Exporter Guide

FOOD AND BEVERAGE

IN MALAYSIA Market Profile

January 2012

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This document is one of a series of free information tools for exporters produced by New Zealand Trade and Enterprise. New Zealand Trade and Enterprise provides a wide range of standard services and sophisticated solutions that assist businesses through every stage of the export process. For information or advice, phone New Zealand Trade and Enterprise on 0800 555 888, visit www.nzte.govt.nz, or contact your New Zealand Trade and Enterprise client manager.

CONTENTS 1 MARKET STRUCTURE 3

1.1 Market Overview 3

1.2 Market Drivers 4

1.3 Market Potential 5

1.4 Import Trends 6

1.5 Key Players in the Market 8

1.6 Regulatory 9

1.7 Sustainability 10

2 MARKET ENTRY AND DEVELOPMENT 11 2.1 Market Entry Strategies 11

2.2 Points of Differentiation 12

2.3 Long Term Strategic Issues 12

2.4 Distribution Channels 12

3 MARKET RESOURCES AND CONTACTS 14

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1 MARKET STRUCTURE 1.1 Market Overview

Malaysia is regarded as an upper middle income group country. Gross Domestic Product (GDP) growth is forecast at 4 percent for 2012, with this expected to expand to 5.6 percent in 2013-2016.i Sales within the Malaysian food and beverage retail industry were forecast to reach of US$15.69 billion in 2011 and are predicted to grow to US$21.17bn by 2015.ii

Processed foods

According to Euromonitor, the overall packaged food industry reached US$5.5 billion in 2011 and is forecast to grow to US$5.9 billion by 2016. The highest value segments of packaged foods in 2011 were estimated to be ‘dried processed foods’ at US$955.9 million, followed by ‘dairy’ at US$948 million, and ‘bakery’ at US$765.9 million.iii

Wine

Malaysia’s population of 27.7 million is approximately 65 percent Malays, 27 percent Chinese and 8 percent Indians. The Malays are predominantly Muslims who, for religious reasons, are not permitted to consume any alcoholic drinks.

Although this limits the size of the market for wine to just over one third of the total population, the Chinese segment does form the wealthiest group of consumers in Malaysia. This segment numbers around seven million people and forms a solid target base for imported wines.

Wine is usually not consumed at home. It is a social drink usually consumed on special occasions. The consumption of red wine has increased in recent years mainly due to perceived health benefits of drinking red wine.

The overall wine industry reached US$102.2 million in 2011 and is forecast to grow to US$108.5 by 2016. In 2011, the highest value segment was ‘still light grape wine’ at US$98 million. Within this category, the market for red wine is approximately double that of the market for white.

Fish and seafood

Malaysia has the largest daily intake of fish and seafood consumption per capita within the ASEAN group of countries. Domestic fish supply was estimated to reach 1.6 million tonnes in 2011, with around one third of this being imported product.

Meat

There is strong consumer demand for imported beef, mutton and halal products as 60 percent of the population are Muslim. Euromonitor reports that the total Malaysian meat market reached 1.4 million tonnes in 2011. Chicken is the meat of choice in Malaysia,

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accounting for approximately two thirds of meat sales. Pork follows at around 20 percent of sales, trailed by beef at 5 percent and sheep meat at less than 1 percent.

1.2 Market Drivers

Rising demand for private labeliv

The global financial crisis has slowed income growth, leading consumers to shift towards cheaper private label products.The selection of private label products in Malaysia’s major supermarket chains is growing. Compared to other countries only a small proportion of processed food consumption in Malaysia is private label products, suggesting significant scope for growth. The increasing market share of supermarkets and a growing private label range within those supermarkets suggests private label sales will increase rapidly.

Conveniencev

Urbanisation, rising incomes and longer working hours are driving greater demand for convenience and ready-made packaged foods. There is a growing prevalence of conveniently packaged food products designed for consumption both at and away from home. Demand for convenient and healthy food products including those safe for people with diabetes is expected to continue to grow.

