becoming a large importer of capital goods. While it is beneficial to consider the opportunities for direct to consumer products, there are significant opportunities for foreign businesses to contribute to industry infrastructure.

Trends and Opportunities

Next stop, Vietnam: Exploring opportunities in the F&B Industry 3

• Doing your homework is key

While the food and beverage industry in Vietnam presents many opportunities for local and international players to enter the market, exporters are advised to conduct intensive research to understand market demand, local business customs, importing requirements, and of course, research to identify potential buyers.

• Harness local expertise

Considering Vietnam’s growing economic prospects and its relatively recent emergence in the global market, working with a distributor is key for international businesses. To tackle strong competition, working with a distributor allows companies to more readily overcome obstacles of local

culture, practices, and language. With over 20 years’ experience New Viet Dairy is a key distributor for global players in the food and beverage industry, as is Good Food, a fast-growing distributor working with over 1000 products, and Annam Group.

• Trade shows: platforms for growth

Participating in trade shows also offers significant opportunities to better understand the local market and allows direct engagement with potential partners. Fi Vietnam, a biennial event with over 230 exhibitors and 5700 visitors, presents a key opportunity to network with industry professionals, source ingredients, and learn about the latest trends and developments in the region.

Challenges and Key Players

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Identifying opportunities in Vietnamese F&B IndustryThe Vietnam food & beverage market is full of opportunities for local and global companies. With an emerging economy, an increase in disposable income, and changing consumer habits to reflect global trends, this is a key region for F&B companies to focus attention. The key markets in Vietnam with projected high growth opportunities are beverages, dairy, and bakery sectors.

Vietnam’s beverage market continues to attract investors as its growth potential is estimated to be three-fold higher than other Southeast Asian countries. With a steadily increasing GDP and booming foreign direct investment, it is predicted to remain a stable prospect for beverage manufacturers.

Economic FactorsWith a rapidly expanding middle class and massive tariff reductions from free trade agreements expected to come into effect in the coming years, Vietnam is poised to experience significant growth in its beverage industry. By 2020, the country is predicted to consume 4.5 billion liters of beer, 350 million liters of alcohol and spirits, and 8.8 billion liters of other beverages per year.To promote both regional economic integration and deeper ties with Western countries through enhanced economic trade and investment relations, the Vietnamese government has pursued several free trade agreements. Through these agreements, the Vietnamese government hopes to raise living standards, promote economic growth and stability, create new employment opportunities, and enhance the competitiveness of companies by providing a legal framework for trade and investment relations.Vietnam has considerable trade links with France owing in part to their colonial history, where trade with other EU members in the beverage industry lags behind. This relationship could potentially create a challenge for other European players keen to penetrate the market.

Key OpportunitiesThere are several sub-sector in Vietnam’s beverage industry that provide intriguing

opportunities for foreign investors and exporters looking to capitalize on the various FTAs coming into effect. Vietnam’s soft drink and fruit juice market has stood out for its impressive growth in recent years. Between 2009 and 2013, Vietnam’s bottled soft drink industry grew at a rate of 19.4% and maintained a 14.2% growth rate from 2014 to 2018. Despite rapid growth, there is still significant room for further expansion. As the Asian region is forecast to experience the highest growth rate in the beverage industry, the importance of networking and distribution is key. In response to the massive global demand for beverage ingredients, Fi launched the Beverage Ingredients Pavilion at Fi Vietnam as a fully dedicated area for the beverage ingredients sector, creating a key resource and event for competitors in the Vietnam beverage industry.

Health ConcernsThe Vietnamese population only consume an average of three liters of bottled soft drinks per year, compared to 50 liters per year in the Philippines. In addition to soft drinks, bottled teas, sports drinks, and milk represent growing subsectors of the beverage industry, particularly for a population that is increasingly health conscious. Although dairy products are not historically common in the Vietnamese diet, milk has become hugely popular. This is connected to the health conscious attitude of Vietnamese consumers, as illustrated by a report in 2015 where Vietnamese consumers ranked health as their most important concern behind only their job and the economy.

