Thailand Food & Drink Report - Q4 2015

Q4 2015
www.bmiresearch.com
THAILAND
FOOD & DRINK REPORT
INCLUDES 5-YEAR FORECASTS TO 2019
ISSN 1749-3013
Published by:BMI Research
Thailand Food & Drink Report Q4 2015
Part of BMIs Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: September 2015
BMI Research 2015 Business Monitor International Ltd

Senator House All rights reserved.
85 Queen Victoria Street
London All information contained in this publication is
EC4V 4AB copyrighted in the name of Business Monitor
United Kingdom International Ltd, and as such no part of this
Tel: +44 (0) 20 7248 0468 publication may be reproduced, repackaged,
Fax: +44 (0) 20 7248 0467 redistributed, resold in whole or in any part, or used
Email: subs@bmiresearch.com in any form or by any means graphic, electronic or
Web: http://www.bmiresearch.com mechanical, including photocopying, recording,
taping, or by information storage or retrieval, or by
any other means, without the express written consent
of the publisher.
DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.
Part of BMIs Industry Report & Forecasts Series
Published by: BMI Research
Copy deadline: September 2015
BMI Research 2015 Business Monitor International Ltd

Senator House All rights reserved.
85 Queen Victoria Street
London All information contained in this publication is
EC4V 4AB copyrighted in the name of Business Monitor
United Kingdom International Ltd, and as such no part of this
Tel: +44 (0) 20 7248 0468 publication may be reproduced, repackaged,
Fax: +44 (0) 20 7248 0467 redistributed, resold in whole or in any part, or used
Email: subs@bmiresearch.com in any form or by any means graphic, electronic or
Web: http://www.bmiresearch.com mechanical, including photocopying, recording,
taping, or by information storage or retrieval, or by
any other means, without the express written consent
of the publisher.
DISCLAIMER
All information contained in this publication has been researched and compiled from sources believed to be accurate and reliable at the time of
publishing. However, in view of the natural scope for human and/or mechanical error, either at source or during production, Business Monitor
International Ltd accepts no liability whatsoever for any loss or damage resulting from errors, inaccuracies or omissions affecting any part of the
publication. All information is provided without warranty, and Business Monitor International Ltd makes no representation of warranty of any kind
as to the accuracy or completeness of any information hereto contained.
CONTENTS
BMI Industry View ............................................................................................................... 7
SWOT .................................................................................................................................... 9
Food ....................................................................................................................................................... 9
Drink .................................................................................................................................................... 11
Mass Grocery Retail ................................................................................................................................ 13
Industry Forecast .............................................................................................................. 15

Consumer Outlook ................................................................................................................................... 15
Food ..................................................................................................................................................... 17
Food Consumption ................................................................................................................................. 17
Table: Food Consumption Indicators - Historical Data & Forecasts (Thailand 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Confectionery ........................................................................................................................................ 18
Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2012-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Pasta ................................................................................................................................................... 20
Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Dairy ................................................................................................................................................... 20
Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Drink .................................................................................................................................................... 21
Alcoholic Drinks .................................................................................................................................... 21
Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Soft Drinks ............................................................................................................................................ 24
Table: Soft Drinks Sales, Production & Trade (Thailand 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Hot Drinks ............................................................................................................................................ 26
Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Thailand 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Table: Estimated Mass Grocery Retail Sales By Format (%), 2012-2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Trade .................................................................................................................................................... 29
Table: Trade Balance - Historical Data & Forecasts (Thailand 2014-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Macroeconomic Forecast ................................................................................................ 31

Table: Economic Activity (Thailand 2010-2019) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Industry Risk Reward Index ............................................................................................. 35

Asia Pacific - Risk/Reward Index ................................................................................................................ 35
Table: Asia Pacific Food & Drink Risk/Reward Index Q415 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Thailand Risk/Reward Index ...................................................................................................................... 40
Market Overview ............................................................................................................... 41

Food ..................................................................................................................................................... 41
Agriculture ........................................................................................................................................... 41
Business Monitor International Ltd Page 4

Dairy ................................................................................................................................................... 42
Organic Farming ................................................................................................................................... 42
Food Processing .................................................................................................................................... 43
Trade ................................................................................................................................................... 43
Drink .................................................................................................................................................... 45
Alcoholic Drinks .................................................................................................................................... 45
Soft Drinks ............................................................................................................................................ 46
Hot Drinks ............................................................................................................................................ 46
Leading Retailers ................................................................................................................................... 49
Table: Mass Grocery Retail Sales By Format (Thailand 2006-2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Table: Mass Grocery Retail Sales By Format (Thailand 2006-2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Industry Trends And Developments ................................................................................ 51

Food ..................................................................................................................................................... 51
Drink .................................................................................................................................................... 56
Competitive Landscape .................................................................................................... 62

Table: Key Players In Thailand's Food Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Table: Key Players In Thailand's Drink Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Table: Key Players In Thailand's Mass Grocery Retail Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Company Profile ................................................................................................................ 66

Chokchai Group ...................................................................................................................................... 66
Charoen Pokphand Foods ......................................................................................................................... 69
Table: Charoen Pokphand Foods' Financial Highlights, 2009-2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Thai President Foods ............................................................................................................................... 78
Thai Union Frozen Products ...................................................................................................................... 81
Thai Asia Pacific Brewery (Thai APB) ......................................................................................................... 84
Thai Beverages Plc (ThaiBev) .................................................................................................................... 87
Singha Corporation (formerly Boon Rawd Brewery) ...................................................................................... 90
Siam FamilyMart ..................................................................................................................................... 93
Tesco .................................................................................................................................................... 96
Table: Tesco's Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Central Food Retail Company Ltd (CFR) ................................................................................................... 108
Big C Supercentre .................................................................................................................................. 111
Global Industry Overview ................................................................................................ 114

Table: Australia, Uk And Usa Estimated Herfindahl-Hirschman Index Scores - Food Retail Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Table: Boston Beer Company, Ab Inbev, Heineken And Sabmiller - Selected Trailing Return And Efficiency Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Table: Food and Drink Core Views - Q215 Roundup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Demographic Forecast ................................................................................................... 132

Table: Population Headline Indicators (Thailand 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Table: Key Population Ratios (Thailand 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Table: Urban/Rural Population & Life Expectancy (Thailand 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Table: Population By Age Group (Thailand 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Table: Population By Age Group % (Thailand 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Glossary ........................................................................................................................... 137

Food & Drink ...................................................................................................................................... 137
Mass Grocery Retail ............................................................................................................................. 137
Methodology .................................................................................................................... 139

Industry Forecast Methodology .............................................................................................................. 139
Sector-Specific Methodology .................................................................................................................. 140
Sources .............................................................................................................................................. 140
Risk/Reward Index Methodology ............................................................................................................. 141
Table: Food & Drink Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Table: Weighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143

BMI Industry View
BMI View: Since the last quarter, our Asia Country Risk Team has revised down our real GDP growth
forecasts to 3.5% in 2015 and 4.1% in 2016. Despite still robust macroeconomic fundamentals, the outlook
for Thailand's economy for the next two years has weakened significantly in recent months as the country
faces myriad headwinds, which include a deterioration in domestic conditions, a renewed bout of political
risk and rising external pressures. Tepid private consumption growth, limited scope for further monetary
easing and the weakening currency will weigh on consumer purchasing power. Over the medium term and
when the political situation stabilises, we still believe Thailand holds tremendous growth potential, as we
expect a gradual shift in importance from net exports to domestic consumption.
Headline Industry Data (local currency)
2015 food consumption growth: +4.1%; compound annual growth rate (CAGR) 2014 to 2019: +5.2 %.
2015 per capita food consumption growth: +3.8%; CAGR to 2019: +4.9%.
2015 alcoholic drinks value sales: +3.4%; CAGR to 2019: +5.0%.
2015 soft drinks value sales: +5.6%; CAGR to 2019: +7.6%.
2015 mass grocery retail sales: +3.0%; CAGR to 2019: +3.8%.
Key Industry Trends And Developments
Sugar Output Boosted By Changes In Agricultural Policy: Thailand's ongoing agricultural restructuring
programme will boost sugar production in the 2015/16 season. The government is in the process of
changing part of its support to agricultural production in order to incentivise rice farmers to switch to the
cultivation of other crops, mainly sugarcane. The military government decided to drop the Rice Pledging
Scheme in 2014, which led to an increase in domestic rice prices and a ramp up in production. It is now
looking to address the country's rice oversupply by reducing the area cultivated with rice. The Committee
on Rice Policy and Management agreed on a five-year Rice Cultivation Restructuring Programme
(2015-2019) with a proposed budget of THB50bn (USD1.5bn) to reduce rice planted area and increase
sugarcane area. The Committee expects rice plantings to be cut by 112,000 hectares (ha) by 2017/18, which
compares with the 10.9mn ha harvested in 2013/14.
Malee Sampran Reports On 2014: In its 2014 annual report, Thai-based fruit and soft drinks manufacturer
Malee Sampran announced a net profit of THB307mn, representing a year-on-year (y-o-y) increase of 7%.

The company has a 23% share of Thailand's premium fruit juice market and a 52% share of the domestic
canned fruit market. However, due to difficult operating conditions during the political unrest seen in the
country over the last year, Malee focused more of its efforts onto its export markets. The company exports
to 25 countries, including China and Pakistan, and saw the proportion of its revenue from exports increase
by 26% y-o-y to reach 22% of total revenue.
Central Group Announces 2015 Investment Plans: Thailand-based retailer Central Group announced in
February 2015 that it planned to invest THB37bn (USD1.14bn) over the year. The company told Reuters
that it planned to accelerate revenue growth to 15% this year (to circa THB287bn), compared with the 6.6%
growth rate achieved in 2014. The company aims to open 300 new food stores in Thailand under its
supermarket and convenience store banners and nine new hotels, both at home and overseas. Six new
shopping malls are also included in the company's expansion plans, most of which will be built in areas that
border Thailand's neighbours, to take advantage of cross-border trade.

SWOT
Food
SWOT Analysis
Strengths
The domestic food processing industry is expanding rapidly, with Thailand the largest
food exporter in South East Asia.

Government policies actively support the development of value-added production
and domestically produced goods.

Thailand benefits from high tourism levels, which fuel sales of processed foods in
particular.

Sustained economic growth and steady urbanisation have bolstered demand for
higher-value processed food products.
Weaknesses
The Thai food-processing sector remains fairly fragmented, dominated by a large
number of small companies and cottage industries, which hinders output potential
owing to inefficiency and overlap of resource usage.

The Thai agricultural industry suffers from some structural shortcomings that restrict
its potential, particularly on the export market.

