Baked Goods in Vietnam

Category Briefing | 15 Mar 2013

HEADLINES

In 2012, baked goods grows by 17% in terms of value sales to reach VND11.4 trillion Growth is driven by major local brands with a strong heritage and trusted quality Pastries record the strongest current value growth of 20% Average unit price of baked goods increases by 10% Kinh Do continues to be the market leader with a 16% value share Over the forecast period, baked goods is expected to grow by a volume CAGR of 6% and constant value CAGR of 4%

TRENDS

In 2012, local brands continued to grow across all retail channels thanks to the governments continuous support to promote V ietnam products. The Vietnamese retail union has made efforts to encourage its members to bring in more Vietnamese brands. At the same time, the union also helped local brands to improve their quality to qualify for listings in modern channels. This movement was also penetrating into the rural areas with the governments subsidy for participation in local fairs and dis tribution networks. The current retail value growth in 2012 of 17% was stronger compared to 2011. The growth is also slightly higher than the value CAGR of 16% over the review period. However, in terms of retail volume sales, baked goods recorded slightly slower growth in 2012 as the market matured. Demand for baked goods is attributed to the increasingly busy lifestyles and exposure to the Western culture. More Vietnamese consumers are replacing the traditional Vietnamese breakfast of noodles with quick ready-to-eat bakery products for convenience and to save time.

Pastries saw the strongest growth with 11% volume growth and 20% value growth in 2012. Within pastries, unpackaged/ artisanal pastries were the best performer with 22% value growth compared to packaged/industrial pastries. This is attributed to the emergence of many bakery shops with freshly-baked products mostly located in every residential area. Their convenient location attracts consumers to these shops, especially office workers and parents having to take their children to school before work. In addition, many big supermarkets and hypermarkets have started stocking pastries products to create a pleasant aroma that appeals to customers and keeps them in the store. Major bakery brands such as Kinh Do and Duc Phat continue to expand in terms of both variety and geographical coverage. All of these factors have increased the consumers exposure and consumption of pastries. The average unit price continued to increase by 10% in 2012 mainly due to inflation. Although all baking ingredients can be supplied domestically, most of the wheat flour used for baking is imported from overseas. Therefore, volatile cereal commodity prices at a global level contributed to the risingbaked goods price in Vietnam. In addition, rising oil prices led to higher production costs. Although packaged/industrial baked goods accounted for 58% of the total retail value sales of thebaked goods category, unpackaged/artisanal baked goods achieved higher volume sales with 69% of total retail volume sales of baked goods. This is due to the relatively cheaper price of unpackaged/ artisanal breads. Consumers prefer unpackaged breads due to their freshness, wide variety, accessibility as well as affordability. Packaged/industrial baked goods are preferred for longer storage at home or for outings. Although white sandwich bread has been seeing a slight decrease over the review period, it is still the most popular type of packaged/industrial bread with a 79% market share, followed by buns and rolls with 11% and baguettes with 6%. White sandwich bread is still the most convenient bakery product to stock at home for a quick and easy-to-prepare breakfast at home. Baguettes, buns and rolls are gradually growing thanks to the good performance of private labels in supermarkets and hypermarkets, such as Metro and Big C. In cakes, single portion cakes dominate with 89% of value sales. Multi-portions are usually purchased only for special occasions while single portion cakes are more convenient for consumption during breakfast, at work or as dessert. Baked goods are distributed mainly through other grocery retailers particularly bakery stores which have a 67% value share, followed by independent small grocers and supermarkets and hypermarkets. Although supermarket and hypermarket in-store bakeries are doing well, they did not significantly impact the whole market situation due to the wide distribution network of bakery stores and independent grocery stores, which are more accessible and convenient.

COMPETITIVE LANDSCAPE

Kinh Do continued to gain share and maintain the clear market leadership position with 16% value share. Although facing strong competition from artisanal bakeries, especially in breads, Kinh Do has a strong competitive advantage in packaged/ industrial breads and pastries thanks to its years of presence in Vietnam and reputation for good quality Vietnamese products. The company has benefited

greatly from the governments policy to encourage Vietnamese consumers to use Vietnamese prod ucts. Kind Do also continuously invests in refreshing the product variety, store environment as well as opening more outlets.

