CHAPTER 5: INDUSTRY AND MARKETPLACE

5.1 The Industry

5.1.1 Definition of the Industry Food and Beverage industry can be separated into two segments which are production and distribution of edible goods. Production includes the processing of poultry such as meats and cheeses and the creating of soft drinks, alcoholic beverages, packaged foods, and other processed foods. The production segment of this industry excludes foods that were directly produced via farming and other forms of agriculture, as those are encompassed by our definition of the agriculture industry. Distribution involves transporting the finished food product into the hands of consumers. 5.1.2 Shape of the Industry The Malaysian Food and Beverage industry is very broad based which contributes to the production diversity found in the industry. With its traditional agricultural base and rich natural resources, it encompasses a diverse range of high quality products that are uniquely Malaysian, including canned and frozen food, seafood, herbs and spices, cocoa products dairy products, sugar and confectionary products that are among the food items identified with export potentials and most sought after by international buyers. In beverage industry, the bottled water market in Malaysia is characterized by high levels of competition, and consolidation among the established brands. The trend in the Malaysian bottled water market seems to follow the path of other industrialized nations. Growth in this market is on an upward trend with more products and competitors entering the market. Bottled water industry are split into four market segments as still bottled water, carbonated bottled water, flavoured bottled water and functional bottled water. Still bottled water is non-sparkling water, which has no added ingredients such as chemical additives or sweeteners. Some products may include safe and suitable antimicrobial agents and or limited amounts of fluoride. Still bottled water has to be both calorie-free and sugar-free. The other popular type is the carbonated bottled water or "fizzy", referring to bottled water with carbonation. Next on the list is flavored bottled water that is water added with fruit flavors or essence. Lastly, there is functional bottled water that refers to bottled water enriched with vitamins for instance, Vitamin B, calcium, magnesium or herbal extracts.

5.1.3 Development of the Industry With a population of 28.3 million, Malaysia is one of Southeast Asia's most developed nations with per capita income of US$7,700. 61% of the citizens are belonging to the middle-to-upper-income group. Food and beverage expenditure accounts for 25% of the total consumer spending. The per capita food and beverage consumption in Malaysia is forecast to reach a regionally impressive US$479 in [Link] sizeable and rapidly growing food service market in Malaysia is driven by the local consumers as well as foreign tourists. According to a global survey conducted by The Nielsen Company to uncover out-of-home dining habits of consumers, 67% of Malaysians dine at restaurants at least once a week. Furthermore, the tourism industry is attracting more than 20 million tourist arrivals to Malaysia yearly. Malaysia has a dynamic mass grocery retail sector with international retailers like Carrefour, Cold Storage, Giant, Jusco and Tesco. Expansion plans have been confirmed by the retail majors regardless of the impact of the downturn in economic growth. Value sales of food and beverage products through modern retail outlets are forecast to increase by 36.9% by 2013. Although major consumers of bottled water are in Europe and North America, the most promising markets are in Asia Pacific with an annual growth rate of 15.0 percent. Bottled water is a profitable market in Malaysia given the increasing consumer demand for still bottled water. The market is set to undergo greater product differentiation with participants expected to expand into functional and flavored bottled water and to improve on packaging in order to obtain a higher share of the market. Competition is also foreseen to increase with more private labels appearing in the market. Positive growth in this market has increased the interest of other manufacturers and distributors and the increasing competition is likely to spur growth in the coming years. 5.2 The Marketplace 5.2.1 Current Condition of the Marketplace Functional beverages are a relatively new category that is currently getting some attention due to Coca-Cola's purchase of Glaceau. Functional beverage brands tend to have one of two sets of characteristics; they are either primarily waters fortified with vitamins or minerals for health/energy benefits (such as Vitaminwater from Glaceau) or primarily lighter/lower calorie versions of Sports Drinks where the purpose is for rehydration during/after sports activities (such as Propel). In Asia, fortified or functional beverages are expected to achieve moderate constant value growth over the forecast period. The two leading players are expected to remain at the top in energy drinks and sports drinks. Functional energy drinks is expected to achieve a compound annual growth rate (CAGR) of 3% in constant value terms over the forecast period up from a 1% decline in constant terms over the review period as new product innovation from leading brands will develop the category. Sports drinks are projected to see a healthy constant value growth over the forecast period. In European market, sales of functional waters are growing strongly aided by health concerns, clearer marketing and advances in formulation. Research shows that European market for functional and flavoured waters increased 5% to 3600 million litre in 2008. According to market researcher, increasing public awareness about the benefits of hydration and mounting concerns over calories in other soft drinks have led to extensive innovation in flavoured and functional waters over the past few years. This type of product is a relatively inexpensive consumer product, and so they foresee that the demand would grow steadily. (Source: Euromonitor International, 2011)

5.2.2 Changes in Marketplace Positive points Urbanization and the increasing hectic lifestyle of most urbanites have made convenience one of the main considerations when purchasing a product, especially when it comes to consumables such as bottled water. Bottled water is appealing for busy people who may want to carry a bottle while on the move. The growth of the bottled water market in Malaysia is fuelled by the following factors; convenience and portability of bottled water, paradigm shift towards healthy beverages, and increase in travel and preference for clean, odorfree and colorless water. The rising of health awareness and a busy lifestyle will be the key denominator on functional water growth. As the demand increases, more new players will emerge from the market and the existing players would also try to increase their product range. Negative points With the growth of this marketplace, the energy required to manufacture and transport these bottles to market will severely drain limited fossil fuels. Bottled water companies, due to their unregulated use of valuable resources and their production of billions of plastic bottles have presented a significant strain on the environment. Water bottles could be washed and reused in order to lessen their negative impact on the environment but researched shown that reusing plastic bottles further compromises the quality of the water, due to the fact that more and more phthalate leaches its way into the water as the bottle gets older. (Source: WWF, 2004) Another environmental consideration is climate change and how far along the industry has come in terms of managing the production of greenhouse gas emissions and conserving energy. Climate change is also likely to further worsen water scarcity issue in the region through changing rainfall patterns.