Baby Food - Malaysia

Baby Food - Malaysia

HEADLINES

• In 2010, sales of baby food rose by 8% in current value terms, to reach RM1,317 million

• Despite a falling birth rate, baby food consumption is on the rise, as Malaysians purchase more toddler milk formula

• Powder toddler milk formula posted the strongest performance in 2010, with current value growth of 11%

• The average unit price in most baby food subsectors increased in 2010, as raw material costs rose

• Danone Dumex (M) Sdn Bhd led baby food in 2009, with a 28% value share

• Baby food is expected to grow at a constant value CAGR of 4% over the forecast period

TRENDS

• Baby food posted strong growth in 2010, despite the falling birth rate in Malaysia. Malaysia’s birth rate is expected to continue on a downward trend in 2010 and beyond, as consumers delaying marriage and the difficulties of juggling work and family remain major issues. However, with rising disposable incomes and parents’ desire to give their children the best, more parents are trading up to premium products for their superior quality, which has offset the impact of the falling birth rate.

• The exclusive breastfeeding rate for Malaysians at four months was 19% as of 2006 (the latest statistics available), while at six months it was only 14.5% – far below the global rate, which was a 38% exclusive breastfeeding rate at six months. In Malaysia, exclusive breastfeeding rates have plummeted, from 29% at four months in 1996. This is attributed to ignorance of the value of breast milk, lack of support from family members, the mother returning to work too soon after delivery, and lack of support from healthcare workers. The other major reason is the availability of commercial infant foods that are portrayed to be as good as, if not better than, breast milk. There have been ongoing government efforts to promote breastfeeding. The government put in place a revised code of ethics for infant formula products in August 2008, which sets very clear guidelines to control competitive promotion and advertising of commercial infant products which might undermine the mother’s willingness to breastfeed. In the long run, these efforts, coupled with growing awareness of the benefits of breastfeeding, may reverse the trend of a falling breastfeeding rate. This means growth of standard infant formula may see a gradual slowdown in Malaysia.

• Current value growth did not change significantly in 2010 from that in 2009, as there were no significant new developments in terms of regulations or changes in attitude towards breastfeeding in 2010. Though current value growth in standard milk formula was slower than in 2009, this was offset by rapid growth in powdered toddler milk formula. Prepared baby food and dried baby continued to enjoy steady growth in 2010, as parents were increasingly willing to spend on their children, with high quality products.

• Powder toddler milk formula posted the strongest growth in current value terms in 2010, with manufacturers continuing to promote their products aggressively through the media. In addition, as the economy improved in 2010 and disposable incomes rose, some parents were more willing to give their toddlers formula milk instead of normal fresh milk, as they believe that formula milk, with all its added ingredients, is more beneficial for children’s development.

• The average unit price in most baby food subsectors increased in 2010, with consumers increasingly buying products with additional benefits, which are priced higher. Rising costs of raw materials, including the cost of packaging materials also contributed to the rise in unit prices.

• The powder format dominates, with a 100% share of retail value sales of milk formula in 2009. Liquid milk formula is not marketed in Malaysia because its more expensive than powder milk and there is no strong reason for Malaysians to use liquid formula in place of powder milk.

• Special baby milk formula formulated for lactose intolerant babies are quite popular in Malaysia, with key brands such as Isomil by Abbott Laboratories (M) Sdn Bhd, Nursoy from Wyeth (M) Sdn Bhd and Nan HA by Nestlé (M) Bhd. This is because parents are becoming more educated and affluent. Hence, if they have children with special dairy needs (eg lactose intolerance), they are more likely to purchase special baby milk formula.

• The value share spilt between soy-based special baby milk and dairy-based special baby milk was 40:60 in 2009, and this ratio is expected to remain unchanged in 2010. Parents purchase soy-based milk mainly because their children are found to be lactose intolerant, not because they perceived soy-based milk to be superior in terms of health benefits. The split between soy-based and dairy-based special baby milk is expected to remain stable during the forecast period.

• In 2010, supermarkets/hypermarkets continued to be the leading distribution channel for baby food in Malaysia. Since 2005, the value share of distribution through supermarkets/hypermarkets has risen slowly, while the share of independent small grocers and health and beauty retailers has declined. This is because supermarkets/hypermarkets usually offer a wide range of baby food, and it is convenient for consumers to compare and choose the brand they want, given the large store space and shelf space in supermarkets/hypermarkets.

• Organic baby food remains a niche products in Malaysia. Although parents are increasingly keen to spend on their children, organic baby food is still too expensive for most parents. Moreover, many parents are already satisfied with the quality of non-organic baby food, and do not see strong reasons to switch to organic food.

COMPETITIVE LANDSCAPE

• Danone Dumex (M) Sdn Bhd led baby food in 2009, with a 28% value share. The company’s share rose slightly, as it invested heavily in product development and advertising campaigns. For example, it ran a comprehensive branding campaign in July 2009 to drive awareness of its new packaging, in order to stay relevant to its consumers and maintain a competitive edge. The company launched a “Dumex Dugro Adventure” as part of the branding campaign, which was a fun “edutainment” for parents and children. The roadshow was held at major supermarkets/hypermarkets nationwide.

• Nestlé (M) Bhd saw the largest decrease in value share in 2009. In particular, the Nespray brand suffered a decline in value share, because the company faced strong competition in toddler milk formulas, as other players, such as Danone Dumex (M) Sdn Bhd, were more aggressive with advertising and promotions.

• Though infant formula advertising is not allowed by law in Malaysia, formula companies market their toddler formula and special milk formula aggressively through direct marketing. Pregnant mothers are enticed to sign up for new baby “clubs”, and receive coupons, information booklets and formula samples mailed directly to their homes. Companies also link up with doctors and clinics, and parents who bring their children for a check-up or consultation are given samples at some clinics.

• Baby food continues to be dominated by international manufacturers, such as Danone Dumex (M) Sdn Bhd, Nestlé (M) Bhd and Dutch Lady Milk Industries Bhd. With their established brands, large portfolios of products and significant resources to invest in new product developments and advertising, international manufacturers enjoy a firm standing in Malaysia.

• In order to maintain competitiveness, formula companies have continued to invest in research and development, and launched new products in 2009. Nestlé (M) Bhd introduced a new range of milk formula in 2009, including the NAN Pro and NAN HA infant formulas, with the addition of active probiotic BL Bifidus. The addition of BL Bifidus is aimed at strengthening the natural defences of infants when breastfeeding is not a viable option. The company also launched NAN Pro 3 for toddlers aged one to three years old, and NAN HA 3, a premium formula for toddlers. Nestlé (M) Bhd also rebranded its Nestlé infant cereal product range as Nestlé Cerelac, which offers additional protection benefits to those of BL Bifidus.

• Bristol-Myers Squibb (M) Sdn Bhd launched Enfagrow A+ (for one to three years old) and Enfakid A+ (for four years and above) with 4X DHA and New Triple Protection Guard in July 2009. The new product offers a high level of DHA, as well as zinc and other anti-oxidants to boost young brain potential whilst enhancing the immune system.

• Bristol-Myers Squibb (M) Sdn Bhd also launched the “My amazing child” contest in the second half of 2010. Parents were invited to share videos of their children’s learning moments, with a chance to win cash prizes and Enfagrow A+ hampers. This is an example of milk formula companies leveraging the on-line channel to engage the new generation of technology savvy parents.

• Private label was not present in baby food in 2009, because production requirements for baby food are quite high, involving extensive research and development and substantial investment in equipment and technology. Moreover, parents are extremely cautious about the quality of food they feed to babies; hence, even if there were private labels for baby food, parents would not be inclined to trust them as much as they do the established international brands.

PROSPECTS

• Baby food will continue to enjoy steady growth over the forecast period. This will mainly be due to rising affluence and growing awareness of the nutritional benefits of various types of baby food, which often have ingredients such as DHA, vitamins, minerals and probiotics added. In the past, many parents fed their older children normal dairy milk, because formula milk powder was much more expensive than fresh milk. However, as the disposable incomes of Malaysians rise, milk formula will become more affordable for parents. Hence, more parents are expected to give their children milk formula.

• Baby food is expected to post slower constant value growth over the forecast period compared to the review period, as the market becomes more mature. The birth rate is expected to continue falling in Malaysia over the forecast period, as people delay marriage due to work or lifestyle factors. This will have a negative impact on the value growth of baby food. However, given that parents are increasingly affluent and willing to give their children the best, they are likely to purchase higher quality products. This will partly offset the slowdown caused by the falling birth rate.

• Powder toddler milk formula is expected to register the fastest constant value growth over the forecast period. A combination of continuous new product launches from manufacturers and rising disposable incomes of parents is expected to drive the growth of toddler milk formula.

• The average unit price of baby food is likely to rise marginally in the forecast period. With intense competition among manufacturers, especially in milk formula, manufacturers and retailers are expected to continue to undertake various forms of promotion, including discounts and samples, that will hold back a more robust price increment despite the rise in global raw milk prices.

• Milk formula companies use various channels to reach out parents to gain market share. For example, they advertise extensively on TV and in parenting magazines in surrogate formats. They also send parents free samples and coupons regularly as their children progress through different life stages. During the forecast period, promotions will continue to be a key strategy employed by baby food companies to boost their sales. Companies will also continue to invest in research and development to create new products, as there have been significant improvements in milk formula during the review period and parents will expect formula companies to continue to enhance their products.

• New products launched in 2009 offered various enhancements, such as the addition of probiotics, DHA and other anti-oxidants. In the short term, these products will be well-received by parents, who have proved to be willing to spend more on high quality products for their children. In the long term, continued innovations and new launches are expected from manufacturers, as they try to stay competitive. New flavours of prepared baby food are also expected to be introduced in the Malaysian market during the forecast period; however, their sales are likely to remain limited. This is because most Malaysian parents prefer feeding their children home-cooked baby food instead of industrially prepared baby food, due to cost factors and also their belief that home-cooked food is tastier.