Health awarenessvi

The health properties of food are an increasingly important factor among a rising population of health conscious Malaysian consumers. More food products are being developed and marketed to target health conscious consumers. Some brands are offering free health services to promote the health benefits of their products. For example, Fonterra Brands has offered a free health scan and nutrition check for families. There will be a greater selection of healthy food such as products with low salt, fat and artificial additives. Marketing and labelling will emphasise these factors as a selling point.

Indulgence productsvii

Malaysia’s economic performance is beginning to improve, leading to increased demand for indulgence products such as chocolate, ice cream and snack bars. Food manufacturers are rebranding products, developing marketing campaigns and expanding production to meet the anticipated increase in demand for indulgence products. Supermarkets are expected to increase their indulgence product ranges and shelf-space.

Growing sales of red wineviii

Red wine accounts for around 74 percent of total wine volume sales in Malaysia. A major factor influencing red wine consumption is its perceived health benefits. Red wine will continue to have the largest share of the market with forecast sales of around two to three times white wine sales through until 2015.

Demand for higher priced wines is expected to increase among middle and high income Malaysians as consumers’ knowledge and appreciation of premium wines rises. As this

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happens, the selection of wines suited to different occasions or meals will grow and growth will occur in the higher end of the market.

Fish and seafood

Seafood consumption in Malaysia is experiencing high growth, which is expected to continue. Restaurants sell considerable amounts of seafood and supermarkets are also expanding their seafood sales. Euromonitor forecast the total Malaysian fish and seafood market to reach 1,606 thousand tonnes in 2011.

Chicken meat protein of choice

Malaysia has one of the highest per capita consumption rates in the world for chicken, at 34.8kg. Chicken meat is still considered to be the cheapest source of meat protein and the most popular among Malaysian consumers. This industry has been self-sufficient since 1984.

1.3 Market Potential

The Malaysian food and beverage retail market is expected to grow by around 10 percent per annum. Malaysian households spend around 24 percent of their household income on the purchase of food and beverage on average.

Processed foodsix

As a result of the growing trend towards shopping for packaged food at supermarkets and hypermarkets, more of these modern retail stores are expected to open in the near future in Malaysia. With the rise in the number of supermarkets / hypermarkets, the rise in private label’s growth is expected to continue. Greater participation from foreign retailers in promoting locally manufactured brand names and products in hypermarkets is also anticipated.

Retailers will make their private label brands more appealing to consumers in terms of packaging, labelling, quality and variety. Malaysians are typically price-conscious when it comes to fast moving consumer good (FMCG) products. Therefore, if they have tried private label products and are satisfied, they will continue to favour private label ranges. Nonetheless, multinationals and major domestic brands are likely to compete strongly with private labels as branded products still have a strong and loyal consumer base.

Winex

Over the coming years, appreciation of wine is expected to increase amongst middle to high income consumers. As a result, a growing number of consumers are likely to base wine purchasing decisions on factors other than price.

In addition, it should be noted that a growing number of brandy drinkers are switching to wine. Even at dinners and weddings, many Chinese people can now be seen toasting with wines instead of brandy. For example, the hotel Westin Kuala Lumpur has reported that brandy is increasingly being replaced with wine during main meals, although brandy remains popular after meals. Seasoned brandy drinkers are now turning to wine because

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they find it healthy and more civilised and this trend is expected to continue over the coming years.

In the short term, wine priced at RM30-RM50 (Approx NZ$15 - $25) a bottle will continue to lead sales. However, as a result of producer and retailer promotion, education, and tasting campaigns, demand for a growing range of different wines suitable for different occasions is expected to increase over the coming years.

Fish and seafood

Consumption of fish and seafood is expected to grow in line with growth in overall disposable household income. Aquaculture is becoming economically more important as a way of increasing local fish production for food security. However, production is still very small when compared to capture fisheries: it contributes less than 0.2 percent to GDP.

Meat

The Malaysian Government plans to develop its food processing industry with a particular emphasis on halal food products, which have the potential to expand into international markets. This also provides an opportunity for New Zealand exporters to cooperate with the Malaysian food processing industry and participate in its plan for global expansion.

