vietnam food & beverage industry

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INDUSTRY COVERAGE

Total food consumption and growth

Source: Euromonitor International

Per capita disposable income & expenditure


Food staples sector performance

Source: Bloomberg

Recently released 2013 macroeconomic data indicates GDP growth was

5.42% with curbed inflation, a strong inflow of overseas remittances and

FDI and the prospects of a relatively stable Vietnam dong. Along with the

economic recovery, the country’s golden demographic structure, rapid

urbanization, rising disposable income and iddle class as well as mass

retail network present the impetus for rising domestic consumption

power and continued economic growth.

In 2012, Nielsen ranked Vietnam as the most rapidly growing fast-moving

consumer goods (FMCG) consumption country in Asia with a rate of

24.3%, followed by India (18.3%) and China (14.6%). In 2013, Vietnam’s

FMCG experienced a stagnant growth due to consumers becoming more

and more prudent in the context of an unstable economy. Even so,

consumer confidence index was still on the rise and hit its highest level of

98 within the last two years in Q4 2013.

As of 2013, Vietnam’s food and beverage (F&B) consumption was

USD42.8 billion, accounted for 40.5% of total consumption and posted a

remarkable CAGR of 11% over the period 2010-2013. We believe the F&B

sector will continue to deliver double-digit annual growth during the

period 2014-2018. Amongst our focused F&B categories, dairy possesses

the strongest momentum to enter into a growth phase while other

categories including seafood, noodles, sauces and dressing condiments,

confectionery and bakery, alcoholic drinks, soft drinks and hot drinks are

reaching maturity with a slower growth pace.

Given the growing appetite for emerging market-based assets of global

investors such as Kohlberg Kravis Roberts (KKR) and Texas Pacific Group

(TPG) and the consolidation tendency among local players, we predict a

blooming of M&A activities in the F&B sector will be on-going in the

medium- to long-term.

Given the facts that: (1) the sector outperformed the VN-Index (22.8% vs

8% in the latest 12 months); (2) the sector’s ROA (8.4%) and ROE (18.8%)

in 2013 were attractive; (3) the local peers were trading at cheaper prices

(PE 19.1x) relative to regional peers (PE 20.3x) and; (4) the availability of

some stocks exposed strong fundamentals and still cheaper values than

the sector multiples (VNM, KDC, VCF, MPC), we propose a

recommendation to contemplate accumulation of F&B stocks in

the medium to long term. Also, due to its nature as a defensive sector

which is essential for living, F&B stocks continue to remain a fundamental

component of a balanced investment portfolio.

Please see important disclosure information at the end of this report

14.5% 15.3%

10.7%

8.3% 7.3% 7.9%

10.0%

12.3%

14.8%

0%

5%

10%

15%

20%

0

20

40

60

80

Food consumption (USD bn)

7.0% 6.8%

6.7%

6.6% 6.5%

6.0%

6.5%

7.0%

-

500

1,000

1,500

2010 2011 2012 2013 2014F

Annual Disposable Income (USD)

Consumer Expenditure (USD)

Saving ratio (%)

-10

-5

0

5

10

15

20

25

30

35

40

45

05/13 08/13 11/13 02/14 05/14

Food staples VNINDEX

VIETNAM FOOD & BEVERAGE INDUSTRY June 2014


CONTENS

CONSUMPTION MACRO DRIVERS ........................................................................................................... 3

Further GDP growth while inflation being curbed ............................................................................................................. 3

Robust inflow of overseas remittances and FDI ................................................................................................................ 4

Golden demographic structure ............................................................................................................................................ 4

Rapid urbanization and lowest unemployment rate ......................................................................................................... 5

Disposable income and spending: slow but solid growth ................................................................................................ 5

Emerging middle income earners ....................................................................................................................................... 6

Tax reduced and extended ................................................................................................................................................... 7

High density of retail outlets ................................................................................................................................................ 7

CONSUMER CONFIDENCE ....................................................................................................................... 8

Vietnam the fastest growing FMCG market in 2012 .......................................................................................................... 8

Growth more sluggish in 2013 ............................................................................................................................................ 8

Consumer confidence index still on the rise ...................................................................................................................... 8

Health is among consumer’s top concerns ...................................................................................................................... 10

Demand for more in-home enjoyment and more value in one product ....................................................................... 11

Buy more on promotion and switch to local brands in response to price increases ................................................... 11

Women are in control of spending decisions .................................................................................................................. 11

Advertising continues to influence buying decisions...................................................................................................... 12

Online purchasing is not common yet, but online behaviors herald significant potential .......................................... 12

FOOD AND BEVERAGE .......................................................................................................................... 14

PRICING MECHANISM ........................................................................................................................... 17

Determination of price ........................................................................................................................................................ 17

Price administration ............................................................................................................................................................ 17

FOOD ..................................................................................................................................................... 19

Food supply chain ........................................................................................................................................................... 19

Tax and duties on food ................................................................................................................................................... 20

Impacts of TPP on food .................................................................................................................................................. 20

Potential of focused categories ..................................................................................................................................... 21

SEAFOOD ............................................................................................................................................................................. 21

DAIRY ................................................................................................................................................................................... 25

NOODLES ............................................................................................................................................................................ 31

SAUCES AND DRESSING CONDIMENTS ......................................................................................................................... 32

CONFECTIONERY ............................................................................................................................................................... 34

BAKERY MARKET ............................................................................................................................................................... 37

BEVERAGES .......................................................................................................................................... 39

Beverage categories breakdown ................................................................................................................................... 39

Beverage distribution channels ..................................................................................................................................... 39

Tax and duties on beverages ......................................................................................................................................... 40

Impacts of TPP on beverages ........................................................................................................................................ 40

ALCOHOLIC DRINKS ........................................................................................................................................................... 41

SOFT DRINKS ...................................................................................................................................................................... 43

HOT DRINKS ........................................................................................................................................................................ 45

F&B STOCKS ON THE EXCHANGES ...................................................................................................... 48

CONCLUSION ........................................................................................................................................ 53

APPENDIX- M&A ACTIVITIES ................................................................................................................ 54


CONSUMPTION MACRO DRIVERS

Further GDP growth while inflation being curbed

Vietnam has managed to retain its GDP growth apace at 5.42% in 2013, up from

5.03% in 2012, its lowest rate in the last 10 years. Meanwhile, inflation continued to

curb from a peak of 18.1% in 2011 to 6.04% last year. Among other sectors with rising

consumer price index (CPI) such as utilities, pharmacy and healthcare, food

frequently presented a negative CPI on a quarterly basis, a key factor that held back

the overall inflation rate. In Q1 2014, the GDP increased by 4.96%, slightly faster than

in the year-earlier quarter. In March 2014, CPI was negative 0.44%, the lowest rate in

5 years (relative to previous month and year-earlier month) and in 13 years (relative

to year-earlier December).

GDP Growth versus Inflation Neighbor countries GDP Growth (%)

Source: Vietnam GSO, ADB Source: Vietnam GSO

Month on month CPI (%)

Source: Vietnam GSO

We expect the GDP to maintain its growth pace while inflation remains under control

due to the government’s continuously improving measures on monetary and fiscal

policies, as well as measurable progress with banking system reforms. The gradual

economic recovery in the US and EU, two primary trade partners of Vietnam, is also

another factor taken into account. The Asian Development Bank (ADB) projected

Vietnam’s GDP growth to rise slightly to 5.6% in 2014 and edging up further to 5.8%

in 2015. While the Philippines and Indonesia were leading the pace, Vietnam still

remarkably outpaced Malaysia, Singapore and Hong Kong with their 2013 GDP

growth of 4.7%, 3.7% and 2.9%, respectively.

7.7 8.4 8.2 8.5 6.2 5.3 6.8 5.9 5.0 5.4 5.6 5.8

9.5 8.4

6.6

12.6

19.9

6.5

11.8

18.1

6.8 6.0 6.2 6.6

0

5

10

15

20

25

0

5

10

15

20

GDP growth (%) Inflation (%)

6.8 6.2

5.0 5.6

1.3

6.4 7.2

5.8 5.4 4.7

3.7 2.9

2012 2013

-2

0

2

4

6

8Overall

Foods

Beverage & Cigarette

Apparels

Home Appliances

Pharmacy & Healthcare

Vietnam’s economy continued to

recover with further GDP growth,

along with curbed inflation, strong

capital inflows and a stable

exchange rate.


Robust inflow of overseas remittances and FDI

Capital inflows from overseas remittances recorded consistent growth during the

period 2005-2013 with CAGR of 14.2% and reached USD11 billion in last year. Also,

the country mobilized USD11.5 billion in disbursed foreign direct investments (FDI) in

2013, a 10% increase, while committed FDI was USD21.6 billion, a significant increase

of 55% since 2012. These figures reflect rising confidence of overseas Vietnamese

and foreign investors in Vietnam’s macro economy that enjoys a stable local

currency and, which in turn, stimulates domestic consumption.

Oversea remittance

Source: BMI, EIU

Golden demographic structure

Being the third largest population among South East Asia (SEA) countries with 90

million people as of 2013, Vietnam possesses a young population (68% or 60.7

million under aged 40) and an abundant work force (76% or 68.2 million aged 15-60).

Since 2007, the population grew stably at about 1% or 1 million people every year.

People aged 15-39 with 40.1 million or 45.2% of the population represents the highly

concentrated segment of the aging pyramid, indicating young people are the key

growth driver of the consumer goods sector.

Average population and growth People aging pyramid, 2013

Source: Vietnam GSO Source: Vietnam GSO

According to the United Nations Population Fund (UNFPA), Vietnam has recently

entered into a period of ‘golden demographic structure’. A country has a ‘golden

demographic structure’ when for every two working people or more, there is only

one dependent person. This ratio of Vietnam is now 3:1 while 30 years ago it was 1:1.

Two thirds of the burden, so to speak, has been unloaded and this, no doubt, will

certainly accelerate consumption. Further, the golden period is expected to last for

3.8

5.2

6.7 8

7.2 8.2

9

10.5 11

7.2

8.6 9.4 8.9

7.8 8 7.4 7.5

6.25

2005 2006 2007 2008 2009 2010 2011 2012 2013

Remittance (USD bn) Remittance to GDP (%)

81.4 82.4 83.3 84.2 85.1 86.0 86.9 87.8 88.8 89.7

1.2 1.2

1.1

1.1 1.1 1.1 1.1 1.0 1.1 1.1

1.0

1.0

1.1

1.1

1.2

1.2

1.3

76

78

80

82

84

86

88

90

92

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Population (mn) Population growth (%) -6000 -4000 -2000 0 2000 4000 6000

0-4 yrs

10-14 yrs

20-24 yrs

30-34 yrs

40-44 yrs

50-54 yrs

60-64 yrs

70-74 yrs

Female

Male

68% of the population is under aged

40 and has an abundant work force.

The dependent population rateis 3:1


the next 30-35 years (UNFPA). The demographic structure presents the impetus for

rising local consumption power and continued economic growth. It leads to

significant trends in consumer goods market structure from bigger demand for

convenience goods, age-panel focused goods, brand equity, product quality and

health safety to business consolidation of market players.

Rapid urbanization and lowest unemployment rate

From 2000, the urbanization rate rapidly rose 8.3 percentage points (ppts) and

reached 33.4% in 2013. Urban residents contributed 51.3% of the country’s GDP in

the year. The urbanization rate is expected to become the majority by 2040 (UNESCO,

2011). Further, with an unemployment rate of 2.2% as of the end of 2013, Vietnam

was one of the countries enjoying the lowest unemployment rate in the world.

Disposable income and spending: slow but solid growth

Despite the economic slowdown, per capita annual disposable income still posted a

double-digit CAGR of 11.1% between 2010 and 2013, recorded at USD1,259 in 2013.

Per capita consumer expenditures expanded slightly higher, by a CAGR of 11.2%

during the same period to reach USD1,176. Vietnam consumers spent 40.5% of their

expenditures on food and beverage in 2013. The savings ratio saw a slow decline

since 2010 from 7% to 6.5% in 2013. While low savings is supposed to boost

spending, it probably induces volatility in consumption upon fluctuations of

disposable incomes and market price. Also, the relative low current incomes caused

Vietnamese consumers to spend mostly for non-discretionary products. But the

demand for discretionary goods promises to increase as disposable incomes

increase over time.

Per capita annual disposable income (USD) Per capita consumer expenditure (USD)

Source: Euromonitor International Source: Euromonitor International

Saving ratio (%)


1,090 1,262 1,399 1,507 1,607

918 1,059 1,169 1,259 1,343

12.8%

15.3%

10.4%

7.6% 6.7%

0%

5%

10%

15%

20%

-

500

1,000

1,500

2,000

2010 2011 2012 2013 2014F

Annual Gross Income (USD)

Annual Disposable Income (USD)

Annual Disposable income Growth (%)

854 987 1,091 1,176

1,256 358 409 446 476 506

14.1% 15.5%

10.6%

7.8% 6.8%

0%

5%

10%

15%

20%

-

500

1,000

1,500

2010 2011 2012 2013 2014F

Consumer Expenditure (USD)

Consumer Expenditure on F&B (USD)

Consumer expenditure growth (%)

918 1,059 1,169 1,259 1,343

854 987 1,091 1,176 1,256

7.0%

6.8%

6.7%

6.6% 6.5%

6.2%

6.4%

6.6%

6.8%

7.0%

-

500

1,000

1,500

2010 2011 2012 2013 2014F

Annual

Disposable

Income (USD)

Consumer

Expenditure

(USD)

Saving ratio (%)

Annual disposable income

reached USD1,259 per capita,

11.1% CAGR during 2010-2013.

Vietnam consumers spent

40.5% of their expenditures on

food and beverage.


However, due to retained concerns about the pace of gradual macroeconomic

recovery, the consumers continue to exercise prudence with their purchasing

decisions. As such, annual growth in per capita disposable income and consumer

expenditure is prudently projected to keep growing but at a slower pace in 2014 at

6.7% and 6.8%, respectively.

Emerging middle income earners

Within the social class distribution in 2012, class C accounted for the biggest share of

38% of the work force (25.9 million people). It was followed by class D which made

up 25% of the total earners (17.1 million people). The age band of 20-24 represents

for the class D, while those aged 35-39 mainly occupy class C. Since class C and D

represent almost two thirds of the work force, low-to-middle income earners are

dominant among Vietnamese consumers. Notably, there was a positive movement in

the structure of income earners among the social classes over the period of 2010-

2012. Specifically, class C experienced an escalation in proportion from 27% (2010) to

32% (2011) and 38% (2012). Class B saw a rise of 7 ppts up to 21% while Class A had

an increase of 2 ppts up to 6%. Conversely, Class D descended 9 ppts to 25%, Class C

observed a decrease of 6 ppts and class E housed 8% of the work force. According to

the OECD, there will be a big rise in the number of Vietnam’s middle class

consumers, implying a higher standard of living along with demand for diversified

products and services. The middle class, consisting of 25.9 million people,

significantly contributed 47.5% or USD46 billion to the country’s total consumption in

2012. By 2020, the consumption of this class is dramatically forecasted to be worth

USD310 billion (6.7 times growth) by the OECD.

Age composition of social class, 2012


Composition of social class

Source: OECD

The social classes are classified based on gross monthly income band (VND) as follows:

Class F Class E Class D Class C Class B Class A

0 -

1,499,999

1,500,000 -

2,999,999

3,000,000 -

4,499,999

4,500,000 -

7,499,999

7,500,000 -

14,999,999

>=

15,000,000

4.6% 15.1% 19.8% 23.5% 24% 24.7% 25.3% 24.5% 24% 21.7% 19% 8%

17.4% 20.2%

21.2% 21% 21.3% 22.7% 23% 23.5% 22.3% 20%

11.4%

21% 21.3%

20.3% 21.7% 21.7% 20% 20.4% 19.2% 20% 25%

25%

25.5% 20.7% 18% 18.3% 16% 15.7% 15.4% 15% 17.5% 15.5% 51%

21% 18% 17% 15% 16.3% 16.3% 16.7% 18.3% 18.5% 20.5%

0%

20%

40%

60%

80%

100%

15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+

E

D

C

B

A

2%

9%

27%

39%

20%

3% 4%

14%

32% 34%

14%

2% 6%

21%

38%

25%

8% 2%

Class A Class B Class C Class D Class E Class F

2010 2011 2012


Tax reduced and extended

In 2013, taxation has been eased also to support domestic consumption and

economic growth. Therein, SMEs, small- and medium-sized enterprises (with less

than 200 labors and revenue below VND20 billion) and agriculture products

manufacturers (with more than 300 labors) were entitled to 6 months extension

period for CIT and VAT payments. SMEs also benefited from a favorable CIT of 20%

from July 1, 2013. Moreover, general CIT has been reduced to 22% from Jan 1, 2014

and will be cut further to 20% from Jan 1, 2016.