Food consumption remains low in global terms, inhibiting premiumisation of
industries - usually a sure-fire path to growth.

Political instability will significantly affect both consumer and investment sentiment in
an adverse manner.
Opportunities
There is strong interest in added-value products among middle- and upper-income
groups, particularly products that address current trends such as health
consciousness, hygiene and a preference for local flavourings.

Thailand's location makes it an attractive investment choice for companies seeking a
regional hub but that are deterred by the high costs of traditional hub markets such as
Hong Kong and Singapore.

SWOT Analysis - Continued

Increased concern over food standards in China could see a shift in investment in
food processing facilities to Thailand, where food security and safety standards are
higher.

Thailand's agricultural sector has been identified by the government as a priority for
further development, with output levels and quality likely to increase in the coming
years.
Threats
The poultry export sector is vulnerable to mass outbreaks of viral diseases.

Climate change jeopardises its all-important fisheries industry.

Rising input costs could restrict investment in both primary and secondary food
production, with costs difficult to pass on to consumers in this price-sensitive
environment.

Volatile prices for many of Thailand's key export commodities (rice, rubber and sugar)
are likely to damage the livelihoods of many farmers and force the government to
continue to offer burdensome subsidies.

Rice exports remain disadvantaged by the government's policy to buy rice at above-
market rates in order to increase the incomes of farmers.

The surge of cheaper and higher-quality exports from regional peers such as China
and India, as they start to address their own structural failings, could weigh on
Thailand's export competitiveness. .

Drink
SWOT Analysis
Strengths
Government policies actively support the development of value-added production
and domestically produced goods.

Thailand benefits from high tourism levels, which fuel sales of beverages, particularly
alcoholic drinks.

Sustained economic growth and steady urbanisation have bolstered demand for
higher-value processed beverage products.

High regional consumption of alcoholic drinks, especially beer.
Weaknesses
The government has introduced a number of measures aimed at reducing alcohol
consumption, which will hamper potential in this competitive industry.

Consumers remain price-sensitive, inhibiting premiumisation of sub-sectors, usually a
sure-fire path to growth.

The mass grocery retail network is still underdeveloped in rural areas, limiting
consumer exposure to promotional activities.

Political risk will affect both consumer and investment sentiment in an adverse
manner.
Opportunities
There is strong interest in added-value products among middle- and upper-income
groups, particularly products that address current trends, such as health
consciousness, hygiene, novelty and a preference for local flavourings.

Significant growth is expected in the alcoholic and soft drinks sectors, with
companies investing large sums to strengthen their position. The wine sector will
benefit in particular, despite measures to reduce alcohol consumption.

Measures to limit alcohol consumption could prove an opportunity for the soft drinks
sector to grow further.

Threats
The government is becoming increasingly ambitious in its plans to reduce alcohol
consumption, which threatens the industry in the long term.

Continued political turmoil risks damaging Thailand's attractiveness to foreign
investors, who may opt to deploy their capital in more stable regional competitors,
such as Vietnam.

The country's poor record on human trafficking and the July 2014 downgrade on the
US's human trafficking watchlist could lead to trade sanctions.

Mass Grocery Retail
SWOT Analysis
Strengths
Thai consumers are particularly attracted to the mass grocery retail (MGR) concept
given its convenience, branding and other factors. Expansion activities by domestic
mass grocery retailers will continue to encourage the proliferation of modern retail in
the country.

A good mix of large-scale international retailers and powerful local players has led to
the establishment of modern retail best practices that take into account local
consumption habits.

Thailand offers most modern retail formats, thus catering for a variety of consumers
and different shopping occasions.
Weaknesses
Bangkok, the country's wealthiest city, is now nearing MGR saturation, forcing
retailers to expand into less profitable smaller towns and cities.

Most consumers continue to be price sensitive, making it difficult for retailers to pass
on rising costs, thereby cutting into profit margins.

The strength of Tesco and other large MGR operators limits entry opportunities for
new players.

Political instability will significantly affect both consumer and investor sentiment.
Opportunities
Despite new legislation proposals, several retailers have announced expansion plans,
including experimenting with new formats such as the 'mini-hypermarket' and
community malls.

Restrictions on expansion are likely to stimulate innovation, with concepts such as
fresh-food convenience stores expected to be popular, particularly in the
capital Bangkok.

The smaller convenience sector is set to be a key beneficiary of new legislation that
makes openings of larger-scale formats more challenging.


Private-label products are proving increasingly popular with lower-income
consumers, with retailers expanding their products on offer.

Added-value in-store services, such as dry-cleaning facilities, provide an excellent
means of boosting sales without expanding floor space.

Online retail, especially within Bangkok, offers a huge opportunity in an as yet
largely untapped space.
Threats
The Thai government's protectionist agenda of curbing large-scale retail store
openings as it looks to protect traditional and smaller retailers could pose challenges
to potential market entrants.

Rising retail prices are challenging within such a fiercely competitive market;
consequently, retailers must cushion rising operating costs themselves.

Continued political turmoil risks damaging Thailand's attractiveness to foreign
investors, who may opt to deploy their capital in more stable regional competitors,
such as Vietnam.

Political and security risks will continue to weigh on tourist numbers, which will, in
turn, hamper MGR sales.

Industry Forecast
Consumer Outlook
Since last quarter, our Asia Country Risk Team has revised down our real GDP growth forecasts to 3.5% in
2015 and 4.1% in 2016. Despite still robust macroeconomic fundamentals, the outlook for Thailand's
economy for the next two years has weakened significantly in recent months as the country faces myriad
headwinds which include a deterioration in domestic conditions, a renewed bout of political risk and rising
external pressures.
Domestic conditions have weakened slightly on three fronts in recent months, which will weigh on
Thailand's growth outlook over the coming quarters. The recent bombing in Bangkok poses short-term risks
to the economy, and in particular to the tourism industry, which accounts for a non-negligible 10% of GDP.
A significant decline in tourism would in turn be highly detrimental for the food and drink industry, as
tourists play a major part in purchases of alcohol and other premium products.
In addition, we believe tepid private consumption growth, limited scope for further monetary easing and the
weakening currency will weigh on consumer purchasing power. Latest figures showed that growth in
private consumption slowed to 1.5% y-o-y in Q215 from 2.4% in the previous quarter, while retail sales
growth and consumer confidence have also remained on a multi-month downtrend. Moreover, the continued
depreciation of the Thai baht will also weigh on purchasing power, particularly for imported goods from the
US and China, which will see import prices rise in local currency terms.
Over the medium term and when the political situation stabilises, we still believe Thailand holds
tremendous growth potential, as we expect a gradual shift in importance from net exports to domestic
consumption. Currently, we expect private consumption growth to average 4.2% over our 10-year forecast
period and to contribute 2.2 percentage points to headline growth per year. Indeed, buoyed by the
strengthening baht, GDP per capita is projected to rise from an estimated USD5,561 in 2014 to USD10,342
by 2024, raising domestic purchasing power and spurring private consumption growth. We also think that
more efficient, consumer-focused investment will lead to greater household spending. Notably, the
detrimental effects from continued political unrest should slowly dissipate as consumers and businesses
gradually adapt to the domestic political situation. This will support growth in the food, drink and retail
industries, especially towards the end of our forecast period.

Private Consumption Slowing

Thailand - Private Consumption, % chg y-o-y
Source: National sources, BMI

Food
Food Consumption
2015 food consumption growth (local currency):
+4.1%; compound annual growth rate (CAGR)
2014 to 2019: +5.2%.
Food Consumption
2015 per capita food consumption growth (local
2010-2019 (2010-2019)
currency): +3.8%; CAGR to 2019: +4.9%.
2,000 8
We have revised down our food consumption 1,500 6
forecast for 2015 and 2016, on the back of slower

economic growth. Nonetheless, we still forecast 1,000 4
reasonably strong growth in Thailand's food

500 2
consumption levels through to 2019, as the economy
gradually recovers and the population continues to 0 0
2010
2011
2012
2013
2014
2015f
2016f
2017f
2018f
2019f
expand, albeit at a slow pace. The continued spread
Food consumption THBbn (LHS)
of mass grocery retailing is a key driver behind our Food consumption, THB, % y-o-y (RHS)
reasonably bullish forecast figures, as it will make a

wider range of higher-priced goods available to a
wider consumer base, driving up consumer f = BMI forecast. Source: National sources, BMI
expenditure levels.
With Thailand's mass grocery retail (MGR) sector already home to big, financially powerful industry
players such as CP All, Tesco and Casino, the organised retail sector now accounts for around half of the
country's MGR sector. These retailers will continue to seek expansions in Thailand, further encouraging the
proliferation of modern retail, with highly positive implications for our food forecasts.

Table: Food Consumption Indicators - Historical Data & Forecasts (Thailand 2012-2019)
2012 2013 2014 2015f 2016f 2017f 2018f 2019f
Food consumption THBbn 1,103.4 1,130.0 1,151.4 1,199.0 1,260.8 1,330.1 1,404.0 1,482.6
Food consumption, THB, % y-o-y 4.1 2.4 1.9 4.1 5.2 5.5 5.6 5.6
Food consumption, THB per 16,429.2 16,752.5 17,000.6 17,643.6 18,501.8 19,475.0 20,521.0 21,641.6
capita
Food consumption, USDbn 35.5 36.8 35.5 34.8 34.3 36.6 39.5 42.0
Food consumption, USD per 528.8 545.3 523.5 511.4 503.9 535.9 577.0 613.8
capita
f = BMI forecast. Source: National sources, BMI
Confectionery
2015 confectionery value sales (local currency)
growth: +3.3%; CAGR to 2019: +4.8%.
2015 chocolate value sales (local currency)

Confectionery
growth: +2.7 CAGR to 2019: +4.2%.
2010-2019 (2010-2019)
2015 sugar confectionery value sales (local
60,000 6
currency) growth: +4.2%; CAGR to 2019: +5.7%.
2015 gum value sales (local currency) growth:

+4.2%; CAGR to 2019: +5.8%. 40,000 4
20,000 2
We are forecasting strong growth for Thailand's
confectionery sub-sector as it continues to be driven
0 0
by a more affluent and growing population.
2010
2011
2012
2013
2014
2015f
2016f
2017f
2018f
2019f
However, we do not expect a sudden onrush of

