Dairy companies with international ambitions are increasingly looking to emerging markets – and notably towards Asia, where consumption is booming.
However, the wise business strategist poring over SWOT analyses of markets knows one should take each country on its own merits. Vietnam has some strong, well-entrenched companies operating in its dairy sector but, for a number of reasons, Vietnam appears to offer the expansionist dairy company with reasons for optimism.
In the words of Bert Jan Post, MD of the Vietnamese arm of packaging giant Tetra Pak, data “is always a bit of an issue” in the country. However, there is broad consensus about two things: one, Vietnam’s dairy market is growing rapidly; and, two, per capita consumption is among the lowest in the region, which underlines the market’s potential.
Vietnam’s dairy sector has enjoyed buoyant growth in recent years on the back of the wider growth in the economy, urbanisation and rising incomes. The Vietnamese government has also been investing in the sector to boost production and exports.
According to research from Business Monitor International, dairy consumption at the mass-market level is rising at a “high single-digit” rate each year. The analysts at BMI also “an estimated 75% of of the high-growth Vietnamese dairy market” is accounted for by one company – Vinamilk.
Euromonitor data shows Vinamilk accounts for almost half of sales of drinking milk and has the lion’s share of other categories like condensed milk and yoghurt.
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Tetra Pak, which works with many of the largest processors in Vietnam, including FrieslandCampina, says per capita consumption of liquid dairy products in the country is above Indonesia and the Philippines but lags that seen in Thailand, Singapore and Malaysia – and is half the global average.
Jan Post says the consumption of ready-to-drink dairy products has doubled in five years. Growth is expected to slow as we move through the decade but Tetra Pak, citing Euromonitor data, forecasts ready-to-drink dairy consumption will jump by a third from the 1.82bn litres seen in 2013 to 2.43bn in 2017.
Growth in the dairy sector has slowed as Vietnam’s economy has cooled, although the category is said to have performed better than other parts of the food industry.
That said, as Vietnam’s consumers have become more cautious in their spending, dairy processors have turned to discounting to entice shoppers to their brands.
“There are a lot of promotions in the supermarket nowadays,” Nguyen Quoc Khánh, Vinamilk’s executive director for R&D and production, says.
Khánh also believes Vietnamese consumers are more discriminatory in the dairy products they buy. “The consumers become more selective when choosing dairy products for their families and themselves,” he says.
Vinamilk has sought to protect its position in the market with the opening of two new plants. “These two factories are applying the latest technology into production in order to be able to provide consumers with high quality and diversified dairy products,” Khánh says.
Despite Vinamilk’s position in Vietnam’s dairy sector, the category is, according to those present in the industry, fiercely competitive. “The biggest dairy companies are in Vietnam,” Khánh says. “Nestle, Danone. The competition between these companies is very hard but not only now.”
One major rival for Vinamilk is FrieslandCampina, the Dutch co-operative. Mark Boot, the MD of FrieslandCampina’s local business, describes the Vietnamese dairy sector as a “fully competitive market” and insists fierce competition means promotions are “critical” whatever the economic conditions in the country.
Next year, the ten nations that make up the Association of Southeast Asian Nations are set to form the ASEAN Economic Community, or the AEC, which will lead to the free movement of goods and services among the region – and the potential of new entrants into Vietnam’s food sector.
Asked about the prospect of competition intensifying, Khánh is relaxed. “If the market opens, more competitors entering the market is good for the consumer.”
Growth is expected to continue, not just in liquid milk, but in smaller categories like cheese and yoghurt. Vietnam’s cheese sector is dominated by France’s Groupe Bel, which Euromonitor says accounted for 70% of sales in 2013, with the likes of international brands including La Vache Qui Rit and Babybel.
La Vache Qui Rit, Euromonitor says, was one of the first cheese brands available in the country but the analyst firm says Bel has sought to support its “first-mover advantage” with investment in advertising and promotions. And, like Vinamilk and FrieslandCampina, Bel has an extensive distribution network in Vietnam, a significant benefit in a country where getting products around remains a challenge, especially with the modern retail trade only accounting for 10% of sales.
However, cheese could present an opportunity for international companies. Euromonitor forecasts Vietnam’s cheese sector will grow at a CAGR of 8% between 2013 and 2018, almost two percentage points higher than in the previous five-year period.
“Cheese has been gaining more acceptance along with the increasing exposure to the Western lifestyle and cuisine. The target consumers of cheese are the young, especially those living in urban areas,” Euromonitor says. “This high growth is also supported by the continuous expansion of Western foodservice outlets in the country, both fast food chains and Western cuisine restaurants.”
Yoghurt is a sector in which Vinamilk is the major player. Euromonitor’s data for Vietnam’s yoghurt and sour milk category says Vinamilk enjoyed over 70% of sales last year. The sector saw sales rise 11% in 2013, Euromonitor says. It notes demand will continue to remain high during the decade, thanks to rising incomes, demand for convenient products and a growing interest in health and fitness. However, Euromonitor forecasts the category will see its CAGR slow to 6% between 2013 and 2018 “because of the maturity stage of this category as well as the intense competition”.
Nevertheless, for dairy companies looking for growth opportunities, there is a consensus Vietnam, with a population enjoying rising incomes but one where per capita consumption is relatively low, should be a market to consider.
There are challenges, notably in distribution, which has a particular impact on the delivery of chilled products like dairy. For Tetra Pak, UHT will remain the preferred format and growth, it says, will come from “portion packs”.
There is also some formidable competitors in a number of sub-categories, which are either homegrown or have been in the market for a number of years and have got to grips with the challenge of operating in Vietnam. “We partner with 170 distributors who service directly 170,000 retail outlets nationwide to make sure our products are well available in every corner of the country,” FrieslandCampina’s Boot says.
Vietnam should be on the short-list of business development executives within dairy majors looking for ways to grow.