Country Profile

Malaysia Country Profile

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Export Intelligence Video Series - Southeast Asia

Market Overview

Euromonitor reports that Malaysia’s economic growth will weaken in 2020.  The domestic sector will be hindered by government measures to contain the spread of COVID-19 while the external demand will also weaken as the pandemic sweeps the globe.  Consumption should remain strong, underpinned by high disposable income and low unemployment rate while inflation is expected to remain low.  This will partly offset the sluggish export performance.  Expected rates of growth will dip to around 3% in 2021-2027.

  • Malaysia’s real gross domestic product (GDP) will moderate slightly in 2020.  Real GDP is expected to rise by 3.2% in 2020 after gains of 4.3% in 2019.
  • The growth of the real value of private final consumption was 7.6% in 2019 and an increase of 5.5% is expected in 2020.  Malaysia’s strong employment boosts consumer spending.
  • The unemployment rate was 3.3% in 2019 and it will decrease to 3.1% in 2020.  Until recently, Malaysia’s workforce had included an estimated four million migrants but tighter restrictions on foreign labor are forcing many to leave the country.  As a result, wages are rising and undermining a strategy that depends on cheap labor.
  • The International Monetary Fund (IMF) estimates that the potential rate of growth will be around 4.8% per year in the medium term.

The creation of the ASEAN Economic Community in 2015 has proved to be an effective means of strengthening regional economic and financial integration.  Malaysia is a member of the 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which was formally created in March 2018.  Because Malaysia’s workforce is no longer competitive (in terms of labor costs) with that of rivals like Vietnam or Bangladesh, these trade deals are especially important for Kuala Lumpur to attract investment.

Malaysia has set itself an ambitious target of achieving labor productivity growth of 3.7% per year over the next several years.  The aggressive development of industries such as biotechnology, Islamic finance, communications technology, and tourism will be essential to meet this target.  Recent improvements in the quality of education will also help to meet the productivity target.

Malaysia’s population is growing rapidly and reached 32.7 million in 2019.  This figure is more than double the number of inhabitants in 1980 and 9.2 million more than the total in 2000.  The median age is nonetheless rising.  It reached 29.4 years in 2019, up from 23.7 years in 2000.  Fertility is declining and is lower than the replacement level – 1.9 births per female in 2019.  The fall is attributed to several indirect factors such as higher educational levels (especially among females); a rise in female labor force participation and the gradual urbanization of the populace.  Fertility will fall to 1.7 births per female by 2030.  Net migration has generally been positive, adding to the population boom.  In addition, a large number of illegal immigrants live in the country.

USDA’s Office of Agricultural Affairs (OAA) in Kuala Lumpur hereinafter referred to as “Post” reports that Malaysia’s multibillion-dollar food industry is driven by an expanding economy, increased consumer spending and healthy tourism industry.  Although the country’s halal requirements complicate trade for certain products, Malaysia’s trade and regulatory policies are relatively open and provide opportunities for a broad range of imported foods and beverages.  Malaysia’s total agricultural product imports in 2019 reached nearly US$18.3 billion, roughly 7% of which was sourced from the United States.

U.S. exports of consumer-ready food products to Malaysia totaled over US$1.1 billion in 2019 a 13% increase from the same period in 2018.  Malaysia is the 5th largest market for U.S. exports of consumer-ready products in the region and ranks 26th overall in the world.   Malaysia is an active importer of U.S. processed foods and now the 6th largest U.S. market in Southeast Asia.  In 2019 U.S. processed food exports totaled over US$440 million, up 13% from the prior year.  Top 2019 U.S. processed food exports included:

  • Food Preparations
  • Processed/Prepared Dairy Products
  • Processed Vegetables & Pulses
  • Processed Fruit
  • Non-alcoholic Beverages
  • Fats & Oils
  • Snack Foods
  • Chocolate & Confectionery
  • Dog & Cat Food 
  • Condiments And Sauces

Advantages and Challenges for U.S. Food Exporters in Malaysia

Market “Advantages” (U.S. supplier strengths and Malaysian market opportunities) and “Challenges” (U.S. supplier weaknesses and competitive threats).

