Euromonitor reports that Malaysia’s economy will slow in 2013 but still record moderate gains. An improvement in domestic demand will offset weaker exports on which they are over dependent. Malaysia’s Economic Transition Plan calls for real Gross Domestic Product, (GDP) growth of 5%-6% per year over the next ten years. The near-term outlook for the Malaysian economy is very much dependent on the economic performance of its major trading partners. GDP should rise by 4.7% during 2013, down from 5.4% in 2012.
Malaysia is politically and economically stable and open to foreign trade. Transportation, communications, banking and health services are modern and efficient. With a population of around 28.9 million, it is one of the most developed nations in Southeast Asia. About 61% of its population falls into the middle to upper income group of consumers; with GDP per capita income of US$9,700. Its economy has a firm foundation that includes strong manufacturing, service and agricultural sectors.
The Malaysian food and beverage market is becoming increasingly sophisticated and is supplied by both local and imported products. The strong economic growth in the late 80's and early 90's contributed to major changes in consumer purchases and consumption patterns. Malaysians living in urban areas are relatively brand conscious, and they prefer to shop in stores, which offer them convenience and good product selections. Both hypermarkets and large format stores are now the dominant format in urban/metropolitan areas in Malaysia with about 45% to 60% of urban household shoppers using them as the main outlet for the majority of their packaged groceries. Traditional markets are losing ground, but are still important outlets for fresh fruits and vegetables.
Malaysia continues to be a net importer of food products with annual imports of US$16 billion. Food imports have been growing on an average of 23% over the last few years and will likely to grow at similar rates over the next five years. In 2011, the total imports of consumer-oriented and edible fishery products to Malaysia were estimated at US$5.9 billion. Total imports from the United States were US$448 million, representing 7.6% market share. China is the major supplier with imports at US$1.1 billion, representing 19% of the market share. India took the second spot with imports worth of US$646 million which is about 11% of the market share, followed by New Zealand (10%) and Australia (7%).
In 2012, U.S. exports of agricultural products decreased 13% from 2011 to US$879.9 million. From that amount 53% or US$470.5 million were of the consumer oriented variety. That figure represented an increase of 7% from 2011. Top processed food exports from the U.S. to Malaysia in 2012 included miscellaneous food preparations, concentrated milk, french fries, whey, yogurt, sweetener, tea, fruit juices and raisins.
Despite all of the potential, there remain distinct challenges for U.S. exporters of consumer food products. Though consumers are demanding greater variety and quality in their foods, they are generally price sensitive towards such purchases. Accordingly, retailers often purchase food items that are more affordable to the majority of the consumers. Countries that are closer to Malaysia have a faster delivery time and lower freight cost compared to U.S. exports. Importers and distributors supplying mid to high-end establishments will often purchase at the lowest price from any exporter or country, more like commodities.
Muslims comprise 60% of Malaysia’s population. Thus only Halal meats (beef, lamb, and poultry) are allowed to be imported into Malaysia from plants approved by the Malaysian Islamic Development Department (JAKIM) and certified by recognized Islamic institutions in the country of export. The expectation of halal standard in food products have extended from meat and meat products to non meat-based products such snacks, confectionery, dairy, bakery, etc. Halal is fast becoming recognized as a new benchmark for quality, hygiene and safety. Food products and ingredients that have halal certificates have added marketing value in Malaysia. Hence, most retailers, foodservice operators and food manufacturers are inclined to ask for halal certificates for non-meat based food products and ingredients.
According to Euromonitor, retail sales in the packaged food market in Malaysia had been estimated to reach US$6.3 billion in 2012. That represents a growth rate of 20.7% or US$1 billion million since 2008. The forecast for growth in this market is also promising. By the year 2017, the retail sales in the packaged food market in Malaysia is expected to reach nearly US$6.9 billion, a growth rate of nearly 8%, or US$477.8 million. High growth categories in the forecast include meal replacement, spreads, dairy products, pasta, oils and fats ice cream, noodles and snack bars.
