To ensure profit margins, the “big” milk industry has increased prices

The dairy industry will achieve revenue growth of nearly 9% in 2019

After reaching the milestone of VND 95,000 billion at the end of 2016, domestic dairy industry revenue exceeded VND 100,000 billion by the end of 2017, with a growth rate of nearly 10%. By 2018, total revenue is estimated at VND 109,000 billion, an increase of 9% compared to 2017 and reaching VND 121,000 billion at the end of 2019.

Revenue of dairy industry in the period of 2015-2019 (Chart: The Hai).

Competition for sales through e-commerce

According to an AC Nielsen report, milk consumption has started to stabilize from the second quarter of 2019 after six consecutive quarters of decline since the fourth quarter of 2017. The growth rate of consumption, though at a positive level, is low, reaching 2.1-3.9% year on year, only equivalent to the CPI. Among fast-moving consumer goods (FMCG), dairy products (accounting for 13% of total FMCG consumption) are among the industries with the lowest growth rates.

In contrast, the figures according to Euromonitor seem to be better with the total size of Vietnam's dairy market in 2019 reaching VND 121,000 billion, up 8.9%.

According to this data, consumption of drinking milk and yogurt grew significantly (up 9.9% and 11.6% in volume), while powdered milk and condensed milk grew similarly to Nielsen results. (only increase by 2.1% and 2.7%). Particularly, infant formula has become less popular, due to a widespread campaign to promote breastfeeding.

Meanwhile, there are many alternatives for older children, such as raw milk or other types of nut milk, cereal, fresh porridge, and others. In the recent analysis report, SSI Securities Company has pointed out some structural changes affecting the dairy industry in Vietnam.

Specifically, the market will increase plant milk consumption. It is known that soy milk and barley milk are considered to be the best alternatives for cow's milk, thanks to its high protein content. According to Nielsen, the total value of branded soy milk consumption increased by 13% in the first 10 months and Vinasoy's revenue growth reached 15% after the first 9 months of 2019.

Sales through modern trade have grown double digits for many quarters, but only account for 11% of total FMCG sales. Selling through modern trade is a challenging segment for dairy companies, due to fierce competition and low barriers to entry.

Domestic companies have turned to meet growing demand for premium products. For example, Vinamilk has launched a number of high-end SKUs, such as organic fresh milk, organic formula milk, A2 milk and hired powdered milk processing production in Japan (then imported back to Vietnam). Nutifoods cooperates with Asahi to distribute formula to children in Vietnam. Ikigai Vietnam also launched Meiji products in Vietnam.

According to Global Dairy Trade, the price of skimmed milk powder increased by 30% YoY and the price of whole milk powder increased by 4% YoY. To ensure profit margins, large companies like Vinamilk, TH True Milk and Dutch Lady all increased selling prices by 1-5% in 2019.

2020 and changes in dairy consumption trends

Assessing prospects for 2020, SSI Securities Company forecasts that the dairy industry will continue to grow at a low one-digit level.

Specifically, the spending on FMCG items of Vietnamese consumers in general began to slow down when all basic needs were met. Instead, they often shift to hobby spending to satisfy higher demands (such as dining out) and spending on non-essential items that are aimed at improving the quality of life. living.

While the demand for milk in urban markets seems to be saturated, consumption in rural markets is highly volatile due to the increase in the dependence on prices of agricultural commodities, depending on the level of income available in this market. spending norms for FMCG products.

SSI estimates that the above mentioned structural trends will continue, helping to further impact Vietnam's dairy industry.

Increasing consumption products include fresh milk, yogurt (especially drinking yogurt) and high value-added products such as cheese, while the demand for standard formulas and condensed milk may continue to be bleak.

Meanwhile, the dairy market constantly has new products. The new generation FTAs ​​that come into effect continue to enrich the market with many imported products.

This can clearly see the increase in import spending.

Preliminary statistics of the General Department of Customs show that, from 2010 to 2018, Vietnam imported about 7.2 billion USD of dairy products, an average annual consumer spent 890 million USD. Generally for the first 3 months of 2019, import turnover of milk and dairy products was 266 million USD, up 8.5% compared to the same period in 2018. Currently, the import market of milk and dairy products of Vietnam is mainly from New Zealand, EU and some other countries such as Singapore, Thailand, Australia, Germany, USA, France.

In 2019, the import of milk and dairy products is up to 1,048 billion USD, up 8.7% compared to 964 million USD in 2018.

According to the Investment Review