In addition, by raising monthly personal allowances (from VND4 million to VND9

million) and dependent allowance (from VND1.6 million to VND3.6 million per

dependent), there was more savings for personal income tax (PIT) which directly

support consumers’ disposable income and spending.

High density of retail outlets

Vietnam possesses a dense retail network, widely spread throughout the country,

including 424 supermarkets, 23 hypermarkets, 365 mini-marts and almost 779,000 of

traditional markets and small private shops. . While supermarkets and hypermarkets

account for the majority, the convenience store model is still in its infancy.

Grocery outlets are dominant with more than 636,000 units. The number of retail

outlets is reported to have increased every year at a rate of 1.2% during the period of

2009 through 2013. Also, existing prominent retailers and wholesalers such as

Saigon Coop, Big C, and Metro Cash & Carry have committed themselves to further

expansion not only in big cities but also in many provinces. The continuous growth

and expansion of mass retail outlets strongly encourages consumer purchasing and

increases consumption value.

Retail outlets by categories (units)


609,359 619,674 624,274 631,208 636,158

133,835 138,271 141,475 142,110 143,613

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2009 2010 2011 2012 2013

Grocery outlets Non-grocery outlets


CONSUMER CONFIDENCE

Vietnam the fastest growing FMCG market in 2012

In 2012, Nielsen, the global market leader in consumer panels, ranked Vietnam as the

most rapid growing FMCG (fast-moving consumer goods) consumption country in

Asia with a rate of 24.3%, followed by India (18.3%) and China (14.6%). In a recent

research report published by Kantar Worldpanel, Vietnam households’ annual

spending on FMCG in 2013 was USD668 with annual purchasing frequency of 166

times, preceded only by Malaysia with that of USD969 on spending and 108

purchasing trips. Households in the Philippines, Thailand and Indonesia followed

with lower average FMCG annual spending of USD632, USD624 and USD475,

respectively.

FMCG market dynamics, 2012 Annual household FMCG spending, 2013

Source: Nielsen Source: Kantar Worldpanel

Growth more sluggish in 2013

According to reports by Kantar Worldpanel and Nielsen, there was a slow-down in

growth of the FMCG market since Q4 2012. Two-digit growth was difficult to sustain

from Q1 2013 and a negative volume change of 2.6% in Q3 2013 even dragged the

FMCG growth down to only 0.3% in Q3 2013 from 14% in Q1 2013. The consumption

index reflecting a quick deceleration as consumers become more cautious when

making purchases in the context of economic instability

FMCG growth q-o-q

Source: Nielsen, Kantar Worldpanel, TNS

Consumer confidence index still on the rise

8.7% 9.2% 5.8% 4.9% 4.6% 3.7%

1.1%

2.3%

15.6% 9.1%

8.8% 8.3% 6.5% 7.2% 3.6%

1.6%

24.3%

18.3%

14.6% 13.2%

11.1% 10.9%

4.7% 3.9%

Unit value change (%) Volume change (%) Nominal growth (%)969

668 632 624

475

108 166

346

215

414

4.5 4.6

5

3.6 4

0

1

2

3

4

5

6

0

200

400

600

800

1,000

1,200

Malaysia Vietnam Philippines Thailand Indonesia

Avg household spent / yr on FMCG (USD)

Annual purchase frequently FMCG (times)

Avg household size (members)

12.8 14.6 15.5 14.7 12.9 10.0 7.2 4.3 3 3 2.9

5.9 5.8 4.4 6.5 12.2 16.8 20.4 14 11 5.4

(2.6)

18.7 20.4 19.9 21.2 25.1 26.8 27.6

18.3 14

8.4 0.3

Q1.2011 Q2.2011 Q3.2011 Q4.2011 Q1.2012 Q2.2012 Q3.2012 Q4.2012 Q1.2013 Q2.2013 Q3.2013

Unit value change (%) Volume change (%) Nominal growth (%)


According to a Nielsen survey conducted in Q4 2013, the Consumer Confidence Index

(CCI) of Vietnam rose to 98 in Q4 2013, 10 points higher than the year-earlier quarter

and hit its highest level in the last two years. The index also crossed over the global

CCI of 94. Relative to its neighbor countries, Vietnam recorded an index rise in the

last two quarters of 2013, second only to Indonesia, while other regional peers

experienced a reduction in pace over the same period. Consequently, purchasing

power plummeted; however, it is expected to continuously grow over the coming

quarters.

Indonesia enjoys the highest levels of consumer confidence worldwide with a CCI of

124, 30 points higher than the global index. The Philippines and Thailand

experienced a decrease yet remained in the top 10 of CCI countries with 114 (-4

points) and 109 (-3 points), respectively. Malaysia edged downwards three points to

98 and Singapore was at 97 (-1 point). South East Asia (SEA) consumers have more

confidence than other worldwide areas thanks to robust growth of middle-income

earners and faith in their ability to achieve economic recovery in the foreseeable

future.

Neighborhoods CCI

Source: Nielsen

Top 10 CCI nations Q4 2013

Source: Nielsen

Note: UAE – United Arab Emirates

122 118 115

96 107

95

124 121 114

95 103

95

120 118 112

97 101 98

124 114 109

98 98 97

Indonesia Philippines Thailand Vietnam Malaysia Singapore

Q1.2013 Q2.2013 Q2.20132 Q4.2013

124 115 114 111 110 110 109 107 104 100

Vietnam’s consumer

confidence index in Q4.2013 hit

its highest level of 98 in the last

two years.


CONSUMER BEHAVIORS By conducting a survey in July 2013 with 700 respondents online and offline

throughout the country based upon age, gender and area, Nielsen was able to

identify the recent influences and impacts on consumers’ decisions and behaviors.

The study is helpful to market players in their efforts to determine the best ways to

deliver proper messages and promote products to consumers.

Health is among consumer’s top concerns

Following concerns about economic uncertainty and job security, consumers in

Vietnam view health as their third priority of consideration. When questioned about

daily activities to stay healthy, people’s responses of ‘eat and drink in moderation’

comprised the majority of the survey population (78%), followed by ‘eating fresh or

natural food’ (47%) and ’physical exercise’ (46%). While consideration of ‘nutrition’

captures the fourth position (41%), people also noted the importance of ‘keeping

one’s mind relaxed’ as another path to well-being.

Understanding factors that influence shoppers’ buying decisions about nutritional

food helps producers tailor their message and content on product labels and

successfully achieve brand salience. As such, communicating sufficient nutritional

ingredients on healthy products was the consumers’ first element of consideration

which occupies more than one third of total participants. Reduced risk of diseases

and product affordability were the next two influencing aspects with 25% and 23%,

respectively. A product stamped with the approval by health professionals was also

on the cart of 8% of sample shoppers.

Consumers’ worries Activities to stay healthy

Source: Nielsen Source: Nielsen

Consideration of purchase nutritional food

Source: Nielsen

19%

19%

11%

11%

8%

9%

5%

2%

3%

14%

7%

12%

12%

11%

8%

9%

6%

3%

The economy

Job security

Health

Increasing utility bills

Increasing food prices

Work/life balance

Increasing fuel prices

Parents' welfare…

Debts

Biggest concern Second biggest concern

78%

47%

46%

41%

35%

Eat / drink in moderation

Eat fresh / natural food

Physical exercise

Consider the meal's

nutrition

Keep mind relaxed

36%

25%

23%

8% 8% Sufficient nutritional ingredients

Reduced risk of disease

Affordable

Approved by health professionals

Others


Demand for more in-home enjoyment and more value in one

product

Since out-of-home entertainment comes in at the top of the list for spending cuts,

people then switched to products with messages about in-home enjoyment such as

CocaCola – ‘big bottle for family’, Maggi oyster sauce – ‘tasty and bright as

restaurant’ (Masan), Rejoice – ‘bring spa to home’ and Comfort – ‘spa at home’

(Unilever).

Also, by timely capturing the consumers’ trend to seek more value in one product,

manufacturers have launched a new series of multi-functional products from

ProBeauty – ‘yogurt with collagen’ (Vinamilk), Knorr – ‘all-in-one new multiple spices’

(Unilever), Number One – ‘beverage with vitamin’ (Tan Hiep Phat), Nutri tasty-

healthy – ‘nutritional beverage’ (Minute Maid – CocaCola) to Olay CC cream (P&G)

and Pond’s BB cream (Unilever) – ‘foundation plus moisturizer’.

Buy more on promotion and switch to local brands in response

to price increases

Vietnamese people are lured by products with free gifts. Thus, people mostly tend to

buy more on promotion in the context of price increases, according to the Nielsen

study. Also, there was a shift from purchasing of foreign brands to Vietnamese

brands without switching cost thanks to improving quality of domestic products with

appropriate pricing. Buying bigger pack size to enjoy discounts and changing

shopping channels to pocket money for saving were the next reactions of consumers

in response to price increases.

List spending cuts Consumer’ reaction to price rise


Women are in control of spending decisions

Demographic statistics indicate that the number of working women is on the rise.

The proportion of working females in the total female population posted a faster

growth than that of working males, presenting an increase from 58.5% in Q1.2012

to 67.8% in Q4.2013. 90% of women surveyed believe that their role and

responsibility is changing for the better according to the research.

Additionally, women in different generations definitely behave differently in their

shopping activities. Examples of that include: A daughter with an average age of 30

is the most impulsive among buyers and is a heavier media user while a mother

with an average age of 47 is prone to shop ahead, look for good value and enjoys

advertising. A grandmother with an average age of 67 is the most habitual shopper

15%

18%

19%

21%

22%

29%

41%

44%

44%

46%

49%

63%

65%

67%

Cut at-home entertainment

Cut down on smoking

Cut down or buy cheaper alcohol

Switch to cheaper grocery brands

Use my car less often

Cut down on holidays/short breaks

Cut down on take-away meals

Delay replacement of household items

Cut down on telephone expenses

Cut out annual vacation

Delay upgrading PC, Mobile

Try to save on gas and electricity

Spend less on new clothes

Cut out-of-home entertainment

66%

41%

37%

37%

36%

22%

20%

Buy more on 'promotion'

Buy more Vietnamese brands

Buy bigger pack sizes

Buy cheaper brands

Change shopping channel to

save money

Buy more of smaller pack sizes

Buy more of private label brands


and appreciates word-of-mouth importance. In general, women usually plan their

shopping list and follow advertising on TV and radio. Their brand loyalty is mainly

influenced by their perceptions of product quality.

Product or service providers have started to cater specifically to women. As such,

Sacombank offered Ladies First Credit Card, Women SME Service Package and 8th

March Branch, banking for women. Anlene developed calcium milk for modern

women which boast a content of four fold calcium by volume. Nhat Dang Nhi Da, a

spa and fitness center, was designed exclusively for women with six branches

nationwide.

Number of working female / male of female / male population

Source: Vietnam GSO

Advertising continues to influence buying decisions

68% of Vietnamese respondents confirmed that commercial advertising will increase

their brand preference. This ratio far crossed over that of global consumers (55%),

Singapore (49%) and Hong Kong (40%). It even slightly surpassed the rate of Asia

Pacific (67%). As the country’s social media channels keep growing, Vietnamese

people will continuously be captivated by commercial advertising that will affect their

purchasing decisions. Further, television and outdoor advertising remain the

strongest beacon of people’s attention, followed by news, magazines (online, papers)

and advertising panels at bus stations.

Commercials increase buyer’s brand preference Seen advertising on media channels


Online purchasing is not common yet, but online behaviors

herald significant potential

Amongst browsing activities to shop performed on any online connected devices,

there were more people usually conducting product research and looking for product

information online, which were implied by the survey results of 72% and 70% of total

81.8% 80.3% 77.0% 79.5% 82.8% 83.3% 83.0% 83.5%

58.5% 56.0% 58.3% 63.3% 60.5% 63.3% 65.5% 67.8%

Q1.2012 Q2.2012 Q3.2012 Q4.2012 Q1.2013 Q2.2013 Q3.2013 Q4.2013

Working

Male

Working

Female

55%

67%

79%

78%

74%

74%

72%

68%

68%

62%

49%

40%

40%

Global

Asia Pacific

Korea

Philippines

Indonesia

India

China

Thailand

Vietnam

Malaysia

Singapore

Hongkong

Taiwan

% of respondents who strongly / somewhat agree

96%

74%

49%

38%

15%

14%

11%

Television

Outdoor advertising

News / magazine

Advertising at bus station

LCD screen at building, office

Bus LCD screen

LCD screen at coffee shop


respondents. The other online activities including reading a grocery retailer’s flyers,

comparing prices of grocery products and browsing a manufacturer’s website were

also done by the majority of research participants.

Despite the majority of respondents conducting online product and producer

research, less than half of the people were asked to make a purchase of a product

online. In general, most of the activities were carried out on weekly basis. In terms of

online purchase intent of product categories for the next six months, food and

beverage ranked fourth with 39% of total respondents; while apparel, footwear and

accessories followed by household appliances and cellphones remained in the top

three categories that consumers intend to buy.

The rate of internet penetration in Vietnam is low at fifth in Asia and has the potential

to increase in the future. Besides, Nielsen’s research also showed that 92% of

Vietnamese consumers are more likely to trust recommendations from people they

know and 63% are more likely to trust consumer opinions online. We believe these

indicators offer promise of ample growth for online purchasing in the long term.

Activities on online connected devices Purchase intents via online connected devices


72%

70%

59%

59%

53%

49%

48%

47%

27%

12%

11%

6%

Conduct product research

Look up product information

Read a grocery retailer's flyer

Compare prices of grocery product

Browse a producer's website

Look for deals online

Look for coupons online

Purchase a product online

Feedback on a grocery category

Use a digital shopping list

Other

None of above

47%

47%

43%

39%

36%

36%

Apparel / Accessory / Shoes /

Jewelry

Household appliance

Mobile phone & accessories

Food & beverage

Travel service reservation

Entertainment tickets


FOOD AND BEVERAGE

Consumption in Vietnam is growing slowly as consumers are still very careful in

spending due to economic circumstances have not recovered. However,

developments of retail systems plus consumption habits show a promising market

for the retail industry in general and in particular food and beverage. The retail

market of food and beverage in Vietnam is highly fragmented, with the presence of

only a few large firms. The retail market is primarily driven by none organizations

retailers, including traditional retailers and independent grocers. The organized

retailers penetrate mainly limited in urban areas. There are few players dominate the

in food and beverage market, domestic including large enterprises such as Vinamilk

(dairy), Kinh Do (bakery), Masan Consumer (diversified products), Minh Phu (sea

food), Vinafood, Halico (beverage), Bibica (confectionery), Sabeco (beer). Foreign

companies are including Nestle (coffee); Nabati Indonesia (confectionery); Diageo,

Heineken, Carlsberg, SABMiller (alcoholic drinks); Kirin Beverage (soft drinks); AEON,

E-mart and Investment Co. U & I, FamilyMart, NTUC FairPrice (diversification of food

products). In addition, the large multinational companies are setting up independent

units and joint ventures to invest in areas such as coffee, candy, alcoholic drinks, soft

drinks, and retail distribution system.

In 2013, Vietnam’s food and beverage market was worth over USD 60.1 billion,

accounting for 40.5% of the total consumption of the country. In the same year,

Vietnam’s F&B consumption was USD42.8 billion, representing an increase of 8.2%

against 2012 and a CAGR of 11% during the period of 2010-2013.. Domestic

consumption in the country reached 42.8 billion accounted for 71.2% of the total

industry production value, 29% of the remaining exports (seafood, rice, coffee,

cashew nuts…).

Food and beverage value breakdown

Nguồn: VPBS tổng hợp

Food consumption maintains double-digit growth. In 2013, food consumption was

USD34.8 billion, posting a remarkable CAGR of 11.4% over the period of 2010 to

2013. Despite recent slow growth in FMCG purchases, the combination effects of

continuous economic growth, golden demographic structure, rapid urbanization and

emergence of middle income earners as well as a mass grocery retail network, will

fuel the growth of overall food consumption in the medium- and long-term. Also, due

to its nature as a defensive sector which is essential for living, food is considered a

key component of a balanced investment portfolio over the investment horizon.

Exports

29%

Food

58%

Beverage

13%

Domestic

consumption

71%


Vietnam food consumption is projected to retain its double-digit growth of 11.4%

over the period of 2014 to 2018 by Euromonitor International.

