Q2 2016 www.bmiresearch.com VIETNAM FOOD & DRINK REPORT INCLUDES 5-YEAR FORECASTS TO 2020 Published by:BMI Research Vietnam Food & Drink Report Q2 2016 INCLUDES 5-YEAR FORECASTS TO 2020 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2016 ISSN: 1749-3072 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2016 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, 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 Ltd 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 Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Food & Drink Report Q2 2016 INCLUDES 5-YEAR FORECASTS TO 2020 Part of BMI’s Industry Report & Forecasts Series Published by: BMI Research Copy deadline: March 2016 ISSN: 1749-3072 BMI Research Senator House 85 Queen Victoria Street London EC4V 4AB United Kingdom Tel: +44 (0) 20 7248 0468 Fax: +44 (0) 20 7248 0467 Email: subs@bmiresearch.com Web: http://www.bmiresearch.com © 2016 Business Monitor International Ltd All rights reserved All information contained in this publication is copyrighted in the name of Business Monitor International Ltd, 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 Ltd 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 Ltd makes no representation of warranty of any kind as to the accuracy or completeness of any information hereto contained Vietnam Food & Drink Report Q2 2016 CONTENTS BMI Industry View SWOT Food & Drink Industry Forecast 11 Consumer Outlook Latest Updates Structural Trends Food Latest Updates Structural Trends 11 11 11 13 13 14 Table: Food Sales (Vietnam 2013-2020) 16 Drink 19 Latest Updates 19 Structural Trends 19 Table: Non-Alcoholic Drink Sales (Vietnam 2013-2020) 22 Mass Grocery Retail 24 Latest Updates 24 Structural Trends 24 Food & Drink Risk/Reward Index 26 Asia Pacific - Risk/Reward Index 26 Table: Asia Pacific Food & Drink Risk/Reward Index Q216 27 Vietnam Risk/Reward Index 31 Market Overview 33 Food 33 Drink 36 Mass Grocery Retail 39 Competitive Landscape 41 Table: Key Players In Vietnam's Food Sector 41 Table: Key Players In Vietnam's Drink Sector 42 Table: Key Players In Vietnam's Mass Grocery Retail Sector 43 Company Profile 45 Carlsberg Hanoi Beer Alcohol Beverage Corp (Habeco) Masan Consumer Nestlé Vietnam Saigon Beer Alcohol And Beverage Corporation (Sabeco) © Business Monitor International Ltd 45 48 51 54 56 Page Vietnam Food & Drink Report Q2 2016 Saigon Co-op 58 San Miguel Pure Foods Vietnam Co Ltd 61 Unilever Vietnam 63 Demographic Forecast 66 Table: Population Headline Indicators (Vietnam 1990-2025) 67 Table: Key Population Ratios (Vietnam 1990-2025) 67 Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 68 Table: Population By Age Group (Vietnam 1990-2025) 68 Table: Population By Age Group % (Vietnam 1990-2025) 69 Glossary 71 Food & Drink 71 Mass Grocery Retail 71 Methodology 73 Industry Forecast Methodology Sector-Specific Methodology Sources Risk/Reward Index Methodology 73 74 74 75 Table: Food & Drink Risk/Reward Index Indicators 76 Table: Weighting 77 © Business Monitor International Ltd Page Vietnam Food & Drink Report Q2 2016 BMI Industry View BMI View: Vietnam is one of the most promising consumer markets in Asia, benefitting from favourable demographic dynamics, rapid economic growth fuelling household incomes and sustained levels of investment Reflecting this positive view, all categories within the food, drink and mass grocery retail sectors will grow at a rapid pace throughout our forecast period to 2020 Food & Drink Spending (2013-2020) 1,000,000,000 750,000,000 500,000,000 250,000,000 2013 2014 Food, sales, VNDmn 2015 2016f 2017f 2018f 2019f 2020f Non-alcoholic Drinks, sales, VNDmn f = BMI forecast Source: BMI, national statistics Latest Updates & Industry Developments ■ While food sales are growing from a low base in Vietnam, we forecast rapid growth over the next five years as households quickly climb the income ladder Combined with a young and sizeable consumer base, we expect strong investment from multinational food and drink companies ■ Beer sales will expand at a rapid pace throughout our forecast period to 2020 Nonetheless, heavy government intervention will limit opportunities for foreign investors The government's decision to reduce its stake in state-owned brewers Sabeco and Habeco had previously raised strong foreign interest Nonetheless, the government's willingness to sell stakes to domestic players will limit opportunities © Business