Confectionery sales, tonnes (LHS)
'premiumisation', with growth instead primarily Confectionery sales, tonnes, % y-o-y (RHS)
driven by the increasing emergence and availability

of mass-market confectionery products. Our view is
borne out by the relatively narrow spread between
volume and value sales growth.
Beyond our current five-year forecast period, we feel the paradigm will shift further towards health
consciousness among Thai consumers. Health concerns, alongside rising disposable incomes, could drive up
the demand for healthier snack offerings, thus fuelling value growth. Thai consumers are likely to opt for

healthier confectionery offerings such as low-fat, low-sodium, whole-grain or organic products. These
added-value products typically carry higher prices and higher demand for them could speed up the sector's
value growth.
Table: Confectionery Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2012-2019)
2012 2013 2014 2015f 2016f 2017f 2018f 2019f
Confectionery sales, 37,353.1 37,591.0 37,767.4 38,969.6 40,252.1 41,589.8 42,985.0 44,440.3
tonnes
Confectionery sales, 16,654.76 17,105.99 17,495.10 18,075.46 19,008.90 19,998.95 21,049.31 22,163.95
THBmn
Confectionery sales, 248.0 253.6 258.3 266.0 278.9 292.8 307.7 323.5
THB per capita
Confectionery sales, 536.1 556.8 538.7 523.9 517.7 550.3 591.9 628.6
USDmn
Chocolate sales, 4,799.8 4,817.9 4,831.4 4,923.0 5,020.7 5,122.5 5,228.8 5,339.7
tonnes
Chocolate sales, kg 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
per capita
Chocolate sales, 9,889.2 10,145.0 10,366.5 10,647.5 11,130.3 11,640.1 12,178.7 12,747.8
THBmn
Chocolate sales, 318.32 330.21 319.20 308.62 303.11 320.28 342.43 361.54
USDmn
Sugar confectionery 31,418.8 31,630.8 31,788.0 32,859.7 34,002.9 35,195.3 36,439.0 37,736.2
sales, tonnes
Sugar confectionery 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.6
sales, kg per capita
Gum sales, tonnes 1,134.5 1,142.3 1,148.0 1,187.0 1,228.6 1,271.9 1,317.2 1,364.4
Gum sales, kg per 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
capita
Gum sales, THBmn 292.19 300.65 307.90 320.90 340.45 361.29 383.49 407.16
Gum sales, THB per 4.4 4.5 4.5 4.7 5.0 5.3 5.6 5.9
capita
Gum sales, USDmn 9.41 9.79 9.48 9.30 9.27 9.94 10.78 11.55

Pasta
Pasta is not a staple in Thailand, unlike noodle products. Nevertheless, an increased number of tourists and
Italian restaurants opening in Thailand are introducing the product to local residents. Still, per capita
consumption of pasta remains negligible and is entirely accounted for by urban customers.
Table: Pasta Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2014-2019)
2014 2015f 2016f 2017f 2018f 2019f
Uncooked pasta production, tonnes 189,000.0 193,000.0 197,000.0 201,000.0 205,000.0 209,000.0
Uncooked pasta sales, tonnes 123,692.0 127,352.4 128,775.3 130,145.0 131,383.5 132,549.9
Uncooked pasta sales, kg per capita 1.8 1.9 1.9 1.9 1.9 1.9
Uncooked pasta exports, tonnes 71,598.7 71,880.1 74,793.6 77,767.8 80,890.8 84,104.4
Uncooked pasta imports, tonnes 6,290.7 6,232.5 6,568.9 6,912.9 7,274.4 7,654.3
Uncooked pasta balance, tonnes 65,308.0 65,647.6 68,224.7 70,855.0 73,616.5 76,450.1
Dairy
Table: Dairy Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2014-2019)
2014 2015f 2016f 2017f 2018f 2019f
Processed liquid milk production, tonnes 265,372.4 275,918.5 289,695.9 303,989.8 318,861.7 334,040.2
Processed liquid milk sales, tonnes 229,527.8 239,823.2 251,007.8 262,654.9 274,747.8 287,066.6
Processed liquid milk exports, tonnes 35,867.7 36,118.1 38,710.4 41,356.8 44,135.5 46,994.8
Processed liquid milk imports, tonnes 23.1 22.7 22.3 21.9 21.6 21.2
Processed liquid milk balance, tonnes 35,844.6 36,095.4 38,688.1 41,334.8 44,113.9 46,973.6
Butter sales, tonnes 16,025.8 16,313.2 16,619.7 16,939.4 17,272.9 17,620.7
Ice cream production, tonnes 65,032.8 66,570.3 68,578.9 70,662.8 72,831.0 75,043.8

Drink
Alcoholic Drinks
2015 alcoholic drinks value (local currency) sales:
2014 to 2019: +5.0%. Alcoholic Drinks
2015 beer value (local currency) sales: +6.7%;
2012-2019 (2012-2019)
CAGR to 2019: +8.1%.
1,500,000 6
2015 wine value (local currency) sales: +10.3%;
CAGR to 2019: +11.1%.
5
2015 spirits value (local currency) sales: +1.4%; 1,000,000
CAGR to 2019: +2.9%.

4
500,000
3
Buoyed by improving tourism levels, strong
economic growth and the prevalence of brewers, 0 2
2012
2013
2014
2015f
2016f
2017f
2018f
2019f
Thailand's alcoholic drinks sector should experience
Alcoholic drink sales, THBmn (LHS)
considerable dynamism over the next five years. Alcoholic drink sales, THB, % y-o-y (RHS)
With the sector already home to powerful players,

such as Thai Beverage (ThaiBev), Asia Pacific
Breweries (APB, which was bought out by f = BMI forecast. Source: National sources, BMI
Heineken) and Singha Corporation, expansionary

investments will support growth in the sector through to 2019. The industry is also attracting attention from
new entrants, with China's Tsingtao recently announcing plans to build a new brewery in the country. We
forecast the beer and wine categories to experience the strongest growth, while the already mature spirits
segment will grow only marginally over the next five years.
On the other hand, the anti-alcohol lobby in Thailand is strong and government legislation, such as bans on
certain types of advertising, reflects this. Both ThaiBev and the local subsidiary of APB have sought listings
on the Thai stock exchange, only to have their appeals rejected owing to vociferous protests from anti-
alcohol campaigners. Therefore, additional legislation, including increased taxation, continues to pose
downside risks to our forecasts. Given the relative maturity of the Thai alcoholic drinks sector and its
dependence on the tourism industry to support growth, we believe a combination of international brand
appeal, a diversified product portfolio and a well-balanced geographic footprint holds the key to steady
long-term growth. We stress that none of these elements of growth would suffice on its own to provide
well-rounded growth and a three-pronged approach encompassing the aforementioned factors provides the
strongest path to success.

Strong International Brand Appeal
A strong international brand appeal has been and will remain instrumental in protecting domestic market
share while facilitating domestic brewers' push into international markets, particularly given the industry's
reliance on the tourism sector. Domestic brewers have successfully entrenched their brand identity among
local consumers (examples include APB's Tiger brand, Singha's eponymous product and ThaiBev's Chang
beer). These brewers are likely to continue ramping up aggressive marketing and branding initiatives as the
alcoholic drinks market globalises.
Product Diversification
With the Thai alcoholic drinks industry vulnerable to government excise-raising tax hikes, we stress the
importance of product diversity to cushion domestic brewers against anti-alcohol initiatives. Among
Thailand's leading brewers, ThaiBev is the clear frontrunner in pursuing product diversification and has
aggressively snapped up acquisition opportunities in the food and non-alcoholic beverage sectors as it looks
to expand its brand portfolio. Singha is also prioritising the expansion of its non-alcoholic beverage
business in a bid to hedge against a potential decline in alcoholic drinks demand. Continuous product
development and improving product diversity are thus likely to remain at the forefront of domestic brewers'
growth strategies.
Geographic Diversification
The potential for new legislation to limit alcohol sales and the increasingly consolidated nature of
Thailand's alcoholic drinks industry mean industry players could find it increasingly difficult to maintain
domestic revenues over the long run (beyond the current forecast period). This is where the importance of a
well-diversified geographic footprint comes into play. Among the leading trio, APB boasts the strongest
geographical balance, which will continue to play a major role in shaping its earnings growth. APB's
presence in developed markets can be used to support expansions into emerging markets that, as they
mature, can then support expansions into frontier markets. Already, APB is one of our outperformers among
the world's leading brewers in terms of revenue growth.
While ThaiBev has also been focusing on international markets to support revenue growth, overseas sales
account for around 3% of its revenues and the company clearly needs to beef up its global presence in order
to enjoy sustainable long-term growth. As such, ThaiBev is looking to raise the contribution of international
sales to one-third of the total within the next three years.

Table: Alcoholic Drinks Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2014-2019)
2014 2015f 2016f 2017f 2018f 2019f
Alcoholic drinks sales, mn litres 2,810.8 2,947.7 3,093.7 3,246.1 3,405.0 3,570.8
Alcoholic drinks sales, litres per 41.5 43.4 45.4 47.5 49.8 52.1
capita
Alcoholic drink sales, THBmn 1,116,295.7 1,154,673.1 1,216,093.5 1,281,283.3 1,350,476.7 1,423,959.4
Alcoholic drinks sales, USDmn 34,372.2 33,468.8 33,118.2 35,254.5 37,972.1 40,385.1
Beer sales, mn litres 2,001.7 2,119.7 2,245.2 2,376.4 2,513.1 2,655.8
Beer sales, litres per capita 29.6 31.2 32.9 34.8 36.7 38.8
Beer sales, THBmn 237,088.7 253,067.4 274,758.0 298,073.9 323,108.7 349,984.0
Beer sales, THB per capita 3,500.7 3,723.8 4,031.9 4,364.3 4,722.7 5,108.6
Beer sales, USDmn 7,300.3 7,335.3 7,482.6 8,201.5 9,085.0 9,925.9
Beer production, litres mn 3,171.1 3,325.5 3,527.2 3,736.5 3,954.3 4,176.5
Beer exports, litres mn 147.7 148.6 157.8 167.1 176.9 187.0
Beer imports, litres mn 16.5 16.2 17.9 19.6 21.5 23.4
Beer balance, litres mn 131.2 132.4 139.9 147.5 155.5 163.6
Wine sales, mn litres 156.7 171.5 187.2 203.7 220.8 238.7
Wine sales, litres per capita 2.3 2.5 2.7 3.0 3.2 3.5
Wine sales, THBmn 110,539.8 121,932.2 136,471.0 152,166.9 169,103.7 187,371.1
Wine sales, THB per capita 1,632.2 1,794.2 2,002.6 2,228.0 2,471.7 2,735.0
Spirits sales, litres per capita 9.6 9.7 9.7 9.8 9.8 9.9
Spirit sales, THBmn 768,667.2 779,673.4 804,864.6 831,042.6 858,264.2 886,604.2
Spirits sales, THB per capita 11,349.7 11,472.6 11,810.8 12,168.0 12,544.8 12,941.5
Spirits sales, USDmn 23,668.3 22,599.2 21,919.1 22,866.2 24,132.3 25,145.1

Soft Drinks
2015 total soft drinks value (local currency) sales:
+5.6%; CAGR to 2019: +7.6%.
Soft Drinks
2015 carbonated soft drinks value (local currency)
sales: +3.8%; CAGR to 2019: +5.0%. (2012-2019)
2015 juice value (local currency) sales: +6.1%;
300,000 10
CAGR to 2019: +8.0%.
9
2015 bottled water value (local currency) sales:
200,000
+6.4%; CAGR to 2019: +8.3%. 8
2015 functional soft drinks value (local currency) 7

sales: +7.2%; CAGR to 2019: +9.8%. 100,000
6
2015 ready-to drink tea/coffee value (local
currency) sales: +6.5%; CAGR to 2019: +8.6%. 0 5
2012
2013
2014
2015f
2016f
2017f
2018f
2019f
Soft drink sales, THBmn (LHS)
Soft drink sales, THB, % y-o-y (RHS)
Key drivers behind our favourable growth outlook
for soft drinks include rising disposable incomes and
a growing tourism sector. The competitive nature of
the industry and high level of investment (as
evidenced by the recent launch of a ready-to drink
herbal tea brand by The Coca-Cola Company) will also be major driving forces behind this forecast
growth. Should government measures to reduce alcohol consumption prove effective, the soft drinks sector
could witness even stronger growth rates.
We expect value sales growth to outstrip that of volume growth over our forecast period to 2019, owing to
the continued trend of consumers trading up to healthier and trendier - yet more expensive - products such
as energy drinks, juices and bottled water, to the detriment of the cheaper carbonates sector. The strong
performance of the bottled water segment is in line with our global view that bottled water will outperform
carbonates over our forecast period to 2019, as consumers favour healthier drinks. In addition, the absence
of safe drinkable water in some areas will also have a positive impact on the segment.
The outperformance of the non-carbonates sector over the wider drinks market is already borne out by our
forecasts. Specifically, the energy drinks, fruit juices and ready-to drink tea and coffee sub-sectors are
expected to expand very robustly through 2019, as consumers develop a preference for more innovative
products and as these products start to accelerate from a relatively low base compared with carbonates.
Other drivers of growth include novelty and cross-branding (as is the case with the recent Angry Birds soft

drink launch in Thailand by Just Drink It Co in partnership with manufacturer Malee and distributor
Durbell as a spin-off from the computer game).
Table: Soft Drinks Sales, Production & Trade (Thailand 2014-2019)
2014 2015f 2016f 2017f 2018f 2019f
Soft drink sales, mn litres 5,094.12 5,302.65 5,535.47 5,779.27 6,030.44 6,288.01
Soft drink sales, litres per capita 75.2 78.0 81.2 84.6 88.1 91.8
Soft drink sales, THBmn 145,087.50 153,259.23 165,260.96 178,928.99 193,674.93 209,261.03
Soft drink sales, THB per capita 2,142.3 2,255.2 2,425.1 2,619.8 2,830.9 3,054.5
Soft drink sales, USDmn 4,467.4 4,442.3 4,500.6 4,923.2 5,445.7 5,934.9
Carbonated soft drink sales, mn litres 2,927.25 3,013.38 3,099.51 3,185.63 3,271.76 3,357.89
Carbonated soft drink sales, litres per 43.2 44.3 45.5 46.6 47.8 49.0
capita
Carbonated soft drink sales, THBmn 54,330.0 56,375.9 59,436.9 62,615.7 65,916.3 69,342.8
Carbonated soft drink sales, THB per 802.2 829.6 872.2 916.8 963.5 1,012.2
capita
Carbonated soft drink sales, USDmn 1,672.9 1,634.1 1,618.7 1,722.9 1,853.4 1,966.6
Carbonated soft drink production, 2,368.5 2,451.9 2,552.7 2,668.3 2,800.4 2,950.8
litres mn
Carbonated soft drink exports, litres 450.4 452.5 473.4 494.9 517.3 540.5
mn
Carbonated soft drink imports, litres 16.2 16.1 16.6 17.1 17.6 18.1
mn
Carbonated soft drink balance, litres 434.3 436.4 456.9 477.8 499.8 522.4
mn
Fruit/Vegetable juice sales, mn litres 145.27 152.91 162.10 171.65 181.56 191.81
Fruit/vegetable juice sales, litres per 2.1 2.3 2.4 2.5 2.7 2.8
capita
Fruit/vegetable juice sales, THBmn 10,364.2 10,996.6 11,949.0 12,969.1 14,060.3 15,226.1
Fruit/vegetable juice sales, THB per 153.0 161.8 175.3 189.9 205.5 222.3
capita
Fruit/Vegetable juice sales, USDmn 319.13 318.74 325.41 356.84 395.34 431.83
Bottled water sales, mn litres 1,699.62 1,794.29 1,908.16 2,026.93 2,150.81 2,280.01
Bottled water sales, litres per capita 25.1 26.4 28.0 29.7 31.4 33.3
Bottled water sales, THBmn 20,239.9 21,538.2 23,477.7 25,562.5 27,802.9 30,209.8
Bottled water sales, THB per capita 298.9 316.9 344.5 374.3 406.4 441.0
Bottled water sales, USDmn 623.2 624.3 639.4 703.4 781.7 856.8
Functional soft drinks (sports/energy 273.80 291.18 311.80 337.54 364.81 392.84
drinks), mn litres
Functional soft drink sales, litres per 4.0 4.3 4.6 4.9 5.3 5.7
capita

Soft Drinks Sales, Production & Trade (Thailand 2014-2019) - Continued
2014 2015f 2016f 2017f 2018f 2019f
Functional soft drinks, THBmn 41,858.03 44,872.14 49,250.32 54,648.74 60,540.97 66,822.83
Functional soft drink sales, THB per 618.0 660.3 722.7 800.2 884.9 975.4
capita
Functional soft drinks, USDmn 1,288.87 1,300.64 1,341.25 1,503.66 1,702.26 1,895.17
Functional soft drink sales, USD per 19.0 19.1 19.7 22.0 24.9 27.7
capita
Functional soft drink sales, EURmn 961.8 1,182.4 1,253.5 1,367.0 1,480.2 1,579.3
Functional soft drink sales, EUR per
14.2 17.4 18.4 20.0 21.6 23.1
capita
Hot Drinks
2015 coffee value (local currency) sales: +2.2%; CAGR to 2019: +3.2%.
2015 tea value (local currency) sales: +1.6%; CAGR to 2019: +3.4%.
Tea and coffee are both widely consumed in Thailand. Consequently, the two sub-sectors are fairly mature
and are forecast to experience only modest growth to 2019. Given sector maturity, premiumisation and
ongoing product development will be the main drivers of growth. Value-added and functional products will
become increasingly popular, in line with rising health consciousness among Thai consumers.
Table: Hot Drink Value/Volume Sales, Production & Trade - Historical Data & Forecasts (Thailand 2014-2019)
2014 2015f 2016f 2017f 2018f 2019f
Coffee sales, THBmn 13,814.5 14,114.7 14,563.6 15,019.0 15,646.8 16,172.9

Coffee sales, USDmn 425.4 409.1 396.6 413.2 440.0 458.7
Tea sales, THBmn 890.1 904.7 939.2 974.2 1,010.9 1,050.0
Tea sales, THB per capita 13.1 13.3 13.8 14.3 14.8 15.3

Mass Grocery Retail

2015 mass grocery retail sales (local currency):
2014 to 2019: +3.8%. Mass Grocery Retail Sales
2015 supermarket sales (local currency): +2.8%;
2012-2019 (2012-2019)
CAGR to 2019: +3.2%.
1,500 5
2015 hypermarket sales (local currency): +2.3%;
CAGR to 2019: +2.9%.
4
2015 convenience store sales (local currency): 1,000
+5.5%; CAGR to 2019: +6.9%. 3
500
Increasing incomes and added investment will most 2
likely ensure that consumers continue to rely on

0 1
mass grocery retail (MGR) outlets for their grocery
2012
2013
2014
2015f
2016f
2017f
2018f
2019f
needs rather than revert to more traditional Total mass grocery retail sales, THBbn (LHS)
Total mass grocery retail sales, THB, % y-o-y (RHS)
consumption methods, such as independent grocers
and markets. Additionally, the strong presence of
large international operators will ensure a healthy
foundation for future growth.
Through to 2019, Thailand's convenience sector is expected to have the strongest sales performance for the
retail industry, followed by the supermarket sector. With its smaller store format likely to stir up less
opposition from traditional retailers, the convenience sector is expected to be the main beneficiary of the
Thai government's protectionist agenda of curbing large-scale retail store openings as it looks to protect
traditional and smaller retailers from the aggressive expansion activities of foreign retailers.
In our view, household structures in Thailand and high female participation in the labour force will be the
main drivers of convenience store performance. We estimate that around 60% of Thai households are
composed of 3 people or less, which compares with around 40% in Indonesia, Malaysia and Vietnam and
less than 30% in the Philippines. Smaller households tend to prefer shorter, but more regular trips to
convenience stores, rather than longer trips to hypermarkets. In addition, Thailand has a high level of female
participation in the labour force, meaning that households are relatively time-poor and consumers are less
willing and able to go outside of their neighbourhood to buy groceries.
Furthermore, existing convenience store operators will continue to ramp up their expansion in the country to
exploit the sector's tremendous growth potential. CP All, for instance, continues to pursue an aggressive

store-opening strategy by opening 450 to 500 new stores annually. Siam FamilyMart - the Thai subsidiary
of Japanese convenience major FamilyMart - is also looking to speed up its push into the sector, having
already opened 440 new stores on its five-year agenda to the end of 2016.
In contrast, the Thai hypermarket sector is set to witness relatively slower growth through to 2019, which
will mostly be driven by improvements to existing store offerings rather than by major expansions. A major
volume growth driver behind hypermarket retail sales is the continued dynamism between Big C, which
took Carrefour's network within the country in 2010 for USD1.2bn, and Tesco Lotus. These firms are
preparing to ramp up their presence in the domestic hypermarket sector as they battle it out for market
leadership.
Generally speaking, however, the ongoing commitment to Thailand by leading retailers - in spite of
legislative uncertainty - says much about the remaining potential of the industry over our forecast period.
Retailers have continued to capitalise on the growth potential of the Thai retail industry by increasing their
business activities and accelerating their pace of expansion.
Table: Mass Grocery Retail Sales By Format - Historical Data & Forecasts (Thailand 2014-2019)
2014 2015f 2016f 2017f 2018f 2019f
Total mass grocery retail sales, THBbn 1,007.5 1,038.2 1,076.7 1,119.1 1,164.7 1,213.4
Total mass grocery retail sales, THB per capita 14,876.1 15,276.5 15,800.0 16,386.3 17,024.0 17,711.6
Total mass grocery retail sales, USDbn 31.0 30.1 29.3 30.8 32.7 34.4
Hypermarket sales, THBbn 610.6 624.7 642.2 661.1 681.4 702.9
Hypermarket sales, USDbn 18.8 18.1 17.5 18.2 19.2 19.9
Supermarket sales, THBbn 192.2 197.6 203.9 210.7 217.6 224.8
Supermarket sales, USDbn 5.9 5.7 5.6 5.8 6.1 6.4
Convenience store sales, THBbn 204.7 215.9 230.6 247.4 265.7 285.7
Convenience store sales, USDbn 6.3 6.3 6.3 6.8 7.5 8.1

Table: Estimated Mass Grocery Retail Sales By Format (%), 2012-2022
2012e 2022f
Organised/MGR 46 58
Non-organised/Independent 54 42
e/f = BMI estimate/forecast. Source: BMI
Trade
Imports compound annual growth rate
(CAGR), USD terms, 2014 to 2019: +5.7%.
Exports CAGR (USD) to 2019: +5.5%. Trade

2010-2019 (2010-2019)
Over our five-year forecast period, we expect import 40,000 20,000
growth to outpace export growth - though notably, it

30,000
comes from a much smaller base. As such, we 17,500
believe Thailand's food and drink trade balance will 20,000
increase year-on-year, though growth in exports will 15,000

10,000
remain subdued in the short term, as demonstrated
by the government's recent announcement that it will 0 12,500
2010
2011
2012
2013
2014
2015f
2016f
2017f
2018f
2019f
target promoting the export trade.
Exports of food and drink, USDmn (LHS)
Imports of food and drink, USDmn (LHS)
Food and drink trade balance USDmn (RHS)
While Thailand is set to remain a net food and drink
exporter, thanks to its size, topography and vast
agricultural output, growth in imports has
accelerated. Changing diets and the increasingly
sophisticated tastes of the Thai consumer, combined with robust private consumption, mean there is a
burgeoning demand for imported products. Nevertheless, for the time being, we expect the trade balance
will continue to grow more positive, reaching nearly USD20bn by 2019.
Indeed, export growth will remain significant, although exporters face a number of headwinds. Thailand's
exports will continue to be threatened by regional health and hygiene scares, erratic climate conditions and a
failure to meet the stringent import standards of some of the world's most important export markets. The
country's exports also face intensifying competition from regional peers. Big markets such as China and
India have started to address their own structural failings and begun to attract more foreign investment,
which in turn will continue to boost the level and quality of their output over the coming years.

Table: Trade Balance - Historical Data & Forecasts (Thailand 2014-2019)
2014 2015f 2016f 2017f 2018f 2019f
Exports of food and drink, USDmn 22,983 23,477 24,939 26,554 28,148 29,998
Imports of food and drink, USDmn 7,973 7,965 8,540 9,148 9,804 10,509
Food and drink trade balance USDmn 15,010.4 15,512.1 16,399.4 17,406.1 18,344.1 19,488.1

Macroeconomic Forecast
BMI View: We expect the Thai economy to continue its rebound on the back of the military government's
pro-growth policies. That said, export headwinds from cooling regional demand, the risk of renewed
political violence, as well as the high level of household debt inform our outlook for the recovery to take
place gradually. As such, we forecast Thailand's real GDP growth to come in at 3.5% in 2015, slower than
our initial forecast of 4.1%.
Thailand's real GDP growth came in at 3.0% year-on-year (y-o-y) in Q115, up from the 2.1% headline
number in the previous quarter (based on a new GDP measure - chain volume measures) but
underperforming the consensus estimate of 3.4%. Looking ahead, we expect the Thai economy to continue
its rebound over the coming quarters, owing largely to low base effects and an improving business
environment following the military coup on May 22, 2014 which stabilised the country's political situation.
That said, we note that the export-driven economy faces tough challenges from cooling regional demand
that will hurt exports, which will act as a drag on the pace of the recovery. High household indebtedness as
well as ongoing political and policy uncertainty under the current military regime also pose risks to the
economy. These economic headwinds have consequently informed our recent real GDP growth forecast
downgrade for the country. As such, we now forecast 2015 real GDP growth at 3.5% for Thailand, slower
than our earlier forecast of 4.1%.
Private Consumption, Investment Fuelling The Rebound
From an expenditure approach, the rebound in headline GDP numbers in Q115 owes largely to positive
private consumption growth as well as a much stronger expansion in gross fixed capital formation (GFCF).
Indeed, real private consumption grew by 2.4% y-o-y, up from the 2.1% print in Q414 and marking the
fourth straight quarter that growth remained in positive territory. Meanwhile, GFCF growth was a stand-out
performer, expanding by a strong 10.7% y-o-y in Q115 versus just 3.2% in the previous quarter.
Improvements in these categories clearly suggest that the military government's pro-growth policies are
beginning to gain meaningful traction. In combination with recent renewed political stability, we remain
optimistic that the Thai economy will continue to recover from a disappointing 2014.

However, Export Headwinds To Slow The Recovery
That said, a major drag on the headline number came from a slowdown in real export growth. According to
the latest data from the National Economic and Social Development Board (NESDB), export growth came
in at 1.0% in real terms in Q115, marking a slowdown from the 4.5% pace set in the previous quarter. This
owes largely to the slowdown in regional economies, particularly China (which accounts for 11.0% of Thai
exports). While we see a nascent recovery in the tourism sector, cooling external demand for Thai goods
will remain a drag on real GDP numbers going forward, therefore informing our outlook for the ongoing
economic recovery to take place at a much more gradual pace than initially anticipated.
Continued Recovery Seen Across Key Sectors
Thailand - Selected Sector Growth, % chg y-o-y
Source: BMI, NESDB

Tourism Sector Staging A Recovery Amid Renewed Stability
From a production perspective, the construction sector and the 'hotel and restaurant' category had performed
strongly. Construction rose by an impressive 25.4% in Q115 from a meagre 1.3% in the previous quarter. In
addition, growth in the 'hotel and restaurant' category grew by 13.5%, up from just 1.4% in Q414, reflecting
the ongoing recovery in the tourism sector (which accounts for around 10% of nominal GDP). Indeed, the
number of tourist arrivals grew by 24.2% y-o-y to 2.5mn in March, representing six consecutive month of
increase in y-o-y terms. With renewed stability in the country, we expect the tourism sector to continue its
steady recovery over the coming quarters. Meanwhile, the manufacturing sector (which accounts for about
33% of the domestic economy) has started to show some encouraging signs of life over recent months. The
sector grew by 2.3% y-o-y in Q115, continuing the rebound from the 1.4% figure in the previous quarter.
Politics, Household Debt Act As Further Headwinds To Growth
While the Thai economy has continued to stage a somewhat patchy recovery despite the ongoing export
slowdown, there are also numerous other headwinds that will act as a drag on growth. They include the
highly polarised political environment in the country as well as high levels of household debt. Indeed, the
Thai economy will have to continue grappling with the highly volatile nature of domestic politics, as there
seems no end in sight to the schism between the 'Red Shirts' and the 'Yellow Shirts'. As such, we cannot rule
out the risk of renewed political violence going forward, particularly given that the military has maintained
a tight grip on power for an extended period, and has dealt repeated blows to the Shinawatra family in a bid
to remove its influence from Thai politics once and for all. In addition, household debt (at 85.9% of nominal
GDP) remains among the highest in the region, which will cap the extent of the recovery in private
consumption growth.

Table: Economic Activity (Thailand 2010-2019)
2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f
Nominal GDP, USDbn 318.6 345.7 366.2 387.3 373.8 381.0 395.4 426.4 464.7 499.7
Real GDP growth, % y-o-y 7.8 0.1 6.5 2.9 0.7 3.5 4.1 4.1 4.1 4.0
GDP per capita, USD 4,797 5,193 5,482 5,779 5,561 5,653 5,854 6,302 6,860 7,369
Population, mn 66.4 66.6 66.8 67.0 67.2 67.4 67.5 67.7 67.7 67.8
Industrial production, % y-o-y, ave 10.7 -8.5 0.0 -1.2 -4.6 4.8 4.5 4.3 4.2 4.2
Unemployment, % of labour force, eop 0.7 0.4 0.5 0.6 0.6 0.6 0.7 0.7 0.8 0.8
Sources: National Sources/BMI

Industry Risk Reward Index

Asia Pacific - Risk/Reward Index
BMI's Food & Drink Risk/Reward Index assess a market's attractiveness to industry investors in
comparison with its peers. The reward part of the index takes into account market size, current consumption
levels, future industry growth prospects (based on our five-year industry forecasts), market fragmentation
(with greater fragmentation indicating higher opportunities) and the size of the youth population.
Meanwhile, the risk part of the index takes into account the legislative environment, the level of
development of the organised retail sector (with higher development leading to lower risks), as well as
relevant aspects of the economic and political environment.
Since the last iteration of our Asia Food & Drink Risk/Reward index, China's risk score has slightly
deteriorated - it now shares the first position with Japan. The two countries lead with very different risk
profiles. Japan maintains its more advantageous risk score thanks to higher food consumption per capita,
better distributed wealth, more efficient administration and better infrastructure. Although its reward score
has been downgraded over the past quarters due to slowing economic growth and tightening credit
conditions, China is still the only growth-structured market in the top six. In fact, the country has a much
better risk profile than many of the emerging markets (EMs) covered in the region, while its reward score is
similar to the ones of Pakistan, India and Indonesia.
We have introduced New Zealand in our Q415 index. The country follows Australia in our ranking to
occupy the 4th position. Like other developed markets (DMs) occupying positions three to six (Australia,
Taiwan and Singapore), New Zealand does really well from a risk perspective, thanks to a sophisticated
retail sector and a friendly business environment. Nonetheless, small populations and weak growth ahead
will prevent most developed markets from climbing up in our index.
On the other hand, even though our index is designed to be biased towards growth, with the reward
component accounting for 60% of the overall score, countries like Indonesia, Vietnam and India
(respectively ranked 7th, 11th and 12th) are not yet in a position to break the mature market (top
six) axis. Weak risk scores and the discrepancy in scores between the higher-ranked markets and the
chasing markets ultimately outweigh the impact of the higher reward scores. Pushing up risk scores would
require improvements in areas like mass grocery retail penetration and regulatory environment.
Among EMs (with the exception of China), Indonesia has been standing out for a number of quarters. The
country benefits from a large and young consumer base and its food and drink market is still highly

fragmented, meaning that there are opportunities for new entrants. Combined with an improving risk score,
on the back of a more business-friendly environment, Indonesia is outperforming other growth-oriented
markets such as India, Vietnam and Pakistan.
China & Japan Lead With Different Profiles

Asia-Pacific Food & Drink Risk/Reward Index - Q415
Source: BMI
Table: Asia Pacific Food & Drink Risk/Reward Index Q415
Food &
Industry Country Industry Country Drink
Reward Reward Reward Risk Risk Risk Score Ranking
Japan 45.0 32.0 58.0 77.1 80.0 74.1 57.8 1
China 58.3 62.0 54.7 57.0 55.0 59.0 57.8 1
Australia 44.2 36.0 52.3 77.7 80.0 75.4 57.6 3
New Zealand 37.3 36.0 38.7 85.0 85.0 85.0 56.4 4
Taiwan 40.3 40.0 40.7 78.1 80.0 76.3 55.5 5
Singapore 35.7 30.0 41.3 81.7 80.0 83.4 54.1 6
Indonesia 60.2 60.0 60.3 44.2 35.0 53.4 53.8 7
South Korea 39.3 38.0 40.7 75.4 80.0 70.9 53.8 8

Asia Pacific Food & Drink Risk/Reward Index Q415 - Continued
Food &
Industry Country Industry Country Drink
Reward Reward Reward Risk Risk Risk Score Ranking
Hong Kong 38.8 40.0 37.7 75.7 75.0 76.3 53.6 9
Thailand 46.7 56.0 37.3 63.0 60.0 66.0 53.2 10
Vietnam 55.0 68.0 42.0 47.2 35.0 59.4 51.9 11
India 59.0 54.0 64.0 38.9 20.0 57.9 51.0 12
Pakistan 62.2 64.0 60.3 30.4 10.0 50.9 49.5 13
Malaysia 38.8 34.0 43.7 64.0 60.0 68.1 48.9 14
Philippines 47.3 38.0 56.7 50.6 40.0 61.3 48.7 15
Scores out of 100, with 100 highest. The Food & Drink Risk/Reward Index is the principal Score. It comprises two sub-
index, 'reward' and 'risk', which have a 60% and 40% weighting respectively. In turn, the 'reward' score comprises
'industry reward' and 'country reward', which have equal weighting and are based upon growth/size of food/alcohol and
soft drinks industry (market) and the broader economic/socio-demographic environment (country). The 'risk' score
comprises 'industry risk' and 'country risk', which both have 20% weightings and are based on a subjective evaluation of
industry regulatory and competitive issues (market) and the industry's broader country risk exposure (country), which is
based on BMI's proprietary Country Risk Index. Source: BMI
The six factors that make up the reward score in our index are: food consumption per capita, market
fragmentation, per capita food consumption (five-year compound annual growth), population size, GDP per
capita, and youth population.
The first indicator, food consumption per capita, reflects the existing spending power of the Japanese
consumer (the country scores 10 out of 10 on this metric), with South Korea, Australia, Singapore, Hong
Kong and Taiwan also achieving high scores. Although these countries show high levels of spending, the
performance of other countries is markedly different, pointing to a clear division between regional peers.
China, for example, scores only 5, indicating scope for income growth. India has the lowest score of 1 while
Pakistan and Vietnam have a score of 2, highlighting even more potential for acceleration despite the
current low reward score.
Our second indicator, market fragmentation, assesses how relatively developed (less fragmented) or
underdeveloped (more fragmented) a market is. Whereas the first indicator confers strong scores for high
existing spending, the second indicator rewards countries where the long-term scope for growth is the
greatest. These are typically markets where there is significant room for growth, innovation and
development. Unsurprisingly, Japan, with a highly developed, saturated mass grocery retail (MGR) sector,
is comfortably outscored by India, China and almost all the EMs rated.

The third indicator within the reward breakdown of our index system is per capita food consumption
growth (five-year compound annual growth). Paired with market fragmentation, this is the joint highest
weighted indicator within our reward score framework. Since our index are designed to be forward-looking,
this indicator is one of the main ways we gauge growth and, in combination with some of the other high-
weight indicators we look at, informs our preferences for certain markets. Despite lower scores than in
previous quarters, countries such as China, India and Vietnam outscore Japan and Australia, demonstrating
the future promise of these Asian markets in challenging Japan's lead. One notable high scorer is South
Korea, which is forecast to increase per capita food consumption at a similar rate to many emerging
markets. Such growth could see the country move higher up the rankings in the near future.
Population size is the fourth indicator, and China and India unsurprisingly score well, as does Japan, with
its population of nearly 130mn. Paired with our fifth indicator, GDP per capita, large populations and
strong spending power have reinforced Japan's continued dominance in our index this quarter. Though
Singapore possesses one of the highest per capita income expenditures and a very good risk score, the
limited size of the market means that the country loses ground on this metric.
The final reward indicator, youth population, was introduced as a way to factor in a more comprehensive
demographic angle to our index. Here, Pakistan, Vietnam and the Philippines stand out, with high scores
rewarding the growth potential associated with young populations and poor scores for Japan and Australia
pointing to the restraints that can be presented by ageing populations. Thailand is also handicapped by its
ageing population.
The seven factors that make up the risk score are: mass grocery retail (MGR) penetration, regulatory
environment, short-term economic risk score, income distribution, lack of bureaucracy, market orientation,
and physical infrastructure.
Our first risk indicator is MGR penetration, which assesses how relatively developed the overall consumer
sector is. Very low MGR scores reflect the ongoing predominance of informal retail, comprised of kiosks
and markets with weak centralised distribution mechanisms. Many of the more mature and developed
markets score well here, including Australia, Singapore and Japan. India, which has very recently initiated
efforts to open up its food retailing sector to multinationals, scores very poorly (1/10). Conversely, China is
much further along in the development of organised retailing channels when compared with other low
scorers such as Vietnam and Malaysia.

The second factor, regulatory environment, evaluates the complexity of regulations such as labelling and
nutrition requirements. It can also be used to gauge the state of the overall business environment. The more
developed and mature markets usually score better here, and that is once again the case in Q415, with
Pakistan, India and Vietnam scoring poorly, highlighting persisting food regulatory hurdles, particularly for
non-domestic producers. Notably, however, China and the Philippines score fairly impressively in this
metric, hinting that future growth will be encouraged by both of these countries' strong regulatory
environments.
The third factor, short-term economic risk score, assesses the degree to which the country approximates
the ideal of non-inflationary growth with falling unemployment, contained fiscal and external deficits and
manageable debt ratios. It is principally the candidates towards the top of our index that do well on this
criterion, underlining the link between economic stability and the overall attractiveness of the consumer
market. Pakistan's position as the lowest scorer across the region points to continued investor concern, with
its score failing to increase over recent quarters. Again, South Korea posts a very favourable score here.
The fourth factor, income distribution, is measured by the proportion of private consumption accounted for
by the middle 60% of earners. Unsurprisingly, countries such as Japan, Singapore and South Korea lead the
pack, though developing markets also score relatively well in this regard.
Lack of bureaucracy, our fifth indicator, is a measure of the hurdles that any producer is likely to face in
areas such as starting and closing businesses, paying taxes, dealing with licences and registering property.
Here India continues to score poorly, with its draconian bureaucracy highlighted in the press regarding
multinational grocery retailers. This is paired with our sixth factor, market orientation, which measures
how business-orientated an economy is and measures the level of foreign direct investment protectionism,
tax rates and the level of government intervention. Another low score for India points to the continued
difficulties facing investors looking to enter this market in particular.
Our final risk factor, physical infrastructure, measures the ease and cost of operating in a market from an
infrastructure perspective. Some of our favourite regional economies have a lot of work to do here, with the
reward profiles of high-growth markets such as China and Indonesia facing poor scores. Paired with factors
such as market orientation, regulatory environment and MGR penetration, countries will have to perform
well here if they are to challenge the continuing index dominance of Japan.

Thailand Risk/Reward Index
Since the last iteration of our Food & Drink Risk/Reward Index for the Asia Pacific region, Thailand has
climbed from the 12th rank to the 10th. While political risk remains relatively high in the country, Thailand
continues to benefit from a balanced risk/reward profile. While growth prospects are not as high as in
Vietnam, India or China, there is still much room for growth compared with more mature markets like
Japan, Australia or Singapore. On the other hand, Thailand offers a solid business environment by regional
standards.
Strong macroeconomic fundamentals, reasonably well-developed physical infrastructure and an openness to

foreign investment appeal strongly to investors, although it should be noted that political risk remains a very
real challenge. Still, Thailand continues to have exciting appeal to foreign investors, with its reasonably
good infrastructure and the immature nature of its food and drink sectors being major draws to consumer
goods players.
As consumers enjoy higher purchasing power over the coming years, this is likely to translate into a
growing appetite for higher-value food and drink products, such as functional beverages, and buoy greater
premiumisation momentum across consumer-facing sectors in Thailand. Although the Phue Thai Party's
programme of implementing a rice-price guarantee for farmers looks likely to be drawing to a close,
minimum wage hikes and higher starting wages for university graduates should help lift the lower and
middle classes up the income ranks.
Industry-specific risks, meanwhile, will continue to hold back Thailand's overall investment appeal. The
alcoholic drinks industry, for instance, remains vulnerable to government excise-raising initiatives and
regulations aimed at curbing alcohol consumption and we continue to stress the importance of geographical
and sector diversification for domestic alcoholic drinks players to hedge against the increasingly regulated
operating environment. Similarly, on the mass grocery retail front, a change in the regulatory environment -
notably a tightening of regulations allowing the opening of large outlets - could make expansion more
difficult.
Nevertheless, we expect Thailand's massive rural population, which is estimated to account for as much as
two-thirds of the total, to be the major beneficiary of the country's healthy economic growth and
development towards a highly skilled and technology-based economy. To capitalise on this growth, retailers
will need to continue investing in new outlets outside of main urban centres, in our view.

Market Overview
Food
Agriculture
Thailand has become one of the world's largest and most advanced producers and exporters of processed
foods. Thailand's major export commodities include fish and seafood (its most profitable export sub-sector),
sugar, rice and grains, fruits and vegetables, as well as livestock including beef, chicken, lamb and pork.
Within Asia, the country is the main exporter of processed food and it is the world's largest exporter of
frozen shrimp and canned pineapples owing to a number of key processors, including Thai Union Frozen
Products.
The government is actively supporting the development of value-added production in the agricultural and
food-processing industries. Its policies and actions aim to increase demand for domestically processed
products and there are high import tariffs on several high-value food and beverage products. Thailand
currently produces far more than its population consumes. While this clearly creates opportunities in the
export market, the government is mindful of the fact that around 60% of the Thai labour force is employed
in the agribusiness sector and thus dependent on its continued success.
Thailand's agricultural sector has been identified by the government as a priority for further development,
owing to the enormous contribution it makes to the country's trade balance. Compared with many regional
markets, Thailand's agricultural industry is fairly developed, meaning that inefficient storage and harvesting
techniques are not major problems. However, the large number of small firms dominating the industry does
inevitably lead to some overlap and a certain degree of inefficient resource allocation. Consolidation of the
sector would boost output, although it would also threaten job security.
Thailand will maintain its status as the key Asian agricultural provider in the coming years. However, the
government's interference in the market, especially in the rice sector, will hinder the competitiveness of
Thailand's production relative to its Asian rivals. Although rice farmers will directly gain from the rice
guarantee buy-back programme, we are uncertain about the long-term effectiveness of these policies in
enhancing food production efficiency or boosting export competitiveness. If the government has indicated
in several instances that it was looking to reform the system, recent protests and political instability have
delayed talks and it is still unclear what the timeframe will be for changes to subsidies.

Dairy
Thailand has a relatively developed milk production industry compared with its regional peers. The sector is
worth more than THB60bn (USD2.1bn) and employs approximately 23,000 farm households. Milk
production has increased significantly since the government expanded the free school milk programme in
2009, though efficiency remains some way behind major producers in the region, such as Australia and
New Zealand.
While we expect the number of dairy cattle - and thus production levels - to increase, we still expect the
number of operators to fall, as smaller producers are unable to compete and leave the sector. The increase in
production will be dependent on improving efficiency of domestic production as the Thai market opens up
to imports from major producers, such as New Zealand and Australia. On the other hand, demand for dairy
products is expected to remain robust, driven by rising incomes and continued interest in functional
products and dairy-based confectionery, such as ice cream.
Local producers are working to improve the quality of domestic products and increase brand awareness
among consumers. This is a response to the anticipated increase in competition from foreign dairy brands
when trade agreements with Australia and New Zealand, which were signed in 2005, come into full effect
during 2015. The agreements will gradually open up the Thai market to duty-free powdered milk imports
from the two countries, among the world's leading dairy exporters. In order to remain competitive in the
face of stiffer competition, the Thai industry will have to keep working to improve efficiency; further
consolidation can be expected. The industry will most likely be able to count on support from the
government, which has launched a free trade agreement fund to assist industries likely to be affected by
increased competition from Australia and New Zealand.
Organic Farming
Thailand's high-potential organic farming industry remains in its infancy, despite a supposed commitment to
added-value processing which dictates a move away from primary, basic commodities to secondary
processed goods. Further development of more basic agricultural processes and primary commodities still
remains a key concern. However, with the government acknowledging the importance of the agricultural
industry as a key economic contributor and with the identification of added-value sub-sectors as key growth
drivers, the organic food industry could soon start to expand. Although the size of Thailand's organic
industry is currently no different from that of many of its regional peers, the country is arguably far better
prepared - in terms of investment and advanced farming techniques - to exploit this opportunity.

Food Processing
Thailand's food-processing industry has expanded rapidly in recent years, in many instances replacing
traditional agricultural production systems. Thailand has become one of the world's leading food producers
and is the largest food exporter in South East Asia. The industry consists of more than 10,000 companies,
most of which are small firms and cottage industries. Only around 15% are medium-to-large enterprises,
although the sector has attracted a number of industry majors including Anglo-Dutch major Unilever and
Switzerland's Nestl, with Japanese companies also showing increased interest.
In terms of processed food trends, Thai consumers are heavily influenced by international consumption
habits and are keen and willing to experiment with international brands and flavours. However, due to this
level of familiarity, the introduction of international products is no longer a means of guaranteeing
customers and achieving growth. Accordingly, food processors are increasingly taking international
products and brands and giving them a local feel through the addition of traditional Thai flavours and
seasonings. This sort of added-value production can be expected to continue, particularly since the trend's
success has not been confined to local operators and has served the interests of multinationals well.
Taiwanese food producer Uni-President Enterprises plans to increase the production capacity of its
existing plants, in Thailand, Indonesia and the Philippines, which mainly produce instant noodles. Although
Taiwan represents a strong prospect for premiumisation growth, its mature nature means there are hardly
any inspiring opportunities remaining in the longer term, stressing the need for overseas expansions. While
China will continue to feature strongly on Uni-President's radar, the company will also pursue expansions
across other regional markets in search of new untapped opportunities. This strategy is particularly
important in view of the rapid emergence of competition in China, which would threaten Uni-President's
market share and erode its competitive positioning. Therefore, it is not surprising that Thailand, Indonesia
and the Philippines have captured its attention.
Trade
According to our estimates, Thailand is the 12th largest global food exporter, the world's second-largest
exporter of sugar, third in both fisheries and rice and fourth in chicken. Trade to Association of Southeast
Asian Nations (ASEAN) countries is growing, while other trade partners, such as the US, have seen share
declining in recent years.
Local food industry associations have worked with the Thai foreign ministry in a bid to improve the
standard of food exports. The global popularity of Thai food is growing, but the country is struggling to

meet the stringent import requirements of the highest-potential markets. Nevertheless, with the US, one of
the world's toughest import regulation markets, now ousting Japan as the leading destination for Thai food
exports, there has never been a more pressing time for Thai producers to overcome the barriers that are
restricting their potential.

Drink
Alcoholic Drinks
The anti-alcohol lobby in Thailand is strong and, despite the value of the industry, government legislation
(such as bans on certain types of advertising) reflects this. Since August 2014, the new government has been
using existing provisions contained in the Alcohol Control Act 2008 to implement a fierce crackdown on
alcohol promotions - including bans on tasting events, happy-hour promotions and oral recommendations of
a particular brand of alcoholic drink. Also, a new law came into effect in January 2015, prohibiting the sale
of alcohol between 2-5pm and then again between midnight and 11am. The only exceptions to the rule are
international airport terminals and legally registered entertainment venues (that already have laws governing
the periods in which they can operate). However, the core substance of the new regulation remains the same
as the earlier legislation it replaces, in that the permissible daily duration for alcohol sales is capped at 10
hours.
The alcoholic beverages sector is dominated by a number of major players. The market leader is spirits
manufacturer Sang Som. The company's subsidiary, Thai Beverage (ThaiBev) the top player in the beer
sector, produces Chang beer, the second-most popular beer in the country after Singha (formerly owned by
Boon Rawd Brewery). Competition in the brewery sector is strong as European breweries, including
Heineken (which has recently bought APB), are trying to take market share from local companies.
Thais are among the highest average per capita consumers of beer in South East Asia and the brewing sector
is one of the most mature and competitive within Thailand's food and beverage industry, with companies
requiring continual investment in marketing and branding initiatives to retain market share. Yet in such a
profitable industry - a result of high domestic consumption and tourism levels - the cost of such business
activities is far offset by their value.
The potential on offer in the Thai beer sector is increasingly capturing the attention of regional brewers.
Japanese brewer Asahi Group Holdings has announced that it intends to extend its operations across Asia
through a series of acquisitions. Thai brewer Singha Corporation clearly has its eyes set on the tremendous
potential on offer in the Indochina region. While Singha has previously been exporting its beer products to
Indochina through local importers and distributors, the brewer now plans to establish sales offices across the
region in a bid to consolidate a stronger presence in these markets. Also, China's Tsingtao Brewery has
expansionary ambitions beyond its home market. The company has reportedly inked a deal with marine
transport and port operator Namyong Group to build a brewery in Thailand's Samut Sakhon province,
which will require a capital investment of around THB5bn (USD162.4mn).

Soft Drinks
The soft drinks industry is dominated by carbonates, with The Coca-Cola Company and PepsiCo
accounting for 90% of carbonates sales. The second-largest market sub-segment is bottled water, although
the most dynamic segment at present is energy drinks. This sector is attracting an increasing number of both
domestic players, including alcoholic drinks major ThaiBev and foreign companies, owing to the high
prices and profit margins available when selling added-value brands of this nature.
Bottled water and other healthier drink options are becoming increasingly popular, with the former
accounting for nearly 15% of the soft drinks market. Hygiene and pollution concerns, heightened during the
SARS outbreak and bird flu epidemic, have accounted for this growth. Bottled water, as well as perceived
healthy drinks such as fruit juices and functional drinks, have also benefited from the global shift towards
health consciousness, which has caused consumers to lower their consumption of carbonates.
Looking to capitalise on this trend, Thai conglomerate Mai Tan has reportedly signed a joint venture
agreement with Singha for the distribution of its Ichitan ready-to-drink green tea products, focusing on
independent retail stores and traditional eatery outlets. Similarly, Aje Thai, the Thai bottler of Big Cola soft
drinks, decided to adjust two of its production lines in the Chonburi province to produce bottled water under
its Cielo brand.
Hot Drinks
The hot drinks market continues to develop in Thailand, having suffered during domestic political problems
and the international financial crisis. While traditional areas, such as black tea, are reaching saturation levels
in volume terms, we expect most opportunities to be found in more innovative sub-segments, such as
flavoured tea or other beverages with added health benefits. The involvement of foreign majors is providing
dynamism in the market, with more consumers demanding novel products, such as pod-based coffee
machines and low-calorie chocolate drinks. Tourism will also continue to be a positive driver of the sector,
as will the expansion of organised retail, including convenience stores.
Key players in the market are the usual multinationals, including Nestl Thailand and Sara Lee Thailand.
Singapore-based Super Coffeemix and local company AB Food & Beverages Thailand (a wholly owned
subsidiary of Associated British Foods) are also major players. With their products supported by strong
marketing and promotions, the four companies command over 50% of the total retail value sales of hot
drinks in Thailand. AB Food & Beverages' portfolio includes the well-known Twinings tea and the malt-
based nutritional drink Ovaltine.

Thailand is also home to smaller local companies. One is Black Ivory Coffee (BIC), which makes its
product with Thai Arabica beans. A microbrewer in Japan has licensed a beer made using BIC's coffee. A
small batch of the beer was launched in Japan in late April 2013. However, Blake Dinkin, BIC's founder,
said this beer was produced without BIC's permission. Dinkin acknowledged that the unauthorised beer may
have helped boost awareness of BIC but that the company would continue to seek a partner that shares its
'artisanal values'.

