Vietnam food drink report q1 2011

Q1 2011
www.businessmonitor.com
FOOD & DRINK REPORT
ISSN 1749-3072
Published by Business Monitor International Ltd.
VIETNAM
INCLUDES 5-YEAR FORECASTS TO 2015

Business Monitor International
Mermaid House,
2 Puddle Dock,
London, EC4V 3DS,
UK
Tel: +44 (0) 20 7248 0468
Fax: +44 (0) 20 7248 0467
Email:
Web:



© 2011 Business Monitor International.
All rights reserved.

All information contained in this publication is
copyrighted in the name of Business Monitor
International, and as such no part of this publication
may be reproduced, repackaged, redistributed, resold in
whole or in any part, or used in any form or by any
means graphic, electronic or mechanical, including
photocopying, recording, taping, or by information
storage or retrieval, or by any other means, without the

express written consent of the publisher.

DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International makes no representation of warranty of any kind as
to the accuracy or completeness of any information hereto contained.




VIETNAM FOOD & DRINK
REPORT Q1 2011
INCLUDING 5-YEAR INDUSTRY FORECASTS BY BMI


Part of BMI’s Industry Survey & Forecasts Series
Published by: Business Monitor International
Publication Date: November 2010

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 2
Vietnam Food & Drink Report Q1 2011

© Business Monitor International Ltd Page 3
CONTENTS
BMI Industry View 5
SWOT Analysis 7
Vietnam Food Industry SWOT 7
Vietnam Drink Industry SWOT 8
Vietnam Mass Grocery Retail Industry SWOT 9
Business Environment 10
BMI’s Core Global Industry Views 10
BMI Food & Drink Core Views 11
Asia Pacific Risk/Reward Ratings 12
Table: Asia Pacific Food & Drink Risk/Reward Ratings - Q111 15
Vietnam Food & Drink Business Environment Rating 16
Macroeconomic Outlook 17
Table: Vietnam – Economic Activity 20
Consumer Outlook 21
Industry Forecast Scenario 23
Food 23
Food Consumption 23
Table: Food Consumption Indicators – Historical Data & Forecasts 25
Canned Food 26
Confectionery 26
Table: Value/Volume Sales of Selected Food Sub-Sectors – Historical Data & Forecasts 28
Trade 29
Vietnam Food & Drink Trade Indicators – Historical Data & Forecasts 30
Drink 31
Alcoholic Drinks 31
Table: Alcoholic Drinks Indicators 32
Coffee 32
Table: Drinks Indicators 33

Soft Drinks 33
Soft Drinks Indicators 34
Mass Grocery Retail 35
Table: Vietnam MGR Indicators – Value Sales by Format – Historical Data & Forecasts 37
Table: Grocery Retail Sales by Format - Historical Data & Forecasts (%) 37
Food 38
Industry Developments 38
Dairy Sector Experiences Bullish Growth 38
Multinational Investments Abound 39
Rice Exports On The Rise 40
Market Overview 41
Agriculture 41
Food Processing 42
Food Consumption 42
Drink 43
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 4
Industry Developments 43
Soft Drinks Catch Eye Of Industry Majors 43
Investments In Beer Production 44
Continued Dependence on Exports 44
Market Overview 46
Soft Drinks 46
Alcoholic Drinks 46
Mass Grocery Retail 48
Industry Developments 48
Regional Retailers Ramping Up Presence 48

Multinational Majors Also Want In 49
Market Overview 50
Table: Structure of Vietnam's Mass Grocery Retail Market by Estimated Number of Outlets 52
Table: Structure of Vietnam's Mass Grocery Retail Market by Estimated Number of Outlets 52
Table: Structure of Vietnam's Mass Grocery Retail Market - Sales Value by Format (VNDbn) 52
Table: Average Sales per Outlet by Format – 2008 52
Competitive Landscape 53
Table: Key Players in Vietnam's Food & Drink Sector – 2009 53
Table: Key Players in Vietnam's Mass Grocery Retail Sector - 2009 54
Company Analysis 55
Food 55
Unilever Vietnam 55
Nestlé Vietnam 56
Masan Food 57
Vietnam Dairy Products Joint Stock Company (Vinamilk) 59
San Miguel Purefoods Vietnam Co Ltd 61
Drink 62
Hanoi Beer Alcohol Beverage Corp (Habeco) 62
Saigon Beer Alcohol and Beverage Corporation (Sabeco) 64
Carlsberg 65
Mass Grocery Retail 67
Metro Cash & Carry 67
Saigon Co-op 68
BMI Food & Drink M ethodology 70
Table: Returns 71
Table: Risks 72
Weighting 72
Table: Weighting 73
BMI Food & Drink Industry Glossary 74
Food & Drink 74