Monitor International Ltd Page Vietnam Food & Drink Report Q2 2016 ■ The organised food retail sector will also experience strong growth Casino's decision to divest its Big C operations does not affect our positive outlook for the sector, as it rather reflects Casino's strategy to deleverage and refocus on core assets © Business Monitor International Ltd Page Vietnam Food & Drink Report Q2 2016 SWOT Food & Drink SWOT Analysis Strengths ■ Vietnamese consumers, particularly the young and affluent, are fairly brand aware by regional standards Accordingly, renowned Western products, backed by investment in marketing and promotions, tend to have highly successful launches ■ The wealthy urban centres of Hanoi and Ho Chi Minh City now provide highly receptive consumer audiences ■ Strong economic and private consumption growth will help fuel food consumption growth ■ Competitive pressure is increasing rapidly in the drinks sector, which is likely to drive greater sector dynamism and fuel growth ■ A growing multinational presence in the food retail sector has aided the acceptance of modern retail best practices in Vietnam, particularly things such as added-value instore services 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 ■ Vietnam's retail distribution networks remain underdeveloped, and expansionoriented firms must invest in infrastructural development as well as new store opening ■ Despite the growing presence of multinationals, local firms continue to dominate the beer market Opportunities ■ The government's focus on investment within the manufacturing and exports industry will help create a regional food and drink trade hub © Business Monitor International Ltd Page Vietnam Food & Drink Report Q2 2016 Unilever Vietnam SWOT Analysis Strengths ■ Strong brand appeal facilitates reach to Vietnamese consumers ■ Diverse product portfolio with multiple price entry points allows the company to capitalise on varying demand from different income groups ■ Complete ownership of its local subsidiary means it has full operational control ■ Focus on affordability ensures that the company has access to a wide lower-income consumer base Weaknesses ■ Limited food product offerings compared with other food and drink multinationals limits further sales opportunities ■ The absence of a local partner could impact its ability to respond to changing local taste preferences ■ While not a problem for non-perishable personal care items, food expansion may necessitate further supply chain investment owing to the underdeveloped infrastructure ■ Weak distribution infrastructure in many parts of the country makes it hard to reach consumers Opportunities ■ Urbanisation and middle-class growth could dramatically increase Unilever Vietnam's existing consumer base ■ Rising incomes could increase demand for non-essential consumer items ■ Relative sector immaturity provides massive long-term growth opportunities for Unilever Vietnam ■ Vietnam's favourable demographic profile is well suited to Unilever's fast-moving consumer goods portfolio Threats ■ Increased competition from rival multinationals and expansionary local and regional players could undermine the company's strong market share position © Business Monitor International Ltd Page 63 Vietnam Food & Drink Report Q2 2016 SWOT Analysis - Continued ■ Input cost volatility cannot easily be passed on in such a price-sensitive environment Company Overview Unilever Vietnam is a wholly owned subsidiary of Anglo-Dutch fast-moving consumer goods leader Unilever The parent took full control of the subsidiary in mid-2009, buying the 33.3% stake it did not already own from its local partner By far the largest section of Unilever's portfolio in Vietnam is accounted for by personal care products; the company also has a large number of homecare brands Its presence in the food sector is relatively smaller than that of its other consumer products, but it does have some notable brands in Knorr, Lipton and Wall's Strategy Reaching out to the Vietnamese rural consumer base has not been particularly easy for consumer goods manufacturers, whether local and multinational Lower-income, rural consumers have a smaller discretionary appetite for higher-value consumer goods, which has made it tougher for Unilever to sell some of its products In rural areas, weak distribution infrastructure frustrates the expansion efforts of consumer goods producers, while the dominance of traditional retail makes it even harder to reach would-be consumers efficiently However, these challenges have not deterred Unilever from setting up shop in the Vietnamese rural consumer market, clearly underlining the immense potential in this market According to Kantar Worldpanel's Brand Footprint ranking, Unilever is the brand which is bought by the most people in Vietnam's rural areas, reflecting the company's successful expansion in these areas Rising incomes, sector immaturity, the spread of organised retail and a plethora of macroeconomic driving factors make the Vietnamese consumer goods sector a high-growth prospect, and the rural consumer market will benefit strongly from these dynamics According to Tran Vu Hoai, the head of corporate relations for Unilever Vietnam, the firm's sales have been growing at an annual average of 18.5% over the past decade to reach USD700mn in 2010, of which rural sales make up about 50%, bearing out strong growth prospects in the rural consumer market These dynamics mean that multinationals and local consumer goods players have unsurprisingly been keen to position themselves early and will continue expanding in the rural markets in order to reap the exciting rewards on offer Unilever is offering some of its products such as shampoos and fabric softeners in cheaper small sachets, which cost around VND500 (USD0.02), as it looks to familiarise consumers with its products © Business Monitor International Ltd Page 64 Vietnam Food & Drink Report Q2 2016 Financial Data Unilever does not publish country-specific performance data Vietnam is included within the Asia, Africa and Central & Eastern Europe operating region Asia, Africa and Central & Eastern Europe revenue: ■ ■ ■ 2014: EUR19.7bn 2013: EUR20.1bn 2012: EUR18.9bn © Business Monitor International Ltd Page 65 Vietnam Food & Drink Report Q2 2016 Demographic Forecast Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model Not only is the total population of a country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues ranging from future population trends to productivity growth and government spending requirements The accompanying charts detail the population pyramid for 2015, the change in the structure of the population between 2015 and 2050 and the total population between 1990 and 2050 The tables show indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split and life expectancy Population (1990-2050) 150 100 50 2050f 2045f 2040f 2035f 2030f 2025f 2020f 2015f 2010 2005 2000 1990 Vietnam - Population, mn f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 66 Vietnam Food & Drink Report Q2 2016 Vietnam Population Pyramid 2015 (LHS) & 2015 Versus 2050 (RHS) Source: World Bank, UN, BMI Table: Population Headline Indicators (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f 68,209 80,285 84,203 88,357 93,447 98,156 102,092 na 1.1 0.9 1.0 1.1 0.9 0.7 Population, total, male, '000 33,583 39,551 41,469 43,626 46,224 48,590 50,510 Population, total, female, '000 34,625 40,734 42,734 44,730 47,223 49,566 51,581 Population ratio, male/female 0.97 0.97 0.97 0.98 0.98 0.98 0.98 Population, total, '000 Population, % y-o-y na = not available; f = BMI forecast Source: World Bank, UN, BMI Table: Key Population Ratios (Vietnam 1990-2025) Active population, total, '000 Active population, % of total population Dependent population, total, '000 Dependent ratio, % of total working age © Business Monitor International Ltd 1990 2000 2005 2010 2015f 2020f 2025f 38,808 49,712 55,795 61,655 65,572 67,775 69,459 56.9 61.9 66.3 69.8 70.2 69.0 68.0 29,401 30,573 28,408 26,702 27,875 30,381 32,633 75.8 61.5 50.9 43.3 42.5 44.8 47.0 Page 67 Vietnam Food & Drink Report Q2 2016 Key Population Ratios (Vietnam 1990-2025) - Continued Youth population, total, '000 1990 2000 2005 2010 2015f 2020f 2025f 25,494 25,416 22,866 20,919 21,576 22,487 22,335 65.7 51.1 41.0 33.9 32.9 33.2 32.2 3,907 5,157 5,542 5,783 6,298 7,893 10,298 10.1 10.4 9.9 9.4 9.6 11.6 14.8 Youth population, % of total working age Pensionable population, '000 Pensionable population, % of total working age f = BMI forecast Source: World Bank, UN, BMI Table: Urban/Rural Population & Life Expectancy (Vietnam 1990-2025) 1990 Urban population, '000 2020f 2025f 13,815.9 19,568.8 22,971.6 26,853.7 31,391.9 36,120.7 40,780.9 Urban population, % of total Rural population, '000 2000 20.3 24.4 2005 27.3 2010 30.4 2015f 33.6 36.8 39.9 