1.4 Import Trends

The bulk of Malaysia’s imports are food ingredients, rather than retail packed products because Malaysia has a large and strong processed food and drinks industry that supplies both the local market and export markets in Asia and the Middle East. The main imports are unprocessed cereals, edible oils, cocoa and its products, sugar and its products and fish and seafood.xi

In the year ended June 2011, Malaysia was New Zealand’s 8th most significant food and beverage export market (NZ$640 million). In the last year New Zealand’s food and beverage exports to Malaysia grew by 14.6 percent.

New Zealand’s top ten food and beverage exports to Malaysia (year/end June 2011)

Product June 2010 (NZ$m)

June 2011

(NZ$m)

% Change

11/10

Competition (% share of Malaysia’s imports y/e June 2011)

Milk and cream, concentrated / sweetened

276 318 15.29% NZ (63%), United States (14%), Australia (9%)

Meat of sheep / goats, fresh / chilled / frozen

44 72 63.92% Australia (56%), NZ (42%), China (2%)

Butter / other fats & oils derived from

36 55 52.27% NZ (61%), Australia (32%), Belgium (2%)

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Product June 2010 (NZ$m)

June 2011

(NZ$m)

% Change

11/10

Competition (% share of Malaysia’s imports y/e June 2011)

milk ;

Malt extract; food prep of flour < 40% cocoa

57 39 -31.22% Thailand (20%), Singapore (16%), Philippines (13%)…NZ

(11%)

Cheese and curd 26 28 9.22% NZ (40%), Australia (37%), United States (11%)

Meat of bovine animals, frozen

11 14 31.59% India (79%), Australia (12%), NZ (3%)

Fruits nes, fresh 12 10 -12.18% Thailand (44%), South Korea (22%), NZ (11%)

Vegetables nes, prepr or presv o/w than by vinegar

8 10 22.30% United States (45%), NZ(16%), Netherlands (15%)

Apples, pears and quinces, fresh

6 9 52.76% China (54%), South Africa (29%), United States (8%)…

NZ (3%)

Food preparations, nes

8 9 5.87% Singapore (25%), United States(18%),

Netherlands(13%)…NZ(2%)

Sources: Statistics NZ, via The World Trade Atlas; International Trade Centre (ITC), Trade Map

Processed foods

Malaysia’s regional neighbours are its major suppliers of packaged food and beverage imports. In 2010, the most significant source country by value was Indonesia (28.0 percent), followed by Australia (11.1 percent), Thailand (10.9 percent), Singapore (9.2 percent) and China (9.2 percent). New Zealand held 13th place, supplying around US$67 million worth of packaged food and beverage items. This is approximately 1.8 percent of the total packaged food and beverage imports into Malaysia.

Singapore was the main destination for Malaysian packaged food and beverage exports. Regional partners again account for a significant share of Malaysia’s trade, along with the United States.

Wine

Malaysia imported a total of US$51 million in wine in 2010. New Zealand was Malaysia’s 7th most significant wine supplier – supplying 3.2 percent of all imported product. Australia, however, held the lion’s share of the market with a 43.4 percent market share. Other major suppliers include France and Chile. It is likely that there will be increasing

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opportunity to introduce ‘new’ varieties to Malaysian consumers in the near future (for example Pinot Noir, Pinot Gris and Riesling).

Fish and seafood

Malaysia is a net exporter of fish and seafood products, with imports totalling US$693 million in 2010, in contrast to exports of US$699 million. In term of aquaculture imports (mussels, oysters and salmon), New Zealand was the 5th most significant supplier to Malaysia in 2010, exporting US$2.5 million in value.

Meat

In 2010, New Zealand was the 4th most significant supplier of meat to Malaysia – supplying 11 percent of all imported product. New Zealand falls behind India (45 percent), Australia (23 percent), and China (12 percent) for overall meat imports into Malaysia.

In December 2011, the Malaysian and New Zealand Governments signed a bilateral arrangement that sets out how New Zealand will meet Malaysia’s halal requirements for meat and meat products. Subsequently a number of New Zealand abattoirs have been re-certified by JAKIM (the Malaysian Government’s halal certifying organisation), which are expected to increase New Zealand’s beef exports to Malaysia in particular.

