Malaysia Country Profile

Market Overview:

Euromonitor reports that the Malaysian economy slowed in 2016 but still grew at a healthy pace. The economy should continue to perform well despite a poor external environment. Real Gross Domestic Product (GDP) rose by 4.1% in 2016 after gains of 5% in 2015, and it is forecast to return to 5% in 2017 and for the remainder of the decade. Gains in private final consumption should more than offset the effects of fiscal consolidation. A poor performance in agricultural along with continuing political uncertainty is a drag on the economy.  Recent increases in the minimum wage, continued income growth and a government stimulus program for low-wage employees support consumer spending.  

Private consumption is proving resilient despite the recent introduction of a tax on goods and services. Growth of the real value of private final consumption was 5.8% in 2015 and an increase of 5.6% is expected in 2016. Public investment contracted in 2015 but should rebound in 2016. Private investment is also growing at a steady pace. Investment is supported by gains in both in manufacturing and services, largely offsetting the investment downturn in the oil and gas sector. Malaysia’s Economic Transition Plan (ETP) calls for real GDP to grow by 5%-6% though the expected rate of growth is around 5% per year during the remaining years of this decade.

The USDA Office of Agricultural Affairs, OAA, in Kuala Lumpur, hereinafter referred to as “Post” reports Malaysia is politically and economically stable and open to foreign trade. Transportation, communications, banking and health services are modern and efficient. With a population estimated in 2016 of around 31.4 million, it is one of the most developed nations in Southeast Asia. Over 60% of its population falls into the middle to upper income group of consumers; with 2016 GDP per capita income of US$27,200 on a Purchasing Power Parity (PPP) basis.

The Malaysian food and beverage market is very developed and sophisticated and is supplied by both local and imported products. Urban consumers are relatively brand conscious and prefer to shop in stores, which offer convenience and good product selections. Hypermarkets/large format stores are the dominant format in urban/metropolitan areas in Malaysia with about 50% 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.

Post reports that Malaysia continues to be a net importer of food with annual imports of US$14 billion. In 2015, Malaysia’s total imports of consumer-oriented and edible fishery products were US$7.1 billion. Imports of this category from the United States were US$501 million, about 7% of market share. China is the major supplier with imports at US$1.3 billion, representing 18% of the market share. India took the second spot with imports worth of US$747 million (11%), followed by Thailand (10%), New Zealand (9%) and Australia (7%).

U.S. exports of agricultural products to Malaysia declined 4% to US$802.4 million in 2016. U.S. exports of consumer ready products decreased 11% to US$398.2 million, or about half of the agricultural total. Indonesia is the 6th largest market in Southeast Asia for the export of U.S. processed food products, totaling US$348.6 million in 2016, although down 10 from the prior year. Top 2016 processed food exports from the U.S. to Indonesia included food preparations, processed/prepared dairy products, processed vegetables and pulses, processed fruit, non-alcoholic beverages, snack foods, dog and cat food and chocolate and confectionery. 

Despite all of the potential, there remain distinct challenges for U.S. exporters of 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. U.S. exporters face competition from locally produced raw food materials in sufficient supply (e.g. poultry, and palm oil).

Malaysia has Free Trade Agreements, FTAs, with Australia, Chile, China, European Union, India, Japan, Korea, New Zealand, Pakistan and Turkey. This is in addition to the ASEAN and AEC partners. Malaysia is also a signatory to the TPP, or Trans-Pacific Partnership which no longer includes the United States.

With a Muslim population of 65%, the demand for halal foods by Malaysian consumers has increased over the years. 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. Almost all food and ingredients destined for the food service sector must be certified halal. 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, food service operators and food manufacturers are inclined to ask for halal certificates for non-meat based food products and ingredients.

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Malaysia had been estimated to reach nearly US$6.6 billion in 2016. That represents a growth rate of 24.5% or US$1.2 billion since 2012. The forecast for growth in this market is also promising.  By the year 2021, the retail sales in the packaged food market in Malaysia is expected to reach US$78.9 billion, a growth rate of 28.6%, or US$1.9 billion. High growth categories in the forecast include rice pasta and noodles, baby food, dairy, confectionery breakfast cereals, ice cream and frozen desserts and soup.