54,393.7 60,716.8 61,232.2 61,504.1 62,055.7 62,036.0 61,311.7 Rural population, % of total 79.7 75.6 72.7 69.6 66.4 63.2 60.1 Life expectancy at birth, male, years 66.0 68.4 69.3 70.2 71.2 72.1 73.1 Life expectancy at birth, female, years 75.1 78.1 79.2 80.0 80.6 81.1 81.6 Life expectancy at birth, average, years 70.5 73.3 74.3 75.1 75.9 76.7 77.4 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, total, '000 9,211 7,244 6,751 7,265 7,740 7,601 7,108 Population, 5-9 yrs, total, '000 8,512 9,119 7,130 6,648 7,221 7,698 7,562 Population, 10-14 yrs, total, '000 7,769 9,052 8,983 7,005 6,614 7,187 7,664 Population, 15-19 yrs, total, '000 7,277 8,401 8,941 8,877 6,972 6,583 7,156 Population, 20-24 yrs, total, '000 6,570 7,610 8,242 8,764 8,803 6,908 6,522 Population, 25-29 yrs, total, '000 5,938 7,019 7,408 8,022 8,664 8,705 6,823 Population, 30-34 yrs, total, '000 5,079 6,300 6,863 7,223 7,932 8,572 8,616 Population, 35-39 yrs, total, '000 3,842 5,746 6,190 6,718 7,146 7,850 8,488 Population, 40-44 yrs, total, '000 2,447 4,938 5,663 6,096 6,640 7,065 7,766 Population, 45-49 yrs, total, '000 2,003 3,710 4,880 5,592 6,004 6,543 6,968 © Business Monitor International Ltd Page 68 Vietnam Food & Drink Report Q2 2016 Population By Age Group (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 50-54 yrs, total, '000 1,956 2,331 3,658 4,801 5,467 5,875 6,410 Population, 55-59 yrs, total, '000 2,033 1,873 2,223 3,501 4,625 5,275 5,681 Population, 60-64 yrs, total, '000 1,658 1,779 1,723 2,055 3,314 4,392 5,023 Population, 65-69 yrs, total, '000 1,402 1,759 1,599 1,551 1,894 3,066 4,081 Population, 70-74 yrs, total, '000 1,021 1,313 1,520 1,390 1,369 1,682 2,739 Population, 75-79 yrs, total, '000 747 977 1,073 1,254 1,158 1,150 1,424 Population, 80-84 yrs, total, '000 426 593 726 809 957 893 895 Population, 85-89 yrs, total, '000 221 334 382 479 541 649 613 Population, 90-94 yrs, total, '000 70 131 176 208 265 305 370 Population, 95-99 yrs, total, '000 15 40 52 73 88 114 133 Population, 100+ yrs, total, '000 11 16 23 30 39 f = BMI forecast Source: World Bank, UN, BMI Table: Population By Age Group % (Vietnam 1990-2025) 1990 2000 2005 2010 2015f 2020f 2025f Population, 0-4 yrs, % total 13.50 9.02 8.02 8.22 8.28 7.74 6.96 Population, 5-9 yrs, % total 12.48 11.36 8.47 7.52 7.73 7.84 7.41 Population, 10-14 yrs, % total 11.39 11.28 10.67 7.93 7.08 7.32 7.51 Population, 15-19 yrs, % total 10.67 10.46 10.62 10.05 7.46 6.71 7.01 Population, 20-24 yrs, % total 9.63 9.48 9.79 9.92 9.42 7.04 6.39 Population, 25-29 yrs, % total 8.71 8.74 8.80 9.08 9.27 8.87 6.68 Population, 30-34 yrs, % total 7.45 7.85 8.15 8.18 8.49 8.73 8.44 Population, 35-39 yrs, % total 5.63 7.16 7.35 7.60 7.65 8.00 8.31 Population, 40-44 yrs, % total 3.59 6.15 6.73 6.90 7.11 7.20 7.61 Population, 45-49 yrs, % total 2.94 4.62 5.80 6.33 6.43 6.67 6.83 Population, 50-54 yrs, % total 2.87 2.90 4.34 5.43 5.85 5.99 6.28 Population, 55-59 yrs, % total 2.98 2.33 2.64 3.96 4.95 5.37 5.57 Population, 60-64 yrs, % total 2.43 2.22 2.05 2.33 3.55 4.47 4.92 Population, 65-69 yrs, % total 2.06 2.19 1.90 1.76 2.03 3.12 4.00 Population, 70-74 yrs, % total 1.50 1.64 1.81 1.57 1.47 1.71 2.68 Population, 75-79 yrs, % total 1.10 1.22 1.27 1.42 1.24 1.17 1.40 Population, 80-84 yrs, % total 0.63 0.74 0.86 0.92 1.02 0.91 0.88 © Business Monitor International Ltd Page 69 Vietnam Food & Drink Report Q2 2016 Population By Age Group % (Vietnam 1990-2025) - Continued 1990 2000 2005 2010 2015f 2020f 2025f Population, 85-89 yrs, % total 0.33 0.42 0.45 0.54 0.58 0.66 0.60 Population, 90-94 yrs, % total 0.10 0.16 0.21 0.24 0.28 0.31 0.36 Population, 95-99 yrs, % total 0.02 0.05 0.06 0.08 0.09 0.12 0.13 Population, 100+ yrs, % total 0.00 0.01 0.01 0.02 0.03 0.03 0.04 f = BMI forecast Source: World Bank, UN, BMI © Business Monitor International Ltd Page 70 Vietnam Food & Drink Report Q2 2016 Glossary Food & Drink Food Consumption: All four food consumption indicators (food consumption in local currency, food consumption in US dollar terms, per capita food consumption and food consumption as a percentage of GDP) relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/ section Off-trade: Relates to an item consumed away from the premises on which it was purchased For example, a bottle of water bought in a supermarket would count as off-trade, while a bottle of water purchased as part of a meal in a restaurant would count as on-trade Canned