VIETNAM FOOD DRINK REPORt

Q2 2014 itor com VIETNAM FOOD DRINK REPORT INCLUDES 5 YEAR FORECASTS TO 2018 ISSN 1749 3072 Published by Business Monitor International Vietnam Food Drink Report Q2 2014 INCLUDES 5.Q2 2014 itor com VIETNAM FOOD DRINK REPORT INCLUDES 5 YEAR FORECASTS TO 2018 ISSN 1749 3072 Published by Business Monitor International Vietnam Food Drink Report Q2 2014 INCLUDES 5.

Q2 2014 www.businessmonitor.com

VIETNAM

FOOD & DRINK REPORT

INCLUDES 5-YEAR FORECASTS TO 2018

INCLUDES 5-YEAR FORECASTS TO 2018

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: February 2014

Business Monitor International

© 2014 Business Monitor International

All rights reserved

All information contained in this publication is

copyrighted in the name of Business Monitor

International, and as such no part of this

publication may be reproduced, repackaged,redistributed, resold in whole or in any part, or used

in any form or by any means graphic, electronic ormechanical, including photocopying, recording,taping, or by information storage or retrieval, or byany other means, without the express written consent

of the publisher

DISCLAIMER

BMI Industry View 7

SWOT 9

Food 9

Drink 11

Mass Grocery Retail 13

Industry Forecast 15

Consumer Outlook 15

Food 17

Food Consumption 17

Table: Food Consumption Indicators - Historical Data & Forecasts, 2011-2018 20

Canned Food 21

Table: Canned Food Volume/Value Sales - Historical Data & Forecasts, 2011-2018 21

Confectionery 22

Table: Confectionery Value/Volume Sales - Historical Data & Forecasts, 2011-2018 23

Pasta 25

Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts, 2011-2018 25

Dairy 27

Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts, 2011-2018 28

Drink 29

Alcoholic Drinks 29

Table: Alcoholic Drinks Volume/Value Sales - Historical Data & Forecasts, 2011-2018 31

Hot Drinks 34

Table: Hot Drinks Value Sales - Historical Data & Forecasts, 2011-2018 35

Soft Drinks 37

Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018 38

Mass Grocery Retail 40

Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts, 2011-2018 42

Table: Grocery Retail Sales By Format (%) 43

Trade 43

Table: Food and Drink Trade Indicators - Historical Data & Forecasts, 2011-2018 45

Macroeconomic Forecast 46

Table: Vietnam - Economic Activity 49

Industry Risk Reward Ratings 50

Asia Pacific Risk/Reward Ratings 50

Table: Asia Pacific Food & Drink Risk/Reward Ratings Q214 51

Table: Asia Pacific Food & Drink Risk/Reward Sub-Factor Ratings Q214 (scores out of 10) 54

Vietnam Risk/Reward Ratings 55

Market Overview 57

Food 57

Agriculture 57

Food Processing 57

Food Consumption 58

Drink 58

Hot Drinks 58

Soft Drinks 59

Alcoholic Drinks 60

Mass Grocery Retail 61

Table: Structure Of Vietnam's Mass Grocery Retail Market By Estimated Number Of Outlets 63

Industry Trends And Developments 64

Food 64

Key Industry Trends And Developments 64

Drink 70

Key Industry Trends And Developments 70

Mass Grocery Retail 79

Key Industry Trends And Developments 79

Competitive Landscape 86

Table: Key Players In Vietnam's Food Sector 86

Table: Key Players In Vietnam's Drink Sector 86

Table: Key Players In Vietnam's Mass Grocery Retail Sector 87

Company Profile 89

Vietnam Dairy Products Joint Stock Company (Vinamilk) 89

Unilever Vietnam 93

Nestlé Vietnam 96

Masan Consumer 99

San Miguel Pure Foods Vietnam Co Ltd 102

Hanoi Beer Alcohol Beverage Corp (Habeco) 104

Saigon Beer Alcohol And Beverage Corporation (Sabeco) 107

Carlsberg 109

Metro Cash & Carry Vietnam 111

Saigon Co-op 114

Global Industry Overview 117

Table: Food And Drink Core Views 126

Demographic Forecast 127

Table: Vietnam's Population By Age Group, 1990-2020 ('000) 128

Table: Vietnam's Population By Age Group, 1990-2020 (% of total) 129

Table: Vietnam's Key Population Ratios, 1990-2020 130

Table: Vietnam's Rural And Urban Population, 1990-2020 130

Glossary 131

Food & Drink 131

Mass Grocery Retail 131

Methodology 133

Industry Forecast Methodology 133

Sector-Specific Methodology 134

Sources 134

Risk/Reward Rating Methodology 135

Table: Food & Drink Risk/Reward Rating Indicators 136

Table: Weighting 137

BMI Industry View

BMI View: Despite slower than expected economic recovery in 2013, our outlook for Vietnam's economy in

2014 is positive Recently released macroeconomic data shows a strong rebound in domestic consumption, which is felt across a wide spectrum of consumer industries The consumer is expected to benefit from rising inflow of remittances and suppressed levels of inflation over the coming quarters While we have

maintained our 2014 GDP growth forecast at 6.0%, we see potential for upside surprises Food and drink consumption within the country will grow at a thoroughly impressive based, delivering double-digit annual growth through to our forecast period.

Headline Industry Data

■ 2014 total food consumption (local currency) growth: +19.2%; compound annual growth rate (CAGR)

2014 to 2018: +15.5%

■ 2014 per capita food consumption (local currency) growth: +18.1%; CAGR to 2018: +14.7%

■ 2014 alcoholic drinks value (local currency) sales growth: +12.0%; CAGR to 2018: +8.7%

■ 2014 soft drinks value (local currency) sales growth: +10.5%; CAGR to 2018: +7.5%

■ 2014 MGR sales (local currency) growth: +13.3%; compound annual growth rate (CAGR) 2014 to 2018:+9.9%

Key Industry Trends

McDonald's Opens First Ho Chi Minh Restaurant In February: US fast-food restaurant McDonald's, with

its partner Vietnam-based company Good Day Hospitality, has forayed into the Vietnamese food market in

a bid to compete with its rivals, such as KFC and Burger King Worldwide The company launched its first

outlet in the Vietnamese city of Ho Chi Minh on February 8 2014

Sabeco Begins Construction On New Brewery: Vietnam-based brewer Saigon Beer Alcohol And Beverage

Corporation (Sabeco) has started construction on a new brewery in Vietnam's Ninh Thuan region The US

$21mn facility will have an estimated annual capacity of 50mn litres of beer The brewery will cover anarea of 20 hectares and is expected to address the rising demand for Sabeco products in the south-central

region The brewery is scheduled to become operational in the next 12 months

Vinamilk Opens US$110mn Milk Plant And Invests In Cambodia: Vietnam-based dairy group Vietnam

Dairy Products Joint Stock Company (Vinamilk) has opened a new dairy plant in Vietnam's Binh Duongprovince, investing US$110mn The plant will cover an area of 20 hectares and have an annual capacity of

400mn litres of milk in the first stage The plant will help the company to achieve its goals of raising itsannual revenue to US$3bn by 2017 and becoming one of the 50 largest dairy companies in the world,according to Vinamilk's CEO, Mai Kieu Lien.

