BMI's Executive Summary

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The latest round of financial results announcements from Malaysia's leading drinks companies have confirmed that producers remain gripped by the global challenges of rising ingredient, production and transportation costs. Afraid of losing sales in what remains a very price-sensitive market – in spite of steady economic growth and rising disposable incomes – beverage manufacturers in Malaysia have proved scared of passing these rising costs on to their customers. However, it is company profits that are paying the price for the adoption of this strategy, which is in turn affecting companies' capacity for reinvestment and the pursuit of further growth.

The local unit of Singaporean beverage producer Yeo Hiap Seng (YHS) announced a pre-tax loss of US$4mn for the first nine months of 2007, compared to a pre-tax profit of US$5.4mn for the same period in 2006. Danish brewing giant Carlsberg announced that its local subsidiary was also suffering, with nine-month net profit falling by a worrying 32.6% to US$18mn. Some comfort for Carlsberg will come from the fact that its fierce local rival Guinness Anchor Berhad (GAB) also continues to struggle. In Q407, GAB announced that net profit for fiscal 2007, ending June, was down 13.8% to US$37mn.

Although alcoholic and soft drinks sales in Malaysia are forecast to increase by 13.5% and 20.8% in value terms respectively to 2012, all three firms clearly believe that demand from their own consumers is not strong enough to accommodate price increases at this time. Per capita food and beverage consumption in Malaysia stood at a regionally impressive US$428 in 2007. BMI expects this to increase by a reasonably healthy 8.6% to 2012. Nonetheless Malaysian consumers remain highly price conscious, with their purchasing behaviour having triggered some very aggressive price wars in the country in the past. With the above three firms playing it 'safe' by cushioning rising costs internally, there is now a risk that their capacity to reinvest in the sort of product innovation that typically stimulates sales growth in Malaysia will be jeopardised.

Such a risk becomes clearer when one considers another key financial announcement from recent months, that of the local subsidiary of Singaporean beverage giant Fraser & Neave (F&N). On acknowledging that spiralling costs might be structural, not short-term cyclical, F&N immediately made the bold decision of passing the higher prices on to its consumers. The tactic paid dividends. Not only did F&N's pre-tax profit for FY07, ending September, climb by 13.9% to US$66.3mn, consumers proved undeterred and the company's diverse portfolio was sufficient to see revenues surpass initial expectations by 4.4% to reach US$861mn. Such success has allowed F&N to proceed with its scheduled US$100mn investment in a new fruit juice and dairy plant for Malaysia, as well as allowing it to boost its soft drinks market share to the further detriment of its struggling rivals. BMI would expect to see some of these rivals follow suit in 2008.

Contents

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Chapter 1 – Business Environment

Retail Business Environment Rankings

Table: Asia Pacific Business Environment Rankings

SWOT Analysis

Malaysia Food & Drink Industry SWOT

Macroeconomic Outlook

Table: GDP, Output & Population

Chapter 2 – Retail

Regional Overview – Private Labelling In Asia Pacific

Table: Assessment Of Private Label Qualities – By Region

Table: Leading Private Label Categories By Market Share & Annual Growth Rate

Industry Forecast Scenario

Table: Malaysia MGR Sales Value By Format – Historical Data & Forecasts

Industry Developments

Company Developments

Market Overview

Table: Structure Of Malaysia’s MGR Market By Number Of Outlets

Table: Structure Of Malaysia’s MGR Market Value Sales By Format (US$bn)

Table: Average Sales Per Outlet By Format (US$mn) – 2005

Chapter 3 – Food & Drink

Regional Overview – Dairy In Asia

Table: Per-Capita Dairy Consumption (kg) & Consumption Growth In Selected Asian Markets

Table: Milk Production (000 tonnes) & Production Growth In Selected Asian Markets

Table: Dairy Production (000 tonnes) Forecasts In Selected Asian Markets

Industry Forecast Scenario

Table: Food Consumption Indicators – Historical Data & Forecasts

Industry Developments

Company Developments

Market Overview

Table: Malaysia Agricultural Sub-Sector Production Volume – Historical Data, Volume (tonnes)

Chapter 4 – Tobacco

Industry Forecast Scenario

Table: Cigarette Value/Volume Sales – Historical Data & Forecasts

Industry Developments

Company Developments

Market Overview

Chapter 5 – Competitive Landscape

Key Players

Table: Key Players In Malaysia’s MGR Sector – 2005

Table: Key Players In Malaysian Food & Drink Sector – 2005

Asia Pacific Regional Company Case Studies

AEON In Asia Pacific

Table: AEON Five-year Financials (JPYmn)

Table: Speciality Store Network (as at February 20 2006)

Coca-Cola Amatil In Asia Pacific

Table: Coca-Cola Amatil Five-Year Financials

Table: Coca-Cola Amatil Market Share By Country And By Beverage Sub-sector – As At Year-End 2005

Table: SPC Ardmona Market Share By Product Category

Heineken In Asia Pacific

Table: Heineken – Brands Distributed In The Asia Pacific Region

Table: Contribution Of Asia Pacific Region To Heineken 2005 Financial Performance

Kraft In Asia Pacific

Table: 2005 Kraft Global Facts

Company Analysis

Yeo Hiap Seng (YHS)

Guinness Anchor Berhad

Carrefour

Dairy Farm

AEON

British American Tobacco (Malaysia) Berhad

Nestlé Malaysia

Carlsberg Malaysia

BMI Forecast Modelling

How We Generate Our Industry Forecasts

Retail Industry

Sources

Competitive Landscape for Asia Food & Drink Reports: Sample of  
Companies Ranked

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At-a-glance perspective on the strengths, weaknesses, opportunities and threats facing each market’s food & drink industry. BMI also provides similar economic and business environment studies. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) covering all leading food and drink companies operating in each market, including competitive intelligence on geographic presence and competitive positioning of multinationals against local companies; leading products, services and brands; sales and local market share; foreign direct investment, projects, partners and acquisition strategy. Illustration of the industry via rankings tables comparing revenues, number of outlets, number of employees and registration dates. BMI analyses each company’s performance, market position, strategy and investment potential.

Network of Asain Food Sources

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BMI's Asian Food Reports are based on an extensive network of multilateral organisations, government departments, food industry associations, chambers of commerce and company reports. Information sources include: