Malaysia – The Future of Foodservice to 2021

24/08/2017 - 13:55

Macroeconomic summary

GDP per capita in Malaysia continued to grow between 2011 and 2016 but the growth rate has fluctuated. Between 2015 and 2016 the country saw annual growth at a rate of 4.7% with a GDP per capita of MYR 39,104 in 2016.

Consumer prices have continued to rise moderately, with 2016 prices 15% higher than in 2010. However, this is higher amongst food and beverages, with currency depreciation making imports more expensive.

This has contributed to growth in foodservice. However, a fairly urban population and an increasingly affluent middle class have also helped to push growth despite the increased financial pressures facing consumers.

Profit sector summary

The Malaysian profit sector has seen value grow at a CAGR of 4.7% between 2014 and 2016. Growth has relied heavily on transactions as the population continues to urbanize quickly, reducing opportunities to expand outlet footprints. Future growth is forecast to accelerate substantially, with LCU growth seen at a CAGR of 5.3%, with growth in USD even more rapid, at a CAGR of 9.2%.

Growth is being driven by a population increasingly drawn to foodservice to satisfy their hunger, reflecting a shift away from traditional eating habits. The FSR channel is forecast to see the fastest rise in transactions as Malaysians look for a more refined experience and a higher quality of food. Indeed, FSR, the largest channel, will drive growth in the profit sector, growing faster than all channels and contributing by far the largest nominal increases in value, followed by QSR.

Quick service restaurants summary

Revenue in Malaysia’s QSR channel rose at a strong CAGR of 5.3% (in MRY terms) between 2014 and 2016, reaching a value of 12.6 billion. As of 2016, QSR claimed a 21.9% share of the country’s total foodservice profit sector, and value in the channel is forecast to keep growing at an expanded CAGR of 6.1% to 2021.

The QSR market is fairly consolidated, with international chains dominating sales. KFC, McDonald's, Domino’s and Subway are all present, reflecting the popularity of western food and culture. Indeed, 4 of the top 5 operators are foreign brands, accounting for 33.2% of the market. Overall, chains generated 49% of revenues in the channel.

Busy urbanites drive transactions in the channel. These consumers appreciate the good value on offer as consumers move away from traditional eating habits and increasingly need to eat out, putting pressure on their wallets.

A treat culture is also partly responsible, especially in regards to family meal occasions, with families enjoying some time together, often at the weekend, and enjoying some indulgent fast food. However, there is growing demand for higher quality experiences in the channel.

While QSR will continue to experience impressive value growth at a CAGR of 6.1%, FSR will grow faster. This highlights the need and demand for a second tier of enhanced QSRs in the channel. These should aim to successfully combine the convenience and good value synonymous with the channel with a nicer all around experience.

Full service restaurants summary

Valued at MYR 13.3 billion in 2016, the FSR channel accounts for just over 23.0% of Malaysia’s total foodservice profit sector revenue and is forecast to continue growing at a sector-leading CAGR of 6.9% to 2021. Strong sales performance in the channel will be driven by Malaysia’s growing numbers of urban, middle-class consumers looking to spend their extra income on experiential out-of-home meal occasions.

Although the FSR channel remains less consolidated than the QSR channel, chains accounted for nearly 26.0% of total channel sales value in 2016. Chained operators in the Malaysian FSR market are led by Yum! Brands’ Pizza Hut, which claimed an 8.2% share of channel revenue in 2016, followed by domestic brands – ‘Secret Recipe Cakes & Café’ and ‘Sushi King’. The relatively high penetration of chains is reflective of Malaysian consumers’ strong interest in casual dining restaurants, which 65% of survey respondents chose as their preferred foodservice format.

The majority of visits to the FSR channel remain heavily focused on special occasions, social visits with friends and colleagues, and family meals. Consumers therefore strongly value a high quality and appealing offering. However, pricing still remains a leading consideration, with nearly a third of surveyed FSR consumers indicating that ‘good value’ was a key driver of outlet choice on their latest visit to the channel.

FSR takeaway sales are expected to rise at a strong CAGR of 11.5% to 2021, ahead of QSR takeaway growth and far outpacing value growth in the FSR dine-in sector (at CAGR of 5.9%).

Coffee and tea shops summary

With a value of MYR 3.4 billion in 2016, the market is expected to see growth at a CAGR of 4.8% until 2021, creating an overall market size of MYR 4.3 billion that year. The channel is the 5th largest in Malaysia, somewhat owing to channel blurring with both FSR and QSR.

Starbucks leads the Malaysian coffee & tea shop market with a 13.4% share of the market. Below, a variety of local and regional players also present, offering a variety of local Kopi style coffee houses, as well as local interpretations of western coffee shops. Overall, it is consolidated, with chains generating 58% of sales.

The channel thrives on busy urban workers and students who show an over-trade in coffee & tea shops, offering them a much needed pick me up. Outlets have also routinely opened in and around places of work and study, encouraging routine visits from these consumers. Meanwhile, middle income splurgers show a distinct under- trade, in part due to their lower likelihood of working full-time.

Visits before and after work are more common than in other channels, again reflecting the popularity with busy workers in need of a pick me up. However, family meals and social occasions make up about 60% of occasions in the coffee & tea shop channel and meal occasions are common. As a result, the channel offers consumers a wide variety of food and beverage options. These range from baked goods to rice dishes and from espresso to local Ipoh White coffee.

The coffee and tea shop channel is forecast to grow but will not see growth at the speed of QSR or FSR. The channel has a broad product offering and individual brands must do a better job of defining themselves in order to prosper, as Starbucks has done successfully. If not, they risk failing to capture the attention of consumers.

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