Asia Bakery & Confectionery achieved the impressive value growth in 2012. By continuously introducing new products in unpackaged/artisanal baked good products, Asia Bakery & Confectionery successfully attracted consumers to its bakery stores. In addition, the companys strategy to expand the distribution network to hypermarkets, supermarkets, convenience stores, shoppi ng malls and department stores further strengthens the companys position and improves sales. In 2012, Kinh Dos strategy to penetrate into hypermarket and supermarket in-store bakeries has worked well. There is an increasing shopping trend at supermarkets and other big stores for product variety and atmosphere versus shopping at small local shops. Therefore, being present in these channels is essential to reach out to more consumers and encourage impulse purchases. In addition, investment in marketing and advertising activities proved to be an effective method to build brand image and encourage trials. Vietnamese consumers are still very responsive to advertising, especially for new products or promotions. Domestic brands and manufacturers dominate the baked goods market. This is due to the governments continuous efforts to promote Vietnamese brands, as well as the local companies understanding of the local consumers tastes and preferences. Local compan ies are more sensitive to consumers needs and they are able to intr oduce more creative products to satisfy the local consumers. However, there are more and more international bakery chains entering Vietnam market, such as the Singapore brand Breadtalk and Tous Les Jours, in shopping malls for higher end customers. In 2012, there were so significant new product developments or packaging innovation. In general, baked goods manufacturers and retailers rarely run extensive promotional and advertising campaigns due to the low margin and marketing budget. Most investments are for expanding the distribution by opening new stores and distribution partners. Having said that, big companies such as Kinh Do and Kraft Foods also run promotions and advertisements especially for special occasions such as Christmas or Mid Autumn Festival. Most local products are for the mass market with very affordable prices, whilst most foreign brands compete on quality and a sophisticated shop atmosphere catering to the higher end market of expats and executives. Big supermarkets and hypermarkets such as Big C and Metro have also introduced their private labels of baked goods at a cheaper price.

PROSPECTS

Over the forecast period, the baked goods category is expected to grow at a volume CAGR of 6% and a constant value CAGR of 4%. Consumers will continue to opt for baked goods to replace traditional breakfast options such as noodles and other street food due to hygienic concerns. The forecasted volume CAGR growth is slower than the review period volume CAGR due to market saturation as well as an increasingly competitive environment. The entry cost into the baked goods category, especially unpackaged/artisanal offerings, is relatively low compared with other industries. Therefore, despite big companies making efforts to build consumer awareness and trust over the past few years, there are more and more new brands or even non-branded products taking a sizable market share. As a result, the market has become relatively saturated with strong price competition. Lack of product innovation is another reason for slower market growth. Pastries is expected to see the strongest retail volume and value growth. The growth will be driven by the strong performance of unpackaged/ artisanal pastries due to their low cost to entry and freshness compared with packaged pastries. Unpackaged/ artisanal products will see stronger volume and value growth in both categories of cakes and pastries, but not in bread. This is due to the increasing quality of packaged bread and its storage convenience for a longer period of consumption compared with unpackaged/ artisanal breads. For cakes and pastries, consumers still have the perception that unpackaged/ artisanal products are fresher and tastier. Category volume growth will be higher than value growth due to strong price competition causing the average baked goods price to decline. Prices are expected to drop marginally over the forecast period. Big manufacturers will explore new ways to cut costs in order to maintain the competitive advantage over smaller non-branded bakery shops. The distribution of baked goods is expected to continue growing in modern channels such as supermarkets and hypermarkets. However, growth will not be strong enough to change the current distribution landscape over the forecast period. Independent small grocers and other grocery retailers will still dominate the market with an 86% market share. In addition, retail sales of bakedgoods, especially unpackaged/ artisanal pastries will have strong potential with more food specialist stores and premium coffee shops expanding their product ranges to include baked goods.

Over the forecast period, the key baked goods companies, such as Kinh Do and Nhu Lan, will continue advertising and promoting themselves as offering reliable quality Vietnamese brands, especially during key seasons such as Vietnamese Lunar New Year (Tet) and

the Mid Autumn Festival. More international brands will enter the market to serve the higher end consumer segments with more premium products.