Food consumption and growth Food consumption per capita and growth

Source: Euromonitor International Source: Euromonitor International

In 2013, agri-products, meats & eggs and seafood continued to be the biggest three

categories with USD26.7 billion or 76.8% value contribution to total local food

consumption. Agri-products including rice, maize, coffee, tea, pepper, cashew,

sugarcane, cassava, fruits and vegetables posted double-digit growth of 11.8%

compared with 2012. The following categories of dairy, oil and fats and noodles

notably surpassed USD1 billion of sales value each, in which dairy valued at USD2.9

billion market size, saw the highest growth of 16.5% against last year among other

categories. Also, confectionery and bakery together made up USD1.3 billion and

increased by over 8.2% from 2012.

Food market value and growth in 2013

Source: Vietnam GSO, Euromonitor International, VPBS estimates

Note: (*) Agri-products including rice, cassava, maize, coffee, tea, pepper, cashew, sugarcane, fruits

and vegetables

In the beverage market side, alcoholic drinks are the largest sector with 70%

contribution to total market value. Revenue from this sector increased by 6.3% to

USD 5.6 bil, the lowest growth rate compared to the other drinks. Beer accounts for

the largest share of alcohol consumption, Sabeco, Habeco is domestic company's

which dominate Vietnam beer market.

25.2 29.0 32.2 34.8 37.4 40.3 44.3 49.8 57.2

14.5% 15.3%

10.7%

8.3% 7.3% 7.9%

10.0%

12.3%

14.8%

0%

5%

10%

15%

20%

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014F2015F2016F2017F2018F

Food consumption (USD bn) Growth (%)

290 331 362 387 412 441 480 533 605

13.1% 14.1%

9.6%

6.8% 6.4%

7.2% 8.8%

11.0%

13.5%

0%

5%

10%

15%

0

200

400

600

800

2010 2011 2012 2013 2014F2015F2016F2017F2018F

Food consumption per capita (USD) Growth (%)

11.9 9.5

5.3 2.9 1.1 1 0.8 0.8 0.5 0.9

12%

0%

3%

17%

5%

8%

5%

9% 7%

0%2%4%6%8%10%12%14%16%18%

0

2

4

6

8

10

12

14

Ag

ri-p

rod

ucts

(V

ina

foo

d,

Veg

ete

xco

, G

en

tra

co

)

Me

at,

Eg

gs (

Vis

san

, C

au

Tre

, H

a L

on

g)

Sea

foo

d (

Hu

ng

Vu

on

g,

Vin

h H

oa

n,

An

Gia

ng

)

Dia

ry(V

inam

ilk,

Nestl

e,

Ab

bo

tt, F

restl

an

d)

Oil

an

d F

ats

(C

ai

La

n,

Tu

on

g A

n,

Go

lde

n

Ho

pe

)

No

od

les (

Aceco

ok V

iet

Na

m, M

asan

Co

nsu

me

r,

Asia

Fo

od

)

Sau

ce a

nd

Dre

ssin

g

co

nd

imen

ts(M

asan

Co

nsu

mer,

Ajin

om

oto

Việ

t N

am

)

Co

nfe

cti

on

ery

(K

inh

Do

,

Kra

ft F

oo

d,

Hai

Ch

au

)

Bakery

(K

inh

Do

, N

hu

La

n,

Du

c P

ha

t)

Oth

ers

2013 Marke Value

Growth in 2013 (%)


Soft drinks saw the highest growth of 12.4% to reach $ 1.7bn sales in 2013, while hot

drinks is the smallest segment carries about 0.7 billion in sales. In soft drinks market,

Coca-Cola and PepsiCo dominate the carbonated soft drinks market, Tan Hiep Phat

array occupies none gas soft drinks. Hot drinks are the smallest segment which

brought only USD 0.7 billion in revenue. Hot drinks market under the control of

Nestle and VinaCafe.

In 2013, retail sales of the beverage sector in Vietnam reached USD8 billion, a 7.6%

rise compared with 2012. According to forecasts of the key players, in the period 2014

and 2015, beverage market value is expected to increase by 7.5%. So as consumers

switch to beverage products with higher value, expected profits in this sector would

increase by 10.5% in 2016.

Beverage market value and growth in 2013

Sources: Euromonitor International, VPBS

5.6

1.7

0.7

6%

12%

7%

0%

2%

4%

6%

8%

10%

12%

14%

0

1

2

3

4

5

6

Alcoholic drinks (Sabeco,

Habeco)

Soft drinks (Pepsi,Coca Cola,

Tan Hiep Phat, URC Vietnam)

Hot drinks (Nestle, Vinacafe,

Vinatea)

2013 market value 2013 growth


PRICING MECHANISM

Determination of price

Circular 25/2014/TT-BTC dated February 17, 2014 provides pricing methods for

products inbound that are both manufactured and imported. There are two methods

of determination based on comparison and expenditures.

The comparison method is defined as pricing products based on analysis and

comparison results of price levels, usage, quality, origin and economic – technology –

legal features between the target and the comparable products currently trading in

the domestic market, with reference to the regional and global market if available.

Expenditure method is defined as pricing products based on reasonable and valid

production costs and a profit estimated in line with current market prices and

relevant government policies. The pricing formulas provided as follows:

Inbound manufactured products

Price = production costs + estimated profit (if any) + special sales tax (if any) + valued

added tax and other taxes (if any)

Imported products

Price = import price (*) + selling, administration and financial expenses (if any) +

estimated profit (if any) + valued added tax and other taxes (if any)

(*) Import price = CIF price + import tax + special sales tax (if any) + other fees and

taxes (if any) + other regulated cash payments (if any)

Price administration

According to Direction 05/CT-BTC dated December 24, 2013, Price Administration

Bureau has primary duties to (1) closely watch goods price fluctuation in domestic,

regional and global markets (2) supervise price declaration and registration of

enterprises (3) provide solutions for tax and financial mechanism, price

administration and stabilization (4) coordinate with Investigation Bureau to conduct

unexpected examinations (5) report to the Ministry of Finance on a weekly, semi-

monthly and monthly basis.

Coordinating with Price Administration Bureau, Finance Department is responsible

for (1) tracking market demand, supply, price and tax revenues (2) timely proposing

appropriate measures for price stabilization without any shortage or speculation of

goods (3) controlling budget and monitoring the execution of price stabilization

program (if any) and (4) reporting to the Ministry of Finance on a weekly, semi-

monthly and monthly basis.

Directed by the Ministry of Finance, National Food Reserves Bureau makes proper

stocks release and top-up to balance of stock reserves. Local enterprises are

encouraged to participate in the stabilization program by purchasing additional

goods for reserves with or without interest support and loans provided by the state

budget.


Regulatory reporting lines

Reporting to Directing to / supporting Coordinating with

Source: Direction 05/CT-BTC

Ministry of Finance

Finance

Department

Price Administration

Bureau

National Food

Reserves Bureau

Tax

Bureau Custom Treasury

Food Reserves

Bureau

Budget

Affair

Tax

Affair

Corporate

Finance

Investigation

Bureau

Province People Committee, local companies and entrepreneurs, consuming market


FOOD

Food supply chain

In 2013, the majority of input materials for food production was locally produced with

a farming value of USD44 billion including cultivation, fisheries and livestock. Also,

there was spending of USD6.5 billion for import of key inputs such as raw feed, dairy

materials, seafood, oil and fats, wheat, fruits and vegetables. During the year, the

country’s food production was estimated more than USD52.1 billion in which local

consumption accounted for 66.8% or USD34.8 billion and key commodities for export

(seafood, rice, coffee, cashew, etc.) comprised most of the remainder at USD17.3

billion. Domestically, food has been consumed mainly through commercial and

traditional trade channels .Traditional channels including nearly 779,000 traditional

markets and small private shops which are suitable for small quantity and high-

frequency food purchases. Traditional channels accounted for 75% of food retail

value, the remaining 25% belongs to commercial channels including 447

supermarkets, hypermarkets, convenience stores and food service operators with

significant presence of 560,000 restaurants and food outlets and 12,500 hotels.

Food supply chain

Source: GSO Vietnam, Euromonitor International, VPBS research

2013 LOCAL FARMING

USD44 bn

2013 KEY IMPORTS

USD6.5 bn

2013 FOOD PRODUCTION

Over USD52.1 bn

2013 KEY EXPORTS

USD17.3 bn

LOCAL CONSUMPTION

USD34.8 bn – 2013

% Contribution

Cultivation 54.8%

Fisheries 24.6%

Livestock 20.6%

% Contribution

Raw feed 46.4%

Dairy materials 16.8%

Seafood 10.7%

Oil & fats 10.7%

Wheat 9.4%

Fruits & vegetables 6.2%

% Contribution

Seafood 38.9%

Rice 17.2%

Coffee 15.5%

Cashew 9.6%

Cassava 6.3%

Fruits & vegetables 6.0%

Pepper 5.2%

Tea 1.3%

Wholesalers /

Distributors

Retailers Food service operators

Consumers - 90 million (by end of 2013)

424 supermarkets

23 hypermarkets

365 minimarts & convenient stores

778,959 traditional markets & private shops

560,000 restaurants

and food outlets

12,500 hotels


Tax and duties on food

VAT Tax Law Amendment 31/2013/QH13, Decree 209/2013-ND-CP and Circular

164/2013/TT-BTC effective from January 1, 2014 regulated VAT and Import Export Tax

for cultivation, livestock and aquatic products.

Inbound manufactured products

1. Raw or preliminary treated products

Raw o preliminary treated products which produced / fished and sold by individuals

or organizations are not subject to VAT.

Raw or preliminary treated products which traded among VAT deduction registered

enterprises / cooperatives are not subject to VAT.

Raw or preliminary treated products which are sold by VAT deduction registered

enterprises / cooperatives to other enterprises / entrepreneurs / individuals are

subject to 5% VAT.

2. Processed products produced and traded by VAT deduction method enterprises /

cooperatives are subject to 10% VAT.

3. Processed or unprocessed products traded by enterprises / cooperatives /

entrepreneurs / individuals registered VAT direct method are subject to VAT of

1% of revenue.

Imported products

Imported raw or preliminary treated products are subject to Import Tax only.

Imported processed products are subject to Import Tax and VAT.

Import Tax = Import tax rate x Import price

VAT = VAT rate x (Import price + Import tax)

Tax and duties on imported products

Import Tax Import Tax VAT

Seafood 0-30% Coffee, tea, pepper 15-40% 10%

Dairy 0-20% Grains 0-40% 10%

Livestock 0-5% Oil & fats 3-30% 10%

Meat 7-40% Sugar 0-40% 10%

Eggs, honey 0-30% Raw feed 0% 10%

Source: VAT Law 31/2013/QH13, Decree 209/2013/ND-CP, Circular 164/2013/TT-BTC

Exported products

Products for export are not subject to Export Tax and subject to 0% VAT.

Impacts of TPP on food

TPP technically allows the member countries to have free tariff when trading among

others. As such, while Vietnam has limitations or even unavailability of Sanitary and

Phyto-sanitary Measures (SPS); technical barriers to trade (TBT) comprised of

requirements on packaging, records, logistics, etc. and; commercial defense

measures such as anti-dumping, anti-subsidy, etc.; the country’s domestic food

market will confront significant competitive pressure from TPP countries in terms of

technology, quality and even price.


As an agriculturally focused country in general, Vietnam has become one of the

largest agri-products export countries in the world and is likely to exert demands on

TPP partners to open their markets apart from the free trade tariffs. However, TPP

appears to have no limitations on rights of using the SPS, TBT and the commercial

defense measures for import countries. A chapter of discussion about these

instruments is available in TPP but mainly emphasize the cooperative manner in

dealing with complaints (if any) amongst the countries. In fact, there was a tendency

observed globally that the other protective measures will be escalated in response to

tariffs being removed.

Thus, we envision that Vietnam is in need of effectively improving its protective

measures such as roadmap of custom tariffs (not strict but feasible in TPP), Tariffs

Rate Quota (the most feasible and widely accepted in TPP), SPS and TBT. Although

SPS and TBT are very popular in the United States, Australia and New Zealand,

Vietnam, however, is facing obstacles in execution of these two measures. It is due to

(1) too high standards causing difficulty for local products and (2) insufficient

resources to assure compliance of products exported to Vietnam. As such, technical

support commitments in particular matters should be required for TPP countries.

Potential of focused categories

Within the focused categories, dairy possesses the strongest momentum to enter

into a growth phase thanks to low milk consumption per capita and accelerating

habits of drinking milk as an essential daily nutrition among Vietnamese consumers.

Meanwhile, other categories including seafood, noodles, sauces and dressing

condiments, confectionery and bakery are reaching maturity with a slowdown in their

growth rate. This is attributable to the majority of consumers being fully aware and

using the products for a long term (noodles, sauces and dressing condiments) and

due to the nature of discretionary goods (confectionery and bakery). For seafood,

Vietnam is the third largest country in fishery and aquaculture (after China and India).

Although, around 60% of total seafood production is for export, local people have

also consumed a large volume of seafood with extreme hikes in the period 2009 to

2012. However, these categories remain attractive as they are driven by a golden

population demographic, rapid urbanization rate, economic growth, rising disposable

income and high density of retail outlets.

SEAFOOD

Production growth plummeted due to wide-spread Early Mortality

Syndrome on shrimp farming

Vietnam possesses an interlacing system of rivers and a 3,260 km long coastline. It is

ranked third in 2013 among the largest countries for fishery and aquaculture

activities, preceded only by China and India. Fishery volume (mainly from tuna) has

recently grown every year thanks to favorable weather conditions and a new fishing

technique of using high pressure lamps, which helps double productivity and saves

15 to 30% of the fishing time. The decline in growth of production value during 2012

and 2013 was due to approximately 100,000 hectares of shrimp farms, which account

for 15% of the country’s total shrimp farms, suffering from Early Mortality Syndrome

(EMS). The disease, however, has been controlled since Q4 2013 and is no longer a

threat. In 2013, seafood production rose 3.4% to reach 6 million tons in volume and

grew 7% to reach USD11.4 billion in value.


Seafood production volume and growth Seafood production value and growth

Source: VASEP, GSO Vietnam Source: VASEP, GSO Vietnam

Low quality of breeding seeds

Breeding seeds play a critical role in the value chain of seafood production and have

strong influence on the latter stages of production. However, quality of breeding

seeds remains low in Vietnam. For pangasius, seed parents are mainly sourced from

local farmers with uncertain quality and limited technological know-how, which led

to the recent phenomenon of degeneracy. For shrimp, the parents mostly depend on

natural fishery with inequitable quality and not many passed through quarantine.

Administration on breeding seeds remained undisciplined with vague regulation on

farming, quarantine and inspection. Consequently, shrimp have been subject to low

immunity toward diseases, such as the recent EMS disturbance. Currently, quality-

controlled shrimp seeds are mostly distributed by CP Vietnam and Uni-President

Vietnam with a capacity of 1 to 2 billion seed parents per annum.

Raw materials for aquatic feed production mainly imported

According to the Vietnam Association of Seafood Exporters and Producers (VASEP),

there are 130 aqua-feed manufacturers providing 3.8 million tons of feed per year,

meeting 85.6% of local demand. Of these, 96 factories produce feed for pangasius

and the remaining factories produce for black tiger shrimp and white legged shrimp.

Import of finished aqua-feed has been decreasing over time but 50% of the raw

materials for the feed production (soybean, soya oil cake, maize, fish meal, group of

acid amines, etc.) still depend on imports. At the moment, the aqua-feed market is

largely dominated by Uni-President and CP Thailand with 35 to 45% of market share.

Domestic seafood consumption reached USD5.3 billion in 2013

The domestic market made a minor contribution of less than 5% of the revenue of

local seafood producers. This was attributable to lower selling prices relative to

export prices, while cost of production, logistics and promotion advertising were still

high. Further, Vietnamese consumers are acquainted with purchasing fresh seafood

from traditional wet markets while the local producers concentrate on frozen-

processed seafood. In 2013, domestic consumption of seafood reached USD5.3

billion, accounting for 43.9% of total local production and import value, which was

USD12.1 billion. According to the Center of Planning and Development of Aquatic

Products, domestic consumption will increase annually at 5.4% on average for the

period from 2011 to 2020.