1.5 Key Players in the Market

Overall food retail

Hong Kong’s Dairy Farm is the market leader taking more than 10 percent market share with 12 hypermarkets and 42 supermarkets. Dairy Farm owns Cold Storage, Mercato and Giant supermarkets. AEON Jusco, Tesco and Carrefour are close competitors to Dairy Farm. However, the two domestic players, The Store and Mydin, have increased their number of outlets recently and are set to become significant players.

Processed foods

According to the Federation of Malaysian Consumers Association 2008 survey, Malaysian’s consumption of private label food products is one of the lowest, but fastest growing, in the world.

The leading branded player in packaged food is Nestlé (M) Bhd, benefiting from its established presence in Malaysia, strong brand names and active product support.

In 2010, store-based retail continued to be the leading food distribution format for packaged foods, supermarkets and hypermarkets taking a 57 percent market share and small grocery retailers taking 34 percent.xii

Wine

With many different brands available, wine sales are highly fragmented in Malaysia. Within still light grape wine, Caldbeck Macgregor and Pernod Ricard Malaysia led sales in 2010 due to the popularity of their respective Lindemans and Jacob’s Creek brands.

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However, it should be noted that the two companies both recorded total volume shares of under 11 percent, with most sales being split between a large number of small players.

Economy wine brands attract consumers via competitive pricing and promotions such as buy-one get-one free and the offering of free gifts whilst premium brands are packaged and positioned as being high quality products and are promoted via special events such as wine tastings in high class restaurants and hotels. However, demand for private label brands remains very limited.

Fish and seafood

The leading supplier of fish and seafood products in 2010 was China (at 33 percent), followed by Indonesia (18 percent) and Thailand (14 percent).

Meat

India is the leading supplier of red meat market with total imports of $216 million (86,000 metric tons) in 2009. Indian beef and buffalo meat caters to the mass market, followed by the United States, Australia and Uruguay.

1.6 Regulatory

Information provided in this section is for reference only. When negotiating supply contracts and before beginning actual export, companies are advised to consult closely with their importer or distributor.

Industry standards

The Ministry of Health is responsible for the Production and Sale of Foodstuff Regulations. The Food Act 1983 and Regulations 1985 prescribe standards, labelling, date marking, and the use of additives and preservatives.

Documentation

The following documents are required for most shipments:

• bill of lading or consignment note where appropriate

• commercial invoices relating to the goods

• import (C1) or export (C2) declaration

The following documents may be required:

• Import or Export Licence, Permit, and/or Letter of Approval for regulated commodities

• Foreign Exchange Control documents for export shipment shipments of 100,000 ringgit or greater F.O.B. value

• Certificate of origin of the goods (but not if claiming preferential customs duty treatment under MNZFTA)

• Letter of Credit (endorsed) when used as payment method for the shipment

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• Packing List (if the commercial invoice does not provide proper quantity information)

Duties and tariffs

Tariffs on 99.5 percent of New Zealand's current exports to Malaysia will be eliminated by 2016 under the free trade agreement involving ASEAN (Association of Southeast Nations, which includes Malaysia, Australia, and New Zealand). To gain the preferential tariff rates under the agreement, the regional value content must be at least 40 percent of total free-on-board value. For more information, please visit the Ministry of Foreign Affairs and Trade website www.mfat.govt.nz.

Labelling requirements

As more than half the Malaysian population is Muslim, labelling requirements for products containing pork and alcohol are very strict. Labelling requirements specify that food items may be labelled in either Malay or English and must contain the following information:

• description of the product

• list of ingredients, in descending order of proportion by weight

• statement as to the presence of any animal products (e.g. meat, gelatins)

• If the product contains any alcohol, a statement indicating this

• minimum net weight of the product

• name and address of the manufacturer

• name and address of the importer (which can be added at the time of import)

• statement of shelf life or expiry dates

In January 2011, Malaysia began enforcing new grading, packaging and labeling regulations relating to agricultural produce. Certain information will be required in the Bahasa Malaysia. Stickers will be allowed but must be put on before entering Malaysia. For further information, see the USDA Malaysia Food and Agricultural Import Regulations and Standards (FAIRS) report: gain.fas.usda.gov.