According to Retail Group Malaysia, the bulk of retail food sales are channeled through the traditional stores, such as provision stores, grocery stores, specialty food stores and other sundry shops. This sub-sector commands close to 60% of food sales today. Modern stores such as supermarkets, hypermarkets and department stores with supermarkets only have around 39% share of the retail food market. Convenience stores have remained insignificant, with only about 1% share of the retail food market.
Supermarkets and hypermarkets are mainly located in the major urban centers and are continuing to grow in numbers. Foreign-owned retailers operating locally include Tesco, Carrefour, Dairy Farms International (owns Giant), and Jaya Jusco. Supermarkets and hypermarkets will continue to see the fastest growth over the next few years. These retail stores provide good venues for imported products and access to the middle and high-income sophisticated consumers.
Competition among the retailers, especially hypermarkets, is intense with large international retailers like Tesco, Giant and Carrefour frequently engaging in price wars to establish their presence as major players in the market. Meanwhile, Giant, the largest hypermarket operator in Malaysia, is reported to sacrifice profits in order to maintain the low-price leader status. Pressure is mounting for local retailers such as The Store to maintain competitive prices and carry a good variety of products in order to keep up with the international players.
Malaysians are shopping more at convenience stores and petrol marts. Increasing competition has resulted in a need for convenience stores to become more professional. Customers are now expecting more sophisticated offers like a wider range of better quality ready-to-eat snacks and hot-and-chilled beverages.
Best product prospects for U.S. suppliers include baby food, fresh fruits and vegetables, pet foods, dried fruits, nuts, frozen potatoes and processed juices.
Food Service Sector:
Malaysia has a sizeable and rapidly growing food service market today. Sources from the trade estimate the food service market today is valued between US$5 billion to US$6 billion. The food service market has been growing at a rapid average rate of around 7% and 10% per year which should continue over the next three to five years. This positive forecast is due to growing sophistication and affluence among consumers. Hotels and resorts, restaurants, and the institutional sub-sectors represent the best potential for U.S. exporters. The restaurant sub-sector accounts for 70% of the total food service sales. This is followed by the hotels and resorts (8%) and catering services to institutions (5%).
Malaysia’s tourism industry has also fueled growth of the food service industry. Currently it is the second largest foreign exchange earner after manufacturing. The number of tourists visiting Malaysia reached 24.7 million in 2011. Total tourism revenue generated was $19 billion. With the current government’s effort to promote Malaysia as a medical tourism hub, tourists’ arrivals are expected to grow in the coming years. Recently, CNN listed Kuala Lumpur as the 4th best shopping destination in the world after New York, London and Tokyo. The growth in tourism is expected to fuel the growth of restaurants offering international cuisines such as Middle Eastern and Latin American food.
Food Processing Sector:
There are nearly 3,200 manufacturers involved in the food manufacturing industry in Malaysia and the industry accounts for nearly 10% of Malaysia’s manufacturing output. In 2011, Malaysia exported food products worth US$6.7 billion to more than 200 countries, with an export value of US$4.4 billion for processed food. Food manufacturers operating in Malaysia include both Malaysian and multinational companies such as Nestle, Unilever, Cerebos, and Campbell Soup.
The Malaysian government has identified the food processing industry as a priority sector for industrial development and increase exports. Malaysia’s Ministry of International Trade and Industries (MITI) estimates the global market for halal foods (foods suitable for Muslim consumption) at US$560 billion annually. Recognizing the potential of the halal food industry, the Malaysian Government aims to become the Global Halal Hub by becoming a major producer of halal food and to be in the forefront of marketing, certification and reference for halal food products.
Big corporations such as Nestle and Tesco are known to work hand-in-hand with the government to achieve the halal hub goal. Nestle has picked Malaysia as their global Halal Center for Excellence and exports 300 halal food and beverage range of products to more than 50 countries with export sales over US$380 million in 2011. Meanwhile, Tesco Malaysia has announced its plan to export US$2.7 million worth of halal products from Malaysia to Britain by 2011.