Beverages

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Popularity of Milk

In the Southeast Asia region, Vietnam is predicted to see the fastest pace of growth of the dairy industry at a rate of 4.5%. This is due to the rapid economic development based on a young and fast-growing population.

Although dairy products are not historically common in the Vietnamese diet, milk has become hugely popular due to the influence of Western tastes and preferences. Accounting for about a third of children’s home drink consumption and over a tenth of women’s drink consumption, milk has become a staple product in many homes.

As milk rises in popularity, the demand for higher quality products is rising. Currently 70% of milk in the local Vietnamese market is reconstituted milk which comprises a nutritional value that is lower than fresh milk for vitamins and minerals, and tends to contain oxidised cholesterol due to processing. Consumers now prefer high quality, organic milk products and are willing to pay more for trusted brands.

Trade Agreements

A new free trade agreement, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), between 11 countries including Vietnam is expected to have a significant impact on the dairy industry in Vietnam. Under CPTPP dairy products from Japan, Singapore, and New Zealand will not be subject to import tariffs.

Currently Vietnam produces 20% of its milk, however, local production will be threatened

by this new agreement. Although the local dairy industry will face challenges, this agreement presents opportunities to innovate and respond to local consumer needs, while easily importing goods to meet the growing demand.

Product Launches

Spotting opportunities in the growing dairy market in Vietnam, several companies are launching products with key messaging to appeal to consumers. In April 2019 beverage giant Coca-Cola and New Zealand dairy producer Fonterra partnered in what is considered a strategic alliance in Southeast Asia. Under the existing Nutriboost brand, they launched new products in Vietnam as it is the third largest dairy market in the region. Catering to the preferences of Vietnamese consumers, the milk products are segmented into Nutriboost Kids, To-Go, and Beauty which are aimed at children and adults respectively responding to consumer needs and desires.

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Dairy

Wheat Demand

The bakery market in Vietnam is one of the most robust in the Asia-Pacific region. The bakery market enjoyed a compound annual growth rate of 7.6% over the period of 2010 to 2013, reaching VND10.4 trillion (US$0.5 billion) by the end of 2013.

While noodles have always been a staple in the Vietnamese diet, accounting for 40-45% of wheat produced, bread has become a part of daily life due in large part to the influence of Western habits. Unable to meet the demand for noodles and baked goods with local products, much of the wheat needed for production is imported with a considerable amount coming from Australia.

With a 44% increase of wheat imports from Australia predicted by 2030, Australia is keen to remain Vietnam’s first choice for bread. As the Vietnamese economy continues to grow, Australian companies have identified the importance of carefully monitoring and responding to the changing needs of Vietnamese flour mills, food manufacturers, and consumers.

Snacking CultureSnack foods, which was the fastest growing segment in the food market in Vietnam according to Nielsen, grew by 21% last year, which is three times the industry average. The rise in urbanisation, disposable incomes, and standard of living is expected to drive the snack market to around US$1 billion by 2020 in Vietnam.

Snacks are considered as non-essential products, and growth in the snack segment is a positive sign for the consumer market as it signifies higher spending power on discretionary items. Going

forward, snack companies need to evolve their product portfolio and focus on products with functional benefits to meet the changing consumer preferences and needs.

Breakfast NationOf the 328.6 million visits to food service outlets in Vietnam during the first quarter of 2017, breakfast accounted for 30% of all visits. The three main factors that influence the popularity of breakfast are the modernisation of affordable staples of Vietnamese cuisine, the introduction of convenience store chains, and the growing urban office professional class.

Although Vietnamse staples of pho, coffee, and bahn mi are the most popular items, as consumers are increasingly incorporating bread into their diets, breakfast is the ideal time to promote bread and bakery goods. By marketing to this demographic largely based in urban areas, and focusing on the energy boost and convenience of baked products, both local and international companies can take advantage of the Vietnamese breakfast culture.

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Bakery