Food: Relates to the sale of food products preserved by canning This is inclusive of canned meat and fish, canned ready meals, canned desserts and canned fruits and vegetables Volume sales are measured in tonnes as opposed to on a unit basis to allow for cross-market comparisons Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products Chocolate sales include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum; and sugar confectionery sales include hard-boiled sweets, mints, jellies and medicated sweets Trade: In the majority of BMI's Food & Drink reports, we use the UN Standard International Trade Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and Vegetable Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits Where an alternative classification is used due to data availability, this is clearly stated Drinks Sales: Soft drinks sales (including carbonates, fruit juices, energy drinks, bottled water, functional beverages and ready-to-drink tea and coffee), alcoholic drinks sales (including beer, wine and spirits) and tea and coffee sales (excluding ready-to-drink tea and coffee products that are incorporated under BMI's soft drinks banner) are all off-trade only, unless stated Mass Grocery Retail Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by companies with a network of modern grocery retail stores and modern distribution networks MGR differs from independent or traditional retail, which relates to informal, independent-owned grocery stores or traditional market retailing MGR incorporates hypermarket, supermarket, convenience and discount retailing, and in unique cases cooperative retailing Where supermarkets are independently owned and not classified as MGR, BMI will state so clearly within the relevant report © Business Monitor International Ltd Page 71 Vietnam Food & Drink Report Q2 2016 Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of general merchandise goods (non-food items) and typically more than 2,500sq m in size Traditionally only found on the outskirts of towns, hypermarkets are increasingly appearing in urban locations Supermarket: Supermarkets are the original and still most globally prevalent form of self-service grocery retail outlet BMI classifies supermarkets as more than 300sq m, up to the size of a hypermarket The typical supermarket carries both fresh and processed food and will stock a range of non-food items, most commonly household and beauty goods The average supermarket will increasingly offer some added-value services, such as dry cleaning or in-store ATMs Discount Stores: Although most commonly between 500sq m and 1,500sq m in size, and thus of the same classification as supermarkets, discount stores will typically have a smaller floor space than their supermarket counterparts Other distinguishing features include the prevalence of low-priced and private label goods, an absence of added-value services, often called a no-frills environment, and a high product turnover rate Convenience Stores: BMI's classification of convenience stores includes small outlets typically less than 300sq m in size, with long opening hours and located in high footfall areas These stores mainly sell fastmoving food and drink products (such as confectionery, beverages and snack foods) and non-food items, typically stocking only two or three brand choices per item and often carrying higher prices than other forms of grocery store Cooperatives: BMI classifies cooperatives as retail stores that are independently owned but club together to form buying groups under a cooperative arrangement, trading under the same banner, although each is privately owned The arrangement is similar to a franchise system, although all profits are returned to members The term is becoming more archaic, with fewer cooperatives remaining that conform to this model Most cooperative groups now have a more centralised management structure, operate more like normal supermarkets, and are thus classified as such in BMI's reports © Business Monitor International Ltd Page 72 Vietnam Food & Drink Report Q2 2016 Methodology Industry Forecast Methodology BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and causal/econometric modelling The precise form of model we use varies from industry to industry, in each case being determined, as per standard practice, by the prevailing features of the industry data being examined Common to our analysis of every industry is the use