Post reports that the food retail sector continues to remain fragmented, with 56% comprised of small retailers operating in provision shops, grocery stores and other non-air conditioned sundry shops throughout the country. This sub-sector commands close to 56% of total food sales today. Modern stores such as supermarkets, hypermarkets and department stores with supermarkets make up 43% of the nationwide retail food market. Convenience stores are insignificant, with only about 1% share of the nationwide retail food market.

Online retailing is starting to gain traction in Malaysia, with TESCO taking the initiative in 2014 where customers can purchase online have groceries delivered to their doorsteps. Online trading websites like Lazada, 11street and MilkADeal are also offering non-perishable food products besides usual non-food consumer items.

Large food retail stores such as supermarkets, hypermarkets and department stores that also operate supermarkets within the premises are largely located in the major cities, urban centers and larger towns in Malaysia, where most middle to high income consumers reside. Major food retailers usually operate chain stores strategically located to capture their target consumers.

The Cold Storage Group is the largest food retailer in Malaysia in terms of sales as well as number of retail outlets. It operates hypermarkets and supermarkets nationwide under the Giant, Cold Storage and Jason brands. The Giant supermarkets and hypermarkets are known as a homegrown trusted brand. Giant is well-known to local shoppers as the store that offers the best value-for-money products. Giant targets the mass market and is the largest supermarket chain in Malaysia. Cold Storage and Jason target the upper middle to high income shoppers as well as high income expatriates residing in Malaysia. It carries a wide variety of local products as well as imported products, especially products from Europe, USA, Canada, Australia, New Zealand, South Africa and some Latin American countries.

Tesco Malaysia is one of the largest food retailers in Malaysia in terms of sales. It operates Tesco and Tesco Extra stores in the major cities in Malaysia. Tesco Malaysia is aggressively targeting the mass market with its competitively priced products. It carries mainly locally sourced products as well as a sizeable proportion of imported products, and has the widest selection of price competitive products from the United Kingdom. Tesco is the only retailer in Malaysia that offers grocery on-line shopping covering certain Klang Valley areas. Its own private brands such as Tesco Value, Choice, Finest as well as Light Choice are popular among the consumers.

AEON Malaysia operates the Jusco Stores nationwide. Jusco is the largest high end department store chain in Malaysia that also operates a full scale supermarket within its stores. Jusco operates high end stores that target middle to high income shoppers. It carries a wide variety of local premium branded products as well as imported products. It also carries the widest selection of products from Japan. AEON became the second-largest retail group in Malaysia after purchasing Carrefour Malaysia in 2012 and renaming it to AEON Big.

Other popular Malaysian owned premium supermarkets carry a very wide variety of imported food products are Jaya Grocer (the fastest growing local chain) & Hock Choon, Village Grocer, Ampang Grocers, BIG (Bens Independent Grocer) and the latest addition, Sam’s Groceria. These outlets target the middle to high income shoppers and more than 50% of their products are imported.

The demand for premium groceries is growing in Klang Valley, and premium supermarkets have an increasing presence with more players and outlets in recent years. These outlets that target the middle to high income locals and expatriates carry more varieties and higher volumes of imported branded products from western countries such as Australia, New Zealand, the USA, Canada, France, Italy, the United Kingdom and other parts of Europe.

Such products would include fresh produce such as chilled beef and lamb, fresh temperate fruits and vegetables, chilled cold water fish such as salmon, frozen vegetables, sausages, delicatessen meats, pastry and pies, dairy products, high end  biscuits and cookies, confectionery such as premium/branded chocolates and candies, potato based snacks, canned fruits, canned soups, canned meat, breakfast cereals, pasta, sauces, spices, seasonings, dressings, ready meals (frozen), home bakery ingredients, fruit juices, jams and jellies, peanut butter, non-alcoholic beverages and wines, beer and other alcoholic beverages.

Best Prospects:

Best product prospects for U.S. suppliers include those in the market with good sales potential. They are breakfast cereals, snack foods, frozen vegetables fresh (temperate) fruits, dairy, edible nuts, sauces and seasonings, chocolate, non-alcoholic beverages, wine and pet food.