Mass Grocery Retail 74
BMI Food & Drink Forecasting and Sources 76
How We Generate Our Industry Forecasts 76
Sources 77
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 5
BMI Industry View
Vietnam's economy recorded an impressive 6.3% y-o-y real GDP growth in Q210, followed by a better-
than-expected 7.4% y-o-y in Q310. These latest figures remain in line with our view that private
consumption and infrastructure investments would continue to drive economic growth. Given that Q310
figures were above expectations, we are revising our real GDP forecast upwards to 6.0% for 2010.
However, our real GDP forecast for 2011 remains at 5.5% in anticipation of a slowdown in external
demand. Although these figures are very impressive, we are increasingly concerned over the threat of
higher inflation and widening current account and budget deficits. Food price inflation is of particular
concern owing to the impact this will have on spending in the food and drink sector in the short term.
Nevertheless, the outlook for the food and drink industry remains positive, as investors continue to be
attracted to the country’s drink and mass grocery retail sectors in particular.
Headline Industry Data
 2010 food consumption growth = +11.8%; forecast to 2015 = +71%
 2010 alcoholic drink value sales = +6%; forecast to 2015 = +46.4%
 2010 beer volume sales = +2.8%; forecast to 2015= +36.2%
 2010 mass grocery retail sales = +13.2%; forecast to 2015 = +81.1%
Key Company Trends
Dairy Sector Continues to Attract Investments – In August it was reported that in order to exploit the
rewards on offer in the country's dairy sector, Vietnam's largest dairy producer, Vinamilk, has started
construction on a US$120mn milk factory in the southern Binh Duong province, which should allow
Vietnam to gradually reduce its import dependency over the long term. The new factory will have a

capacity of 400mn litres of milk per year when it becomes operational in 2012, and is expected to double
its capacity by 2017. The company is also planning to increase its stock of milk cows to 80,000, which
will allow it to boost its milk supply by 1.3mn litres a day. This was followed by a September
announcement by Vinamilk that it has invested in acquiring a 19.3% stake in New Zealand’s Miraka
Limited, in order to ease domestic milk supply shortages. Vinamilk’s initial investment will be of
NZD121mn (US$88.2mn) in a new Miraka dairy processing plant, which will commence operations in
August 2011, and will have a production capacity of up to 32,000 tonnes of milk powder annually.
Beer Sector Expansions – Vietnam’s dynamic beer sector continues to attract foreign investors, and in
August it was reported that Asia Pacific Breweries (APB), the joint venture (JV) between Heineken and
Fraser & Neave, doubled its beer bottling capacity to 50,000 bottles an hour at its brewery in Danang,
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 6
through its domestic beer operations Vietnam Brewery Limited (VBL) in a clear bid to capitalise on the
sector's strong growth potential. Ongoing expansionary investment by multinational and domestic
brewers alike bodes well for the sector's long-term growth prospects as they seek to meet the growing
beer demand and to improve the affordability of domestically-produced alcoholic drinks.
Key Risks to Outlook
Infrastructure Upgrades Urgently Needed – T
he success of government initiatives to promote
alternative sources of growth will be heavily dependent on Vietnam's infrastructure
developments over the coming years.
Despite witnessing relatively strong real GDP growth in
recent years, chronic power shortages and congested roads are evidence that the economy faces
risks of overheating, as well as operational bottlenecks for businesses
. The government's master
plan for seaport development will require around US$4bn to build additional ports by 2020, and foreign
direct investments are expected to play a major role. The government has been running persistent fiscal

deficits in recent years, and has increasingly turned to the Public-Private Partnerships (PPP) model to
finance the country's growing demand for infrastructure investments in the coming years.
Inflation Creeping Up – Food price inflation has become a growing concern as the food and foodstuff
component of the CPI rose by 10.8% y-o-y in September, compared with 9.6% and 10.0% in July and
August respectively. Although regional economies are also witnessing a steady increase in food prices,
we note that Vietnam is in a much more fragile situation. With inflation remaining persistently high at
more than 8.0%, we see growing risks that the central bank may be forced to hike rates aggressively if
inflation expectations get out of hand.


Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 7
SWOT Analysis
Vietnam Food Industry SWOT
Strengths
 The food-processing sector accounts for a sizeable proportion of industrial output
and GDP, with the sector attracting significant foreign investment in recent years
from the likes of Unilever, Nestlé and San Miguel.
 Vietnamese consumers, particularly the young and affluent, are interested in brands
and, accordingly, renowned Western products backed by investment in marketing
and promotions tend to have highly successful launches.
 The wealthy urban centres of Hanoi and Ho Chi Minh City now provide highly
receptive consumer audiences.
 Large and diverse domestic agricultural output aids the stability of ingredient supplies
and prices for local producers – a vital strength during this period of global volatility.
 The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20% in 2004.

Weaknesses
 There are wide income disparities between urban and rural areas, and local
consumption patterns vary significantly according to income.
 The food-processing industry remains largely fragmented except for a few key
sectors, such as dairy and confectionery.
 The country’s agricultural sector has been criticised for being too slow to adapt to
new technologies to be globally competitive in the long term, although the
government is working hard to address this.
 Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.
 The lack of white goods among large sections of the consumer base slows down the
development of the high-potential dairy sector.

Opportunities
 Accession to the WTO, in January 2007, will continue to benefit Vietnamese
exporters, with the gradual removal of market barriers and trade restrictions set to
increase competition.
 Rising income levels and changing lifestyles, particularly in urban areas, are
increasing consumer demand for snacks, convenience and luxury food items.
 Vietnam’s large domestic market, growing export opportunities and low labour costs,
as well as the prospect of acquiring newly privatised food companies, offer further
investment opportunities.
 The country’s agricultural sector is in need of significant investment and willing
investors can expect assisted entry.
 A growing tourism sector fuels interest in convenience categories.