CATEGORY DATA
Table 1 Sales of Baked Goods by Category: Volume 2007-2012

'000 tonnes Bread - Bread Substitutes - Packaged/Industrial Bread - Unpackaged/Artisanal Bread Cakes - Packaged/Industrial Cakes - Unpackaged/Artisanal Cakes Pastries - Packaged/Industrial Pastries - Unpackaged/Artisanal Pastries Baked Goods

2007

2008

2009

2010

2011

2012

273.13 294.60 315.05 339.14 363.36 388.88 52.09 62.51 72.51 84.47 -

95.46 107.58

221.04 232.09 242.54 254.67 267.91 281.30 16.18 14.61 1.57 1.71 1.19 0.52 17.44 15.70 1.74 1.91 1.32 0.59 18.72 16.80 1.91 2.14 1.47 0.67 20.18 18.06 2.11 2.43 1.67 0.76 21.61 19.33 2.28 2.70 1.85 0.85 23.04 20.58 2.45 2.99 2.04 0.95

291.02 313.95 335.91 361.75 387.68 414.91

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 2 Sales of Baked Goods by Category: Value 2007-2012

VND billion Bread - Bread Substitutes - Packaged/Industrial Bread - Unpackaged/Artisanal Bread Cakes - Packaged/Industrial Cakes - Unpackaged/Artisanal Cakes Pastries

2007

2008

2009

2010

2011

2012 8,634.94 4,072.62 4,562.32 2,535.80 2,352.65 183.14 193.81

4,033.42 4,762.15 5,461.73 6,335.03 7,350.36 -

1,431.84 1,861.39 2,270.89 2,793.20 3,365.81 2,601.58 2,900.76 3,190.84 3,541.83 3,984.56 1,224.14 1,421.27 1,634.46 1,888.37 2,165.37 1,140.00 1,322.40 1,520.76 1,756.48 2,010.82 84.14 74.37 98.87 93.18 113.70 113.96 131.89 136.94 154.55 161.71

VND billion - Packaged/Industrial Pastries - Unpackaged/Artisanal Pastries Baked Goods

2007 61.07 13.30

2008 76.95 16.22

2009 94.65 19.31

2010 113.58 23.36

2011 133.71 28.00

2012 159.78 34.03

5,331.93 6,276.60 7,210.15 8,360.34 9,677.44 11,364.55

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 3 Sales of Baked Goods by Category: % Volume Growth 2007-2012

% volume growth Bread - Bread Substitutes - Packaged/Industrial Bread - Unpackaged/Artisanal Bread Cakes - Packaged/Industrial Cakes - Unpackaged/Artisanal Cakes Pastries - Packaged/Industrial Pastries - Unpackaged/Artisanal Pastries Baked Goods

2011/12 2007-12 CAGR 2007/12 Total 7.02 12.70 5.00 6.61 6.50 7.50 10.66 10.50 11.00 7.02 7.32 15.61 4.94 7.32 7.10 9.29 11.90 11.50 12.79 7.35 42.38 106.52 27.26 42.37 40.91 55.94 75.43 72.31 82.57 42.57

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 4 Sales of Baked Goods by Category: % Value Growth 2007-2012

% current value growth Bread - Bread Substitutes - Packaged/Industrial Bread - Unpackaged/Artisanal Bread Cakes - Packaged/Industrial Cakes

2011/12 2007-12 CAGR 2007/12 Total 17.48 21.00 14.50 17.11 17.00 16.44 23.25 11.89 15.68 15.59 114.09 184.43 75.37 107.15 106.37

% current value growth - Unpackaged/Artisanal Cakes Pastries - Packaged/Industrial Pastries - Unpackaged/Artisanal Pastries Baked Goods

2011/12 2007-12 CAGR 2007/12 Total 18.50 19.85 19.50 21.50 17.43 16.83 21.11 21.21 20.67 16.34 117.65 160.59 161.62 155.87 113.14

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 5 Packaged/Industrial Bread by Type: % Value Breakdown 2007-2012

% retail value rsp Baguettes Buns & Rolls White Sandwich Wholegrain Bread Others Total

2007 4.80 8.50 81.50 2.50 2.70

2008 4.80 9.00 81.00 2.20 3.00

2009 5.00 9.50 80.50 2.00 3.00

2010 5.00 10.00 80.00 2.00 3.00

2011 5.50 10.50 79.00 2.00 3.00

2012 6.00 11.00 78.50 2.10 2.40

100.00 100.00 100.00 100.00 100.00 100.00

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources Table 6 Packaged/Industrial Cakes: Single Portion vs Multi-pack % Breakdown by Type 2007-2012

% retail value rsp Single Portion Multi Portion Total

2007 91.50 8.50

2008 91.00 9.00

2009 90.00 10.00

2010 89.50 10.50

2011 89.00 11.00

2012 88.50 11.50

100.00 100.00 100.00 100.00 100.00 100.00

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 7 Baked Goods Company Shares 2008-2012

% retail value rsp Kinh Do Corp Nhu Lan Bakery Duc Phat Private Enterprise

2008 12.41 5.37 5.22

2009 13.42 5.85 5.48

2010 14.57 6.37 5.71

2011 15.70 6.80 5.77

2012 16.23 6.88 5.53

% retail value rsp Orion Food Vina Co Ltd Bien Hoa Confectionery Corp (Bibica) Asia Bakery & Confectionery Pte Enterprise Bao Ngoc Private Enterprise Apollo Food Industries Sdn Bhd European Foods PCL Hai Chau Confectionery JSC Hue Industrial Foods JSC Lonbisco PT Dong Khanh Food Industrial Co Ltd Orion Corp Orion International Snack Co Ltd Artisanal Others Total
Table 8 Baked Goods Brand Shares 2009-2012

2008 4.34 4.16 2.18 2.75 1.89 1.66 0.37 0.23 0.35 0.59 48.05 10.43

2009 4.49 4.28 2.64 2.91 1.79 1.58 0.27 0.21 0.32 46.10 10.65

2010 4.62 4.37 2.97 2.74 1.68 1.47 0.25 0.19 0.28 44.22 10.55

2011 4.99 4.41 3.27 2.50 1.56 1.35 0.21 0.12 0.25 43.06 10.02

2012 5.17 4.36 3.41 2.12 1.42 1.22 0.16 0.08 41.99 11.45

100.00 100.00 100.00 100.00 100.00

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

% retail value rsp Company Kinh Do Nhu Lan Duc Phat Orion Hura ABC Bao Ngoc Kinh Do Corp Nhu Lan Bakery Duc Phat Private Enterprise Orion Food Vina Co Ltd Bien Hoa Confectionery Corp (Bibica) Asia Bakery & Confectionery Pte Enterprise Bao Ngoc Private Enterprise

2009 13.42 5.85 5.48 4.49 4.28 2.64 2.91

2010 14.57 6.37 5.71 4.62 4.37 2.97 2.74

2011 15.70 6.80 5.77 4.99 4.41 3.27 2.50

2012 16.23 6.88 5.53 5.17 4.36 3.41 2.12

% retail value rsp Company Apollo Euro Hai Chau Hue Lonbisco Dong Khanh Orion Orion Artisanal Others Total Apollo Food Industries Sdn Bhd European Foods PCL Hai Chau Confectionery JSC Hue Industrial Foods JSC Lonbisco PT Dong Khanh Food Industrial Co Ltd Orion Corp Orion International Snack Co Ltd Artisanal Others Total

2009 1.79 1.58 0.27 0.21 0.32 46.10 10.65

2010 1.68 1.47 0.25 0.19 0.28 44.22 10.55

2011 1.56 1.35 0.21 0.12 0.25 43.06 10.02

2012 1.42 1.22 0.16 0.08 41.99 11.45

100.00 100.00 100.00 100.00

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 9 Sales of Baked Goods by Distribution Format: % Analysis 2007-2012

% retail value rsp Store-Based Retailing - Grocery Retailers -- Supermarkets -- Hypermarkets -- Discounters -- Small Grocery Retailers --- Convenience Stores --- Independent Small Grocers --- Forecourt Retailers -- Other Grocery Retailers - Non-Grocery Retailers

2007

2008

2009

2010

2011

2012

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 2.94 0.82 23.75 0.55 23.20 72.49 0.00 4.42 1.21 23.65 0.65 23.00 70.73 0.00 5.67 1.90 23.12 0.72 22.40 69.31 0.00 7.56 2.94 21.04 0.54 20.50 68.45 0.00 8.00 3.00 21.10 1.10 20.00 67.90 0.00 8.50 3.50 21.50 2.00 19.50 66.50 0.00