The company has also gained an overseas investment certificate from the Vietnamese government to build amilk factory in the Cambodian capital of Phnom Penh with an investment of US$23mn The company willown a 51% stake in the unit, while Cambodia-based Angkor Dairy Products will hold the remaining 49%share

Key Risks To Outlook

While we expect private consumption to grow at a relatively resilient pace of 5.0% in 2014, we note that therisk of further bankruptcies among SMEs could potentially lead to widespread job losses, especially inexport-driven sectors Uncertainties over the outlook for employment could, in turn, prompt households tocut back on spending

Food

SWOT Analysis

Strengths ■ The food processing sector accounts for a sizeable proportion of industrial output and

GDP, with the sector attracting significant foreign investment in recent years fromglobal industry majors such as Unilever, Nestlé and San Miguel

■ Vietnamese consumers, particularly the young and affluent, are fairly brand aware byregional standards Accordingly, renowned Western products, backed by investment

in marketing and promotions, tend to have highly successful launches

■ The wealthy urban centres of Hanoi and Ho Chi Minh City now provide highlyreceptive consumer audiences

■ Large and diverse domestic agricultural output aids the stability of ingredient suppliesand prices for local producers - a vital strength during this period of global volatility

■ Strong economic and private consumption growth will help fuel food consumptiongrowth

Weaknesses ■ There are wide income disparities between urban and rural areas, and local

consumption patterns vary significantly according to income

■ The food processing industry remains largely fragmented, except for a few keysectors such as dairy and confectionery

■ The country's agricultural sector has been criticised for being too slow to adapt tonew technologies to be globally competitive in the long term, although the

government is working hard to address this

■ Vietnam's infrastructure is still weak Roads, railways and ports are inadequate tocope with the country's economic growth and links with the outside world

■ The lack of white goods among large sections of the consumer base slows down thedevelopment of the high-potential dairy sector

SWOT Analysis - Continued

Opportunities ■ Accession to the WTO, in January 2007, will continue to benefit Vietnamese

exporters, with the gradual removal of market barriers and trade restrictions set toincrease competition

■ Vietnam's upcoming ASEAN AEC membership in 2015 should provide greater access

to both foreign markets and capital, while making Vietnamese enterprises strongerthrough increased competition

■ Rising income levels and changing lifestyles, particularly in urban areas, areincreasing consumer demand for snacks, convenience and luxury food items

■ Vietnam's large domestic market, growing export opportunities and low labour costs,

as well as the prospect of acquiring newly privatised food companies, offer furtherinvestment opportunities

■ The country's agricultural sector is in need of significant investment, and willinginvestors can expect assisted entry

■ A growing tourism sector fuels interest in convenience categories

Threats ■ Vietnam's WTO membership may result in smaller companies who are unable to cope

with the increased competition being forced out of business

■ Elevated agricultural commodity costs will remain a risk for the profitability ofprocessed-food manufacturers; farmers themselves also view this as a threat

■ Rising unemployment levels are taking their toll on consumer confidence

■ If there is a prolonged slowdown in emerging markets, this will hurt Vietnam'seconomy both directly and indirectly

SWOT Analysis

Strengths ■ Vietnamese consumers, particularly the young and affluent, are fiarly brand aware by

regional standards Accordingly, renowned Western products, backed by investment

in marketing and promotions, tend to have highly successful launches

■ The wealthy urban centres of Hanoi and Ho Chi Minh City now provide highlyreceptive consumer audiences

■ Alcoholic drinks are widely consumed and have gained popularity in recent years

■ Vietnam has been one of the fastest growing economies in Asia in recent years, withGDP growth averaging 7.1% annually between 2000 and 2011

■ Competitive pressure is quickly intensifying in the drinks sectors, which is likely todrive greater sector dynamism and fuel growth

Weaknesses ■ There are wide income disparities between urban and rural areas, and local

consumption patterns vary significantly according to income

■ The drinks industry remains largely fragmented, except for a few key sectors, such asalcohol and soft drinks

■ Despite the growing presence of multinationals, local firms continue to dominate thebeer market

■ Vietnam's infrastructure is still weak Roads, railways and ports are inadequate tocope with the country's economic growth and links with the outside world

■ Establishing separate breweries in different regions is costly but remains one of thebest strategies to overcome the lack of infrastructure

Opportunities ■ Accession to the WTO, in January 2007, will benefit Vietnamese exporters, with the

gradual removal of market barriers and trade restrictions set to increase competition

SWOT Analysis - Continued

■ Vietnam's upcoming ASEAN AEC membership in 2015 should provide greater access

to both foreign markets and capital, while making Vietnamese enterprises strongerthrough increased competition

■ Vietnam's large domestic market, growing export opportunities and low labour costs,

as well as the prospect of acquiring newly privatised drink companies, offer furtherinvestment opportunities

■ A growing tourism sector is fuelling interest in convenience categories, in addition tosub-sectors such as soft and alcoholic drinks

■ In line with consumers' rising disposable incomes, there are opportunities forpremium-branded products in the soft and alcoholic drinks sub-sectors

■ The global trend towards health consciousness provides an opportunity for drinksmanufacturers to diversify into perceived healthier options

Threats ■ Vietnam's WTO membership may result in smaller companies who are unable to cope

with the increased competition being forced out of business

■ Rising unemployment levels are taking their toll on consumer confidence

■ If there is a prolonged slowdown in emerging markets, this will hurt Vietnam'seconomy both directly and indirectly

Mass Grocery Retail

SWOT Analysis

Strengths ■ The potential size of the mass grocery retail market makes it an attractive target for

foreign retailers once improved market terms are granted Further growth is expected,especially in the supermarket format

■ Hypermarkets, supermarkets and convenience stores have all proved popular inVietnam, catering for different types of consumers and different shopping occasions

■ A growing multinational presence in the retail sector has aided the acceptance ofmodern retail best practices in Vietnam, particularly things such as added-value in-store services

■ Vietnamese economic growth averaged 7.1% annually between 2000 and 2012,fuelling a steady middle-class emergence and growing consumerism The economicboom has lifted many Vietnamese out of poverty, generating a greater demand for thehigher-value modern retail concepts

■ The formation of buying groups has proved an effective means of facilitating quickerexpansion among smaller industry players