Threats
 Vietnam’s WTO membership may result in smaller companies unable to cope with
the increased competition being forced out of business.

 Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government focuses too much on stimulating growth
and fails to root out inflationary pressure, it risks prolonging macroeconomic
instability, which could lead to a potential crisis.
 Rising agricultural commodity costs will remain a risk for the profitability of
processed-food manufacturers; farmers themselves also claim this as a threat, with
the primary level reportedly seeing little in the way of these higher prices.
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 8
Vietnam Drink Industry SWOT
Strengths
 Vietnamese consumers, particularly the young and affluent, are interested in brands,
and, accordingly, renowned Western products backed by investment in marketing
and promotions tend to have highly successful launches.
 The wealthy urban centres of Hanoi and Ho Chi Minh City now provide highly
receptive consumer audiences.
 Alcoholic drinks are widely consumed and have gained popularity in recent years.
 Vietnam has been one of the fastest-growing economies in Asia in recent years, with
GDP growth averaging 7.6% annually between 2000 and 2009

Weaknesses
 There are wide income disparities between urban and rural areas, and local
consumption patterns vary significantly according to income.
 The drinks industry remains largely fragmented except for a few key sectors, such as
alcoholic and soft drinks.
 Vietnam's infrastructure is still weak. Roads, railways and ports are inadequate to
cope with the country's economic growth and links with the outside world.

Opportunities
 Accession to the WTO, in January 2007, will continue to benefit Vietnamese
exporters, with the gradual removal of market barriers and trade restrictions set to
increase competition.
 Vietnam’s large domestic market, growing export opportunities and low labour costs,
as well as the prospect of acquiring newly privatised drink companies, offer further
investment opportunities.
 A growing tourism sector is fuelling interest in convenience categories, in addition to
sub-sectors such as soft and alcoholic drinks.
 In line with consumers’ rising disposable incomes, there are opportunities for
premium-branded products in the soft and alcoholic drinks sub-sectors.
 The global trend towards health-consciousness provides an opportunity for drinks
manufacturers to diversify into perceived healthier options.

Threats
 Vietnam’s WTO membership may result in smaller companies unable to cope with
the increased competition being forced out of business.
 Rising raw-material costs threaten profitability in this competitive market in which
higher prices cannot easily be passed on to consumers.
 Prolonged macroeconomic instability could prompt the authorities to put reforms on
hold, as they struggle to stabilise the economy, making the market less attractive for
international investors.

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 9
Vietnam Mass Grocery Retail Industry SWOT
Strengths
 The potential size of the MGR market makes it an attractive target for foreign
retailers once improved market terms are granted. Further growth is expected,
especially in the supermarket format.
 Hypermarkets, supermarkets and convenience stores have all proved popular in
Vietnam, catering to different types of consumers and different shopping occasions.
 A growing multinational presence in the retail sector has aided the acceptance of
modern retail best-practices in Vietnam, particularly things like added-value in-store
services.
 Vietnamese economic growth has averaged 7.6% annually since 2000, fuelling a
steady middle class emergence and growing consumerism.
 The economic boom has lifted many Vietnamese out of poverty, with the official
poverty rate in the country falling from 58% in 1993 to 20% in 2004.
 The formation of buying groups has proved an effective means of facilitating quicker
expansion among smaller industry players.

Weaknesses
 Vietnam’s retail distribution networks remain underdeveloped and expansion-
oriented firms must invest in infrastructural development as well as new store
openings.
 Regulations governing international participation in modern retail in Vietnam have
resulted in slow rates of expansion, and aspects of government policy continue to
make life challenging for foreign firms in spite of WTO accession.

 Poverty levels among the country’s vast rural population hugely inhibit the potential
audience size for modern retail in Vietnam.
 Vietnam remains one of the world's most corrupt countries. Its score in Transparency
International's 2010 ‘Corruption Perceptions Index’ was 2.7, placing it in 22nd place
in the Asia-Pacific region.

Opportunities
 The hypermarket concept is still in its infancy and, as familiarity with modern retailing
grows, this format will represent an immense growth opportunity.
 Modern retail is currently focused on the major urban centres of the north and south,
which still boast space for new entrants, and central Vietnam and the provinces
provide further opportunities still.
 Modern retail concepts, such as discounting and private labelling, should prove
popular with price-conscious Vietnamese consumers as familiarity with modern
retailing builds.
 Rapid urbanisation and the development of new housing complexes provide ideal
locations for the rolling out of modern retail outlets with a large and receptive
audience.

Threats
 Were industry majors Tesco, Carrefour and Wal-Mart all to enter Vietnam, the
window of opportunity for other entrants would rapidly close.
 Rising operating costs will threaten retailer profit margins; price increases have to
date been passed on to shoppers, but this cannot continue indefinitely in the price-
conscious market.
 Inflation and deficit concerns have caused some investors to re-assess their hitherto
upbeat view of Vietnam. If the government focuses too much on stimulating growth
and fails to root out inflationary pressure, it risks prolonging macroeconomic
instability, which could potentially lead to a crisis.