% retail value rsp -- Health and Beauty Retailers -- Other Non-Grocery Retailers Non-Store Retailing - Vending - Homeshopping - Internet Retailing - Direct Selling Total

2007 -

2008 -

2009 -

2010 -

2011 -

2012 -

100.00 100.00 100.00 100.00 100.00 100.00

Source: Euromonitor International from official statistics, trade associations, trade press, company research, store checks, trade interviews, trade sources

Table 10 Forecast Sales of Baked Goods by Category: Volume 2012-2017

'000 tonnes Bread - Bread Substitutes - Packaged/Industrial Bread - Unpackaged/Artisanal Bread Cakes - Packaged/Industrial Cakes - Unpackaged/Artisanal Cakes Pastries - Packaged/Industrial Pastries - Unpackaged/Artisanal Pastries Baked Goods

2012

2013

2014

2015

2016

2017

388.88 414.45 439.46 463.54 486.27 507.25 -

107.58 120.49 133.74 147.12 160.36 173.18 281.30 293.96 305.72 316.42 325.91 334.06 23.04 20.58 2.45 2.99 2.04 0.95 24.49 21.86 2.63 3.30 2.25 1.05 25.97 23.17 2.80 3.60 2.45 1.15 27.48 24.51 2.97 3.90 2.65 1.25 29.02 25.89 3.13 4.19 2.83 1.36 30.57 27.29 3.28 4.47 3.00 1.47

414.91 442.23 469.03 494.91 519.47 542.28

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Table 11 Forecast Sales of Baked Goods by Category: Value 2012-2017

VND billion Bread

2012 8,634.94

2013 9,077.26

2014 9,501.21

2015

2016

2017

9,902.03 10,275.07 10,615.80

VND billion - Bread Substitutes - Packaged/Industrial Bread - Unpackaged/Artisanal Bread Cakes - Packaged/Industrial Cakes - Unpackaged/Artisanal Cakes Pastries - Packaged/Industrial Pastries - Unpackaged/Artisanal Pastries Baked Goods

2012 4,072.62 4,562.32 2,535.80 2,352.65 183.14 193.81 159.78 34.03

2013 4,378.07 4,699.19 2,639.98 2,446.76 193.22 206.12 169.37 36.75

2014 4,684.54 4,816.67 2,735.27 2,532.40 202.88 218.00 178.68 39.32

2015 4,989.03 4,913.00 2,820.37 2,608.37 212.01 229.30 187.62 41.68

2016 5,288.37 4,986.70 2,894.06 2,673.58 220.49 239.82 196.06 43.76

2017 5,579.23 5,036.56 2,955.25 2,727.05 228.20 249.42 203.90 45.51

11,364.55 11,923.35 12,454.48 12,951.71 13,408.96 13,820.47

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Table 12 Forecast Sales of Baked Goods by Category: % Volume Growth 2012-2017

% volume growth Bread - Bread Substitutes - Packaged/Industrial Bread - Unpackaged/Artisanal Bread Cakes - Packaged/Industrial Cakes - Unpackaged/Artisanal Cakes Pastries - Packaged/Industrial Pastries - Unpackaged/Artisanal Pastries Baked Goods

2016/17 2012-17 CAGR 2012/17 Total 4.31 8.00 2.50 5.36 5.40 5.00 6.65 6.00 8.00 4.39 5.46 9.99 3.50 5.82 5.80 6.00 8.35 7.99 9.10 5.50 30.44 60.98 18.75 32.70 32.56 33.81 49.30 46.87 54.55 30.70

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Table 13 Forecast Sales of Baked Goods by Category: % Value Growth 2012-2017

% constant value growth Bread - Bread Substitutes - Packaged/Industrial Bread - Unpackaged/Artisanal Bread Cakes - Packaged/Industrial Cakes - Unpackaged/Artisanal Cakes Pastries - Packaged/Industrial Pastries - Unpackaged/Artisanal Pastries Baked Goods

2012-17 CAGR 2012/17 TOTAL 4.22 6.50 2.00 3.11 3.00 4.50 5.17 5.00 5.99 3.99 22.94 36.99 10.39 16.54 15.91 24.60 28.69 27.61 33.76 21.61

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources