According to Euromonitor, Vietnam's dairy market value is estimated to reach 135,000 billion VND in 2020, which is an increase of more than 8% compared to 2019, thanks to the rapid growth of the yogurt and beverage industries.
Dairy products that experienced high growth include drinking milk (10%), yogurt (12%), cheese (11%), and butter (10%). Powdered milk witnessed an increase of only 4% in value.
Domestic demand for dairy products was less affected by Covid-19 than others. It saw a decrease of only 6.1% in value compared to a 7.5% drop for general FMCG consumption. Although during social distancing period, schools across the country had to close for nearly 3 months, milk consumption remained stable as people increased the use of fresh milk and yogurt to increase immunity.
The Covid-19 pandemic is even a factor to help dairy companies improve their profit margins. Due to the pandemic, raw milk prices for 2020 remained low. In addition, the plunge of oil prices also helped reduce packaging and transportation costs. These factors support the gross margins of dairy companies. Vinamilk, the largest dairy company in Vietnam, recorded a revenue growth of only 3%, but its profit increased by nearly 8% after 9 months of 2020.
What is worth mentioning about the dairy industry this year is that there would be more M&A deals. Last year, the market recorded a number of major deals such as Vinamilk's acquisition of Moc Chau Milk, or IDP being acquired by Blue Point and VietCapital.
After being acquired, these companies all achieved high growth. Moc Chau's 9 months of 2020 net profit increased by 68%, while that of IDP reached 151 billion VND in the first half of the year, compared with 113 billion VND in 2019.
Competition within the dairy industry, therefore, also tends to be more and more fierce when large companies get bigger through M&A, and the industry welcomes more “players” entering the market. Many businesses have launched new products, while Vitadairy seems to be growing rapidly in the powdered milk segment.
It is estimated that by the end of 2020, Vinamilk still held the largest market share in the dairy industry with 43.3%. The market share of Vinamilk and Moc Chau Milk combined will be more than 45%. Following Vinamilk is FrieslandCampina with 15.8%.
Assessing the prospects of the dairy industry this year, SSI Research said that although milk is considered an essential commodity, consumption trends may follow the "K-model", which means only a few enterprises witness rapid growth while others will suffer from the opposite.
Accordingly, demand from low-income consumers or those who are price sensitive will still be affected because Covid-19 has negatively impacted their income. Companies like Vinamilk and Vinasoys have recorded a shift towards low-cost products in 9 months of 2020. In contrast, the differentiation will continue due to the middle- and high-income consumers are less affected. "The middle- and high-income consumers will still tend to increase the consumption of high-end products", according to SSI.
If the Covid-19 pandemic is well-controlled in mid-2021 and there is no lockdown, milk consumption will likely increase by 7%.
Source: SSI, Euromonitor