Food Service Sector:

Post reports that Malaysia’s population has a significant pool of active consumers with evolving eating habits, and growing consumption of imported food and beverages. The population is relatively young and educated. They tend to follow a western lifestyle and prefer dining out rather than dining at home. Over half of the population belongs to the middle to high income group with growing purchasing power and increasingly sophisticated and modern lifestyles. This leads to greater consumption of imported food and beverages from western countries. Consumers are willing to dine out at the full range of establishments available in Malaysia, including full-service restaurants, fast food restaurants, fine dining or casual dining eateries. Nevertheless, as the government continues to reduce subsidies and the implementation of a 6% Goods and Service Tax (GST) in 2015, price sensitive consumers are cautious about spending.

Currently, 1,858 hotels and resorts are registered with the Ministry of Tourism, with approximately 209,000 rooms available throughout Malaysia. Average occupancy rates have been running at 70% or above. To attract local and international Muslims, some hotels have sought Halal certification, and about 123 hotels have been approved as Halal by the Department of Islamic Development (JAKIM), Malaysia’s national Islamic authority. In addition, an estimated additional 200 hotels have obtained halal certification through individual State Islamic Departments.

Malaysia has a wide variety of dining establishments, including full service restaurants, fast food restaurants, cafes, food stalls, food courts, eat-in bakeries, and pubs and bars. Most restaurants provide Asian cuisine, with Chinese dominating the mid- and high end restaurants. Malay, Indian (various cuisines), Japanese (various cuisines/formats), and Indonesian, and Thai restaurants also dominate the local restaurant scene. With rising urbanization, changing lifestyles, and more women in the work place, consumers want convenience through dining outside the home. These trends will boost demand in the food service sector. To meet this growing demand and to keep abreast of evolving promotional tools, food service outlets will continue to seek new ways to use social media tools, launch promotions, and advertising campaigns to expand market share. However, rising operational and raw material costs are likely to be passed down to consumers.

American-style (family-style restaurants, which mainly operate in chains), Italian, and French are the most prominent cuisines in non-Asian restaurants.  Turkish, Persian, and Lebanese restaurants are also present. American franchises dominate Western cuisine, with 18 American franchises operating, including Chili’s, TGI Fridays, Tony Roma’s, Texas Chicken and Red Lobster. These major franchise players have more than 30 outlets throughout Malaysia. American franchises also lead the local fast-food sector. A&W was the first American franchise in Malaysia, followed by KFC and McDonald’s. There are more than 1,000 fast food outlets throughout Malaysia.

Middle income consumers with families, young working adults, and teenagers are the main patrons of fast food restaurants. They prefer the informal, clean and comfortable environment to food courts and other traditional food service outlets. Customers that frequent restaurants are from middle to upper income families, business persons and affluent young working adults. Most of the customers are well-travelled, well-informed, sophisticated, prefer to dine in comfort and appreciate the highest culinary standards in the country.

Consumers increasingly prefer healthier foods offered by certain restaurants, and organic products are becoming more popular. One example of healthier eating is the rise of street stalls/kiosks selling fruit juice. Vendors such as Juice Works, Boost Juice Bars, and Tutti Frutti offering nutritional yogurt smoothies or healthy juice as an alternative to coffee have increased in prominence as consumers aim for healthier habits. Local companies and brands dominate the food service sector.

QSR Brands (KFC), Golden Arches (McDonald’s) and Secret Recipe Cakes & Café dominate the consumer food service sector in Malaysia. They have consistently marketed their products with a range of promotional marketing campaigns, e.g., tea-time promotions from 3:00-6:00 p.m. by Secret Recipe Cakes & Café.  Continuous innovation in the company’s menu enables it to outperform other competitors. Furthermore, Secret Recipe Cakes & Café has expanded aggressively with more new outlets throughout Malaysia, which helped it gain market share.

Post advises that restaurants, bakeries, caterers, and airline food service providers are the main end-users in this sector, and a select number of importers specialize in providing raw materials and foods to these end-users. As the end-users often prefer to source most of their supplies, ingredients, and food from a small number of importers, U.S. exporters wishing to serve the HRI market should focus on these importers.  Equally important, U.S. exporters should ensure that their products are halal certified. The end users’ premises are themselves halal certified, so they will only handle products that are likewise halal certified.