Weaknesses ■ Vietnam's retail distribution networks remain underdeveloped, and

expansion-oriented firms must invest in infrastructural development as well as new storeopenings

■ Regulations governing international participation in modern retail in Vietnam haveresulted in slow rates of expansion, and aspects of government policy continue tomake life challenging for foreign firms in spite of WTO accession

■ Poverty levels among the country's vast rural population hugely inhibit the potentialaudience size for modern retail in Vietnam

■ Vietnam's infrastructure is still weak Roads, railways and ports are inadequate tocope with the country's economic growth and links with the outside world

SWOT Analysis - Continued

Opportunities ■ The hypermarket concept is still in its infancy and, as familiarity with modern retailing

grows, this format will represent an immense growth opportunity

■ Modern retail is currently focused on the major urban centres of the north and south,which still boast space for new entrants Central Vietnam and the provinces providefurther opportunities still

■ Modern retail concepts, such as discounting and private labelling, are likely to provepopular with price-conscious Vietnamese consumers as familiarity with modernretailing builds

■ Rapid urbanisation and the development of new housing complexes provide ideallocations for modern retail outlets

Threats ■ Were industry majors Tesco, Carrefour and Walmart all to enter Vietnam, the window

of opportunity for other entrants would rapidly close

■ Rising operating costs will threaten retailer profit margins; price increases have todate been passed on to shoppers, but this cannot continue indefinitely in the price-conscious market

■ Rising unemployment levels are taking their toll on consumer confidence

■ If there is a prolonged slowdown in emerging markets, this will hurt Vietnam'seconomy both directly and indirectly

Industry Forecast

Consumer Outlook

Although we expect the Vietnamese economy to have recorded yet another quarter of sub-par growth inQ413, we are beginning to see potential for upside surprises to domestic demand over the coming quarters.Recent data on foreign direct investment inflows, remittances, passenger car sales, and property marketlaunches, suggests that domestic demand is on a nascent recovery, setting the stage for stronger 2014growth We expect private consumption to grow at a relatively resilient pace of 5.0% in 2014 However, wenote that the risk of further bankruptcies among SMEs could potentially lead to widespread job losses anduncertainties in the employment outlook could prompt households to cut back on spending

We continue to see evidence that foreign direct investment (FDI) inflows into the country have remainedresilient despite the lack of progress on banking reforms and the weak economic data According to figurespublished by the Ministry of Planning and Investment (MPI), FDI inflows into Vietnam grew by 19.5%year-on-year (y-o-y) over the first eight months of 2013 The results are in line with our view that Vietnam'slong-term prospects remain bright

Robust Remittances Could Also Boost Domestic Demand

Vietnam - Unrequited Transfers, US$mn

Source: BMI, Asian Development Bank

Vietnam's growth story over the past decade has been marked by tumultuous periods of high inflation,multiple currency devaluations and widespread economic wastage as a result of inefficient state-ownedenterprises that continue to have a dominating presence in key economic sectors From our perspective,however, we believe that 2013 marked a major turning point for the economy While structural factorsunderpinning Vietnam's potential for long-term growth (including favourable demographics, proximity toChina, and the low cost of labour relative to the region) remain largely unchanged, we highlight recentdevelopments that reinforce our bullish outlook on the economy over the next decade.

Certainly, the long-term potential of the consumer-facing sectors in Vietnam is undeniable Rapid economicgrowth in Vietnam over the coming years is likely to translate into higher income, in turn benefiting

consumerism Most exciting is the country's favourable demographic profile: 51.9% of the population isestimated to be younger than 30 This implies potentially dynamic opportunities for consumer goods playerstargeting the mass-market segment in particular Rapid urbanisation provides additional opportunities formodern retail outlets

What Vietnam offers investors is arguably one of the most attractive consumer bases in South East Asiaafter India With a youthful population of 90mn, and GDP growth forecast at 6.0% in 2014, the countryprovides attractive demographic potential for retailers keen to capture the vast consumer base A flurry ofinternational investment interest in the country over recent years has given continued focus on the merits ofthe unravelling consumer story in Vietnam, particularly in its mass grocery retail sector The latest

multinational reported to be entering the market is French retailer Auchan which, according to local

sources, is set to inject US$500mn in the next decade This highlights the attractive long-term potential of acountry that has been largely devoid of international investment in the grocery sector Overall, we believethat Vietnam remains one the most exciting mass grocery retail Asian growth stories With the potential tooutperform regionally in the coming years, the country continues to gradually prove its growing reputation

as Asia's 'little India'

Food Consumption

2011-2018

Food consumption VNDbn (LHS) Food consumption, VND per capita (RHS)

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f 0

500,000 1,000,000 1,500,000

0M 5M 10M 15M

e/f = BMI estimate/forecast Source: General Statistics Office, BMI

Improvements in Vietnam's macroeconomic fundamentals suggest that its food sector will remain one of themost attractive investment opportunities in the region over the forecast period Between 2014 and 2018 foodconsumption is projected to expand at a thoroughly impressive compound annual growth rate of 15.5%,posting an impressive 105.1% overall increase in local currency terms An attractive demographic profile,rapid urbanisation and rapid expansion of country's mass grocery retail sector will fuel this growth over thelonger term

Currently, income levels in Vietnam are a long way behind those enjoyed in developed economies, andconsumer purchases remain largely centred on food staples and daily necessities However, as incomes start

to accelerate off a low base on the back of sturdy economic growth, consumer tastes and preferences areexpected to calibrate towards the higher-value food and beverage segments, which will be very likely toguarantee a receptive and growing audience for branded food and beverage products in the medium term

The massive potential provided by the burgeoning middle class in Vietnam is already attracting the sights of

major consumer-facing players in the country Private equity firm Kohlberg Kravis Roberts &

Co (KKR), in early 2011, acquired a 10% stake in Masan Consumer, the largest producer of condiments

including fish, soy and chilli sauce and the second biggest producer of instant noodles in Vietnam Thisunderlines its confidence in the opportunities available in the mass-market segment In early 2013, KKRdoubled its investment in Masan

In particular, we expect functional food products to garner stronger appeal among Vietnamese consumersover the coming years Given the nutritional health benefits of functional foods, these products havewitnessed strong demand in Vietnam over the past few years in line with a growing shift towards healthawareness In 2000, the functional food market comprised only a dozen imported functional food products

By 2005-2006, domestically produced functional foods accounted for 33% of the entire food market, and in

2008 this figure had doubled, underlining the burgeoning demand for functional food products

The ongoing expansion of the mass grocery retail industry will also drive up per capita food consumptionlevels, provided goods sold through such outlets remain competitively priced Ultimately, food consumptiongrowth will be driven by the government's ability to harness rural spending power and by modern retailers'ability to find a model that stirs consumer interest, without forgetting that price will remain the majorpurchasing determinant