2,281 2,414 2,514 2,705 2,804

2,590 2,728 2,933 3,115 3,216

5.8% 5.6% 5.9% 6.9%

3.4%

0%

2%

4%

6%

8%

0

2,000

4,000

6,000

8,000

2009 2010 2011 2012 2013

Catch ('000 tons) Aquaculture ('000 tons)

Growth (%)

2.4 2.8 3.7 4.3 4.6

3.4 4.5

6.0 6.3 6.8

11.0%

24.9%

34.4%

8.9% 7.0%

0%

10%

20%

30%

40%

0

2

4

6

8

10

12

2009 2010 2011 2012 2013

Catch (USD bn) Aquaculture (USD bn)

Growth (%)


Seafood local consumption value and growth

Source: VASEP, VPBS research

Export value recorded USD6.7 billion in 2013

According to General Department of Vietnam Customs, in 2013, export of aquatic

products recorded USD6.7 billion, rising 9.8% relative to 2012. The US, EU, Japan,

China, Hong Kong and Korea were primary export markets of the sector, together

occupying 71% of the export value. However, only the US and China had a fast

growth pace of more than 25% last year. In terms of aqua-product categories, the

country exported USD3.11 billion of shrimp, which accounted for 46% of total export

value, followed by USD1.76 billion of pangasius (26%) and USD526.7 million of tuna

(8%).

Seafood export value and growth Top 10 seafood exporters, 2013 (USD mn)

Source: VASEP Source: VASEP

Almost 73% of total seafood export value belongs to 100 seafood processing

companies, in which the top 10 contributed 22.8% to the export value in 2013. Minh

Phu was the leader with USD411.6 million. If its subsidiary, Minh Phu Hau Giang, was

counted, the Company would account for 8% of the export value and left the other

peers in its wake such as Vinh Hoan (USD166.3 million or 2.5%) and Seapimex

(USD158.8 million or 2.4%). Hung Vuong and its subsidiary, Agifish, together, are

considered to be the biggest producer of pangasius. If standing alone, Hung Vuong is

the second largest after Vinh Hoan in pangasius production.

1.8 2.6

4.2 5.1 5.3

77.1%

38.9%

63.9%

22.7%

3.8%

0%

20%

40%

60%

80%

100%

0

2

4

6

2009 2010 2011 2012 2013

Local consumption

(USD bn)

Growth (%)

4.3 5.0

6.1 6.1 6.7

-5.6%

18.4% 21.6%

0.3%

9.8%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

2

4

6

8

2009 2010 2011 2012 2013

Export (USD bn) Growth (%)411.6

166.3

158.8

147.8

132.2

128.8

112.7

105.6

104.1

103

Minh Phu (MPC)

Vinh Hoan (VHC)

Seapimex

Quoc Viet

Cases

Minh Phu - Hau Giang

Agifish (AGF)

Hung Vuong (HVG)

Au Vung

Sao Ta (FMC)


Seafood export markets, 2013 Seafood export value by categories, 2013

Source: VASEP Source: VASEP

High anti-dumping tax

According to VASEP, the US Department of Commerce has recently announced the

final results of the ninth anti-dumping duty administration review between August 1,

2011 and July 31, 2012 towards frozen processed pangasius imported from Vietnam.

Therein, Vinh Hoan was entitled to the most favorable rate of USD0 per kg instead of

USD0.03 per kg previously. Hung Vuong retained the last levy of USD1.2 per kg. The

tax rate significantly increased from USD0.42 per kg since the end of March 2014 to

USD1.2 per kg at present. The general rate of USD2.11 per kg is applied for other

Vietnam exporters. The representative of VASEP asserted that this was an

unreasonable, inconsistent and protective judgment that caused disadvantage to

Vietnam’s pangasius. We project that the country’s export of pangasius will

slowdown in the foreseeable future.

Export price of pangasius declined while that of shrimp hiked

The export price of pangasius in 2013 was USD2.2 per kg, a decrease of 9.1% due to

fierce competition among 230 local exporters while it was expected to increase by

1.8% to USD1.7 per kg because of reduction in output volume in the year.

The export price of shrimp rose 20% in 2013, which was attributed to the outbreak of

EMS worldwide. EMS spread through the major shrimp producing countries of

China, India, Vietnam and Thailand which caused global shrimp output to drop

precipitously 23% in the year. However, as mentioned earlier, the disease has been

brought under control and a gradual reduction in price is expected as production

recovers.

TPP offers not much benefit on tariffs, but challenging local

competition

Theoretically, TPP allows aquatic products from Vietnam to enjoy a tariff of 0% when

exporting to TPP countries, especially the US and Japan. These two key markets

accounted for 39% of total seafood export value in 2013. However, this tariff benefit

seems, in fact, to be insignificant. For instance, import tariffs for the US market are

relatively low (0.3% for raw seafood, 4.7% for processed seafood); the rates for Peru

and Canada are roughly 0%, while Malaysia, Singapore, Australia have removed

tariffs in accordance with ASEAN free trade agreements. For the Japan market, the

import tariffs for Vietnam’s aquatic products were lower than that of other countries

(3.5% for raw seafood, 7.3% for processed seafood). Thus, TPP brings more of a

22%

17%

17% 8%

7%

6%

3%

20%

US

EU

Japan

China & HK

Korea

Asean

Australia

Others

26%

25% 21%

8%

6% 3% 2%

1% 8%

Pangasius

Black tiger shrimp

White leg shrimp

Tuna

Squid & octopus

Other shrimps

Crab

Molluse

Others


competitive edge to Vietnam, relative to other countries, when exporting into Japan’s

market.

In terms of imports, Vietnam currently imposes quite high tariff barriers of 15% for

raw seafood and 30% for processed seafood. Companies in TPP countries exporting

aquatic products into Vietnam will be entitled to have the barrier totally removed,

which will undoubtedly bring huge competitive pressure for the local players. For

domestic companies using imported raw materials, TPP does not make big changes

because taxes imposed on imported materials for exported goods will be refunded.

Obviously, if taking a particular consideration, these companies will save opportunity

cost on tax reimbursement procedures and tax payments, which is seen as an

advantage but not remarkable. Thus, TPP offers insignificant benefits on customs

tariffs for aquatic-product-export enterprises while creating significant competition

for domestic-market-focused enterprises.

DAIRY

Strongest momentum to enter growth phase; powdered milk and

drinking milk dominated dairy market

According to Nielsen’s research, per capita milk consumption in Vietnam was just 15

liters per annum, far behind Thailand (34 liters / year), China (25 liters / year) and the

UK (112 liters / year) in 2012, an indication of colossal market growth opportunity for

dairy products. The Vietnam Department of Livestock Production estimates

Vietnamese people will consume 28 liters of milk per year by 2020. Moreover, the

customer base for dairy products has broadened thanks to the manufacturers

continued efforts to target different demographic segments, such as female

professionals and seniors. Thanks to low per capita milk consumption, rising health

consciousness, new habits of drinking milk, and a growing customer base, we

believe this category possesses the strongest momentum to enter a growth phase.

Dairy sales value and growth

Source: Euromonitor International, VPBS Research

The dairy sector, valued at VND62.2 trillion (USD2.9 billion) in 2013, is among the

fastest-growing in Vietnam’s non-discretionary consumer sector, with an increase of

16.5% in 2013 and a CAGR of 14% over the period 2010 to 2013.Vietnam dairy

revenue comes mainly from two segments: powdered milk and drinking milk. These

two segments’ revenue accounts for 74% of the total market value which is USD 2.2

billion (VND 45,900 billion). According to Euromonitor International, Vietnam’s dairy

market value will have increases of 20% and 23% for the year 2014 and 2015. Yogurt

is reckoned to be the segment which will bring high profit thanks to undeveloped

market either in demand or supply.

42.0 47.3 53.3 62.2

74.6 91.7

12% 13% 13%

17%

20% 23%

0%

5%

10%

15%

20%

25%

0

20

40

60

80

100

2010 2011 2012 2013 2014F 2015F

Value (VND tn)

Growth (%)


Dairy category volume breakdown Dairy category value breakdown

Source: Euromonitor International, VPBS research Source: Euromonitor International, VPBS research

Local raw fresh milk supply only meets less than one-third of

production demand,

The sector faces supply and demand imbalances in raw fresh milk as domestic herds

(184,216 cows) were able to provide only 420,000 tons of raw milk, about 28% of total

domestic demand for production in 2013. Vietnam is ranked in the top 20 countries

worldwide importing input materials for dairy production. In 2013, the country

imported around 1.2 million tons of raw milk powder valued at USD841 million. Thus,

heavy dependence on imported materials brings the attendant risk of profit margins

being squeezed out due to global price fluctuation. However, this risk is mitigated by

strong consumer loyalty for prominent brands and because milk products are

exposed to low price elasticity of demand relative to other categories. The

Department of Livestock Production estimates local milk production will surge to

856,000 tons in 2017 (326,000 cows herd) and 1,000,000 tons (500,000 cows herd) by

2020, yet the supply will only meet 30% of local demand.

Milk cow herd (cows) Raw fresh milk local production

Source: Department of Livestock Production Source: Department of Livestock Production

Market concentrated on Vinamilk and Friesland Campina

Out of the 20 local milk producers, only TH Milk ultimately enjoys internal control in

raw fresh milk for production. The company currently owns a herd of 45,000 cows

farmed on 8,100 ha of land that produce 400 tons of fresh raw milk on a daily basis.

TH Milk has set targets to own the largest herd of 137,000 cows by 2017 and 203,000

cows by 2020 nationwide. The other players such as Vinamilk, Nutifood Friesland

Campina Vietnam, Moc Chau can partly supply fresh milk. Their shortage in input

material is overcome by purchases from domestic farmers and imports. Vinamilk is

now the largest fresh milk collector, purchasing more than 60% of fresh milk from

farmers across the country. The second largest fresh milk collector is Friesland

Campina Vietnam (Dutch Lady brand milk). The company has purchased nearly

670

55% 245

20%

200

16%

70

6%

30

3%

5

0%

Y2013 (000 tons) Drinking milk

Yogurt

Condensed milk

Powdered milk

Ice-cream

Cheese

27.9

45%

18.0

29%

7.7

13%

5.1

8%

3.2

5%

0.2

0%

Y2013 (VND tn)

Powdered milk

Drinking milk

Yogurt

Condensed milk

Ice-cream

Cheese

133 152 167 184 326 500

15.3% 14.5% 10.0% 10.3%

77.0%

53.4%

0%

20%

40%

60%

80%

100%

0

100

200

300

400

500

600

2010 2011 2012 2013 2017F 2020F

Thousand Cows Growth (%)

320 368 382 420

856

1,000

15.1% 15.0% 3.8%

9.9%

103.8%

16.8%

0%

20%

40%

60%

80%

100%

120%

-

200

400

600

800

1,000

1,200

2010 2011 2012 2013 2017F 2020F

Thousand tons Growth (%)


82,000 tons of fresh milk from local farms in 2013, accounting for about 20% of total

domestic fresh milk production. These two companies dominate the local market

with 46% and 20% market shares respectively. We expect fiercer competition among

existing players due to the increasing number of brand substitutes and low threats of

new entrants as the category has relatively high barriers to entry.

Dairy market shares, 2013


Downtrend in world price of raw milk powder benefits local

producers

Milk production in Vietnam comes from two sources: from cow farms and imports.

Imported dairy ingredients include milk powder and raw milk products. Raw milk

products are imported not only to produce milk but also to produce such as

confectionery, functional foods, nutritional foods milk. etc.... Vietnam imports raw

milk products mainly from New Zealand, America, Australia and Europe. Costs of raw

milk accounts for approximately 65 to 70% of total input costs. Thus, any change in

world production could cause price volatility and shortages that would negatively

affect local production.

USDA skim milk powder spot price (USD/MT) USDA whole milk powder spot price (USD/MT)

Source: Bloomberg Source: Bloomberg

After a hike in Q2 2013, the price of skim milk powder (1.25% butterfat) and whole

milk powder (26% butterfat) has decreased significantly to this date. The skim milk

powder spot price was down 19.6% y-o-y from USD5,225 per metric ton (MT) to

USD4,200 per MT as of the end of May 20, 2014. Also, the whole milk powder spot

price dropped 22.5% y-o-y from USD5,600 per MT to USD4,337.5 per MT as of May

20, 2014. USDA expects the downward trend will be on-going through the end of

2014 due to world production increases through herd expansion and higher yield

outputs per cow. Therefore, we believe the favorable trend in world prices of raw

milk powder will favorably benefit the gross margin of local producers in 2014.

46%

20%

34% Vinamilk

Friesland Campina

Others

0

1000

2000

3000

4000

5000

6000

1-Jan-09 1-Jan-10 1-Jan-11 1-Jan-12 1-Jan-13 1-Jan-14

0

1000

2000

3000

4000

5000

6000



Imposed ceiling prices on milk products for children under 6 years

old

According to Decision 1079/QD-BTC, effective from June 1, 2014, 25 milk products for

children under 6 years of age have had ceiling prices imposed for both wholesale and

retail distribution. The wholesale ceiling price has ranged from VND72,000 to

VND610,000 for different brands including Dielac Alpha, Frisolac Gold, Nan,

Lactogen, Enfagrow, Enfamil, Abbott, Similac and Grow G-Power. The retail ceiling

price was determined by the sum of wholesale ceiling prices and other relevant

expenses (capped at 15% of the wholesale ceiling price) and regulated by the Price

Administration Bureau.

Powdered milk and drinking milk

Robust appetite for powdered milk and drinking milk

We saw robust consumption in powdered milk and drinking milk over the period of

2010 to 2013. Powdered milk, which made up 45% of Vietnam’s dairy market, posted

a CAGR of 10.1% and VND27.9 trillion (USD1.32 billion) worth in 2013. Drinking milk

accounts for 29% of the dairy market’s value, or VND18 trillion (USD851.6 million), in

2013. The sub-category recorded a remarkable CAGR of 18.9% during the same

period. As the majority of input materials for powdered milk and drinking milk are

sourced from overseas, local producers will benefit from the capability to pass on

incremental costs to end users when import prices rise.

Powdered milk value and growth Drinking milk value and growth


Foreign players control powdered milk, leaving drinking milk for local

competitors

With the advantages of worldwide large-scale farming of cow herds, big production

capacity and modern technologies, foreign players firmly controlled the local

powdered milk market with 53.1% market shares in 2013. As such, Abbott was

leading with 24.5% value share, followed by Mead Johnson and Friesland Campina

with that of 14.4% and 14.2%, respectively. However, Vinamilk also had significant

presence in the powdered milk market with 19% value share.

Conversely, local players dominated the drinking milk market which was led by

Vinamilk with 45.5% market shares in 2013. While Friesland Campina owned a

considerable market share of 20.3% and Nestle had a modest share at 7.4%.

20.9 22.3 24.0 27.9

6.8% 7.0% 7.6%

15.9%

0%

5%

10%

15%

20%

0

10

20

30

2010 2011 2012 2013

Value (VND tn) Growth (%)

10.7 12.9

15.5 18.0

15.5%

20.4% 20.6%

15.8%

0%

5%

10%

15%

20%

25%

0

5

10

15

20

2010 2011 2012 2013



Powdered milk key players Drinking milk key players


Yogurt

Yogurt registered the fastest growth among other dairy categories

Yogurt is traditionally perceived by Vietnamese consumers to be a healthy food that

provides digestion benefits after meals. Due to growing attention to food safety and

hygiene, consumers have quickly shifted to branded yogurt on the shelves as a

strong alternative to unbranded ones. Hence, yogurt registered the fastest value

growth rate of 34.3% to VND7.7 trillion (USD364.7 million) in 2013, producing an

impressive CAGR of 32.7% during 2010-2013.

Vinamilk – dominant yogurt market

In 2013, Vinamilk continued to lead the yogurt market, with 73% value share, in which

eating yogurt commanded a 95% value share. Local consumers are said to be loyal

towards the strong national brand given its long reputation for product quality and

dense marketing campaigns.

Yogurt market value and growth Yogurt market shares, 2013


Condensed Milk

Growing maturity, condensed milk remains a key dairy product of low-

income earners

In spite of low nutritional content, condensed milk held 8.3% value share within the

dairy market thanks to its long prevalence among Vietnamese consumers, especially

low-income earners. However, as the performance of drinking milk and powdered

milk posted robust growth, demand for condensed milk is confronting the maturity

stage. The category’s growth slowed to 2.5-3% y-o-y in value during 2010-2013 as

consumers’ disposable income has increased and they began a shift to more nutrient

rich dairy products.

23.3% 23.8% 24.2% 24.5%

18.0% 18.5% 18.7% 19.0%

14.3% 14.3% 14.3% 14.4% 13.9% 14.1% 14.0% 14.2%

30.5% 29.3% 28.8% 27.9%

2010 2011 2012 2013

Abbott Vinamilk Mead Johnson Friesland Others

38.7% 40.9% 43.3% 45.5%

25.2% 23.5% 22.3% 20.3% 7.2% 7.4% 7.3% 7.4%

28.9% 28.2% 27.1% 26.8%

2010 2011 2012 2013

Vinamilk Friesland Nestle Vietnam Others

3.3 4.5

5.7 7.7

29.7%

36.5%

27.4%

34.3%

0%

10%

20%

30%

40%

0

2

4

6

8

10

2010 2011 2012 2013


73%

8%

6%

13% Vinamilk

IDP Ba Vi Milk

TH Milk

Others


Condensed milk market value and growth Condensed milk market shares, 2013


Vinamilk in control of the condensed milk market

Vinamilk, with its two prominent brands Longevity and Southern Star, have long

dominated the condensed milk market and accounted for approximately 80% of the

total sale value. Friesland Campina remained the second largest player with two key

brands of Dutch Lady and Completa.

Ice cream

Steady growth in demand- Thanks to the escalating number of youth who

perceive ice cream to be a tasty dessert or snack and the growing number of modern

style coffee shops that serve a variety of flavors and sizes, demand for ice cream has

grown steadily to VND3.2 trillion (USD152.8 million) and reported a CAGR of 12.8%

over the period 2010 to 2013.

Ice cream still dominated by local brands, yet foreigner’s rising footprints

In 2013, Kinh Do retained its leading position in the Vietnamese ice cream market

with its two brands of Celano and Merino accounting for a 29% market share.

Vinamilk and Thuy Ta followed in second and third places. Kinh Do’s competitive

edge is attributed to their strong brand awareness, deep market penetration in terms

of preferences and tastes of the local consumer as well as regular sweepstakes and

discounts. In fact, Kinh Do also enjoyed the highest retail value growth of 27.8% in

2013 for ice cream. There is, however, an increasing presence of foreign brands in

the manner of franchise including Baskin-Robbins, Snowee, HaagenDazs, New

Zealand, Bud’s, Monte Rosa, Fanny, etc. Although the ice cream market is dominated

by local players with very competitive prices and attractive packaging, urban

consumers are becoming more captivated by foreign brands thanks to their plentiful

flavors and modern style outlets.

Ice-cream market value and growth Ice-cream market shares, 2013


4.7

4.9

5.0

5.1 2.5% 3.0%

2.7% 3.0%

0%

1%

2%

3%

4%

4.4

4.6

4.8

5.0

5.2

2010 2011 2012 2013


80%

20%

Vinamilk

Others

2.2 2.5 2.8 3.2

10.2% 11.5%

12.9% 14.0%

0%

5%

10%

15%

0

1

2

3

4

2010 2011 2012 2013

Value (VND tn) Value growth (%)

29%

10% 4%

57%

Kinh Do (KDC)

Vinamilk (VNM)

Thuy Ta

Others


NOODLES

Despite slow growth, noodles hit USD1 billion sales in 2013

According to the Word Instant Noodle Association (WINA) Vietnam ranks number

four in instant noodles consumption with a demand of 5 billion units each year (56.2

instant noodles units/person/year) behind China, Indonesia and India. Currently

Vietnam has about 600 noodles brands which are distributed in a system of

supermarkets such as Co.opmart, Maximark, and Lotte Mart. Domestic production

accounts for 95% of market share. In 2013, noodles recorded a slower increase in

both volume and value, but the sales value surpassed USD1 billion (VND21.7 trillion),

with the volume of 432 thousand tons. The growth for noodles was attributable to its

convenience as an alternative to rice and has plenty of flavor, their pack size and

price as well as marketing communication efforts of the market players.

New launch of Kokomi of Masan Food, a brand targeting the low-income segment,

was one of the most successful combinations of running effective commercial

advertising, boosting store displays and competitive pricing. Both international and

local producers retained their positive perception of the noodle market’s potentiality.

Noodles market volume & growth Noodles market value & growth


Instant noodles occupy almost all of the total noodle consumption, of which pouch

instant noodles was the major packaging with 92% contribution to the sales value.

However, high convenience in daily usage led cups or bowls of instant noodles to

stay popular among Vietnamese consumers, especially youngsters, workers and

busy officers. This type of packaging reported a volume growth of 8.4% in 2013.

According to our analysis, Vietnam consumes a high amount of noodles partly due to

the desire to save money in unstable economic situations and also because noodles

347 375 403 432 458 481

8.2% 8.0% 7.5% 7.0%

6.1% 5.1%

0%

2%

4%

6%

8%

10%

-

100

200

300

400

500

600

2010 2011 2012 2013 2014F 2015F

Volume ('000 tons) Growth (%)

14.4 17.1

20.1 21.7

23.3 24.6 19.1% 18.6% 17.4%

8.3% 7.0% 5.9%

0%

5%

10%

15%

20%

25%

0

5

10

15

20

25

30

2010 2011 2012 2013 2014F 2015F


Noodles sales value breakdown, 2013 (VND bn) Instant noodles sales value breakdown, 2013


21,686

99.7%

61

0.3%

Instant Noodles

Plain Noodles

1,801

8%

19,885

92%

Cups / bowl

instant noodles

Pouch instant

noodles


meet the local people’s taste: spicy and sour However, we reckon that the noodle

market will see a slowdown in growth because of trends towards more healthy

nutrition while instant noodles are not considered to be a healthy food.

Acecook Vietnam, Masan Food & Asia Food own 80% of noodle

market

As one of the pioneers in the production of instant noodles in Vietnam, Acecook

Vietnam maintained its leading position in the last three years with 51.5% market

share in 2013 with twenty noodles brands in 2013. Popular brands of Acecook

Vietnam including brands in economic segment (VND 2500-5500/ pack) as Hao Hao,

Vina Acecook and Hao 100 are already common staples of many consumers and

accounted for almost half of the entire noodle brand share. The company’s

competitive strategy is to build strong brands with high product diversification to

meet preferences and tastes of consumers.

Masan Consumer was the second biggest player with 16.5% value share in the

noodle market thanks to the company’s focus on different market segments as

Omachiand Kokomi noodles and on-going marketing activities with attractive

messages. As such, the Kokomi brand targets the low income segment with a very

low price VND3,000 (USD0.14) per pack and a message of ‘Dai Ngon Tung Soi’

(Chewy Noodle Strand).Meanwhile, Asia Food gains market presence through its

series of social donation activities. For instance, for each pack of Gau Do instant

noodles sold, the company will contribute VND10 (USD0.04 cent) to a fund for

underprivileged children. The Gau Do ranked fourth (9.3%) in 2013 noodle brand

share. Asia Foods’ main products include instant noodles, instant porridge and

noodle soup ("Gau Do", "Hello", "Vifood" and "Hao Hang", etc). In particular, the Hello

product lines give Asia Foods participation in the high class segment and account for

12.1% of the market today

Noodles market shares, 2013 Noodles brand shares, 2013


SAUCES AND DRESSING CONDIMENTS

Most condiments have reached maturity

Fish sauce, Mono Sodium Glutamate (MSG) and soya sauce remain very popular and

irreplaceable condiments in the daily meals of Vietnamese people. Together, these

accounted for nearly 89% of the category sales valued at VND16.9 trillion (USD800.6

million). However, the value growth rate of sauces and dressing condiments in

Vietnam has dramatically dropped from 16.9% (2012) to 5.4% (2013). These

categories have reached maturity as consumers are fully aware of and have already

51.5%

16.5%

12.1%

5.4% 5.1%

9.4% Acecook Vietnam

Masan Consumer

Asia Food

Vifon

Saigon Vewong

Others

19.8%

19.4%

10.1% 9.3%

8.0%

5.7%

5.1%

22.6%

Hao Hao (Acecook VN)

Vina Acecook (Acecook VN)

Hao 100 (Acecook VN)

Gau Do (Asia Food)

Omachi (Masan Consumer)

Tien Vua (Masan Consumer)

A-one (Saigon Vewong)

Others


used them for a long time. While fish sauces, MSG and soya sauces are mature

nationwide, bouillon cubes and powder, as modern alternatives, are poised to

become mature in urban areas.

Sauces & dressing condiments volume & growth Sauces & dressing condiments value & growth


Accelerating use of bouillon cubes as an alternative to MSG in rural

areas

There was rising consumer usage of bouillon cubes for cooking as an alternative to

MSG in rural areas. By successfully delivering the ‘natural taste’ message, bouillon

cube producers have led rural people to enjoy meals with the natural sweetness of

stock meat instead of consuming pure MSG. The ‘Maggie 3 Ngot’ bouillon cube

(Maggie 3 sweets) of Masan Food has gained significant market presence.

Masan Consumer and Ajinomoto Vietnam control the market

Sauces, dressings and condiments are largely controlled by Masan Consumer and

Ajinomoto Vietnam with 65% market sales value. Among many popular brands, Nam

Ngu fish sauces, Tam Thai Tu and Chinsu soya sauces of Masan Food are leading

brands in the market with 43.4% market shares. Ajinomoto Vietnam was prominent

with Ajinomoto MSG brand accounting for 20.7% market shares.

411.5 438.4 461.6 484.4 506.2 527.1

6.6% 6.5%

5.3% 4.9% 4.5% 4.1%

0%

2%

4%

6%

8%

0

100

200

300

400

500

600

2010 2011 2012 2013 2014F 2015F


11.7 13.7

16.0 16.9 17.7 18.4 16.4% 17% 16.9%

5.4% 4.6% 4.2%

0%

5%

10%

15%

20%

0

5

10

15

20

2010 2011 2012 2013 2014F 2015F


Sauces & dressing condiments vol. breakdown Sauces & dressing condiments val. breakdown


280.3

58% 97.5

20%

74.9

16%

15.4

3%

16.3

3%

Y2013 ('000 tons)

Fish sauces

MSG

Soya sauces

Spicy chilli / pepper

Others

8.6

51% 4.8

29%

1.6

9%

0.6

3%

1.3

8%

Y2013 (VND tn)

Fish sauces

MSG

Soya sauces

Spicy chilli / pepper

Others


C

ONFECTIONERY

Despite slower growth, Vietnam’s confectionery market still

outpaced its regional peers

In 2013, Vietnam’s confectionery market grew at a slower pace given its nature of

being a discretionary item in the context of slowing purchasing power. In 2013, the

category sales were VND16.6 trillion (USD0.79 billion), a rise of 9.4% versus 2012.

Despite this, Vietnam’s confectionery market still remains attractive in the SEA region

as it substantially outperforms the average growth of 3% in the region and that of

1.5% in the world.

Confectionery market volume and growth Confectionery market value and growth


The category is appealing in the long run thanks to increasing awareness of Western

culture and lifestyle among the Vietnam consumers and the much lower

confectionery consumption per capita of 1.8kg per annum relative to the global

average of 2.8kg. Euromonitor International expects the slow growth of the

confectionery market to continue in 2014 and 2015, however, the CAGR for the period

of 2013 to 2017 is projected to hover between 10% and 11%.

Biscuits, cookies, crackers and savory snacks are key drivers

In 2013, biscuits, cookies and cracker consumption reached 118.5 thousand tons or

VND6.9 trillion (USD0.33 billion), followed by savory snacks with that of 54.2

thousand tons or VND5.5 trillion (USD0.26 billion). These two sub-categories

dominated the confectionery market with 75% market shares, leaving the remaining

168 186 203 221 239 257

10.6% 10.3% 9.4%

8.6% 8.1% 7.6%

0%

2%

4%

6%

8%

10%

12%

-

50

100

150

200

250

300

2010 2011 2012 2013 2014F 2015F


12.4 13.8 15.2 16.6 18.2 19.8

11.0% 11.1% 10.3%

9.4% 9.2% 8.9%

0%

5%

10%

15%

0

5

10

15

20

25

2010 2011 2012 2013 2014F 2015F


Sauces & dressing condiments market shares Sauces & dressing condiments brand shares


43.5%

21.5%

3.1%

3.0%

28.9%

Y2013

Masan Consumer

Ajinomoto Vietnam

Miwon Vietnam

Acecook Vietnam

Others

23.1%

20.7%

9.0% 5.8% 5.5%

35.9%

Y2013

Nam Ngu (Masan Consumer)

Ajinomoto (Ajinomoto VN)

Nam Ngu II (Masan Consumer)

Tam Thai Tu (Masan Consumer)

Chin-su (Masan Consumer)

Others


minority to sugar and chocolate confectioneries with VND4.1 trillion (USD0.19

billion).

Biscuits, cookies and crackers

Savory biscuits / crackers and plain biscuits are the most consumed thanks

to less sugar and more vitamin content

Accounting for 42% of the confectionery market value, biscuits, cookies and crackers

recorded VND6.9 trillion (USD0.33 billion) sales in 2013, posting a CAGR of 9.2%

during 2010 to 2013. Since savory and plain biscuits and crackers contained less

sugar and more vitamins, these two segments are considered healthier products

among the other sub-categories. They remained the most consumed with reported

sales of VND5.3 trillion (USD0.25 billion) or 76% of total category value in 2013.

Market concentrated on Kinh Do

Kinh Do maintained the leading position in the sub-category with 30% market share

in 2013. The next competitors were far behind Kinh Do in grasping the market

including, Bibica (10%), Hai Chau (7%), Kraft Food (7%) and Hai Ha (6%). The AFC

from Kinh Do and Ritz from Kraft Food are well recognized brands of savory biscuits,

while Cosy Marie from Kinh Do was the most popular plain biscuit brand in Vietnam

thanks to its tasty flavor and reasonable price.

Biscuits, cookies, crackers value & growth Biscuits, cookies, crackers market shares


Savory snacks

Demand remains strong despite unit price increases

With a 33% contribution to the confectionery market value, savory snacks reported

VND5.5 trillion (USD0.26 billion) sales in 2013, recording a higher CAGR of 9.5%

during 2010 to 2013 than biscuits, cookies and crackers. Despite increases of unit

5.3 5.9 6.4 6.9 7.5 8.1

9.6% 9.8% 9.1% 8.6% 8.5% 8.0%

0%

5%

10%

15%

0

2

4

6

8

10

2010 2011 2012 2013 2014F 2015F


30%

10%

7% 7% 6%

5% 5%

4%

26%

Kinh Do

Bibica

Hai Chau

Kraft Food

Hai Ha

Quang Ngai

Dong Khanh

Huu Nghi

Others

Y2013

Confectionery volume breakdown Confectionery value breakdown


118.5

54% 54.2

24%

44.2

20%

3.7

2%

Y2013 ('000 tons)

Biscuits, cookies, crackers

Savory snacks

Sugar confectionery

Chocolate confectionery

6.9

42%

5.5

33%

2.9

18%

1.2

7%

Y2013 (VND tn)

Biscuits, cookies, crackers

Savory snacks

Sugar confectionery

Chocolate confectionery


price over the period, the sales posted a higher and flat growth rate, suggesting

demand for savory snacks remains strong. Extruded snacks and nuts accounted for

58% of the sub-category sales, equivalent to VND3.3 trillion (USD156.2 million) in

2013.

Market fragmented

The savory snack market is fragmented among the huge number of players each with

minority market shares. In 2013, these players included Tan Tan with 9.7% market

share, Tuyen Ky (7.6%) and Liwayway Food (a Philippines company – 7.3%). The

avory snack segment is not a focus of Kinh Do where its market share was only 4.3%.

Savory snacks value and growth Sweets and savory snacks market shares, 2013


Sugar confectioneries

Sugar confectioneries facing intense competition from savory snacks

Revenue growth of the sugar confectionery segment was 9.5% in 2013, which was

much slower than the levels recorded in 2011. This was attributed to rising consumer

awareness of health issues related to the level of sugar intake, such as high blood

pressure, obesity and diabetes. Thus, it led sugar confectioneries to confront strong

competition from savory snacks which are considered to have lower sugar content.

Pastilles, gums, jellies and chews continue to be the most popular sugar

confectionery category in Vietnam, accounting for 58% of the value or VND1.6 trillion

(USD75.7 million).

Sugar confectionery market value and growth Sugar confectionery market shares, 2013


Perfetti Van Melle, Bibica and Hai Ha are dominant market players

Perfetti Van Melle is still leading the sugar confectionery segment in Vietnam through

its Mentos, Alpenliebe and Golia brands, accounting for 20.1% of market share in

4.2 4.6 5.0

5.5 6.1

9.1% 9.2%

9.6% 9.6%

10.0%

9%

9%

10%

10%

11%

0

2

4

6

8

2010 2011 2012 2013 2014F


9.7%

7.6%

7.3%

5.0%

4.4%

4.3%

61.7%

Tan Tan

Tuyen Ky

Liwayway Food

Seaspimex

Bibica

Kinh Do

Others

2.1 2.4 2.7 2.9 3.2

14.1% 15.4%

11.5% 9.5%

8.1%

0%

5%

10%

15%

20%

0

1

2

3

4

2010 2011 2012 2013 2014F


20.1%

19.0%

18.2% 6.9%

4.3% 3.2% 2.7%

25.6%

Perfetti Van Melle

Hai Ha

Bibica

Hai Chau

Lotte

Mars

Kinh Do

Others


2012. Bibica and Hai Ha closely followed the leader, taking second and third places

with market shares of 19% and 18.2%, respectively. While local companies target

low- and middle-income segments, international peers confine their focus to the

high-end segment.

BAKERY MARKET

Growth in the expansion of modern style bakery outlets

The bakery market enjoyed a CAGR of 7.6% over the period of 2010 to 2013, reaching

VND10.4 trillion (USD0.5 billion) by the end of 2013. This was due in part to a new

style of bakery outlet expanding quickly across Vietnam since 2010 and becoming

more and more popular as a place for people to gather, similar to coffee shops.

Kido’s Bakery, Onoré Bakery, Tous Le Jour, Paris Bagguette, Bread Talk and Brodard

bakery are some examples of this new style of bakery in Vietnam.

Bakery market volume and growth Bakery market value and growth


Bread retained the biggest sales among other bakery products

As one of the popular alternatives to rice and noodles, bread retained its status as a

primary consumption bakery product compared to other sub-categories (such as

cakes and pastries) with VND8 trillion (USD378.7 million) sales in 2013, equivalent to

76.8% of total bakery market revenue.

Bakery categories breakdown

Source: Euromonitor International, VPBS research

Unpackaged baked goods growing presence

Thanks to the rising number of bakery outlets, sales value of unpackaged or artisanal

products has grown gradually, reaching VND4.1 trillion (USD195.2 million) and

accounting for 39.6% of total bakery sales. In 2013, packaged baked goods sales were

VND6.3 trillion (USD297 million). However, there is a low probability that unpackaged

products will have a strong impact on the revenue of packaged goods, as each

category serves different benefits. While packaged baked goods offers great

362 389 418 447 476 506

7.3% 7.4% 7.5%

6.9% 6.6% 6.4%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

0

200

400

600

2010 2011 2012 2013 2014F 2015F


8.4 9.0 9.7 10.4 11.1 11.8

7.6% 7.8% 7.8%

7.0% 6.6% 6.6%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

0

5

10

15

2010 2011 2012 2013 2014F 2015F


8.0

77%

2.2

21%

0.2

2% Bread

Cake

Pastry

Y2013 (VND tn)


convenience for busier lifestyles, consumers can enjoy more delicious taste of

unpackaged or artisanal products served in the modern bakery outlets.

Fragmentary market

The bakery market is highly fragmented, in which Kinh Do notably retained its first

place with 13.4% market shares in 2013 while other typical competitors such as Nhu

Lan, Duc Phat, Orion Food Vina and Bibica presented an average of 5.1% market

share each.

Bakery market shares, 2013


Sugar price trends downward, wheat price bounds back

Sugar and wheat flour significantly account for about 35 to 40% of material costs of

confectionery and bakery production. Thus, any change in world production could

cause price volatility and shortages which in turn negatively affect local production.

In 2013, the favorable trend of world sugar and wheat price strongly supported the

gross margin of local players. 2013 was a third consecutive year world sugar prices

dropped due to production exceeding consumption demand. The USDA forecasts

sugar production will reach 175 million MT worldwide and the oversupply situation

will continue in 2014, a prospect for a fourth year of price descent. Relative to the

beginning of 2013, Sao Paolo refined sugar’s spot price decreased 16.9% to USD640

per MT as of May 20, 2014.

Sao Paolo refined sugar spot price US wheat spot price

Source: Bloomberg Source: Bloomberg

Vietnam was not an exception; its refined sugar wholesale price was down 18.7% y-

o-y to VND13,000 per kg in the third week of May 2014. In contrast to sugar, wheat

prices depend on the weather conditions in main areas of world wheat production,

such as North America and Canada, Brazil, Australia and were affected by political

turmoil in the Ukraine. Wheat prices were USD334 per MT as of May 20, 2014, an

increase of 15.2% compared to the beginning of the year. In 2014, the confectionery

business may not have as high a gross profit margin as in 2013 but we expect it will

not be too low as long as sugar’s price downtrend continues.

13.4%

5.9%

5.5%

4.5%

4.3% 66.4%

Kinh Do

Nhu Lan

Duc Phat

Orion Food Vina

Bibica

Others

0

200

400

600

800

1000

1200


USD/MT

0

100

200

300

400

500

20-Feb-09 20-Feb-10 20-Feb-11 20-Feb-12 20-Feb-13 20-Feb-14

USD/MT


BEVERAGES

Beverage categories breakdown

In 2013, retail sales of the beverage sector in Vietnam reached USD8 billion, a 7.6%

rise compared with 2012. Alcoholic drinks were the largest category with 70%

contribution to total beverage market value. It modestly grew 6.3% up to USD5.6

billion, the lowest growth rate amongst other beverage categories. Soft drinks posted

the highest growth of 12.4% to record USD1.7 billion in sales value, while hot drinks

was the smallest segment with USD0.7 billion revenue in 2013.

Beverage categories sales and growth


Beverage distribution channels

The majority of alcoholic drinks were distributed through on-trade channels due to

rising common perception of drinking to socialize. Soft drinks followed the same

pattern but at a less steep ratio of 60:40 relative to the ratio of 80:20 of the alcoholic

drinks due to its convenience and high frequency of use. In contrast, hot drinks were

mainly consumed through off-trade channels as Vietnamese consumers consider hot

drinks a daily necessity and usually are consumed at home. In general, for each of

beverage category, there was 65% of off-trade sales value gone through the

traditional channels with almost 779,000 of traditional markets and private shops.

Beverage distribution channels


82.6% 59.6%

41.6%

17.4% 40.4%

58.4%

Alcoholic

drinks

Soft drinks Hot drinks

On-trade Off-trade

Beverage

categories

Alcoholic

Soft drinks

Hot drinks

2013 Sales

USD5.6 bn

USD1.7 bn

USD0.7 bn

2013 growth

6.3%

12.4%

6.9%

Key players

Sabeco, Habeco

PepsiCo, Tan Hiep Phat, URC VN

Nestle, Vinacafe, Vinatea

USD8 bn 7.6%

Off-trade On-trade

Modern trade

424 supermarkets

23 hypermarkets

365 minimarts &

convenient stores

35% off trade

560,000 café /

bars, restaurants

and food outlets

12,500 hotels

Traditional trade

778,959 traditional

markets & private

shops

65% off trade


Tax and duties on beverages

1. Inbound manufactured products

Local manufactured products are subject to special consumption tax (SCT) and VAT

as follows:

[Special consumption tax (SCT) = SCT rate x Selling price before VAT (*)

[VAT = VAT rate x (Selling price before VAT (*) + SCT)

(*) Including package value

2. Imported products

Imported products are subject to Import Tax, Special Consumption Tax (SCT) and

VAT as follows:

Import Tax = Import tax rate x Import price (*)

Special Consumption Tax (SCT) = SCT rate x (Import price (*) + Import tax)

VAT = VAT rate x (Import price (*) + Import tax + SCT)

(*) Including package value

Tax and duties for beverages

Import Tax Special Consumption Tax (SCT) VAT

Current Current From July 1, 2015 (Draft) Current

Wine > 20% alcohol 45% 50% 65% 10%

Wine < 20% alcohol 50 - 55% 25% 35% 10%

Beer 35% 50% 65% 10%

Soft drinks (carbonate) 20 - 40% 0% 10% 10%

Source: Special Consumption Tax Law 27/2008/QH12, Circular 216/2009/TT-BT

Impacts of TPP on beverages

TPP offers new opportunities for (1) increasing export value (currently insignificant),

(2) applying self-certifying mechanisms on the products origins (3) attracting more

FDI from the US and TPP countries for local beverage sector and (4) participating in

the regional / global value chain (GVC) of local enterprises.

However, TPP also brings significant challenges to (1) huge competition of global

giant beverage groups when tax barriers are removed (2) deep market penetration of

foreign competitors through the GVC (3) squeezed out market shares of local alcohol

producers due to some segments of Vietnamese consumers’ preference for imported

alcohol brands..

Potential of beverage categories Beverages in Vietnam are reaching their

maturity phase, as such, all of the categories experienced slower growth. Despite

this, soft drinks posted a double-digit growth of 12.4% in 2013, the highest relative to

alcoholic drinks and hot drinks thanks to its high convenience and health benefits.

Further, alcoholic drinks are still considered as high potential due to Vietnamese

social customs of drinking as a means to establishing relationships for life and

business. These consumers ever growing exposure to worldwide drinking cultures

and the growing establishment of on-trade channels are also seen as crucial supports

for the category’s growth.


ALCOHOLIC DRINKS

Drinking culture adoption stimulates growth

As increasing Vietnamese’s exposure to drinking cultures around the world couples

with their popular perception of drinking to socialize, Vietnam alcoholic drinks

consumption continues growing y-o-y and has gained the biggest retail sales among

other beverage categories. Further, rising numbers of tourists and expatriates living

in big cities also incentivize alcohol-serving retailers to expand, which in turn

stimulates local consumption as rising adoption of western lifestyle becomes more

prevalent.

In 2013, Vietnamese people drank a remarkable 3.15 billion liters of alcohol,

equivalent to VND119.5 trillion (USD5.6 billion), representing double-digit CAGR of

10.1% and 10.6% during 2010 to 2013. Despite its slowing growth since 2012 because

of reaching maturity, alcoholic drinks remains one of the potentially lucrative markets

in Vietnam. It is expected to reach USD6.3 billion in 2015 by Euromonitor

International.

Alcohol consumption volume and growth (liters /%) Alcohol consumption value and growth (VND trillion)


Beer dominating the alcoholic market

Alcoholic beverage consumption is largely driven by the beer category which

accounted for 98% of sales volume and 91% of sales value in 2013. Spirits and wine

accounted for only 2.3% volume share (74 million liters) and 8.8% value share

(VND10.4 trillion or USD492 million). In 2013, beer consumption recorded more than

3 billion liters, equivalent to VND109.1 trillion (USD5.2 billion).

2.36 2.66

2.92 3.15 3.38 3.59 13.8% 12.6%

9.9% 7.9% 7.0% 6.3%

0%

5%

10%

15%

-

1

2

3

4

2010 2011 2012 2013 2014F 2015F

Volume (bn liters) Growth (%)

88.5

104.8 112.5 119.5 126.3 133.1 15.9% 18.4%

7.3% 6.3% 5.7% 5.4%

0%

5%

10%

15%

20%

0

50

100

150

2010 2011 2012 2013 2014F 2015F


Alcohol categories volume breakdown Alcohol categories value breakdown


3,079

97.7%

39

1.2% 35

1.1%

Y2013 (mn liters)

Beer

Spirits

Wine

109.1

91.3%

5.7

4.8%

4.7

4.0% Y2013 (VND tn)

Beer

Spirits

Wine


Vietnam ranked fourth for beer consumption per capita in Asia

While Vietnam was leading in the SEA region with 29 liters of beer consumption per

capita in 2012, the country captured the 4th position for the entire Asia region, only

after Japan (64 liters), South Korea (45 liters) and China (37 liters). According to

Vietnam Breweries Associations (VBA), beer consumption per capita rose

approximately 10% up to 32 liters in 2013. As such, Vietnam is considered one of the

beer loving countries and is among the most attractive destinations for international

breweries.

Beer consumption per capita in selected Asia countries, 2012

Source: VPBS research

The Vietnam beer market had a CAGR of over 10% in volume and value during the

period from 2010 to2013. However, as the market becomes saturated, growth cannot

be as fast as it was prior to 2011. Beer is forecasted to grow at a slower pace with an

average 5.3% per annum and the sales will be USD5.7 billion by 2015.

Beer consumption volume and growth Beer consumption value and growth


Lager dominating other types of beer

Lager is the main type of beer in Vietnam since Vietnamese consumers are already

familiar with the taste of lager and are reticent to try new tastes. Thus, other types of

beer such as dark beer, stout and low-alcohols have only a limited presence in the

market. Standard lager holds the lion’s share its biggest shares of 67% of total lager

due to still low disposal-income per capita. Also, there was a large gap of at least

43% higher in unit price range of each segment including premium, standard and

economy.

64

45 37

29 27

Japan South Korea China Vietnam Thailand

Liters per capita

2.3 2.6 2.9 3.1 3.3 3.5

13.9% 12.7% 9.9%

7.9% 7.1% 6.3%

0%

5%

10%

15%

0

1

2

3

4

2010 2011 2012 2013 2014F 2015F


80.1 95.8 102.8 109.1 115.1 121.1

16.2% 19.6%

7.3% 6.1% 5.5% 5.2%

0%

5%

10%

15%

20%

25%

0

50

100

150

2010 2011 2012 2013 2014F 2015F



Sabeco and Habeco maintain market’s leading position

Domestic players control the local beer market, in all three segments of premium,

standard and economy. This is attributable to their long establishment and wide

distribution of domestic products as well as affordable prices, even for the premium

segment. The average unit price of foreign premium brands was normally 33% - 50%

higher than that of local premium brands.

Sabeco continued to lead the beer market with 47.5% value share in 2013. Its

prominent brands such as Saigon Export, 333’export and Saigon Lager accounted for

46.8% market shares by brands. Vietnam Brewery and Habeco hold the second and

third positions with market shares of 18.2% and 17.3% respectively. While Hanoi beer

brand of Habeco took 15.8% of brands share, Heineken and Tiger of Vietnam Brewery

occupied 11.5% of the pie. The top three players Sabeco, Vietnam Brewery and

Habeco, together, hold 83% of value sales of beer in 2013.

With a minimal presence in Vietnam’s beer market, foreign players mainly focused

on the premium segment, with brands introduced including San Miguel, Corona,

Carlsberg, Budweiser and Asahi. We anticipate foreign players will continue to fuel

the local beer market dynamics as they continue to exhibit interest in the market

potentiality and actively seek entry opportunities.

SOFT DRINKS

Highest growth rate amongst other beverages

Thanks to the growing health conscious of Vietnamese people and demand for more

convenient in today’s busier lifestyles, soft drinks with health benefits saw a

remarkable growth, such as RTD (ready to drink) tea, energy drinks and fruit /

Lager beer categories value share, 2013 Price range by beer segment, 2013 (VND)


Beer market shares, 2013 Beer brand shares, 2013


73.0

67%

23.8

22%

12.4

11% Standard lager

Economy lager

Premium lager

36,000

23,000 16,000

52,000

36,000

22,000

Premium Standard Economy

47.5%

18.2%

17.3%

7.8%

9.2% Sabeco

Vietnam Breweries

Habeco

Hue Breweries

Others

24%

15.8%

14.4% 8.4%

7.7%

29.7%

Saigon Export (Sabeco)

Hanoi (Habeco)

333' export (Sabeco)

Saigon lager (Sabeco)

Heineken (Heineken /

Vietnam Breweries)

Others


vegetable juice. Consumers also have concerns about food safety and the hygiene of

unpackaged drinks. Thus, products like bottled water, as a daily necessity, enjoyed

good performance since it has more benefits of convenience and cleanliness than

common tap water.

Among other beverages, soft drinks enjoyed the highest value growth rate of 12.4%

in 2013 and the strongest CAGR of 12.2% over 2010 to 2013. It was also the only

category that recorded double-digit growth of 15.9% in 2013 and CAGR of 17% over

2010 to 2013 in terms of sales volume. In 2013, soft drinks reported 2.4 billion liters

consumption, equivalent to VND36.2 trillion (USD1.7 billion).

Soft drinks sales volume and growth Soft drinks sales value and growth


RTD tea dominating the soft drinks

Tea is perceived as one of Vietnam’s traditional drinks and enjoys a long history.

With the advantages of convenience, refreshing and thirst-cooling characteristics,

RTD tea is the best choice for the tropical country with high humidity. Further, it also

offers good health benefits with low sugar content and more vitamins and minerals

relative to carbonates. As such, RTD contributed 58% to soft drink revenue while

carbonates took only 16% shares in 2013.

RTD tea enjoyed a rapid increase in 2009 to 2010 and then slowed down, yet still

maintained two-digit growth. In 2013, RTD tea reported VND21 trillion (USD994

million) value of sales, an increase of 12.2%, and 1 billion liters volume of sales, rose

13.3% compared to 2012. It represented a robust CAGR of 15.9% in volume and

14.9% in value over the period of 2010 to 2013.

1.5 1.8 2.1 2.4 2.7 3.1

18.8% 17.5% 17.1% 15.9%

14.6% 13.4%

0%

5%

10%

15%

20%

0

1

2

3

4

2010 2011 2012 2013 2014F 2015F


25.6 28.5 32.2 36.2 40.3 44.6

22.6%

11.6% 12.9% 12.4% 11.4% 10.6%

0%

5%

10%

15%

20%

25%

0

10

20

30

40

50

2010 2011 2012 2013 2014F 2015F


Soft drinks categories value breakdown RTD tea sales value and growth


21.0

58% 6.0

16%

5.7

16%

2.1

6%

1.0

3% 0.4

1%

Y2013 (VND tn)

RTD tea

Carbonates

Bottled water

Fruit/Vegetable juice

Sport/energy drinks

Others

13.8 16.4

18.7 21.0

23.4 25.7 39.8%

18.5% 14.1% 12.2% 11.4% 9.8%

0%

10%

20%

30%

40%

50%

0

5

10

15

20

25

30

2010 2011 2012 2013 2014F 2015F



Tan Hiep Phat ranked second in soft drinks but first in RTD tea

In 2013, PepsiCo was leading the local soft drinks with 25.5% market share, closely

followed by Tan Hiep Phat (THP) with that of 22.7%. PepsiCo is prominent among

carbonates with brands such as Pepsi, 7-up and Mountain Dew, while THP was the

pioneer of RTD tea with Zero Degree and Dr. Thanh brands which led to a booming

demand for this herbal product during 2009 to 2010. The company highly dominated

the RTD tea market itself with 41% market shares. Its strong competitor is Universal

Robina Corporation (URC), with C2 brand which is also well-recognized by its taste

and handy bottle size.

HOT DRINKS

Instant format drives hot drinks to grow

Hot coffee and tea are long-standing traditional drinks of Vietnamese people. These

require time to serve by boiling ground coffee or tea leaves with water in a coffee

filter or teapot. Thus, development of instant products offers a perfect solution not

only to maintain the traditional drinking habit but also ensure convenience and time-

saving for busy lifestyles. A variety of formulas were successfully introduced with 3-

in-1 and 2-in-1 instant format for both coffee and tea. As such, the growth of hot

drinks is largely driven by instant products. Although the growth rate was not as high

as soft drinks, hot drinks recorded revenue of VND14.1 trillion (USD667.5 million),

rose 6.9%, and consumption volume of 117.1 thousand tons, grew 7.3%.

Soft drinks market shares, 2013


RTD tea market share RTD tea brand shares


25.5%

22.7%

13.3%

10.5%

3.4%

24.7%

PepsiCo

Tan Hiep Phat

URC Vietnam

CocaCola

Vinamilk

Others

41%

20.8%

12.1%

10.8%

6.1% 9.2%

Tan Hiep Phat (THP)

URC Vietnam

Interfood

Tan Quang Minh (TQM)

Tribeco

Others

46.4%

19.6%

10.2%

9.1%

5% 9.4%

Zero degree green tea (THP)

C2 cool & clean (URC VN)

Wonderfarm (Interfood)

Nuta green tea lemon (TQM)

Tribeco (Tribeco)

Others


Hot drinks sales volume and growth Hot drinks sales value and growth


Growing presence of coffee shops also an impetus

Most hot drink products were sold through off-trade channels which took 58.4% of

total sales value, with an increasing presence of on-trade channels such as coffee

chains with modern styles such as Highlands, Trung Nguyen, Gloria Jeans, The

Coffee Bean, Angel-in-us and Starbucks, all of which have bolstered this sector’s

growth. Their growth can also be attributed to the common cultural practice of

gathering and socializing at coffee shops in Vietnam.

Coffee accounted for the majority of hot drinks

Coffee continued to lead the hot drinks market with 60.8% share of total category

revenue (VND8 trillion or USD378.7 million), followed by tea with 28.2% shares

(VND3.7 trillion or USD175.1 million). Vietnam continues to be, no doubt, a strong

coffee drinking country.

In 2013, coffee posted a higher value growth of 7.7% than the overall hot drinks

category, of 6.9% thanks to robust accelerating demand for instant coffee which

currently accounts for 75% of the total sales value of coffee. While 3-in-1 products

(mixture of coffee, milk and sugar) have been widely accepted by consumers since

their initial launch in 2011, there has been a gradual shift to the 2-in-1 format (coffee

with sugar or milk), instant cappuccino and latte (Italian taste) as alternatives. There

is also a minimal presence of 4-in-1 instant coffee with ginseng or other nutritional

additives.

Hot drinks categories value breakdown Coffee sales value and growth


94.5 101.6 109.1 117.1 125.6

134.7

7.6%

7.5%

7.4% 7.3%

7.2% 7.2% 7.0%

7.2%

7.4%

7.6%

7.8%

0

50

100

150

2010 2011 2012 2013 2014F 2015F


11.5 12.3 13.1 14.1 15.0 16.0

10.2%

7.1% 7.1% 6.9% 6.7% 6.4%

0%

2%

4%

6%

8%

10%

12%

0

5

10

15

20

2010 2011 2012 2013 2014F 2015F


8.0

60.8%

3.7

28.2%

1.5

11.0%

Y2013 (VND tn)

Coffee

Tea

Others

6.3 6.9 7.4

8.0 8.6

9.2

12.1%

8.5% 8.2% 7.7% 7.3% 6.8%

0%

5%

10%

15%

0

2

4

6

8

10

2010 2011 2012 2013 2014F 2015F



Market concentration on local players

The domestic hot coffee market was largely controlled by local companies including

Vinacafe Bien Hoa, Trung Nguyen and Viet Thai International, which together

occupied 56% market share in 2013. The competitive advantage of these competent

players is their deep penetration of the Vietnamese coffee culture and the benefits of

consumers’ preferences and tastes. However, with a colossal budget allocated to

marketing and promotion, Nestlé Vietnam has firmly captured consumers’ brand

awareness and holds the first position with 33% market share.

In 2013, Vietnam National Tea (Vinatea) continued to lead the local tea market, with

32% of the sales value, followed by Unilever Vietnam with that of 15.5%. Vinatea is

long-established with its industry experience and technology. Between 2010 and

2013, the tea category saw robust branding strategies come to the fore with

international companies. This has led to the rising market share of Unilever Vietnam

with well-recognized Lipton brand including Yellow Label and Clear Green.

Coffee market shares, 2013 Tea market shares, 2013


33%

32.6%

18.1%

5.3%

11% Nestle Vietnam

Vinacafe Bien Hoa

Trung Nguyen

Viet Thai International

Others

32%

15.5%

52.5%

Vinatea

Unilever Vietnam

Others


F&B STOCKS ON THE EXCHANGES

Currently, there are 45 food and beverage (F&B) companies listed on the HSX and

HNX with a total market cap of VND199.3 trillion (USD9.4 billion), representing 19.6%

of the total aggregate market cap of both exchanges.

The return-on-assets (ROA) and return-on-equity (ROE) for the F&B sector appear

attractive, averaging 8.4% and 18.8% in 2013, respectively. As of May 20, 2014, the

sector peers index was trading at an average PE of 19.1 times, which was slightly

below that of the regional peer index at PE of 20.3 times. Also, the F&B sector trading

return outperformed the VN-Index in the latest twelve months (LTM) at 22.8%

compared with 8%.

Selected local peer group comparison (VND bn)

Source: Bloomberg, data as of May 20, 2014

Business results of selected F&B companies, 2013

Source: Bloomberg

F&B stock price index versus VN-Index F&B stock price index versus VN-Index

Source: Bloomberg, data as of May 20, 2014 Source: Bloomberg, data as of May 20, 2014

No. Ticker Exchg Market cap Products Y2013 Chg % Y2013 Chg % Net margin ROA ROE DE PE PB

1 VNM HSX 101,679 Dairy 30,949 16.5% 6,534 12.3% 21.1% 28.6% 37.2% 2% 15.6 5.8

2 MSN HSX 67,244 F&B, Mining, Banking 11,943 14.9% 1,307 3.7% 10.9% 2.8% 9.1% 125% 149.0 4.7

3 KDC HSX 8,805 Confectionery 4,561 6.4% 493 39.2% 10.8% 7.7% 10.1% 12% 17.8 1.8

4 VCF HSX 3,694 Coffee 2,299 8.7% 260 -12.7% 11.3% 16.1% 23.0% 20% 14.2 3.3

5 HVG HSX 2,760 Fisheries 11,043 43.6% 296 13.7% 2.7% 3.0% 12.7% 188% 11.1 1.2

6 MPC HSX 2,277 Fisheries 11,112 40.0% 294 1644.9% 2.6% 3.8% 18.5% 298% 8.4 1.4

7 VHC HSX 1,957 Fisheries 5,095 20.5% 176 -16.4% 3.5% 6.9% 12.0% 41% 12.4 1.3

8 SBT HSX 1,808 Sugar 2,220 13.2% 239 -35.4% 10.8% 7.4% 13.0% 59% 7.6 1.0

9 TAC HSX 913 Oil & fats 4,291 6.4% 66 3.2% 1.5% 5.4% 16.1% 73% 13.9 2.2

10 NHS HSX 656 Sugar 1,044 11.7% 101 23.5% 9.7% 5.4% 11.3% 92% 6.5 0.7

Average 45 peers 17.6% 1.8% 9.4% 8.4% 18.8% 134.2% 19.1 3.6

Net revenue Net profit TrailingY2013

101.7

67.2

8.8 3.7 2.8 2.3 2.0 1.8 0.9 0.7

30.9

11.9 4.6 2.3

11 11.1 5.1 2.2 4.3 1.1

21.1%

3.8%

10.8% 11.3%

2.2% 2.4% 3.1%

10.8%

1.5% 4.3%

0%

5%

10%

15%

20%

25%

0

20

40

60

80

100

120

VNM MSN KDC VCF HVG MPC VHC SBT TAC BBC

Mkt Cap (VND tn) Net sales (VND tn) Net margin (%)

No. Ticker

Price

(VND)

YTD

movement

12-month

return

Avg daily trading

(shares - LTM)

Avg daily trading

(VND bn - LTM)

1 VNM 122,000 -9.6% -3.2% 234,981 32.7

2 MSN 92,000 11.5% -16.4% 241,791 22.3

3 KDC 53,000 3.9% 7.1% 58,281 3.2

4 VCF 139,000 2.2% -39.6% 1,701 0.3

5 HVG 22,600 -7.8% 6.9% 297,261 7.7

6 MPC 33,000 37.5% 26.0% 7,316 0.2

7 VHC 32,400 37.9% 50.4% 6,701 0.2

8 SBT 12,500 0.8% -11.3% 335,167 4.4

9 TAC 48,100 13.7% 26.6% 4,918 0.2

VNIndex 532 5.3% 8.0% 81,155,258 1,262

Food Staples 5.8% 22.8%-10

0

10

20

30

40

50

05/13 08/13 11/13 02/14 05/14

Food staples VNINDEX


Selected regional peer group comparison (USD mn)

Source: Bloomberg, data as of May 20, 2014

Due to the tensions in the East Sea between Vietnam and China, Vietnam’s stock

exchanges have responded as expected with many listed stock prices losing their

accumulation since the end of 2013. However, stocks with strong fundamentals have

gradually recovered in price.

VNM: Vietnam Dairy Products JSC, Vinamilk - The leading

dairy producer

Established in 1976, Vinamilk was originally named Southern Milk-Coffee Company

which operated two dairy-processing factories, Thong Nhat and Truong Tho. Since

being re-named as Vinamilk in 1992, VNM has built and acquired ten additional dairy

factories, resulting in a national footprint of twelve diary processing facilities in

Vietnam. The company also recently purchased stakes in three overseas companies

to secure raw materials supply and to reach new markets. Its acquisitions include

Miraka in New Zealand, Driftwood in the United States, and Angkor in Cambodia.

Starting with condensed milk production in 1976, VNM has rapidly become a market

leader in Vietnam's dairy sector with a diversified product range of more than 200

SKUs. Most of its revenue comes from dairy-based products comprising liquid milk

(Twin Cows, ADM+, Flex, Fino Star, powdered milk (Dielac, Sure Prevent, CanxiPro,

Diecerna), yogurt (Susu, Kefir, Star, Probeauty, Probi) and condensed milk (Southern

Star, Longevity) while other beverages such as juice (Vfresh), tea (Lincha), mineral

water (Icy) and soy milk (GoldSoy) account for 5% of revenue.

The Company currently operates five model cow farms with over 8,000 heads of

cattle which were imported from Australia and provide 90 tons of milk per day. It has

also built relations with more than 5,000 households who are breeding more than

65,000 cows across the country that supply 460 tons of milk per day. VNM also has

an extensive distribution network with over 224,000 points of sale throughout the

country and accounts for 46% of dairy market share in 2013.

Vinamilk was honored by Forbes Asia for its “Top 200 Best Under A Billion” in Asia

2012. This was the first and uniquely Vietnamese company to be honored in the

Forbes Asia list.

Listed on the Ho Chi Minh Stock Exchange since Jan 2006, VNM is the largest market

capitalized company (USD5.5 billion) in the F&B sector, followed by Masan Group

(MSN) and Kinh Do Corporation (KDC). The Company continued to lead the pace with

outstanding performance relative to peers in term of revenue, net margin (21.1%),

ROA (28.6%), ROE (37.2%) and a very low DE ratio of 2.1%. In 2013, VNM reached net

No. Ticker Exchg Market cap Products Y2013 Chg % Y2013 Chg % Net margin ROA ROE DE PE PB

1 151 HK Equity Hong Kong 18,577 Confectionery 3,818 13.7% 687 24.1% 18.0% 15.8% 35.3% 64.7% 27.1 9.6

2 WIL SP Equity Singapore 16,320 Food Diversified 44,085 -3.0% 1,391 5.1% 3.2% 3.0% 9.3% 174.6% 11.7 1.1

3 322 HK Equity Hong Kong 16,065 Flour&Grain 10,941 18.8% 494 -10.9% 4.5% 5.9% 17.2% 58.2% 32.5 5.6

4 THBEV SP Equity Singapore 12,045 Brewery 5,075 -2.1% 619 -32.0% 12.2% 11.0% 21.5% 72.1% 19.5 4.2

5 2319 HK Equity Hong Kong 9,813 Dairy 7,053 23.6% 299 28.5% 4.2% 4.5% 11.8% 77.0% 32.8 3.9

6 600600 CH Equity Shanghai 9,793 Brewery 4,239 13.4% 321 15.2% 7.6% 7.1% 13.9% 14.6% 30.5 4.2

7 CPF TB Equity Bangkok 6,487 Food Diversified 12,683 10.3% 306 -61.9% 2.4% 2.7% 9.1% 169.8% 21.2 1.9

8 PEP MK Equity Bursa Malays 6,050 Food Diversified 1,045 7.3% 315 14.4% 30.1% 6.1% 6.6% 2.7% 19.2 1.3

9 INDF IJ Equity Indonesia 5,351 Food Diversified 5,573 4.1% 330 -30.5% 5.9% 5.1% 17.0% 116.3% 16.2 2.8

10 FGV MK Equity Bursa Malays 5,154 Flour&Grain 3,993 -4.3% 361 19.5% 9.0% 5.7% 18.0% 66.2% 14.3 2.6

Average 70 peers 3.5% -8.0% 5.9% 5.3% 13.5% 38.6% 20.3 2.7

Net revenue Net profit TrailingY2013


consolidated revenue of VND30,949 billion (USD1.46 billion), a 16.5% increase, and

net consolidated profit of VND6,534 billion (USD309.3 million), a growth of 12.3%.

The cash dividends of 2013 were approved at 48% on par, out of which 28% on par

had been paid out in 2013. In 2014, VNM targets VND36,298 billion (USD1.72 billion,

+15.9%) in total consolidated revenue and VND5,993 billion (USD283.7 million, -8.3%)

in net consolidated profit. VNM was trading at a relatively cheap PE of 15.6 times

compared to the sector’s average PE. VNM’s share price slightly declined 3.2% as of

May 20, 2014 relative to the year-earlier day.

KDC: Kinh Do Corporation – The leading confectioner

Established in 1993, Kinh Do Corp is now a leading confectionery company in

Vietnam with about 200 SKUs such as biscuits (Cosy) cookies (Korento), crackers

(AFC), cakes (Solite), moon cakes, bread (Aloha), bun (Scotti), etc. It also produces ice

cream (Celano, Melano) and yogurt (Well Yo). As the leading player in the

confectionery field, the company has gained significant market share (2013) in

cookies (30%), crackers (56%), and especially in the seasonal moon cake (76%)

segment. Strong brand equity helps the company to maintain its market leadership in

sales and facilitates stronger market penetration for any new product launches.

The company has established an extensive distribution network nationwide with

159,600 retail outlets and 30,000 ice-cream chilled storage points of sales spread

throughout the country. KDC is operating three factories in the north and south of

Vietnam.

KDC has an M&A growth strategy that include the acquisition of Nutifood, Vinabico

and Tribeco during the period of 2007 to 2008. The company also made shares

issuance to strategic investors such as Ezaki Glico (a Japanese confectionery

producer that owns a 5.06% stake in KDC) and a recent group of local strategic

companies (Thap Lang Ha Co.Ltd., Dong Tam JSC, An Thinh Loc Real Estate

Investment Co.Ltd., Truong Thinh Phat Investment JSC). The Company was honored

by the Trade Promotion Bureau, Department of Commerce & Industry for ‘Top 10

Vietnam’s Best Brands 2011’ award.

In 2013, KDC reported net revenue of VND4.6 trillion (USD215.9 million), an increase

of 6.4% y-o-y, and net profit of VND492.8 billion (USD23.3 million), an increase of

39.2% y-o-y. It also displayed a strong net margin of 10.8% (relative to that of 3-4% of

confectionery peers), ROA of 7.7%, ROE 10.1% and a low DE ratio of 11.7% in the

year. Biscuits, cakes, moon cakes, bread and snacks made up the majority of their

revenue with 84%, while yogurt and ice-cream brought 15% of revenue in 2013.

Among its competitors, KDC has allocated the biggest budget for marketing

campaigns and promotion in the last few years.

Listed on the Ho Chi Minh Stock Exchange since 2004, KDC’s current market

capitalization is USD440 million. KDC was trading at PE of 17.8 times, lower than the

sector multiples. Despite frictions over the East Sea, KDC’s share price as of May 20,

2014 has still ascended 7.1% compared to the year-earlier day.

Masan Group (HSX: MSN) – The conglomerate of food and

beverage, banking and mining

Masan Group is one of Vietnam’s largest private sector companies focused on

building market-leading businesses that capitalize on Vietnam’s structural


consumption, banking and resources stories. The Group owns majority interest in

Masan Consumer (77.7%), Masan Resources (77.7%) and minority in Techcombank

(30.4%). Masan consumer was also prominent in M&A activities including acquisition

of 53.2% stake of Vinacafe Bien Hoa, 63.5% stake of Vinh Hao Mineral Water and 40%

stake of Proconco Animal Feed.

Commenced operation in 2000, Masan Consumer is one of Vietnam's largest local

diversified FMCG companies with 30% market share. The Company manufactures

and distributes a range of food and beverage products, including soya sauce (Chin-

Su), fish sauce (Nam Ngu), chili sauce (Tam Thai Tu), instant noodles (Omachi,

Kokomi), instant coffee (Vinacafe), instant cereals (Kachi) and bottled beverages (Vinh

Hao).

Masan Resources is one of the largest private sector natural resources companies in

Vietnam, currently developing the world-class Nui Phao polymetallic project in

Northern Vietnam. Nui Phao will be a globally significant producer of tungsten,

fluorspar and bismuth – niche industrial minerals that are significant enough to

establish a private sector leader. Techcombank is currently one of the largest Joint

Stock Commercial Banks in Vietnam in terms of total assets, loans, deposits,

customers and distribution network. In the 20 years since its establishment, it has

developed a diversified range of financial products and services to cater to the

financial needs of Vietnam’s 50 million strong labor force and 305,000 private

enterprises.

In January 2013, Kohlberg Kravis Roberts (KKR) followed up their US$159 million

investment in Masan Consumer, which closed in April 2011, with a further

investment of US$200 million, marking the largest private equity deal ever in

Vietnam. In August 2013, Texas Pacific Group (TPG), who had previously invested in

the Company, invested over US$50 million in Masan Agri, our newly established

subsidiary of Masan Consumer focused on the agricultural sector.

The core drivers for MSN’s growth lie in factors including the faith in Masan’s

Consumers, shortening M&A period from 10 years to 3 years and allocation of

USD1.2 billion capital from world-class investors and partners (65% to business &

investment, 12% to M&A activities and 23% to cash balance).

In 2013, the company recorded a revenue of VND11,943 billion (USD565.3 million),

14.9% above that of 2012, while its net profit has declined 33% to VND1,307 billion

(USD61.7 million) due to surging product development expenses, branding costs and

falling financial revenue from its associate, Techcombank. MSN retained its zero

dividend policy for 2013 and the Group is poised to exceed US$1 billion in revenues

in 2014. Listed on the Ho Chi Minh Stock Exchange since October 2009, MSN’s

current market capitalization is USD3.34 billion.

VCF: Vinacafe Bien Hoa – The second coffee manufacturer

VinaCafe Bien Hoa is the second key player in coffee production with a market share

of 32.6%, closely following Nestlé Vietnam. VCF is operating three factories with a

total capacity of 4,080 tons of instant coffee per annum. The key products are instant

coffee (3-in-1, Wake-up Saigon, Café Phinn), nutritional cereal (Kachi) and coffee-

energy drink (Wake-up 247). Instant coffee made up the majority of the company’s

net revenue with an 80% contribution. After Masan Consumer’s acquisition of VCF’s

stake in Q4.2011, both companies consolidated their nationwide distribution


networks including 140 points of sales and 185 distributors. Currently, Masan

Consumers holds 53.2% ownership interest in Vinacafé. The Company was received

the following awards: ‘Vietnam Golden Star 2013’, ‘2013 National Quality – Silver’

and ‘High Quality Vietnamese Product for the 18th year’.

In 2013, VCF successfully re-launched VinaCafé as a traditional brand with

contemporary attributes and introduced a new brand of coffee-energy drink ‘Wake-up

247’. Its products are mainly consumed domestically while exports to key markets

such as the United States, the European Union, Japan and Australia accounted for

only 8.3% of total net revenue.

In 2013, the company recorded VND2,341 billion (USD110.8 million) net revenue, up

9.3% and VND260.4 billion (USD12.3 million) net profit, down 12.7% in 2013. The

decrease was due to expenditures allocated for re-launch of VinaCafé and Kachi

brand and a new brand development of coffee-energy drink. However, it saw a strong

net margin of 11.3%, ROA of 16.1%, ROE of 23% and a relatively low DE ratio of

20.4% in the year. In 2014, VCF plans revenue of VND3,000 billion (USD142 million,

+28.2%) and net profit of VND400 billion (USD18.9 million, +53.6%). Listed on the Ho

Chi Minh Stock Exchange since 2011, VCF’s current market capitalization is USD174.9

million. VCF was also trading at 14.2 times, a lower multiple than sector average PE.

VCF’s share price as of May 20, 2014 was significantly down 39.6% since the year-

earlier day.

MPC: Minh Phu Corporation – The largest shrimp exporter

Established in 1992, after 20 years of continuous development, Minh Phu has become

the largest shrimp exporter nationwide and possesses strong creditability in Asia and

worldwide. In 2013, the Company recorded USD411.6 million in export revenue and

accounted for 6.1% of Vietnam’s seafood export value of USD6.7 billion. MPC’s

product portfolio includes fresh shrimp (RPTO IQF, RPD IQF, HLSO Block, EZP IQF,

etc.), steamed shrimp (CPTO IQF, CPD IQF, CEZP, etc.) and premium products

(nobashi, tempura, sushi, etc.). Almost 100% of MPC products have been export to

key markets such as the United States, the European Union, Canada, Japan, Korea

and Australia. Minh Phu has the biggest production capacity in Vietnam, with that of

76,000 tons per annum (TPA) including two factories in Ca Mau (36,000 TPA) and Hau

Giang (40,000 TPA). It also has the largest aquaculture operation countrywide with

one farm of breeding seed in Ninh Thuan (5 billion posts per year), two industrial

farming areas in Kien Giang (600 ha) and Vung Tau (300 ha) and one ecological farm

area in Ca Mau (320 ha).

In 2013, MPC posted VND11,112 billion (USD526 million) in net consolidated revenue,

up 40%; and VND294 billion (USD13.9 million) in net consolidated profit, a surge of

16 fold, thanks to dramatic increases in export revenue. As such, MPC showed a 2.6%

net margin, 3.8% ROA and 18.5% ROE in the year. While the 2013 DE ratio of MPC

was mostly three times, it is effectively reduced to 1.7 times thanks to huge cash

balance of USD94.7 million. In 2014, the Company targets USD550 million net

consolidated revenue (+4.6%) and USD20 million net consolidated profit (+43.6%).

Listed on the Ho Chi Minh Stock Exchange since 2006, MPC’s current market

capitalization is USD107.8 million. MPC was trading at a PE of 8.4 times, less than

half of the sector average PE. Despite frictions over the East Sea, MPC’s share price

as of May 20, 2014 strongly rose 26% relative to the year-earlier day.


CONCLUSION

Among the focused food categories, dairy has the strongest momentum to enter into

growth phase while other categories including seafood, noodles, sauces and

dressing condiments, confectionery, bakery and beverages are reaching maturity

and, as such, experienced slower growth. However, the synergy effects of continuing

economic growth, golden demographic structure, rapid urbanization, rising

disposable income and the middle class, tax supports and a high density of grocery

retail networks will drive up the overall F&B consumption in the medium to long

term. We believe the sector continues to deliver double-digit growth over the next

five years.

In 2013, the country’s F&B sector witnessed two global private equity firms, Kohlberg

Kravis Roberts (KKR) and Texas Pacific Group (TPG), closed landmark deals in

Vietnam with their additional investments in Masan Consumer of USD200 million

and USD50 million, accordingly. Masan Consumer, itself, was also prominent with its

majority acquisition of Vinacafe Bien Hoa and Vinh Hao mineral water during the

year. Given the growing appetite for emerging market-based assets of global

investors and the consolidation of local players, we predict the blooming in M&A

activities in food and beverage sector will continue in the medium to long term.

Another company which is very active in M & A is a joint stock company KDC. The

company has received about VND1,700 billion from strategic partners, raised its cash

to total VND4.000 billion. With this amount of cash, the market would have predicted

that KDC’s strategy is to expand retail distribution system and participate in markets

other than confectionery.

The F&B sector remarkably outperformed the VN-Index in the latest twelve months

(as of May 20, 2014) at 22.8% against 8%. In 2013, the sector’s ROA (8.4%) and ROE

(18.8%) appeared very attractive. The local peer group was trading at slightly cheaper

prices (PE 19.1 times) relative to regional peers group (20.3 times). Also, there are

some stocks exposed strong fundamentals and still cheaper values than the sector

average multiples such as VNM, KDC, VCF and MPC. Based on the above factors, we

propose a recommendation to contemplate accumulation of F&B stocks in the

medium to long term. Furthermore, due to its nature as a defensive sector that is

essential to daily life, F&B stocks continue to be a preferred target for a balanced

investment portfolio. However, we would like to note investors about the impact of

TPP on F&B industry. Vietnam’s import tariffs for F&B are considerably high, while

the country has limited (and at time unavailable) SPS (Sanitary and Phyto-sanitary

Measures), TBT (Technical Barriers to Trade) and commercial defense measures for

the sector. As such, the on-going negotiation of TPP would lead the domestic market

to confront a huge competition of TPP members in terms of technology, quality and

even price when tax barriers are removed. In contrast, other TPP countries possess a

strong system of defensive and protective measures rather than just the tariffs

themselves. Also, the partnerships seem not to have any restrictions on rights of

using these defensive instruments for the import countries. Hence, TPP is not only a

challenge for Vietnam’s F&B local market but also for the export markets


APPENDIX- M&A ACTIVITIES

M&A transactions – F&B

Source: VPBS Research

M&A transactions – FMCG


M&A transactions – Retails & Distribution


No. Time Target Acquirer Seller Deal Value % Acquire % Stake

1 20-Dec-13 VinaCafe Bien Hoa - VCF Gaoling Fund, YHG Investment VinaCafe 41.6 24.5% 24.5%

2 4-May-13 Phu Yen Beer - Pybeco Masan Consumer Pybeco 12 na na

3 1-Feb-13 Vinh Hao Mineral Water Masan Consumer Vinh Hao 29.3 63.5% 63.5%

4 9-Jan-13 Masan Consumer Kohlberg Kravis Roberts & Co Masan consumer 200 8% 8%

5 2-Dec-12 Go Dang Seafood - AGD Panga Holdco AGD 18 25.6% 48.9%

6 10-Oct-12 Proconco Masan Consumer Proconco 96 40% 40%

7 15-Jun-12 Hanoi Liquor - Halico Streetcar Investment Holding - Diageo na 21.8 10.6% 29.6%

8 15-Mar-12 Cholimex Foods Nichirei Foods Cholimex 6.25 19% 19%

9 14-Mar-12 Interfoods - IFS Indochina Beverage Holdings IFS undisclosed 23% 23%

10 18-Jan-12 Kinh Do - KDC Ezaki Glico KDC 34.1 10% 10%

11 14-Nov-11 Shrimp Feed mill Cargill Vietnam Higashimaru Co.Ltd 3.9 100% 100%

12 28-Oct-11 Hue Breweries Carlsberg Huda 90 50% 100%

13 11-Oct-11 VinaCafe Bien Hoa - VCF Masan Consumer Beta Securities, Mr. Tran Quang Loc 53.3 50.1% 50.1%

14 27-Jul-11 Viet Thai International Jollibee Foods Corp. Viet Thai 25 49% 49%

15 30-Jun-11 CP Vietnam CP Pokphand China Charoen Pokphand Group (Thai) 609 71% 71%

16 16-Jun-11 Yen Viet Vietnam Opportunity Fund - VOF Yen Viet 7.1 32% 32%

17 18-May-11 Nutifood DI Asian Industrial Fund (DIAIF) Nutifood 3.7 25% 25%

18 9-May-11 Hanoi Liquor - Halico Streetcar Investment Holding - Diageo Vietnam Opportunity Fund (VOF) 62.5 34.9% 34.9%

19 20-Apr-11 Nghe An Tate & Lyle Sugar TH Milk Food JSC Tate & Lyle (UK) 52 100% 100%

20 24-Mar-11 Masan Consumer Kohlberg Kravis Roberts & Co Masan consumer 159 10% 10%

21 11-Mar-11 Interfoods - IFS Kirin Holdings IFS 92 57% 57%

22 1-Dec-10 Societe De Bourbon Tay Ninh Dang Thanh Co.Ltd SBT 21.3 24.8% 24.8%

23 18-Nov-10 Societe De Bourbon Tay Ninh Undisclosed SBT 45.9 68.5% 68.5%

24 16-Nov-10 Thai Hoa Coffee VinaCapital Thai Hoa undisclosed 10% 10%

25 14-Sep-10 Vinamilk-Saigon Coffee Factory Trung Nguyen Vinamilk 40 100% 100%


1 10-Oct-11 AA Corporation LD Invest / Maj Invest Asia Mekong Enterprise Fund II undisclosed 27% 27%

2 25-Aug-11 Diana Vietnam Unicharm Diana 128 95% 95%

3 10-Aug-11 International Consumer Products Corp - ICPMarico Mekong Enterprise Fund II, Bankinvest Individuals60 85% 85%

4 31-May-11 Saigon Paper Daio Paper Corp & Bridgehead Saigon Paper 10.7 38% 38%

5 30-May-11 Vietnam Fan JSC SEB Group Vietnam Fan 6.4 51% 51%


1 Q2.2013 JV Vina Familymart Phu Thai Corp. Itochu, Familymart undisclosed 49% 49%

2 Q1.2013 Thai An Corp. (Northern retail) Berli Jucker Corp. - BJC Thai An 32 65% 65%

3 24-Jun-13 Phu Thai Corp. Berli Jucker Corp. - BJC Phu Thai undisclosed 65% 65%

4 2-Aug-12 3A Nutrition Abbott 3A undisclosed 100% 100%

5 3-Apr-12 Huong Thuy Trading Sojitz Group New Land Corp. 9.5 26% 51%

6 3-Apr-12 Huong Thuy Trading Kokubu New Land Corp. 7 19% 19%


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