Advantages

  • U.S. food and agricultural products are trusted and perceived to be of high quality.
  • The growing Malaysian Hotel, Restaurant and Institutional (HRI), Retail and Food Processing sectors require a wide range of imported food products and ingredients.
  • Rising disposable income in Malaysia is driving demand for high quality imported food and beverage products.
  • A large number of U.S.-style restaurants and cafés operate in major cities, enabling new to-market U.S. products easier market acceptance.

Challenges

  • Many U.S. products need to be halal certified in the Malaysian market, which can be a lengthy process.
  • Australia and New Zealand both have free trade agreements with Malaysia and have a strong presence in the country’s consumer-oriented food and beverage market.
  • In addition to strong competition from Australia and New Zealand, products from China and other ASEAN countries are gaining market share.
  • Many U.S. exporters are unfamiliar with the market and are therefore sometimes unable to meet specific requirements and order sizes.

“All of Food Export’s programs were a tremendous help getting us export ready, understanding the challenges that come with international business, and learning how to navigate them.”

Katz Gluten Free

Food Export-Northeast Participant since 2018       

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Retail Sector

According to Euromonitor, retail sales in the packaged food market in Malaysia had been estimated to reach nearly US$7.3 billion in 2019.  That represents a growth rate of 24% or over US$1.4 billion since 2015.  The forecast for growth in this market is also quite promising.  By the year 2024, the retail sales in the packaged food market in Malaysia is expected to reach US$8.8 billion, a growth rate of 15.1% or US$1.1billion.  High growth products in the forecast include:

  • Dairy products
  • Confectionery
  • Ice cream and frozen desserts
  • Rice, pasta and noodles
  • Sauces, dressings and condiments
  • Baby Food
  • Baked goods

Post reports that The Malaysia food retail sector continues to rapidly develop, and premium grocery stores and convenience outlets are increasingly popular. The country’s food retailers reached US$26 billion in sales in 2019.  Industry analysts report the sector is dominated by five key players: Dairy Farm Group, Mydin Mohamed Holdings, Trendcell, Village Grocer Holdings, and AEON Group.

Euromonitor reports that despite the shrinking consumer base for the supermarkets in general as consumers increasingly favor convenience stores, premium supermarkets witnessed strong growth during 2019.  This was mainly due to the emergence of an affluent and sophisticated urban consumer base who value premium positioning and the rapid expansion of chained supermarkets in major urban areas.  

Numerous recent openings of upmarket supermarkets under brands such as MaxValu Prime, Jaya Grocer, and Village Grocer have further supported the shift towards more premium grocery retailer chains.  These stores appeal largely to urban shoppers due to their prime locations, easy access, and exclusive offerings, which usually include rare, imported goods and food ingredients that are deemed hard to find at other supermarkets and even on the shelves of hypermarkets.

The leading players in supermarkets in Malaysia continue to employ strategies that are similar to those pursued by their counterparts in convenience stores.  Specifically, Malaysia’s leading supermarket chains are increasingly focusing on ready-to-eat food, capitalizing on rising demand for all types of products that can save consumers time as well as benefiting from the high margins that these products offer retailers.  This is a sign that the country’s supermarkets are increasingly willing to respond to the higher consumer demand for convenience.  

Busy urban lifestyles mean a lack of time to prepare meals from scratch at home and this is encouraging consumers to turn to ready-to-eat food as a quick and easy meal solution.  One senior source from AEON Co has commented that revenues generated from ready-to-eat food had increased substantially over the course of 2019, with the higher profit margins that these products represent encouraging the company to focus more on them during the future.

2019 saw Jaya Grocer remain the leading name in supermarkets in Malaysia.  Parent company Trendcell Sdn Bhd continues to generate strong growth, with the strategic locations of its large format outlets a major asset.  The company has however seen a growth slowdown in recent years and this can be attributed mainly to the sluggish performance of its flagship store at Bangsar Market.  This has led to the company scaling back its expansion and the opening of new stores as it faces stronger competition from Village Grocer and AEON Co.’s MaxValu Prime, each of which targets a similar consumer demographic.

AEON Co (M) Bhd generated a strong sales growth in supermarkets in 2019, supported by the strong performance of its Aeon Co and MaxValu Prime brands and its policy of trading from smaller premises that many of its rivals.  Despite value sales in supermarkets coming under considerable pressure during 2019, AEON Co pressed ahead with its program of upgrading and refurbishing its stores and expanding its product range.  Aeon Co is also moving into Omni-channel retailing.  The company recently engaged HappyFresh as its partner to develop a grocery delivery service for its customers that place their grocery orders online, enabling AEON Co to capture share in the burgeoning food and drink e-commerce space.

Recent years have seen major changes to the government regulation of grocery retailing in Malaysia.  Previously, there were restrictions on foreign retailers that prevented them from operating stores with less than 3,000 sq m of retail selling space, which limited them to operating in hypermarkets.  However, recent developments in the regulatory landscape have meant that international retailers can now operate supermarkets or convenience stores in the crucial regions of Klang Valley, Penang, Johor Bahru and Ipoh. It is expected that international players such as Tesco will begin entering supermarkets during the forecast period in order to expand their market shares and establish a wider footprint throughout the country.

Euromonitor reports that convenience stores continue to witness strong growth in terms of outlet numbers and value sales.  Increasing incomes and busier lifestyles, especially among consumers in Kuala Lumpur and other major urban areas, have translated into greater consumer demand for quick and convenient access to all types of groceries. Furthermore, the introduction of value-added services such as EasyParcel, which enables consumers to send and pick up parcels at outlets of MyNews.com and 99 Speed Mart, has also spurred growth.  These services have proven popular, bringing in additional footfall and boosting consumer traffic in convenience stores.

Convenience stores now offer improved availability and a wider range of options for ready-to-eat fresh food, drinks and deli products, providing greater convenience to busy working professionals and time-pressed commuters.  This has generated higher levels of consumer foot traffic in convenience stores, supporting more impulse purchases of other types of products that are typically sold in convenience stores.  

With MyNews.com’s new The Tarik ice cream range and Family Mart’s hot food items such as its Korean Cheese Ramen, category players are regularly launching new experiences to attract consumers. Moving forward, the leading players in convenience stores are expected to focus on growing the contributions made to their revenues from food service in order to capitalize on rising demand and boost their profit margins.

99 Speed Mart remains the leading player in convenience stores in value terms.  The player has recently expanded its distribution network by adding 198 new convenience stores across Malaysia over the course of 2019.  The retailer has also extended its reach into suburban locations such as Kuala Kangsar and Temerloh.  

KK Super Mart remains an innovative presence in convenience stores in Malaysia. Towards the end of the review period, the retailer opened a concept store that serves as a comprehensive 24-hour haven rest stop, providing consumers with ready-to-eat fresh food, a work zone and massage chairs, all set in a prime tourist destination in the heart of Kuala Lumpur.  This elevated shopping experience includes innovations such as cashless transactions and represents a clear signal of KK Super Mart’s intention to move into convenience stores that are specifically targeted at commuters and on-the-go convenience needs rather than merely adhering to its current household shopping-oriented offering.

Best Prospect Products

Post reports that U.S. products with the best prospects for sales in the Malaysian food retail market include dairy, fresh & processed fruits, seafood, wine, pork and beef.

Food Service Sector

The Malaysian hotel, restaurant, and institutional (HRI) industry is one of the fastest-growing sectors in the country and is largely driven by robust tourism and increased consumer spending. According to Euromonitor data, the Malaysian tourism industry grew steadily over the past decade, and as of 2019, representing 15% of the country’s GDP.

Malaysia’s hotel, restaurant, and institutional (HRI) industry is one of the fastest-growing sectors in the country’s economy and is largely driven by robust tourism and consumer spending.  The rapid expansion of the HRI industry throughout the country is expected to support steady growth in demand for imported, high-quality food and beverage products for the next several years.

The Malaysian economy has enjoyed strong growth in recent years with 2019 real GDP expanding by 4.3%.  According to the Malaysian Department of Statistics, the tourism industry has played a significant role in this economic expansion and now represents 15.2% of the country’s GDP.  According to Euromonitor data, the country’s hotel and restaurant industry has performed particularly well during this expansion with real growth of over 50% during the past five years.

  • Malaysia’s foodservice industry is one of the most diverse in the world with a broad range of Asian and Western cuisine widely available in dining formats ranging from food stalls to full-service restaurants.
  • A rapidly growing and highly urbanized population is demanding fast and convenient food choices.  Additionally, healthy and organic products are becoming very popular.
  • Malaysia’s relatively young and educated population frequently enjoys eating out.
  • To attract local and international Muslim tourism, the majority of hotels in the country (including international chains) strive to use only JAKIM halal-certified products in their establishments.
  • American chain restaurants dominate Western cuisine options in Malaysia with at least 18 U.S. franchises in operation.
  • Expansion of the HRI industry throughout the country is expected to support steady growth in demand for imported, high-quality, food and beverage products for the next several years.

To ensure full market access to the Malaysian HRI industry, halal certification is strongly recommended for all imported food and beverage products.  Furthermore, many products (e.g. beef or poultry) require halal certification in order to enter the country.  As roughly 60% of the Malaysian population is Muslim, the majority of hotels, restaurants, and catering services work to ensure 100% halal certification.  As a result, they strive to have all food and beverage products used in their establishment’s halal-certified (regardless of whether or not it is actually required for the respective product).

Best Product Prospects

Post reports that the top U.S. product prospects for the local HRI industry include processed vegetables, tree nuts, processed fruits, fresh vegetables, and beef.

Food-Processing Sector

Post reports that although Malaysia’s multibillion-dollar food processing industry has been significantly disrupted in the short-term by the COVID-19 pandemic, the sector is fairly robust and has been identified by the Malaysian Government as a crucial component of future national economic growth.  The Malaysian food processing industry includes several multinational corporation facilities and the main products produced are beverages, canned seafood, canned fruits, canned vegetables, confectionery, dairy products, noodles and bakery products.

Malaysia’s multibillion-dollar food processing industry is driven by an expanding economy and increased consumer spending. Although the country’s halal requirements complicate trade for certain products, Malaysia’s trade and regulatory policies are relatively open and provide opportunities for a broad range of ingredient products.  Malaysia’s total agricultural product imports in 2019 reached nearly US$18.3 billion, roughly 7% of which was sourced from the United States.

According to the Malaysian Investment Development Authority (MIDA), there are more than 8,000 establishments within the local food processing industry, ranging from small and medium-sized enterprises to major multinational corporation facilities.  The main products produced by this sector include beverages, canned seafood, canned fruits, canned vegetables, confectionery, dairy products, noodles, and bakery products.

The Malaysian food processing industry accounts for 10% of the country’s manufacturing output and is growing at a pace of roughly 3% per year.  Several multi-nationals have regional production facilities in and around Kuala Lumpur and the Government of Malaysia have identified the food processing industry as a critical sector for future economic growth.

A broad range of ingredients and raw materials for the Malaysian food processing industry are imported.  Australia and New Zealand supply the majority of the ingredient products for the dairy processing plants, while China and Thailand are the top suppliers of poultry and processed fruits.  The United States is a major supplier of processed vegetables and tree nuts.

Many food products (e.g. beef or poultry) require halal certification in order to enter the country.  Currently, the Islamic Development Foundation of Malaysia (JAKIM) is the only authorized entity allowed to issue halal certification.  In the United States, JAKIM has appointed two Islamic institutions to inspect and halal certify food and beverage products for export to Malaysia; the Islamic Food and Nutrition Council of America (IFANCA) and the Islamic Services of America (ISA).

In March 2018, Malaysia implemented a measure that requires foreign producers and exporters of dairy products to apply for registration with the Malaysian Government. According to trade contacts, the Malaysian Government implemented this facility registration measure to improve the traceability of imported dairy products and to ensure imported dairy products were certified halal.  Applications from dairy facilities with a history of exporting to Malaysia were given expedited review upon implementation of this statute while new to market suppliers were given standard reviews lasting a reported three to six months.

Best Product Prospects

Post reports that top prospective U.S. food processing ingredient products for the Malaysian market include: dairy products, frozen potatoes, tree nuts, and processed fruits.

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