Malaysia Food and Drink Report Q4 2008

Malaysia’s food, beverage and grocery retail industries
continue to attract both domestic and multinational investment, as
discussed in BMI’s newly published Malaysia Food & Drink Report for
Q408. In the last quarter, Russian baby food specialist Nutritek Group
has entered the Malaysian market place, US agribusiness Cargill
commenced operations in Kuala Lumpur and Krispy Kreme Doughnuts

Inc entered into a franchise agreement

with Berjaya Krispy Kreme Doughnuts to develop 20 shops in the next five years. Retail majors AEON and Carrefour continue to invest heavily in the region, with Carrefour opening its 15th store and AEON planning three more stores over the coming 12 months.

These investments signify the growing interest in the region despite rising prices and weakening consumer confidence. It is perhaps not surprising
that companies want to invest when per capita food consumption is
forecast to reach US$479.52 in 2012 and value sales through modern
retail outlets are forecast to increase by 36.2% to 2012. In addition,
the Malaysian government has indicated that they are considering
relaxing current legislation to allow multinational retailers to expand
into the smaller convenience store sector on a franchise basis. Should
this amendment to legislation proceed Malaysia is likely to become an
even more attractive prospect for investors, providing greater sales
opportunities for producers and greater expansion opportunities for

Malaysia’s thriving halal sector will also appeal to investors
particularly with the current tax incentives for halal producers. In
August 2008, Nestlé proposed the government introduce further monetary
incentives to attract additional business to the region, however, there
has yet to be a response from the government in relation to Nestlé’s
suggestions. Despite this, Malaysia’s convenient position for exporting
to the Middle East, combined with the fact that 52% of its population
is Muslim, makes it an ideal location for halal producers.

Another area that is seeing significant foreign investment
is the continuation of the global trend towards a more health conscious
diet. Nestlé has invested in the production of low fat noodles, while
Coca Cola and PepsiCo have both been expanding their healthy drinks
portfolio. This quarter Fraser and Neave has also launched its aLIVE
range of healthy convenience foods in an attempt to combine healthy
eating with the thriving market for processed foods in urban

As quarterly activity shows Malaysia appears to pose a great
opportunity for investors. Nonetheless, there are a couple of drawbacks
particularly on the food and drink markets side: food import
dependency, low alcohol consumption and low per capita food
consumption. Despite these risks, there is still a fairly positive food
consumption growth outlook as a result of sustained economic growth and
an increase in consumer purchasing power.