of vector autoregressions Vector autoregressions allow us to forecast a variable using more than the variable's own history as explanatory information For example, when forecasting oil prices, we can include information about oil consumption, supply and capacity When forecasting for some of our industry sub-component variables, however, using a variable's own history is often the most desirable method of analysis Such single-variable analysis is called univariate modelling We use the most common and versatile form of univariate models: the autoregressive moving average model (ARMA) In some cases, ARMA techniques are inappropriate because there is insufficient historic data or data quality is poor In such cases, we use either traditional decomposition methods or smoothing methods as a basis for analysis and forecasting BMI mainly uses ordinary least squares estimators In order to avoid relying on subjective views and encourage the use of objective views, BMI uses a 'general-to-specific' method BMI mainly uses a linear model, but simple non-linear models, such as the log-linear model, are used when necessary During periods of 'industry shock', for example when poor weather conditions impede agricultural output, dummy variables are used to determine the level of impact Effective forecasting depends on appropriately selected regression models BMI selects the best model according to various different criteria and tests, including but not exclusive to: ■ R2 tests explanatory power; adjusted R2 takes degree of freedom into account ■ Testing the directional movement and magnitude of coefficients ■ Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value) ■ All results are assessed to alleviate issues related to auto-correlation and multi-collinearity © Business Monitor International Ltd Page 73 Vietnam Food & Drink Report Q2 2016 BMI uses the selected best model to perform forecasting Human intervention plays a necessary and desirable role in all of BMI's industry forecasting Experience, expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous data, turning points and seasonal features where a purely mechanical forecasting process would not Sector-Specific Methodology Within the Food & Drink industry, issues that could result in human intervention might include but are not exclusive to: ■ Significant company expansion plans; ■ New product development that might influence pricing levels; ■ Dramatic changes in local production levels; ■ Product taxation; ■ The regulatory environment and specific areas of legislation; ■ Changes in lifestyles and general societal trends; ■ The formation of bilateral and multilateral trading agreements and negotiations; ■ Political factors influencing trade; ■ The development of the industry in neighbouring markets that are potential competitors for foreign direct investment Example Of Food Consumption Model (Food Consumption)t = β0 + β1*(GDP)t + β2*(inflation)t + β3*(lending rate)t + β4* (foreign exchange rate)t + β5*(government expenditure)t + β6*(food consumption)t-1 + εt Sources BMI uses the following sources in the compilation of data, developments and analysis for its range of Food & Drink reports: national statistics offices; local industry governing-bodies and associations; local trade associations; central banks; government departments, particularly trade, agricultural and commerce ministries; officially released information and financial results from local and multinational companies; cross-referenced information from local and international news agencies and trade press outlets; figures from global organisations, such as the World Trade Organization (WTO), the World Health Organization © Business Monitor International Ltd Page 74 Vietnam Food & Drink Report Q2 2016 (WHO), the UN Food and Agricultural Organization (FAO) and the Organisation for Economic Cooperation and Development (OECD) Risk/Reward Index Methodology BMI's Risk/Reward Index (RRI) provides a comparative regional ranking system evaluating the ease of doing business and the industry-specific opportunities and limitations for potential investors in a given market The RRI system divides into two distinct areas: Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development This is further broken down into two sub-categories: ■ Industry Rewards: This is an industry-specific category taking into account current industry size and growth forecasts, and the openness of