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 10
Business Environment
BMI’s Core Global Industry Views
Developments within the global food and drink industry in the past three months have continued to reflect
and support BMI's core industry views. In major developed markets, fiscal austerity measures and slow
recovery in employment continue to weigh on our expectations for growth in the medium term. However,
over the last quarter, emerging markets have again demonstrated their ability to outperform the wider
market and have continued to attract investment. One major trend during the quarter has been the
increased role of private equity groups in the food and drink sector, which we think is indicative of its
‘safe haven’ status and the uncertainty surrounding the strength of the wider economic recovery.
In many markets the strength of the recovery has disappointed, with little sign of resurgence in consumer
demand across the US, Western Europe or emerging markets that were particularly hard hit by the
downturn, such as Venezuela and Romania. In line with our wider economic outlook and our core short-
term view, we believe the recovery in demand will continue to be muted. Our caution can be traced to the
fact that unemployment in many markets remains high and shows little sign of retracing, with companies
still wary about the strength of the recovery and holding back on hiring. Meanwhile, many consumers
who are still in employment have yet to be hit in the pocket by the downturn, but this is set to change as
fiscal austerity measures are implemented.
Over the last few months, emerging markets have again shown their importance, delivering significant
outperformance over their developed market peers, in line with our core long-term view. However, even
in those markets that bounced back strongly from the global downturn, such as Brazil and China, we
remain cautious, due to signs of slowing growth in H210 as the knock-on effects from a weaker US and
eurozone weigh on global demand. Despite this relatively subdued short-term outlook, the long-term
picture is undoubtedly favourable and investment continues to flow into the most attractive regions.
Our core view that government legislation will continue to play a role in marginalising unhealthy foods
and drinks has come to the fore in the alcoholic drinks sector over the latest quarter, with a rise in excise

duties in several key markets. This trend is likely to have been accelerated by a drop in tax revenues as a
result of the downturn, with excise duties an easy way for governments to help prop up their tax income.
Perhaps the most significant movement has been in Russia, where restrictions on the sale of alcohol and
hefty tax hikes have led to higher average prices and a significant drop in consumption, while other
markets hit by tax hikes include Turkey, Greece and Spain.

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 11
BMI Food & Drink Core Views
Short-term Outlook
Consumer demand in developed markets remains too weak to support a strong rebound in sector growth
A stuttering recovery in the US and Eurozone will increasingly way on the performance of emerging markets
Commodity price volatility will continue to affect producer earnings
Premiumisation will remain on hold
Private labels and off-trade alcoholic drinks will outperform their respective sectors
Discount grocery retailers will continue to gain market share
Government fiscal policy – austerity – will be unsupportive of industry growth
Government monetary policy – the reduced likelihood of further rate hikes – will help limit demand destruction
Major takeovers will remain scarce, leaving room for the private equity sector to step in
We continue to favour private consumption-led economies, over export-oriented states for consumer goods investment
Long-term Outlook
Companies with strong emerging market exposure will continue to outperform
Emerging market multinationals will increasingly pursue frontier market investments
Tension between producers and retailers will remain
Investment in innovation will increase as producers seek differentiation; emphasis will be placed on protecting
innovations
Brand builders will continue to leave sectors under threat from private labels

Government legislation will play an increasing role in marginalising unhealthy food and beverage products; notably
alcohol
Demand for convenience in retail and food will continue to grow
Functional foods will be the highest growth sector in developed markets
Consolidation will continue as producers seek greater efficiencies
Beverage companies will continue to invest in diversification away from carbonated beverages and into healthier sub-
sectors
Source: BMI

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 12
Asia Pacific Risk/Reward Ratings
We have often noted that many food
and beverage companies need to
strengthen their emerging market (EM)
exposure to sustain an impressive
growth trajectory over the long term.
Emerging Asian economies, in
particular, are expected to outperform
markedly as compared to their global
EM peers. Indeed, the ongoing flurry of
food and beverage investments in the
emerging Asian region are further
evidence of the very promising growth
prospects on offer here.
With this in mind, BMI has identified
the markets that we consider to be the

most exciting regional growth stories,
while highlighting the relatively
immature markets that continue to offer
very bright medium-to-long-term
investment prospects that investors cannot afford to ignore. This quarter (Q111), our Asian EM favourites
China and India continued to score high in our ratings, while economies characterised by high investment
risks and low per capita spending, such as the Philippines and Pakistan, remained at the bottom of our
ratings ladder.

China Tops Our Chart Again, Pakistan
Remains Rooted
Asia Pacific Fo
od & Drink Risk/Reward Ratings
– Q111

Source: BMI. Scores Out Of 100, with 100 highest. For full
methodology see Appendix at the back of our Food & Drink Quarterly
Reports, or visit our online service
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 13
Rise Of The Emerging Asian Giants
Given that we cannot talk about
emerging Asia without mentioning the
enormous growth drivers China and
India, it is unsurprising that they have
outperformed once again in terms of
investment opportunities. Strong

forecast economic growth, favourable
demographic profiles and robust
growth in headline food consumption
levels in China and India have made
these economies enormously
attractive, as the flurry of investment
activities in recent years has
underlined.
The two Asian giants, however,
present markedly different risks to
investors. Despite India's solid
performance in terms of opportunity, the country's still-restrictive industry regulations and very weak
distribution infrastructure have continued to hamper its prospects of enjoying a similar top-spot ranking to
China. This also explains India's mid-table position in our regional Risk/Reward ratings. China,
comparatively, performs better in terms of its Risk score, which is 13 points higher than India's. We
believe this could be largely attributed to China's improving distribution infrastructure, favourable
monetary policy and a relatively well-developed labour market (compared to India's).
Developed States – Not To Be Left Out
We maintain that balanced geographic portfolios – that is, a diversified footprint across developed
economies and EMs – will play an increasingly important role in the regional growth strategies of
multinationals and this necessitates a relative look at developed economies in the Asia Pacific region.
Developed states such as Australia, Japan and Taiwan have been dominating the upper half of our ratings
table due to their relatively low-risk business environments and high existing spending levels (which EMs
have not been able to match thus far). These countries' developed infrastructure, higher-skilled labour
force, stable financial and business systems and openness to foreign investment are reasons why we like
these economies, despite the relatively modest growth opportunities on offer.
South Korea, interestingly, boasts a higher Risk/Reward rating when compared to many of its developed-
market peers and its higher food and beverage spending levels relative to developing Asian economies
further endorses its favourable position. In an increasingly-developed economy like South Korea, we
believe there is still scope for considerable growth.

India Underperforms In Risk Terms

Asia Pacific Food & Drink Risk/Reward R
atings
– Q111

Source: BMI
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 14
By contrast, mature markets like Singapore and Hong Kong miss out on these dynamics due to their high
level of market maturity and small population size (which translate into limited growth opportunities).
These characteristics largely offset the benefits of a low-risk investment environment and a high
propensity to spend among consumers in these economies.
Thailand And Indonesia – Very Bright Prospects
Thailand and Indonesia are other bright medium-term investment prospects that continue to enjoy mid-
table positions in our regional Risk/Reward ratings. The shaky political situation in Thailand and its poor
physical infrastructure continue to plague the country's appeal to investors and have caused it to slip
slightly in our ratings table this quarter. Yet Thailand's high tourism levels, healthy economic growth
forecast and moderately-strong per capita food consumption growth will continue to fuel the dynamism
within the country's food and drink sector, making it a very enticing investment destination in our view.
Another attractive investment prospect, in our opinion, is Indonesia. Notably, Indonesia outperforms
Thailand in terms of Rewards, but fares relatively poorly with regard to risk. At present, Indonesia suffers
from low existing consumption levels and limited growth opportunities in its alcoholic drinks sector
owing to its large Muslim population. Furthermore, corruption and perceived excessive bureaucracy will
continue to blight the country's business environment, while security risks also remain. That said, it
should be noted that Indonesia's forecast food consumption growth remains at a respectable level and its
favourable demographics suggest that the popularity of soft drinks and processed foods will continue to

soar.
Pakistan – Rooted To The Bottom
Pakistan, on the other hand, remains rooted to the bottom of our Risk/Reward ratings table given its poor
showing in terms of Risks and a relatively low score of 45 for Rewards. Pakistan's large population size
and the immature nature of its food and drink sector have failed to offset the country's very low food and
beverage consumption level. The situation is just as bleak on the Risk side, as Pakistan's excessive red-
tape, widespread corruption and underdeveloped labour market remain key challenges for investors to
overcome before they can fully tap the country's EM potential.
Looking Ahead
It should be acknowledged that our Risk/Reward ratings paint only a near-medium-term picture and the
continued dynamism and improving business environment conditions of our favourite EM economies
such as India, Indonesia and Vietnam should push these countries up the ratings table beyond our current
five-year forecast period, potentially outperforming their developed market peers that have consistently
dominated the top-spots in our Risk/Reward ratings table.

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 15
Table: Asia Pacific Food & Drink Risk/Reward Ratings - Q111
Rewards Risks

Industry
Rewards

Country
Rewards

Rewards

Industry
Risks

Country
Risks

Risks

Risk/Reward
Rating

Regional
Ranking

China 60 64 62 55 73 67 63 1
Australia 56 62 59 60 72 67 61 2
Japan 48 60 54 75 77 76 60 3=
South
Korea
50 57 54 70 76 74 60 3=
India 50 69 60 60 49 54 58 5=
Taiwan 55 48 51 70 75 73 58 5=
Indonesia 52 64 58 65 52 57 58 5=
Thailand 57 54 55 55 68 63 58 5=
Hong Kong 50 45 48 70 76 75 56 9
Singapore 34 51 43 90 77 82 55 10=
Vietnam 47 59 53 70 49 57 55 10=
Malaysia 38 56 47 70 69 70 54 12
Philippines 30 55 42 70 55 61 48 13

Pakistan 27 62 45 30 39 35 42 14
AVERAGE 47 58 52 65 65 65 56 N/A
Source: BMI. Scores out of 100, with 100 highest. For full methodology see Appendix at the back of our Food & Drink Quarterly Reports,
or visit our online service