Best Product Prospects:

Post advises that Malaysia has a dynamic hotel and restaurant industry, and changing lifestyles and growing middle class underpins demand. Key U.S. prospects for the HRI sector include dairy products, frozen potatoes, powdered milk, whey, sauce, citrus Fruit, almonds, cheese, chocolates, frozen chicken cuts, bread pastry and cakes and apple juices. Halal certification is essential. Halal and other technical barriers hinder meat and poultry export opportunities. 

Food-Processing Sector:

Post reports that the overall food processing sector in Malaysia is growing at about 5% per year, with dairy, bakery, and processed fish products among the leading sectors.  Halal compliance, though not necessary, is a must if U.S. food exporters wish to enter Malaysia’s market. New manufacturing facilities are being built, both to meet domestic needs and for export. Best U.S. prospects include dairy powders, dried and preserved fruits and vegetables, wheat, soybeans, beef, poultry, pollock, lobsters and nuts.

Some 6,500 small and medium-sized establishments are involved in food manufacturing, accounting for nearly 10% of manufacturing output. In addition, several multi-nationals have regional production facilities, with production focused on both export and domestic demand. The Government of Malaysia (GOM) has identified the food processing sector as one of the critical industries for the overall economy and as a potential contributor to exports.                  

The following sub-sectors are the most important in the overall food processing industry: 1) fish processing and canning; 2) processed meats; 3) confectionary; 4) canned fruits and vegetables; 5) dairy products; 6) noodles, bread and other bakery products; and 7) processed meat. Fish processing, which includes surimi, is the leading sub-sector. Most of fish and fish-based products are for export. Noodle manufacturing is the second leading sub-sector, and meat processing is the third largest.

Malaysia is self-sufficient in poultry, pork and eggs, but must import about 80% of its beef for any processing needs. Almost all dairy product ingredients are imported, including nonfat and whole milk powder, whey, and other dairy solids. These imported products are then used to produce sweetened condensed milk, yoghurt, and reconstituted fluid milk, and as ingredients in many other food processing plants. All wheat for noodle and bread manufacturing must be imported.

Malaysia is the largest cocoa processor in Asia, but 95% of cocoa beans are imported, as is most sugar and sweeteners for confectionary. Malaysia is a major producer of spices, as the world's sixth largest exporter of pepper and pepper-related products (specialty peppers, processed pepper and pepper sauces). Other spices such as coriander, turmeric, lemongrass, cinnamon, clove and fennel are also produced. Key imported materials for the food processing sector include basic commodities such as wheat, soybeans, potatoes, corn, and beans; semi-processed food materials such as dairy powders, dried fruits and nuts, and preserved vegetables, and highly processed ingredients such as flavorings and additives.

Post recommends that U.S. exporters must first become familiar with food manufacturers’ requirements and specifications, purchasing policies, expected purchase volumes, and the relative competitiveness of products from alternative suppliers. In addition, suppliers must be aware of all import requirements. And finally, it may be best to appoint a local representative. Raw food materials are imported either directly by the food manufacturers, through importers, or agents. Generally, products purchased in high volume are imported directly by food manufacturers while those purchased in smaller volume are imported through importers or agents. Importers and agents, in turn, sell directly to food manufacturers or through distributors. Distributors are generally used to supply smaller food manufacturers often located far away from the importers’ or agents’ business operations. Local producers of raw food materials sell directly to food manufacturers but will use distributors to supply smaller food manufacturers.

Both Malaysian and multinational companies are active in the sector. Multinational companies are often joint investments between foreign and Malaysian investments. Some foreign brands of food products are produced under license by Malaysian companies with the rights to market within specific geographical markets.

For some key food processing ingredients (wheat, soybeans, potatoes, dairy products, dried fruit, nuts), U.S. exporters face minimal competition from local producers as there is no local production. However, U.S. exporters face strong competition from Thailand, China, Australia, and New Zealand. Their products are competitively priced, and their proximity to Malaysia compared to the United States gives these countries an advantage in terms of delivery time and freight costs. Furthermore, Australia and New Zealand have an established halal food industry geared towards exports to Muslim markets.

Best Product Prospects:

Key imported materials for the food processing sector include basic commodities such as processed fish and fish products, milk powder, chocolate products and sugar confectionery, bread biscuits cookies, protein concentrates, yeast, sugar derivatives and syrup as well as sugar. 

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