the market to new entrants and foreign investors, to provide an overall score for potential returns for investors • Country Rewards: this is a country-specific category, and the score factors in favourable political and economic conditions for the industry Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic profile that calls into question the likelihood of expected returns being realised over the assessed time period This is further broken down into two sub-categories: ■ Industry Risks: This is an industry-specific category whose score covers potential operational risks to investors, regulatory issues inhibiting the industry and the relative maturity of a market • Country Risks: This is a country-specific category in which political and economic instability, unfavourable legislation and a poor overall business environment are evaluated to provide an overall score We take a weighted average, combining industry and country risks, or industry and country rewards These two results in turn provide an overall Risk/Reward Index, which is used to create our regional ranking system for the risks and rewards of involvement in a specific industry in a particular country For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall index a weighted average of the total score Importantly, as most of the countries and territories evaluated are considered by BMI to be 'emerging markets', our index is revised on a quarterly basis This ensures that the index draws on the latest information and data across our broad range of sources, and the expertise of our analysts In constructing these indices, the following indicators have been used Almost all indicators are objectively based © Business Monitor International Ltd Page 75 Vietnam Food & Drink Report Q2 2016 Table: Food & Drink Risk/Reward Index Indicators Rewards Industry rewards Food and drink consumption per capita, USD Indicator denotes overall breadth of market Wealthier markets score higher Per capita food consumption growth, fiveyear compound annual growth, % Lead Food & Drink growth indicator Scores based on compound annual growth over our five-year forecast period Market fragmentation Subjective score reflecting how relatively developed the industry is Higher score reflects a more fragmented industry Country rewards Population size, mn Indicator denotes size of market GDP per capita, USD Proxy for wealth Size of population is important but needs to be considered in relation to spending power High-income states receive better scores than low-income states Youth population, % The size of the 0-15 age group as a percentage of the total working age population Younger populations are generally considered to be more desirable Risks Industry risks Mass grocery retail penetration, % The proportional contribution of the organised food retailing sector; higher scores reflect better developed routes to consumers and more efficient internal trade systems Regulatory environment Subjective score based on the industry-specific regulatory environment and the presence of potentially restrictive legislation Country risks Short-term economic growth Score from BMI's Country Risk Index (CRI) It evaluates likely growth trajectory over a two-year forecast period, based on BMI's forecasts and projections of business and consumer confidence Income distribution Middle 60% of population as % of total spending Higher score is an indicator of incomes being spread more equitably Lack of bureaucracy From CRI It evaluates the risks to business posed by official bureaucracy, the broader legal framework and corruption Market orientation Subjective score from CRI to denote predictability of openness to foreign investment and trade Physical infrastructure From CRI Poor power/water/transport infrastructure act as bottlenecks to sector development Source: BMI © Business Monitor International Ltd Page 76 Vietnam Food & Drink Report Q2 2016 Weighting: Given the number of indicators/datasets used, it would be inappropriate to give all subcomponents equal weight Consequently, the following weights have been adopted: Table: Weighting Component Weighting Rewards 60% - Industry rewards 30% - Country rewards 30% Risks 40% - Industry risks 20% - Country risks 20% Source: BMI © Business Monitor International Ltd Page 77 [...]... 