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 16
Vietnam Food & Drink Business Environment Rating
Vietnam once again holds 10
th
place in BMI’s Q111 Food & Drink Risk/Rewards Ratings for the Asia
Pacific region, a position it shares jointly with Singapore. Vietnam has not managed to climb up our
rankings, as it continues to perform rather poorly on both the Risks and Rewards indicators.
Vietnam receives a score of 53 for the Rewards indicator, which places it in the bottom half of the region.
The country continues to be held back by very low levels of spending on food and soft and alcoholic
drinks, largely as a result of the country’s majority rural population. Huge income disparities continue to
restrict medium-term spending growth, despite the gradual emergence of a growing middle class. On the
bright side, these very low current levels of consumption leave tremendous room for growth and also
reflect the lack of market maturity, which is very attractive for investors willing to wait for long-term
returns. Furthermore, the country benefits from a very appealing food and drink trade balance.
Although Vietnam does slightly better when it comes to the Risks indicator, this score is still very low by
regional standards, placing it above only India and Pakistan. Vietnam remains one of the world's most
corrupt countries. Its score in Transparency International's 2010 ‘Corruption Perceptions Index’ was 2.7,
placing it in 22nd place in the Asia-Pacific region. High levels of bureaucracy and poor labour and
distribution infrastructure are also of concern. Yet the government is looking to improve the situation,
recognising the importance of investing in infrastructure, and is making headway to improve this by
starting construction on a number of ports, power plants and road projects. Furthermore, food and drink

producers face few barriers to entry and a reasonably relaxed regulatory environment. It should be noted
that despite the risks associated with doing business in Vietnam, the country is increasingly attracting
investment from key Asian economies, such as Japan, South Korea and Taiwan, with the number of
investors interested in the country expected in increase in coming years.


Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 17
Macroeconomic Outlook
Private Consumption And Infrastructure Investment Cushion External Weakness
BMI View: Economic indicators in July provided an optimistic outlook for Vietnam's economic growth in
H210. We believe private consumption and investment in infrastructure development will continue to be
the main drivers of economic growth. However, we see external demand weakness leading to a widening
of the trade deficit, which will be a drag on growth. Therefore, we are maintaining our real GDP growth
forecast of 6.0% and 5.5% for 2010 and 2011 respectively.
Vietnam recorded an impressive real GDP growth of 6.3% y-o-y in Q210 as the economy heads towards
the government's growth target of 6.5% for 2010. Economic indicators in July also reinforced the
government's aggressive target after industrial production came in at a better-than-expected 16.0% y-o-y
in July. To a certain extent, the encouraging numbers helped to alleviate concerns that weakening external
demand from the US and EU would be a drag on the economy. Industrial production accelerated after
slowing down for three consecutive months, falling from 5.0% m-o-m in April to 3.3% and 2.2% in May
and June respectively. This prompted the Vietnamese government and the State Bank Of Vietnam (SBV)
to exert pressure on commercial banks to lower lending rates in June. However, we expect loan growth to
remain weak on a historical basis in H210 due to the threat of higher inflation, which forces commercial
banks to keep lending rates high at around 12-14%. Therefore, we do not see business investments
contributing significantly to industrial production growth going forward. Instead, we see private
consumption and government-supported infrastructure investment as the main drivers of economic

growth in H210.
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 18
Retail Sales and Tourist
Arrivals Point To Strong
Domestic Demand
Retail sales came in at 35.3% y-
o-y in July, reflecting the strong
momentum in consumer demand.
We see retail sales as a relatively
good indicator of consumer
demand as private spending
makes up 85.8% of the indicator.
Given that retail sales tends to
accelerate in the second half of
the year largely due to the
holiday season, we believe
private consumption will play a
more significant role in providing
support for economic growth in
H210. We note that the retail
sector is heavily dependent on tourist arrivals. As the accompanying chart shows, the correlation between
tourist arrivals and private consumption is strong.
Tourist arrivals rose 47.5% y-o-y
in July, in line with strengthening
retail sales figures. The tourism
industry's pace of growth also

highlighted the industry's
growing potential as a source of
economic growth for Vietnam.
The government announced in
July that it has set a target for Ho
Chi Minh City to host four
million foreign visitors by 2015,
raising the tourism industry's
revenues from an expected
US$2.1bn in 2010 to US$3.15bn
by 2015 (see 'Infrastructure
Development Key To Sustaining
Growth', July 13 2010). We
believe the government's tax
Picking Up The
Pace


Vietnam – Industrial Production, VND bn (LHS)
& % chg y-o-y (RHS)



Source: General Statistics Office, BMI

Poised For A Strong Bounce


Vietnam – Tourist Arrivals (LHS) &
Retail Sales VND bn (RHS)

Source: General Statistics Office, BMI

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 19
policies aimed at promoting investment in the tourism sector will continue to provide support for the
industry's growth in H210.
Infrastructure Development To Support Construction Industry And Jobs Growth
In a previous report (see 'Aggressive Government Policies Risk Overheating', July 2), we highlighted that
infrastructure projects that are already initiated, such as the construction of a number of ports, roads and
thermal power plants, will continue to provide support for the construction sector in H210 and 2011. We
believe growth on this front will help to support demand for building materials such as cement and steel,
which Vietnam produces domestically, thus having positive spill over effects. Indeed, looking at the
breakdown of industrial production data in July, cement production increased by 27.4% y-o-y, while steel
production remained stable at 1.5% y-o-y.
External Demand Weakness
Supports Forecast
In line with our view that strong
private consumption will drive
domestic demand in H210, we
expect the trade deficit to widen
in 2010. The construction sector's
need to import large quantities of
materials and capital goods for
ongoing infrastructure projects

will also keep imports elevated
over the coming month.
Furthermore, with Vietnam's
exports remaining concentrated
on the US and EU, the country's
trade deficit looks set to widen
significantly based on our view of
a slowdown in the US and EU in H210 (see chart). The widening trade deficit will no doubt be a drag on
Vietnam's economic growth in H210. Therefore we are maintaining our real GDP growth forecast for
2010 at 6.0%, slightly lower than the government's target of 6.5%.


A Cause For Concern


Vietnam Exports and Imports Growth, % chg y-o-y



Source: General Statistics Office, BMI

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 20
Table: Vietnam – Economic Activity
2006 2007 2008 2009 2010 2011 2012 2013 2014
Nominal
GDP,

VNDbn
2
974266.2 1144014.6 1478695.0 1645481.0 1869502.9 2103348.3 2344535.7 2625877.9 2926496.6
Nominal
GDP,
US$bn
2

60.9 71.1 89.8 92.4 95.9 107.9 117.2 131.3 146.3
Real GDP
growth, %
change
y-o-y
2
8.2 8.5 6.2 5.3 6.0 5.5 6.0 6.8 6.9
GDP per
capita,
US$
2

724 835 1042 1058 1085 1208 1300 1442 1591
Popul-
ation,
mn
3

84.1 85.2 86.2 87.3 88.4 89.3 90.2 91.1 92.0
Industrial
productio
n index,

% y-o-y,
ave
1,4

16.8 16.7 14.6 7.6 10.0 12.0 14.0 14.0 14.0
Unemploy
ment, %
of labour
force,
eop
4

4.8 4.6 5.0 5.5 5.5 5.0 4.5 4.0 4.0
Notes:
e
BMI estimates.
f
BMI forecasts.
1
at 1994 prices; Sources:
2
IMF (General Statistics Office).
3
World Bank/BMI
calculation/BMI;
4
General Statistics Office

Vietnam Food & Drink Report Q1 2011

© Business Monitor International Ltd Page 21
Consumer Outlook
Vietnam’s consumer outlook appears relatively positive over our five-year forecast period as confidence
will be regained on the back of an economic recovery. Recent GDP growth figures have been very strong,
and while a breakdown of growth by expenditure is unavailable, we believe that private consumption is
booming and is set to bolster domestic demand moving forward, as confidence continues to improve and
interest rates remain accommodative. While our GDP growth outlook remains positive, we are growing
increasingly concerned over the threat of higher inflation and widening current account and budget
deficits. Consumer price inflation (CPI) is increasingly becoming a concern, and we believe that the
overheating economy will see accelerating CPI going into 2011. This suggests that the central bank will
be forced to hike interest rates aggressively to cool the economy. Coupled with an expected slowdown in
external demand, this will slow economic expansion into 2011, and could dampen consumer confidence
in the short term.
Vietnam has been one of the fastest-growing economies in Asia in recent years, with GDP growth
averaging 7.6% annually between 2000 and 2009. This economic boom has lifted many Vietnamese out
of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004. It has
also led a growth boom in the retail sector, with a far wider variety of products now available to
consumers. In recent years processed food and drink products and modern retail outlets have been rapidly
gaining popularity. Vietnamese consumers, particularly the young, urban and affluent, are interested in
brands, and, accordingly, renowned Western products backed by investment in marketing and promotions
tended to be very successful.
Economic growth and consumer
confidence both took a hit during the
economic downturn, with low
consumer confidence and inflation
effecting retail sales. This drop in
confidence and slowdown of demand
was felt in the food and drink sector,

with companies reporting losses and a
slowdown of growth, with inflationary
pressures adding to difficulties.
However, looking forward, the outlook
is considerably brighter, although food
price inflation does remain a concern.
According to data released in June by the General Statistics Office Of Vietnam we see evidence of a
strong pick up in private consumption in the coming months. Retail sales rose 26.7% y-o-y in June,
Macroeconomic Indicators

2005-2014

e/f = BMI estimate/forecast. Source: IMF (General
Statistics Office)
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 22
underlining the effervescent state of consumer confidence in the economy and strong domestic demand,
while data from September showed that retail sales figures registered a 2.4% m-o-m increase. We note
that retail sales have traditionally been an accurate indicator of private consumption. Thus, resilient retail
sales figures in September suggest to us that private consumption will remain a key factor driving
domestic demand. However, CPI figures for September show a 8.9% y-o-y rise, largely due to surging
food prices. We note that the SBV's decision to devalue the Vietnamese dong by 2.0% in August also had
a direct impact on import prices. Therefore, we believe the 1.3% m-o-m surge in September could be a
one-off and CPI figures in October should provide a clearer picture on the trend of consumer prices in the
coming months. Nonetheless, we continue to see evidence of inflationary pressures due to the Vietnamese
government's expansionary policies.
Our long-term outlook for Vietnam’s retail sector remains bullish. Urbanisation will continue to be a

