The Malaysian Market Opportunity

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Last week saw food and hospitality businesses from around the world gather for the 16th Food and Hotel Malaysia (FHM) Exhibition, hosted at the Kuala Lumpur Convention Centre. As the first food and hospitality industry trade event for 2022, FHM paved the way for industry players to reconnect and prepare for their return to trade after a tumultuous two years. 

With over 1700 participating companies from 70 countries, the event was no doubt a success, contributing to an estimated 9,000 business matchings. Amongst the attendees and presenters, Australia was well-represented. Prior to the event, event organisers, alongside Seafood Industry Australia coordinated a special event showcasing Australia’s seafood capability, with key leaders in Malaysia providing insight into the export opportunities available. 

An Upper-Middle-Income Economy on the Rebound

Malaysia’s economy has maintained a strong upward trajectory in the past decade, with GDP growth averaging 5.4% since 2010 and a GDP of US$336.3 billion. This growth is expected to drive Malaysia’s transformation from an upper middle-income country with a current GDP per capita of US$11,410, to a high-income one in coming years. 

COVID-19 undoubtedly disrupted this growth trajectory, with the economy experiencing a 5.6% decline in 2020, reflecting Malaysia’s poorest annual performance since the Asian Financial Crisis in 1998. While challenges remain, notably the emergence of new variants, Malaysia’s government has promised not to reimpose lockdowns and to accelerate the vaccine rollout. These moves have proven successful, with the economy picking up 3.6% in October-December 2021. And, with international borders reopening last month, the economic outlook for 2022 is largely positive with a growth rate of 5.5-6.5% projected. 

A Trade-Focused and Globally-Integrated Economy

Malaysia’s economy is one of the most trade-focused globally, with a trade-to-GDP ratio averaging upwards of 130% since 2010. In fact, over 40% of employment is driven by export activities. Further, with membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) as well as the Regional Comprehensive Economic Partnership (RCEP), Australian exporters are set to benefit from the strong ties maintained with Malaysia via these agreements. This relationship is further solidified by the Malaysia-Australia FTA, which provides tariff-free entry for 99% of Australian exports, with particular benefits for milk, processed foods, wines and rice manufacturers. The quality of Malaysia’s logistical network is relatively high, with the country maintaining a rank of 41/160 on the latest Logistics Performance Index in 2018. An Ease of Doing Business ranking of 12/190 further solidifies the Malaysian market as one of opportunity for Australian exporters.

Shared Demographics With Australia’s Population

Looking at Malaysia’s demographic profile, there are many similarities mirrored in Australia today. A total population of 32.16 million creates a consumer base only slightly larger than that of Australia, while population growth is on-par with Australia at 1.3%. While Malaysia is slightly less urbanised, with an urban population of 76%, its population is comparatively younger than Australia’s with a median age of 30.3 years creating a young population with growing disposable incomes. This young consumer base may explain the fact that most consumers agree that imported products are higher quality than local goods, especially when it comes to categories such as baby food and confectionery.

COVID-19 has seen considerable changes in the Malaysian market, prompting changes in consumer behaviour. Much like the rest of the world, the pandemic saw increasingly uncertain economic conditions in Vietnam. As a result, Malaysian consumers have become cautious in their spending. Notably, 73% of consumers have reduced their shopping budgets and instead chosen to bolster their savings. Local businesses are also seeing greater support from consumers, with Black Box Research and Toluma finding 86% of consumers are making a conscious effort to support their local economy by purchasing from domestic brands. This may create a barrier for exporters, particularly in the short-to-medium term as the pandemic continues to dominate news headlines.

A Shift Towards Ethical and Value-Driven Consumer Mindsets

Beyond the pandemic, sustainability, health and value will become key purchase drivers amongst Malaysian consumers. Malaysians are starting to embrace eco-friendly practices, with a DIA Brands and Rakuten Insights survey finding 72% of consumers actively prefer recyclable packaging and 68% seek brands that contribute to social wellbeing. Rising ethical awareness, accompanied by health concerns are also supporting a shift towards buying meat-free and plant-based products, especially in vegan grocery stores like Vegan District. The health trend is also seeing consumers buy low-sodium and low-sugar alternatives. And, while brand loyalty is high, Malaysian consumers actively seek out promotions and deals, with 46% of consumers agreeing they’d move to a different brand if it offered better deals. Convenience also remains a purchase driver, which has seen supermarkets expand their ready-to-eat meal ranges, such as Tesco’s Chicken Rendang.

A Shift in Dominating Retail Channels

The impact of COVID-19 on purchasing channels in Malaysia has been surprisingly different from other markets we’ve covered. Supermarkets and hypermarkets both saw a dramatic rapid decline in growth rates, seeing a 9.9% sales decline in Q2 2020. Instead, consumers flocked to convenience stores, grocery e-tailers and, despite economic uncertainty, premium grocery retailers such as Jaya Grocer. This shift was largely due to accessibility and flexibility reasons, as well as a demand for fresh produce and imported products. Exporters particularly will be pleased to see a change in government regulations in 2020, which has opened up the supermarket space to more international brands, which may be accompanied by an increased presence of foreign brands on supermarket shelves. 

Foodservice Rides the Consumer Trend Wave

In the foodservice channel, operators are directly responding to relevant consumer trends. In response to rising health consciousness, both limited- and full-service restaurants have extended their plant-based, organic and low-calorie offerings. Restaurants such as Nadodi and Dewakan are also migrating towards creating premium dishes using sustainable and local ingredients. Online grocery retailers are also taking note of trends, with sustainable and organic grocery retailers such as Everleaf Eco Solutions reporting sales boosts of up to 300%. Overall, Malaysia’s e-commerce sector is witnessing unprecedented growth of over 220%, expected to be valued at US$12.6 billion by 2024!

Alcohol, Convenience Foods and Dairy Categories as Big Winners

Malaysia’s food and beverage industry is set for strong growth, with a value set to rise from US$20.94 billion in 2021 to US$25.80 billion by 2026. While food and alcoholic beverages are encouraging this growth, it’ll be weighed down by a floundering non-alcoholic beverages sector, where an annual contraction of -4.09% is expected to 2026. 

When we take a closer look at thriving categories, we can see that spirits, wines, fish and seafood, meat substitutes, canned and dried foods will see annual growth rates above 5%.

Of particular interest is the dairy and soy food sector, which are forecast to experience growth rates close to 15% annually for the next five years. This is good news for Australia’s dairy manufacturing sector, which is globally renowned for producing some of the best quality dairy products globally. 

Wrap Up

With Malaysia expected to return to its pre-pandemic growth trajectory in 2022, strong ties to Australia’s economy with 99% tariff-free entry for goods, and a strong Ease of Doing Business rank, Malaysia’s economy is open for Australian exporters! The food and beverage space is particularly exciting, with a young and experimental consumer base which values health, ethics and value in their purchasing decisions. And, while COVID-19 saw the spotlight shift to local products, imports maintain perceptions of high-quality. Opportunities are particularly ripe for alcohol, seafood and dairy categories, all of which Australia is well known for!

We hope you’ve found these insights on the Malaysian market helpful. As always, if you’ve got any questions or want to discuss export opportunities for your company, feel free to drop us a line at Export Connect – we’d love to hear from you.