11 9 10 12 12 11 11 Coffee, teas and other hot drinks, sales, VNDmn Coffee, teas and other hot drinks, sales, VNDmn, % growth y-o-y Soft drinks, sales, VNDmn Soft drinks, sales, VNDmn, % growth y-o-y © Business Monitor International Ltd Page 22 Vietnam Food & Drink Report Q2 2016 Non-Alcoholic Drink Sales (Vietnam 2013-2020) - Continued 2013 2014 2015 2016f 2017f 2018f 2019f 2020f Fruit and vegetable... major hindrance to running a business in Vietnam, as well as ongoing weakness in the country's political environment Vietnam vs Asia Pacific Food & Drink Risk/Reward Index Q21 6 Source: BMI © Business Monitor International Ltd Page 32 Vietnam Food & Drink Report Q2 2016 Market Overview Food Recent Developments ■ Domestic brands have only a modest presence in Vietnam, which can be attributed to the distribution... is advantageous to businesses choosing to operate in a country © Business Monitor International Ltd Page 30 Vietnam Food & Drink Report Q2 2016 Vietnam Risk/Reward Index Vietnam still ranks 12th among 15 economies in BMI's Q21 6 Food & Drink Risk/Reward Index for the Asia Pacific region Recently, Vietnam' s consumer sector has been the recipient of a flurry of investment activity, as the country offers... Ltd Page 27 Vietnam Food & Drink Report Q2 2016 Asia Pacific Food & Drink Risk/Reward Index Q21 6 - Continued Reward Industry Reward Country Reward Risk Industry Risk Country Risk Food & Drink Rating Ranking Taiwan 39.5 26.0 53.0 74.2 80.0 68.4 53.4 8 Malaysia 41.4 40.0 42.7 62.8 60.0 65.6 49.9 9 Thailand 40.4 44.0 36.9 58.8 60.0 57.5 47.8 10 Indonesia 47.8 50.0 45.6 42.9 34.0 51.7 45.8 11 Vietnam 43.2... bracket over 2015-2020, which will boost sales of fast-moving consumer goods Emerging Middle Class To Drive Food Sales Vietnam - Household Income ('000 Households) Source: National sources, BMI © Business Monitor International Ltd Page 12 Vietnam Food & Drink Report Q2 2016 Food BMI View: The Vietnamese food industry will experience tremendous growth throughout our forecast period to 2020 Growing consumer... distribution for food and drink companies - as well as weaker business © Business Monitor International Ltd Page 26 Vietnam Food & Drink Report Q2 2016 environments and low food sales per capita Nonetheless, we still expect these markets to offer the greatest long-term growth potential, as market fragmentation leaves room for new entrants With rising investment in the MGR sector and growing food sales,... will only instil greater dynamism into the sector © Business Monitor International Ltd Page 20 Vietnam Food & Drink Report Q2 2016 Non-Alcoholic Drink Sales (2013-2020) 60,000,000 13 12 40,000,000 11 10 20,000,000 9 0 8 2013 2014 2015 2016f 2017f 2018f 2019f 2020f Non-alcoholic Drinks, sales, VNDmn Non-alcoholic Drinks, sales, VNDmn, % growth y-o-y f = BMI forecast Source: BMI, national statistics A massive,.. .Vietnam Food & Drink Report Q2 2016 SWOT Analysis - Continued ■ Rising income levels and changing lifestyles, particularly in urban areas, are increasing consumer demand for snacks, convenience and luxury food and drink 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... will also benefit from high female participation in the labour force, by global and regional standards © Business Monitor International Ltd Page 25 Vietnam Food & Drink Report Q2 2016 Food & Drink Risk/Reward Index Asia Pacific - Risk/Reward Index BMI's Food & Drink Risk/Reward Index assesses a market's attractiveness to industry investors in comparison to its peers The reward part of the index takes into... Sugar and sugar products, sales, VNDmn Sugar and sugar products, sales, VNDmn, % growth y-oy Other food products, sales, VNDmn Other food products, sales, VNDmn, % growth y-oy f = BMI forecast Source: BMI, national statistics © Business Monitor International Ltd Page 18 Vietnam Food & Drink Report Q2 2016 Drink BMI View: Soft, hot and alcoholic beverages sales will expand at a rapid pace throughout our ... 30 Vietnam Food & Drink Report Q2 2016 Vietnam Risk/Reward Index Vietnam still ranks 12th among 15 economies in BMI's Q21 6 Food & Drink Risk/Reward Index for the Asia Pacific region Recently, Vietnam' s... Page 27 Vietnam Food & Drink Report Q2 2016 Asia Pacific Food & Drink Risk/Reward Index Q21 6 - Continued Reward Industry Reward Country Reward Risk Industry Risk Country Risk Food & Drink Rating... Drive Food Sales Vietnam - Household Income ('000 Households) Source: National sources, BMI © Business Monitor International Ltd Page 12 Vietnam Food & Drink Report Q2 2016 Food BMI View: The Vietnamese