1.7 Sustainability

Consumer demand for sustainability is not yet strong in Malaysia, although there is a concern with food safety that is at times equated with organics. The general perception among consumers is that ‘organic’ means ‘safer’. With a growing interest in sustainability in other sectors (for example green building, clean technology, and biofuels), Malaysian consumers are likely to become more discerning when making food and beverage purchases in the future.

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2 MARKET ENTRY AND DEVELOPMENT

2.1 Market Entry Strategies Processed foods

Being an Islamic country, processed foods with meat content need halal certification from JAKIM (the Malaysian Government’s halal certifying organisation) or from halal certifying bodies recognised by JAKIM. Both the Federation of the Islamic Associations of New Zealand (FIANZ) and New Zealand Islamic Meat Management (NZIMM) are recognised by JAKIM.

Having a JAKIM logo provides a marketing advantage. JAKIM will not issue the halal certifications to overseas processing operations (though will certify overseas abattoirs), therefore New Zealand businesses may need to consider joint ventures with local Malaysian companies. Malaysia has a number of halal industrial parks, including incentives to set up food processing facilities within them.

Products sold into Malaysia’s food retail channel need regular marketing campaigns to build brand recognition. Food sampling sessions, in-store promotions, and give-aways may help to increase product awareness and sales.

In general retailers choose to work with local distributors, rather than dealing direct.

Wine

Promotions, wine tasting sessions, seminars, media publicity and other in-market activities have been effective in establishing market entry for a number of competing suppliers. However, these can be costly and are best done jointly with an importer and a Hotel, Restaurant and Institution (HRI) outlet. Exporters can also consider working through their respective importers to promote their wines in significant events in Malaysia i.e. KL Gourmet Festival and Food Hotel Malaysia.

The former event brings together prominent dining patrons in the society where most can afford expensive and exclusive wines. Meanwhile the latter generally attracts trade visitors especially from the HRI sector.

Fish and seafood

The most recognizable seafood from New Zealand are GreenshellTM mussels. However knowledge on how to prepare and use GreenshellTM mussels is low compared to other shell seafood (clams, oysters). Consistent marketing strategies would help to create interest in New Zealand GreenshellTM mussels.

Meat

New Zealand lamb is well known (though not always easily available) but New Zealand beef is less well known than Australian beef. Consistent marketing strategies are needed to raise awareness of New Zealand beef’s point of difference, eg grass-fed, sustainable, and associated with quality.

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2.2 Points of Differentiation The Malaysian market is relatively competitive and price sensitive. There is a strong perception and acceptance of New Zealand food safety and quality, which does enable many products to be sold in niche markets.

2.3 Long Term Strategic Issues

Malaysia aims to be the market leader and the main halal hub for the world and its halal certification requirements are likely to become more stringent over time.

2.4 Distribution Channels

Processed foods

Supermarkets are the leading distribution channel for packaged food in Malaysia. The major supermarket chains, such as Carrefour, Jusco and Tesco, are continuing to expand their operations in Malaysia.

A factor driving the growth of supermarkets is Malaysia’s increasingly urbanised population and a higher proportion of women entering the workforce. This has led to greater demand for convenient packaged food, primarily from supermarkets.

Only a handful of retailers and hotels in Malaysia import directly from overseas suppliers and this tend to be limited to certain food and beverage products. Due to the small market size for high end premium food and beverage products, these retailers and hotels generally directly import the goods on a consolidation basis (i.e. by loose pallet or via a New Zealand consolidator).

Wine

Where possible exporters should look at working with committed importers (probably small-medium sized) who can market and position their wine at the appropriate level in the market.

In order to select an appropriate importer / distributor, New Zealand exporters need to be aware of the different distribution / marketing strategies used by Malaysian importers:

• Volume sales: Importers with interest in large volumes for distribution through retail or food service outlets. Some of these importers may also import boutique wines to expand their range of wines.

• Niche market sales: Importers concentrating on restaurants or hotels. These importers are interested in small but sustainable volumes of boutique wines.

Currently, New Zealand wines are distributed mainly to four and five star hotels and leading independent restaurants, with only small quantities going to high end supermarkets and wine shops. Some hotels and family-owned restaurants import their wines directly from overseas wineries on a consolidation basis. A number of importers operate their own specialty wine shops.

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Fish and seafood

Food retail demands a wide range of different fish and seafood products.

Wet markets are still the main channel for the fish and seafood distribution. However, this segment is highly localised. The wet markets get good support from housewives due to price and value for money.

However, fish and seafood sales at modern retailers such as hypermarkets have increased significantly over recent years, targeting middle income groups and younger shoppers.

Around 90 percent of imported fish and seafood from New Zealand is used in food service sector especially 4 to 5 star hotels. Malaysia is one of the leading tourist destinations in ASEAN region with 22 million visitors per annum and there are 200 hotels rated as 4 to 5 star in Malaysia.

Meat

Modern retailers are still the preferred the location for consumers. Approximately 80 percent of meat imported to Malaysia is from Uruguay, Australia and India. Malaysia has low self-sufficiency in this category.

Imports from New Zealand can be at a higher price premium than other countries which means the majority is distributed within the 4 to 5 star hotels and fine dining western cuisine restaurants.

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3 MARKET RESOURCES AND CONTACTS

Disclaimer:

This publication is provided to you as a free service and is intended to flag to you market opportunities and possibilities. Use of and reliance on the information/products/technology/concepts discussed in this publication, and the suitability of these for your business is entirely at your own risk. You are advised to carry out your own independent assessment of this opportunity. The information in this publication is general; it was prepared by New Zealand Trade and Enterprise (NZTE) from publicly available and/or subscription database sources. NZTE; its officers, employees and agents accept no liability for any errors or omissions or any opinion/s expressed, and no responsibility is accepted with respect to the standing of any firm/s, company/ies or individual/s mentioned. New Zealand Trade and Enterprise is not responsible for any adverse consequences arising out of such use. You release New Zealand Trade and Enterprise from all claims arising from this publication. New Zealand Trade and Enterprise reserves the right to reuse any general market information contained in its reports.

i Economist Intelligence Unit. Malaysia Country Page. (viewswire.eiu.com). ii Business Monitor International, November 2011. Malaysia Retail Report. iii Euromonitor International: Country Market Insight (November 2010), Packaged Food - Malaysia

ORGANISATION / REPORT WEBLINK

USDA

Malaysia FAIRS report 2011

gain.fas.usda.gov

AgriTrade Canada

Report on Malaysia Market

www.ats-sea.agr.gc.ca

Food & Beverage New Zealand www.foodandbeverage.govt.nz

Department of Agriculture Malaysia www.doa.gov.my

Pricewaterhouse Coopers

Retail Market Report: From Beijing to Budapest – Winning

Brands, Winning Formats

www.pwc.com

Halal Development Corporation Sdn Bhd www.hdcglobal.com

The German Chamber Network

Market Watch Malaysia 2010

www.malaysia.ahk.de

Malaysia Government Official Website www.malaysia.gov.my

Malaysia Ministry of international Trade and Industry (MITI)

Weekly report about Invesment / Business Development in

Malaysia

www.miti.gov.my

World Fishing and Aquaculture

Focus report on Malaysia

www.worldfishing.net

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iv Euromonitor International: Country Market Insight (November 2010), Packaged Food - Malaysia v Euromonitor International: Country Market Insight (November 2010), Packaged Food - Malaysia vi Euromonitor International: Country Market Insight (November 2010), Packaged Food - Malaysia vii Euromonitor International: Country Market Insight (November 2010), Packaged Food - Malaysia viii Euromonitor International: Country Sector Briefing (December 2010), Wine - Malaysia ix Euromonitor International: Country Market Insight (November 2010), Packaged Food - Malaysia x Euromonitor International: Country Sector Briefing (December 2010), Wine - Malaysia xi USDA Foreign Agricultural Service, 2010. Malaysia Retail Foods. (gain.fas.usda.gov). xii Euromonitor International: Country Market Insight (November 2010), Packaged Food - Malaysia