long-term growth driver, with the UN forecasting the urban population to rise from 29% of the population
to more than 50% by the early 2040s. A major driver behind our strong long-term outlook is the
increasing amount of foreign investment we expect Vietnam to receive in the retail sector in coming
years. The country has been very successful in attracting multinational investment in spite of its often-
restrictive foreign investment policies and underdeveloped infrastructure. This investment has led to job
creation, which in turn has led to the emergence of a new consumer class in the country – in major urban
centres at least – which has an interest and can afford to participate in modern consumption methods.
Risks To Outlook
While we remain optimistic on Vietnam's long-term economic growth, we note that the success of
government initiatives to promote alternative sources of growth will be heavily dependent on Vietnam's
infrastructure developments over the coming years. Despite witnessing relatively strong real GDP growth
of 5.3% in 2009, chronic power shortages and congested roads are evidence that the economy faces risks
of overheating as well as operational bottlenecks for businesses. In particular, businesses that are reliant
on a stable supply of electricity and smooth logistics (such as the MGR industry) may struggle to
maintain efficiency and stay competitive in the coming years. Most importantly, we are increasingly
concerned that the government's failure to make infrastructure investments in time due to its growing debt
could greatly limit the economy's potential for growth. We believe infrastructure development in Vietnam
remains pertinent in raising the country's productivity and keeping inflationary pressures in check.
Food price inflation is another concern. The food and foodstuff component of the CPI rose by 10.8% y-o-
y in September, compared with 9.6% and 10.0% in July and August respectively. Although regional
economies are also witnessing a steady increase in food prices, we note that Vietnam is in a much more
fragile situation. With inflation remaining persistently high at more than 8.0%, we see growing risks that
the central bank may be forced to hike rates aggressively if inflation expectations get out of hand.
Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 23
Industry Forecast Scenario
Food

Food Consumption
Vietnam has weathered the global
financial storm relatively well, with the
economy recording stronger than
expected GDP growth of 7.4% y-o-y in
Q310, supported by robust growth in
the construction and manufacturing
sectors. In fact, Vietnam has been one
of the fastest-growing economies in
Asia in recent years, with GDP growth
averaging 7.6% annually between 2000
and 2009. This economic boom has
lifted many Vietnamese out of poverty,
with the official poverty rate in the
country falling from 58% in 1993 to
20% in 2004, while also fuelling the growth of a middle glass and a growing appetite for consumerism.
Looking ahead, food consumption in Vietnam is forecast to experience strong growth of 71% between
2010 and 2015 at which point consumption is expected to reach VND487,941bn. Meanwhile, per capita
food consumption is forecast to grow by an impressive 62.8% over the same time period, reaching a fairly
modest VND5,256,287 by 2015, reflecting the low starting base. Food consumption as a percentage of
GDP is expected to decrease slightly from an estimated 15% in 2010 to 13.5% in 2015 as incomes grow.
Over time, the continued investments in the country’s food, beverage and retail industries will ultimately
stimulate food consumption growth. However, in the short term, food prices are expected to remain low,
with modern retail remaining beyond the reach of the average Vietnamese consumers, who continue to
live in rural areas and can only afford essential food and drink items.
Beyond 2015, investment in the agricultural sector should help improve living standards outside of the
major cities. Investment in agriculture is an area in which Vietnam’s government can take much credit,
and the improvements in agricultural output seen in recent years is a major reason why Vietnam has been
second only to China within the region in terms of y-o-y GDP growth. However, domestic processing is
an area that could be considerably improved to help the agricultural sector realise its full potential. This

would take pressure off the need to import luxury goods like chocolate, while giving the Vietnamese
economy a chance to ease its current account deficit.
Food Consumption

2005-2015

NB Excludes beverage consumption. e/f = BMI estimate/forecast.
Source: General Statistics Office of Vietnam, BMI

Vietnam Food & Drink Report Q1 2011



© Business Monitor International Ltd Page 24
The ongoing expansion of the mass grocery retail (MGR) industry will also drive up per capita food
consumption levels, provided goods sold through such outlets remain competitively priced. Ultimately,
food consumption growth will be driven by the government’s ability to harness rural spending power and
by modern retailers’ ability to find a model that stirs consumer interest, without forgetting that price will
remain the major purchasing determinant. BMI upwardly revised its food consumption figures for
Vietnam in Q208 following the release of segmented household expenditure figures by the General
Statistics Office of Vietnam (GSO). These figures reflect reported food and beverage spending; however,
BMI would urge some caution when viewing the figures, owing to the potential for under-reporting of far
lower consumption levels among some rural groups. We will continue to benchmark GSO data against
other available sources to provide the most accurate assessment of the food consumption outlook.
Looking further ahead, we expect foreign investment into the manufacturing sector to continue to drive
growth over the next 10 years, and to help Vietnam move up the value-added chain as the advantages of
sourcing production in the country become apparent for a wider range of manufacturing firms. However,
we believe the global environment will be less conducive to external demand-driven economies in the
years to come, meaning that Vietnam will not be able to reach real GDP growth rates above 8.0% as seen
in 2004-2007.

However, in the food sector we do expect a return to a more familiar growth trajectory in 2011 and
beyond, supported by favourable population demographics (Vietnam has a young and high-growth
population), which should guarantee a receptive and growing audience for branded food and beverage
products in the medium term.