Table: Food Consumption Indicators - Historical Data & Forecasts, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Food

consumption

(VNDbn) 396,467.8 441,791.9 504,206.3 601,208.9 725,087.1 870,250.0 1,037,539.7 1,232,851.5 Food

consumption,

VND, % chg

y-o-y 11.19 11.43 14.13 19.24 20.60 20.02 19.22 18.82 Food

consumption

per capita

(VND) 4,409,413 4,865,776 5,499,648 6,496,188 7,764,357 9,239,203 10,925,877 12,882,920 Food

consumption

per capita,

VND, % chg

y-o-y 10.12 10.35 13.03 18.12 19.52 19.00 18.26 17.91 Food

consumption

(US$bn) 19.19 21.17 24.12 29.23 35.67 43.05 51.88 62.27 Food

consumption,

US$, %

change y-o-y 2.92 10.28 13.98 21.18 22.00 20.70 20.50 20.02 Food

Canned Food

■ 2014 canned food value sales (local currency) growth: +10.7%; CAGR to 2018: +7.4%

Canned food sales are forecast to experience strong growth in Vietnam, in line with increasing urbanisationand growing affluence among consumers Between 2014 and 2018 we forecast volume growth of 23.4%,and value growth of 42.8% Indeed, demand for higher-value products such as canned foods is expected topick up on the back of rising disposable incomes

Vietnamese consumers are experiencing a growing awareness of hygiene concerns and food origin as theirliving standards improve and as numerous health scares lead to increased caution This will further

encourage consumers to purchase processed foods over fresh produce, and strong investment in this sectorfrom both domestic and international operators will be very likely to help to fuel sales growth Meanwhile,city workers are increasingly cutting back on restaurant meals and opting for canned and processed foods in

order to save money, with major retailers such as Saigon Co-op reporting a recent spike in sales.

Table: Canned Food Volume/Value Sales - Historical Data & Forecasts, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Canned food sales,

tonnes 9,621.76 10,062.31 10,441.09 11,081.23 11,762.98 12,132.74 13,126.33 13,668.20 Canned food sales,

units, % change

y-o-y 3.83 4.58 3.76 6.13 6.15 3.14 8.19 4.13 Canned food sales,

kg per capita 0.11 0.11 0.11 0.12 0.13 0.13 0.14 0.14 Canned food sales,

VNDmn 415,096.74 452,677.81 488,939.89 540,989.81 601,715.86 646,811.32 725,333.81 772,535.30 Canned food sales,

VND, % change

y-o-y 12.49 9.05 8.01 10.65 11.22 7.49 12.14 6.51 Canned food sales,

VND per capita 4,616.60 4,985.67 5,333.13 5,845.51 6,443.28 6,867.02 7,638.17 8,072.76 Canned food sales,

US$mn 20.10 21.69 23.39 26.31 29.60 32.00 36.27 39.02 Canned food sales,

US$, % change

y-o-y 4.13 7.92 7.87 12.45 12.51 8.11 13.35 7.58 Canned food sales,

US$ per capita 0.22 0.24 0.26 0.28 0.32 0.34 0.38 0.41

e/f = BMI estimate/forecast Source: General Statistics Office, company information, trade press, BMI

■ 2014 confectionary value (local currency) sales growth: +10.7%; CAGR to 2018: +7.9%

■ 2014 chocolate value (local currency) sales growth: +11.9%; CAGR to 2018: +9.9%

■ 2014 sugar confectionary (local currency) sales growth: +9.6%; CAGR to 2018: +6.8%

Confectionery Sales

2011-2018

Confectionery sales, VNDmn (LHS) Confectionery sales, tonnes (RHS)

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f 0M

25M

50M

200,000

150,000 175,000 225,000

e/f = BMI estimate/forecast Source: General Statistics Office, company information, trade press, BMI

The longer-term outlook for the Vietnamese confectionery market is positive Factors such as rising

purchasing power, favourable demographics, growing health awareness and continued investments in thesector will support confectionery demand, especially with regard to chocolate

■ Rising Disposable Incomes: Rapid wealth accrual is likely to translate into a greater discretionary

appetite for premium confectionery products As an increasing number of domestic confectioners expandtheir upmarket product ranges, this is likely to bolster value sales growth over the coming years

■ A Massive Youthful Population: 51.9% of the Vietnamese population is estimated to be younger than

30, and the maturation of this demographic group means that there are dynamic opportunities in the massmarket Moreover, this demographic group is generally more receptive to Western cultures, which willgive an impetus to confectionery demand

■ Growing Health Awareness: Health awareness is prompting shifts of consumption habits towards

functional and healthy confectionery products Capitalising on the growing trend, domestic confectioners

such as Tan Tan Food & Foodstuff and Vina Mit are expanding their functional product offerings.

These products typically carry higher price tags, and their rising demand is likely to translate into highervalue sales in the sector

■ Continued Sector Investments: Sustained competition levels in the Vietnamese confectionery sector

ensure that dynamism in the market is unlikely to cool off any time soon Nabati Indonesia, a leading

Indonesian biscuit producer, recently announced plans to start distributing its biscuit products in Vietnam

- a testament to the attractiveness of the sector Meanwhile, domestic confectioners such as Kinh Do are

expected to continue to invest in broadening their product ranges and expanding their distributionchannels

Table: Confectionery Value/Volume Sales - Historical Data & Forecasts, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Confectionery sales,

tonnes 164,815.74 167,979.82 173,192.25 181,310.47 190,617.32 199,339.80 210,528.96 220,143.75 Confectionery sales,

tonnes, % change

y-o-y 2.83 1.92 3.10 4.69 5.13 4.58 5.61 4.57 Confectionery sales,

kg per capita 1.83 1.85 1.89 1.96 2.04 2.12 2.22 2.30 Confectionery sales

VNDmn 20,109,914 22,411,420 24,641,932 27,266,415 30,150,945 33,014,226 36,491,849 39,884,680 Confectionery sales,

VND, % change y-o-y 22.20 11.44 9.95 10.65 10.58 9.50 10.53 9.30 Confectionery sales,

VND per capita 223,657.33 246,833.31 268,782.78 294,619.31 322,861.48 350,502.89 384,279.72 416,782.70 Confectionery sales,

US$mn 973.53 1,073.70 1,179.04 1,325.87 1,483.08 1,633.15 1,824.59 2,014.38 Confectionery sales,

US$, % change y-o-y 13.11 10.29 9.81 12.45 11.86 10.12 11.72 10.40 Confectionary sales,

US$ per capita 10.83 11.83 12.86 14.33 15.88 17.34 19.21 21.05

Chocolate sales,

tonnes 46,763.90 47,448.65 48,722.86 51,541.38 54,879.33 58,612.36 63,326.46 67,948.24 Chocolate sales,

tonnes, % change

y-o-y 1.92 1.46 2.69 5.78 6.48 6.80 8.04 7.30 Chocolate sales, kg

per capita 0.52 0.52 0.53 0.56 0.59 0.62 0.67 0.71 Chocolate sales,

VNDmn 3,340,752 3,703,892 4,054,379 4,536,173 5,083,520 5,700,780 6,461,089 7,272,341 Chocolate sales VND,

% change y-o-y 20.96 10.87 9.46 11.88 12.07 12.14 13.34 12.56 Chocolate sales VND

per capita 37,155.00 40,793.67 44,223.30 49,014.30 54,435.21 60,523.61 68,038.91 75,993.74

Confectionery Value/Volume Sales - Historical Data & Forecasts, 2011-2018 - Continued

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Chocolate sales US

$mn 161.73 177.45 193.99 220.58 250.05 282.01 323.05 367.29 Chocolate sales, US$,

% change y-o-y 11.97 9.72 9.32 13.71 13.36 12.78 14.56 13.69 Chocolate sales, US$

per capita 1.80 1.95 2.12 2.38 2.68 2.99 3.40 3.84

Sugar confectionery

sales, VNDmn 15,709,150 17,530,067 19,324,607 21,185,318 23,136,033 25,077,466 27,255,472 29,381,901 Sugar confectionary

sales, VND, % change

y-o-y 22.56 11.59 10.24 9.63 9.21 8.39 8.69 7.80 Sugar confectionary

sales, VND per capita 174,713.15 193,071.41 210,783.87 228,911.78 247,744.60 266,240.51 287,015.47 307,031.87 Sugar confectionery

sales US$mn 760.49 839.84 924.62 1,030.16 1,138.02 1,240.54 1,362.77 1,483.93 Sugar confectionary

sales, US$, % change

y-o-y 13.45 10.43 10.10 11.41 10.47 9.01 9.85 8.89 Sugar confectionary

sales, US$ per capita 8.46 9.25 10.09 11.13 12.19 13.17 14.35 15.51

Gum sales, tonnes 6,129.08 6,230.61 6,269.18 7,250.90 8,612.57 9,496.01 11,235.85 12,467.62 Gum sales, tonnes, %

change y-o-y 1.75 1.66 0.62 15.66 18.78 10.26 18.32 10.96 Gum sales, kg per

capita 0.07 0.07 0.07 0.08 0.09 0.10 0.12 0.13 Gum sales VNDmn 1,060,011 1,177,461 1,262,944 1,544,923 1,931,391 2,235,979 2,775,288 3,230,437 Gum sales, VNDmn, %

change y-o-y 20.75 11.08 7.26 22.33 25.02 15.77 24.12 16.40 Gum sales, VND per

capita 11,789.18 12,968.24 13,775.62 16,693.22 20,681.67 23,738.77 29,225.35 33,757.08 Gum sales US$mn 51.32 56.41 60.43 75.12 95.00 110.61 138.76 163.15 Gum sales US$, %

change y-o-y 11.77 9.93 7.12 24.32 26.46 16.43 25.45 17.58 Gum sales US$ per

capita 0.57 0.62 0.66 0.81 1.02 1.17 1.46 1.70

e/f = BMI estimate/forecast Source: General Statistics Office, company information, trade press, BMI

The Vietnamese pasta market is underdeveloped, although the product has become more recognisable inview of Westernisation of lifestyles, particularly in urban areas Around half of the retail market is

dominated by Barilla, with other prominent importers including Italpasta and Pasta Zara.

However, the market for instant noodles is well established, with the market supplied by a mixture of

locally made (by companies such as Masan Consumer and Acecook Vietnam JSC) and imported products.

Goods are receiving strong marketing and advertising support, especially as the more challenging economictimes have prioritised non-discretionary spending Instant noodles are expected to remain very popular, onaccount of their affordability, versatility as a cooking ingredient, wide-ranging availability and convenience

Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts, 2011-2018

pasta sales,

tonnes 18,484.38 22,059.82 25,865.49 30,164.19 34,975.21 35,784.64 40,666.02 41,502.54 Uncooked

pasta sales,

tonnes, %

change

y-o-y 25.63 19.34 17.25 16.62 15.95 2.31 13.64 2.06 Uncooked

pasta sales,

kg per

capita 0.21 0.24 0.28 0.33 0.37 0.38 0.43 0.43 Uncooked

pasta

exports,

tonnes 8,334.24 7,787.87 7,241.50 6,695.13 6,148.76 5,602.39 5,056.03 4,509.66 Uncooked

pasta 1,417.07 1,658.00 1,886.31 2,120.19 2,371.60 2,634.67 2,913.07 3,203.22

Pasta Volume Sales, Production & Trade - Historical Data & Forecasts, 2011-2018 - Continued

pasta

balance,

tonnes 6,917.17 6,129.87 5,355.19 4,574.94 3,777.16 2,967.73 2,142.96 1,306.44 Uncooked

pasta sales,

tonnes 542,121.95 579,415.25 623,223.13 674,439.49 732,951.00 797,282.32 862,793.46 932,792.23 Prepared

pasta sales,

tonnes, %

change

y-o-y 8.87 6.88 7.56 8.22 8.68 8.78 8.22 8.11 Prepared

pasta sales,

kg per

capita 6.03 6.38 6.80 7.29 7.85 8.46 9.09 9.75 Prepared

pasta

exports,

tonnes 58,214.34 63,317.05 65,572.16 67,803.22 70,243.35 73,003.07 76,122.96 79,549.56 Prepared

pasta

imports,

tonnes 2,442.33 2,626.40 2,800.82 2,979.50 3,171.57 3,372.55 3,585.24 3,806.91

Pasta Volume Sales, Production & Trade - Historical Data & Forecasts, 2011-2018 - Continued

pasta

balance,

tonnes 55,772.01 60,690.65 62,771.34 64,823.72 67,071.78 69,630.52 72,537.72 75,742.65 Prepared

of some US$200mn

The local demand for dairy products is met by a combination of locally produced goods, which accounts for20% of consumption, according to the US Department of Agriculture, and imports from countries including

New Zealand, the US and Australia Vietnam Dairy Products Co (Vinamilk) is one of the key players in

the sector Indeed, reflecting the promise of the Vietnamese dairy sector, Vinamilk aims to become one ofthe largest 50 dairy firms in the world The company is also expanding internationally, as Vietnam is in ageographically strong place to take advantage of the growing Asian dairy story Other prominent dairy

producers include Dutch Lady, Hanoimilk and Anco.

Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Processed liquid milk

production, tonnes 355,519.3 389,246.2 425,910.8 468,472.0 517,018.3 570,462.8 625,128.4 683,617.4 Processed liquid milk

production, tonnes, %

change y-o-y 20.74 9.49 9.42 9.99 10.36 10.34 9.58 9.36 Processed liquid milk sales,

tonnes 190,395.0 201,348.0 210,765.4 226,680.7 243,630.6 261,404.5 280,020.4 299,495.0 Processed liquid milk sales,

tonnes, % change y-o-y 4.87 5.75 4.68 7.55 7.48 7.30 7.12 6.95 Processed liquid milk sales,

kg per capita 2.12 2.22 2.30 2.45 2.61 2.78 2.95 3.13

Butter sales, tonnes 12,385.38 13,200.10 13,900.60 15,084.45 16,345.25 17,667.34 19,052.07 20,500.67 Butter sales, tonnes, %

change y-o-y 5.60 6.58 5.31 8.52 8.36 8.09 7.84 7.60 Butter sales, kg per capita 0.14 0.15 0.15 0.16 0.18 0.19 0.20 0.21

Cheese sales, tonnes 4,615.81 4,931.55 5,203.03 5,661.82 6,150.44 6,662.82 7,199.46 7,760.86 Cheese sales, tonnes, %

change y-o-y 5.84 6.84 5.50 8.82 8.63 8.33 8.05 7.80 Cheese sales, kg per capita 0.05 0.05 0.06 0.06 0.07 0.07 0.08 0.08

Ice cream production,

tonnes 25,191.39 27,531.60 30,075.65 33,028.85 36,397.33 40,105.69 43,898.78 47,957.16 Ice cream production,

tonnes, % change y-o-y 11.61 9.29 9.24 9.82 10.20 10.19 9.46 9.24

e/f = BMI estimate/forecast Source: United Nations, BMI

Alcoholic Drinks

■ 2014 alcoholic drinks volume sales growth: +5.9%; compound annual growth rate (CAGR) 2014 to 2018:+4.5%

■ 2014 alcoholic drinks value (local currency) sales growth: +12.0%; CAGR to 2018: +8.7%

■ 2014 beer value (local currency) sales growth: +12.0%; CAGR to 2018: +8.7%

■ 2014 spirits value (local currency) sales growth: +11.0%; CAGR to 2018: +8.8%

Alcoholic Drinks Sales

2011-2018

Alcoholic Drinks Sales (mn litres) (LHS) Alcoholic drink sales, VNDmn (RHS)

2012e 2013e 2014f 2015f 2016f 2017f 2018f 0

1,000 2,000 3,000 4,000

100M 150M 200M 250M 300M

e/f = BMI estimate/forecast Source: General Statistics Office, Company information, BMI

In line with improved economic prospects and increasing domestic demand we maintain a very strongoutlook for Vietnam's drinks industry As it benefits from foreign investments and rising tourist arrivals,beer will continue to dominate the alcoholic drinks segment, and demonstrate a compound annual growthrate of 12% in local currency terms between 2014 and 2018

Generally speaking, favourable demographic shifts, rising affluence, strong economic growth and a growing tourist industry imply massive scope for alcoholic drinks consumption, with beer, in particular, set

fast-to benefit We expect premiumisation fast-to pick up momentum in the Vietnamese alcoholic drinks secfast-tor, andfor value sales growth to outpace that of volume sales over our forecast period to 2018 The emergence of athriving tourist industry in Vietnam is also likely to bolster alcoholic drinks consumption given that touriststypically have a greater penchant for higher-value consumer products.

Beer will continue to dominate the alcoholic drinks sector, accounting for the vast majority of volume sales,and will thus also remain the main contributor to value sales This is due to the strong interest the beersector has been attracting from both local and international brewers, with volume sales expected to

experience real growth of 24.9% to 2018 We also expect foreign brewers to take on a more prominent role

in driving beer sales growth in Vietnam as they seek to enter emerging markets As foreign brewers

strengthen their competitive position, and as the local giants Habeco and Sabeco extend their presence

beyond their regional strongholds, sector dynamism will intensify rapidly

APB's recent investment in the Vietnamese beer industry is a strong testament to the sector's potential APB

will invest SGD90mn in expanding production at its Ho Chi Minh brewing joint venture by 50% The

company will increase output at the facility, which is a 60:40 joint venture(JV) with Saigon Trading, to

2.8mn hectolitres a year; it will also add a second canning facility and expand its warehouse space

Similarly, Japanese brewer Sapporo has announced that it intends to increase its beer production in

Vietnam fivefold in the period up to 2019 The company expects to produce 200,000 kilolitres of beer in thecountry by 2019, from its projected 40,000 kilolitres in 2014

Additionally, Japanese brewer Asahi Group Holdings has announced that it intends to extend its operations

across Asia through a series of acquisitions Asahi President Naoki Izumiya said that the company hadalready identified viable targets in Indonesia, Malaysia, the Philippines, Thailand and Vietnam

Volume sales growth in the wine and spirits industries are also expected to be robust over our forecastperiod to 2018, albeit developing from much lower bases Both are fairly immature industries, having beenheld back by an absence of multinational investment and by their relatively higher price tags However,prolific wealth accrual among Vietnamese consumers is fuelling shifts in consumption habits towardshigher-value alcoholic drink products, and this trend is particularly evident in the urban centres such as HoChi Minh City, Hanoi and Danang

Exposure to Western cultures is also driving the local demand for spirits and wines The biggest consumers

of wine and spirits in Vietnam used to be Western expatriates and tourists, but local consumers are

developing a strong appetite for these products in line with their rapidly growing affluence The spread of

organised retail in the country acts as another impetus behind spirits and wine sales, facilitating consumerreach to a greater variety of brands in supermarkets, hypermarkets and local wine stores.

Looking ahead, investments in the Vietnamese spirits and wine sub-sectors are expected to intensify as anincreasing number of investors recognise the higher margin growth opportunities on offer in these sub-sectors, and this is likely to instil further dynamism to drive volume sales

Table: Alcoholic Drinks Volume/Value Sales - Historical Data & Forecasts, 2011-2018

drinks

sales,

litres per

capita 25.25 26.23 26.96 28.29 29.64 31.06 32.55 34.12 Alcoholic

drinks

sales,

VNDmn 134,781,991 154,419,478 170,811,147 191,317,021 212,947,900 236,294,061 261,948,642 290,265,180 Alcoholic

drinks

sales,

VND per

capita 1,499,010 1,700,734 1,863,128 2,067,220 2,280,282 2,508,668 2,758,466 3,033,182 Alcoholic

drinks

sales, US

$mn 6,524.86 7,398.00 8,172.78 9,303.04 10,474.56 11,689.05 13,097.43 14,659.86 Alcoholic

drinks

sales, US 72.57 81.48 89.14 100.52 112.16 124.10 137.92 153.19

Alcoholic Drinks Volume/Value Sales - Historical Data & Forecasts, 2011-2018 - Continued

sales,

litres, %

change

y-o-y 7.79 4.91 3.78 5.91 5.74 5.66 5.67 5.62 Beer

sales,

litres per

capita 25.04 26.01 26.74 28.05 29.40 30.80 32.28 33.83 Beer

sales,

VNDmn 131,710,794 150,984,783 167,035,324 187,108,141 208,239,672 231,035,226 256,093,902 283,750,064 Beer

sales,

VND, %

change

y-o-y 27.92 14.63 10.63 12.02 11.29 10.95 10.85 10.80 Beer

sales,

VND per

capita 1,464,853 1,662,905 1,821,943 2,021,742 2,229,866 2,452,836 2,696,812 2,965,101 Beer

sales US

$mn 6,376.18 7,233.45 7,992.12 9,098.38 10,242.97 11,428.90 12,804.70 14,330.81 Beer

sales, US

$, %

change

y-o-y 18.41 13.44 10.49 13.84 12.58 11.58 12.04 11.92 Beer

sales,

VND, %

change

y-o-y 28.22 13.94 15.56 14.87 14.55 14.55 14.73 15.06 Wine

sales,

VND per

capita 3,540.62 3,995.09 4,572.04 5,202.67 5,906.27 6,707.64 7,633.35 8,715.51

Alcoholic Drinks Volume/Value Sales - Historical Data & Forecasts, 2011-2018 - Continued

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Wine

sales, US

$mn 15.41 17.38 20.06 23.41 27.13 31.25 36.24 42.12 Wine

sales, US

$, %

change

y-o-y 18.69 12.76 15.41 16.74 15.88 15.20 15.97 16.22 Wine

sales,

litres, %

change

y-o-y 0.06 2.13 2.50 4.99 5.95 6.02 5.69 5.57 Spirits

sales,

litres per

capita 0.17 0.17 0.17 0.18 0.19 0.20 0.21 0.22 Spirits

sales,

VNDmn 2,752,846 3,071,958 3,356,659 3,727,382 4,156,660 4,627,035 5,129,864 5,681,070 Spirits

sales,

VND, %

change

y-o-y 18.75 11.59 9.27 11.04 11.52 11.32 10.87 10.75 Spirits

sales,

VND per

capita 30,616.46 33,833.71 36,612.88 40,275.14 44,510.23 49,123.95 54,020.36 59,365.45 Spirits

sales, US

$mn 133.27 147.17 160.61 181.25 204.46 228.89 256.49 286.92 Spirits

sales, US

$, %

change

y-o-y 9.92 10.43 9.13 12.85 12.81 11.95 12.06 11.86 Spirits

Hot Drinks

■ 2014 coffee value (local currency) sales growth: +13.0%; CAGR to 2018: +9.5%

■ 2014 tea value (local currency) sales growth: +11.3%; CAGR to 2018: +8.8%

Hot Drinks

2011-2018

Coffee sales, VNDmn (LHS) Tea sales, VNDmn (RHS)

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f 0M

25M 50M

20M 40M

e/f = BMI estimate/forecast Source: UN Industrial Commodity Statistics Database, UN Comtrade, BMI

Vietnam's sturdy economic growth over the next few years will continue to fuel demand for higher valuefood and beverage products such as coffee Vietnam's massive youth population, for whom visiting cafésand drinking coffee is a growing lifestyle choice, is another major positive factor As this group of young,aspirant consumers enters the workforce, the accordant rise in incomes will serve to further buoy thedemand for higher-value coffee products The tea sector is also set to experience strong growth over ourfive-year forecast period, buoyed by rising incomes and increasing domestic demand

These dynamics will continue to attract the sights of multinational coffee producers, in turn imbuing the

sector with greater dynamism over our forecast period As a case in point, Masan Consumer in 2011

acquired a 50.1% stake, valued at around VND1.07trn (US$51mn), in Vietnamese coffee producer

Vinacafe Bien Hoa Joint-Stock Company By acquiring a controlling stake in Vinacafe, Masan clearly

was looking to put itself in a strong position to leverage on the exciting demand dynamics in the

Vietnamese coffee sector

Also looking to capitalise on Vietnam's coffee potential, Nestlé plans to increase its coffee sourcing from

local farmers in Vietnam, and in 2011 committed to a new coffee factory in the country The US$270mnfactory was to be constructed in the south east province of Dong Nai and was to produce Nescafé-brandedproducts for the domestic and international markets from 2013

Philippine food major Jollibee Foods Corporation announced in early 2012 that it was to acquire a 50% interest in SuperFoods Group, which will give it a 49% stake in SF Vung Tau Joint Stock Company in Vietnam and a 60% share in Blue Sky Holdings in Hong Kong The acquisition of a majority interest in the

SuperFoods Group could expedite Jollibee's international push, given the former's reach across the coffeemarkets of Macau, Hong Kong and Vietnam

In early 2013, US coffee chain Starbucks announced that it would debut in Vietnam's capital, Ho Chi Minh

City, in February 2014 as it continues to develop its Asia Pacific business, where it has seen great successover the past few years

Table: Hot Drinks Value Sales - Historical Data & Forecasts, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Coffee sales,

VNDmn 17,170,322 19,922,371 22,765,944 25,714,239 29,012,709 32,647,042 36,427,915 40,559,652 Coffee sales,VND,

% change y-o-y 29.27 16.03 14.27 12.95 12.83 12.53 11.58 11.34 Coffee sales,VND

per capita 190,963.93 219,419.59 248,320.38 277,847.71 310,673.05 346,604.59 383,606.46 423,835.95 Coffee sales, US

$mn 831.22 954.45 1,089.28 1,250.39 1,427.09 1,614.99 1,821.40 2,048.47 Coffee sales, US$,

% change y-o-y 19.66 14.82 14.13 14.79 14.13 13.17 12.78 12.47 Coffee sales, US$

per capita 9.24 10.51 11.88 13.51 15.28 17.15 19.18 21.41

Tea sales, VNDmn 18,710,475 21,115,334 23,508,113 26,160,602 29,111,494 33,047,389 35,514,716 39,940,374 Tea sales, VND, %

change y-o-y 25.41 12.85 11.33 11.28 11.28 13.52 7.47 12.46 Tea sales, VND per

capita 208,093.12 232,558.57 256,415.61 282,670.76 311,730.86 350,854.97 373,989.96 417,364.68 Tea sales, US$mn 905.78 1,011.60 1,124.79 1,272.09 1,431.95 1,634.80 1,775.74 2,017.19

Hot Drinks Value Sales - Historical Data & Forecasts, 2011-2018 - Continued

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Tea sales US$ %

change y-o-y 16.09 11.68 11.19 13.10 12.57 14.17 8.62 13.60 Tea sales US$ per

capita 10.07 11.14 12.27 13.75 15.33 17.36 18.70 21.08

e/f = BMI estimate/forecast Source: General Statistics Office, company information, trade press, BMI

Soft Drinks

■ 2014 soft drinks value (local currency) sales growth: +10.5%; CAGR to 2018: +7.5%

■ 2014 carbonated soft drinks value (local currency) sales growth: +12.7%; CAGR to 2018: +9.6%

2,000

4,000

100M

50M 75M 125M

e/f = BMI estimate/forecast Source: Company information, Trade press, BMI

We are witnessing a rapid emergence of competition in the Vietnamese soft drinks market The

opportunities provided by an emerging middle class in Vietnam are firmly within the sights of domestic

drinks producers such as PepsiCo Vietnam, Tan Hiep Phat and Coca-Cola Beverages Vietnam, and the

companies' aggressive initiatives in terms of product innovation, portfolio expansion and advertising willonly instil greater dynamism into the sector

The maturation of a massive youth population and rising consumer affluence are translating into a

burgeoning appetite for soft drinks As consumers move up the income ladder over the coming years, anaccelerating premiumisation momentum in the sector means that value sales are expected to increase moredynamically over our forecast period

An intensifying influx of sector investments will provide another major impetus to drive industry growth Inparticular, we expect domestic soft drinks manufacturers to ramp up their initiatives in terms of productinnovation, portfolio expansion and marketing In terms of portfolio expansion, local soft drink

manufacturers are gradually calibrating their portfolio towards healthier and functional beverages such asfruit juices and ready-to-drink teas, as they look to tap into a growing health awareness trend in the country

Reflecting a shift of consumer preferences towards healthier beverages, PepsiCo Vietnam and Coca-ColaBeverages Vietnam have been losing market share in recent years due to declining sales of carbonates,according to anecdotal reports However, with the health awareness trend expected to remain well

entrenched over the coming years, we expect more domestic soft drinks manufacturers such as PepsiCoVietnam and Coca-Cola Beverages Vietnam to expand their non-carbonates offerings As a case in point,

Big C recently introduced its private label fruit juice range Casino Bio to cater to the burgeoning domestic

demand for health and functional beverages

As competition intensifies in the Vietnamese soft drinks market, domestic producers are also looking todifferentiate themselves through branding and marketing initiatives Coca-Cola Beverages Vietnam and TanHiep Phat have executed some of the biggest advertising campaigns in Vietnam through various formatssuch as print advertisements, television and the internet These initiatives have not only bolstered consumerawareness of the different soft drinks brands but have also encouraged greater soft drinks consumption inthe country

Moreover, domestic soft drinks manufacturers will continue to engage in product innovation by offeringdifferent bottle formats and sizes in an attempt to cater to the varying consumer tastes and preferences Forinstance, Coca-Cola Beverages Vietnam and PepsiCo Vietnam produce their soft drinks in varying sizes,and this has facilitated their reach to the end-consumer market As more companies hop on the productinnovation bandwagon, this will bring about greater dynamism in the sector and further fuel sales growth

Table: Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Soft drink

sales, litres

mn 1820.11 1937.14 2044.14 2208.74 2382.40 2569.98 2755.33 2969.08 Soft drink

sales, litres,

% change

y-o-y 7.41 6.43 5.52 8.05 7.86 7.87 7.21 7.76

Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018 - Continued

2011 2012 2013e 2014f 2015f 2016f 2017f 2018f

Soft drink

sales, litres

per capita 20.24 21.34 22.30 23.87 25.51 27.28 29.02 31.03 Soft drink

sales

VNDmn 58,936,203 68,557,713 75,572,321 83,484,322 91,207,122 99,566,244 109,131,706 119,924,341 Soft drink

sales, VND,

% change

y-o-y 21.69 16.33 10.23 10.47 9.25 9.16 9.61 9.89 Soft drink

sales, VND

per capita 663,755.8 855,353.4 964,814.4 1,137,581.1 1,302,407.9 1,302,408.9 1,302,409.9 1,302,410.9 Soft drink

sales, US

$mn 2,853.13 3,284.50 3,615.90 4,059.53 4,486.33 4,925.36 5,456.59 6,056.78 Soft drink

sales, US$,

% change

y-o-y 12.65 15.12 10.09 12.27 10.51 9.79 10.79 11.00 Soft drink

soft drink

sales, VND,

% change

y-o-y 27.69 14.30 12.96 12.74 12.65 12.47 11.74 11.60 Carbonated

soft drink

sales, VND

per capita 99,650.07 112,791.22 126,176.90 140,911.24 157,310.55 175,410.62 194,408.50 215,297.58 Carbonated

soft drink

sales, US

$mn 433.75 490.63 553.49 634.14 722.61 817.32 923.07 1,040.57 Carbonated

soft drink

sales, US$,

% change

y-o-y 18.20 13.11 12.81 14.57 13.95 13.11 12.94 12.73

Soft Drinks Value/Volume Sales - Historical Data & Forecasts, 2011-2018 - Continued

e/f = BMI estimate/forecast Source: Company information, trade press, BMI

Mass Grocery Retail

■ 2014 MGR sales (local currency) growth: +13.3%; compound annual growth rate (CAGR) 2014 to 2018:+9.9%

■ 2014 supermarket sales (local currency) growth: +13.9%; CAGR to 2018: +10.2%

■ 2014 hypermarket sales (local currency) growth: +13.7%; CAGR to 2018: +10.1%

■ 2014 convenience store sales (local currency) growth: +10.3%; CAGR to 2018: +8.3%

Reflecting the long-term potential of the Vietnamese mass grocery retail (MGR) sector, we forecast realgrowth of 60.0% for overall MGR sales in local currency terms between 2014 and 2018 This growthforecast makes Vietnam one of the most attractive propositions in the Asia Pacific region Owing to thehigher profitability per store for supermarkets and hypermarkets, these formats will continue to garner thebulk of investment attention Vietnamese consumers are most familiar with the standard supermarketformat, and are increasingly showing a penchant for hypermarkets owing to their popular combination offood and non-food items

We estimate Vietnam's MGR sales grew by 10.9% in 2013, slowing from growth in 2011 and 2012 Theslowdown in 2013 can be attributed to the global headwinds of a potential hard landing in China, economicuncertainties in the US and sovereign debt concerns in the eurozone, which all weighed on consumerconfidence that was already dented by rising unemployment in the manufacturing sector However, weexpect stronger growth to return this year, with us forecasting 13.3% in 2014

Retail Fundamentals Remain Strong In Longer Term

Favourable demographics and robust economic growth largely underpin our optimism regarding the

Vietnamese MGR growth story According to our estimates, Vietnam's population is roughly 90mn and isforecast to grow over the forecast period to 2022 More importantly, Vietnam has a youthful demographicprofile, implying attractive opportunities in the mass market