Mass Grocery Retail
A number of significant structural changes have taken place in the Thai mass grocery retail (MGR) sector
over the past decade. The traditional dominance of small, independent outlets has given way to a
proliferation of shopping malls in urban areas, as well as a rapid increase in the number of hypermarkets
and convenience stores, generally operated by multinational retailers but also by a number of significant
local players. As a consequence, shopping has become a more recreational activity, with increasingly brand-
conscious consumers demanding higher levels of service and quality.
Growth in the MGR sector in recent years has been driven by rising purchasing power among consumers
amid a general economic recovery and improved employment conditions. Convenient shopping and the
wide variety of products on offer attract consumers to modern outlets at the expense of traditional retail
operators. An increase in the number of working women has led to a rising demand for convenient and
easy-to-prepare food products. Eating habits have changed to include a greater variety of imported products.
All of these factors, as well as economic development, have combined to make Thailand's MGR sector
hugely appealing to multinational operators.
The bulk of MGR development initially took place in the capital city of Bangkok. Up until a few years
ago, the city accounted for an estimated 90% of sales of fast-moving consumer goods. Thailand's wealthiest
consumers still tend to reside in major population centres, but these can now be found beyond the capital.
Consequently, MGR has begun to spread nationwide, with rural areas remaining the notable exception.
The majority of Thailand's supermarket and hypermarket operators stock a range of private-label products,
mainly for product categories such as ready-to-eat and ready-to-cook foods, dairy, bakery products, rice,
cereals, sauces, bottled water and juices. Most stores offer additional services, such as fast food outlets,
kiosks, laundry services, florists, bookstores, photographic stores, video rental services and restaurants,
which serve as a means of boosting sales, achieving competitive differentiation and generating customer
loyalty. A particular characteristic of the Thai market is that only a small proportion of supermarket outlets
are standalone stores, with the vast majority appended to department stores. This trait has clearly limited
expansion opportunities, but it is beginning to change, with an increasing number of standalone stores
appearing, particularly outside of major urban centres.
Another key characteristic of Thailand's MGR sector is the strong network of convenience stores. We
estimate that convenience stores accounted for 20.3% of total MGR sales, which is high by regional and
global standards. We believe that this is due to household characteristics - such as high female participation

in the labour force and small household sizes - as well as the presence of strong players in the segment and
existing legislation favouring small stores over large hypermarkets.
Leading Retailers
Of the major multinationals, UK-based Tesco and France's Casino are present in the hypermarket sector,
making it a highly competitive industry. All of the major players are interested in expanding their store
networks and improving market share. Casino went on to quickly transform all of its newly acquired outlets
to Big C and Big C Extra stores and announced plans to open another 50 hypermarkets in 2012 to
strengthen its market foothold. At around the same time, Tesco Lotus introduced its Extra lifestyle
hypermarket store concept to Thailand, which offers a wider range of both food and non-food products. Due
to the outperformance of the convenience segment, Tesco and Big C are rapidly expanding their
convenience store networks.
Within the convenience sector, these multinationals are joined by the subsidiaries of two leading Japanese
convenience operators, FamilyMart and its local operation Siam FamilyMart, and 7-Eleven, via its Thai
franchise CP 7-Eleven, which has changed its name to CP All.
Looking to exploit the recovery of consumer demand, Siam FamilyMart is accelerating its pace of
expansion. The retailer stands to benefit enormously from its parent's need to diversify away from the
mature Japanese market. The group has targeted a network of 3,000 stores to be open by 2017, up from
around 1,000 now. Familiar with intense market competition, Japanese retailers have been at the forefront
of sector innovation. The local subsidiary can look to learn from its parent and introduce more of these
concepts to Thailand, thus driving and benefiting from convenience retail premiumisation.
Table: Mass Grocery Retail Sales By Format (Thailand 2006-2015)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f
Supermarket sales, USDbn 4.1 4.6 4.9 4.8 5.4 5.8 5.9 6.1 5.9 5.7
Hypermarket sales, USDbn 13.9 15.6 16.4 15.8 17.8 18.9 19.3 19.6 18.8 18.1
Convenience store sales, USDbn 3.5 4.1 4.6 4.7 5.1 5.7 6.1 6.4 6.3 6.3
Total mass grocery retail sales, USDbn 21.5 24.4 26.0 25.3 28.3 30.5 31.3 32.2 31.0 30.1
Source: National Sources/BMI

Table: Mass Grocery Retail Sales By Format (Thailand 2006-2015)
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f
Supermarket sales, THBbn 155.3 159.5 164.9 166.4 172.6 178.0 183.5 188.3 192.2 197.6
Hypermarket sales, THBbn 526.0 540.1 547.8 541.3 565.0 577.5 600.4 603.4 610.6 624.7
Convenience store sales, THBbn 132.3 141.8 153.2 160.0 161.3 174.5 188.3 196.2 204.7 215.9
Total mass grocery retail sales, THBbn 813.6 841.3 865.8 867.6 898.9 930.1 972.2 987.9 1,007.5 1,038.2
Source: National Sources/BMI

Industry Trends And Developments

Food
Sugar Output Boosted By Changes In Agricultural Policy
Thailand's ongoing agricultural restructuring programme will boost sugar production in the upcoming
2015/16 season. The government is in the process of changing part of its support to agricultural production
in order to incentivise rice farmers to switch to the cultivation of other crops, mainly sugarcane. The
military government decided to drop the Rice Pledging Scheme in 2014, which led to an increase in
domestic rice prices and a ramp up in production. It is now looking to address the country's rice oversupply
by reducing the area cultivated with rice. The Committee on Rice Policy and Management agreed on a five-
year Rice Cultivation Restructuring Programme (2015-2019) with a proposed budget of THB50bn
(USD1.5bn) to reduce rice planted area and increase sugarcane area. The Committee expects rice plantings
to be cut by 112,000 hectares (ha) by 2017/18, which compares with the 10.9mn ha harvested in 2013/14.
This policy change will incentivise sugarcane plantings in the upcoming 2015/16 season, in spite of
a decrease in returns from cane farming amidst a low sugar price environment. In order to keep cane
plantings relatively attractive, the government also maintained its 2014/15 price support at the same level
as in 2013/14 (THB900/tonne, or around USD28/tonne), despite sugar prices having decreased significantly
over the year. Farmers have also asked for further financial support due to low prices, requesting a direct
payment of THB160/tonne.
BMI's Agribusiness Team has therefore revised up its estimate for sugar production in 2015/16 and now
sees output growing by a strong 3.9% year-on-year (y-o-y) to 11.0mn tonnes, compared with a previous
estimate of 10.8mn tonnes. A return to normal weather conditions following dry weather recorded over
2014 will also help yields recover in 2015/16. Sugar extraction rates could recover to 107kg/tonne of cane
in 2015/16, compared with 106kg/tonne in 2014/15. Sugar production declined by 5.8% to 10.6mn tonnes in
2014/15, for which the harvest came to an end in April.
The military government, which replaced the previous government in 2014, looks willing to liberalise the
sugar sector by removing the strict control on sugar wholesale and retail prices. However, cane farmers are
worried that the government might also scrap the production support programme and oppose reform.
Therefore, low sugar prices and the risk of discontent among farmers are likely to delay the government's
plan to reform the sector. Support to production will therefore continue in the coming years; coupled with
the plan to make rice producers switch to sugarcane, this may lead to oversupply in the Thai sugar market.

Charoen Pokphand Aims High Despite Disappointing Q414 Results
Thailand's largest integrated agri-industrial company, Charoen Pokphand Foods (CPF), issued a statement
in February 2015 saying that it would be aiming for a minimum 10% sales growth for the year and that it
expected international operations (which accounted for 58% of CPF's 2014 revenue) to grow by an average
of 15% per year to 2020. The first target in that expansionary focus will be the acquisition of the 75% of CP
Cambodia that CPF does not already own.
The announcement came following a disappointing fourth quarter report that saw the company's net profit
fall by more than 54% when compared to the same quarter in the previous year. CPF's shrimp unit is still
struggling to recover, posting an operating loss of some THB923mn during the quarter. Analysts at
Bualuang Securities also highlighted deep losses in Turkey and Russia when lowering their 2015 earnings
forecasts for CPF by 18%, reported Undercurrent News.
Overseas Acquisitions To Drive Thai Union's Growth
Already the world's largest producer of canned tuna, Thai Union Frozen Products is continuing with its
aggressive international expansion plans. Its aim is to double revenue through its overseas acquisitions, the
latest of which will be North America's Bumble Bee Foods. With a one-year bridging loan from two banks,
Thai Union will pay USD1.5bn to secure the purchase of Bumble Bee with brands that include Brunswick
and Sweet Sue. The company expects to have completed the deal by the end of 2015.
The Bumble Bee Foods acquisition follows Thai Union's purchase of MerAlliance in September 2014.
MerAlliance owns the UK-based Edinburgh Salmon Company, which has three processing plants: one
each in France, the UK and Poland. Another major acquisition made by the company in 2014 was that of
Norwegian seafood firm King Oscar, which posted 2013 sales of USD80mn.
Thai Union's Q414 net profit of THB699mn represented a year-on-year fall of 14%, despite strong sales that
pushed 2014 revenue up to an annual record of THB121bn, Reuters reported. The company blamed this
performance on foreign exchange losses in its overseas markets, which in the fourth quarter alone accounted
for THB244mn.
Despite this, Thai Union's president, Thiraphong Chansiri, has stated that the company will continue to
grow its business during 2015, primarily through mergers and acquisitions, but also through innovation.
Chansiri was reported in the Bangkok Post in November 2014 urging the government to increase the speed

with which it reduces obstacles to business competitiveness. This, he said, was particularly important in
light of the impact that weak Chinese and European economies would have on the global economy in 2015.
Bowman Ingredients Opens New Company
It was widely reported in June 2014 that UK-based food coatings specialist Bowman Ingredients had
opened a new company in Thailand as part of its global expansion strategy. The new company, Bowman
Ingredients Thailand, was formed as part of a joint venture (JV) with a Bangkok-based food coatings firm.
The new company will supply breadcrumbs, batter mixes and dry mix marinades for the value-added food
market across South East Asia, including Thailand, Indonesia, Malaysia, the Philippines and Singapore.
'The value-added food market across South East Asia has recently seen growth of more than 10% y-o-y,
with further expansion predicted,' said sales director Richard Easey, as reported by FoodBev.
Potential In Asia Cocoa Sector
Interest in Asia's cocoa and chocolate sectors is rising, with many local and international players entering
cocoa grindings and chocolate-making businesses in the region. These sectors hold a promising future, as
they will benefit from strong demand for chocolate confectionery in Asia in the coming years. Although
there is no traditional culture of eating chocolate in the region, consumption has been growing in recent
years in some countries, driven by increasing purchasing power and the Westernisation of diets.
Attracted by these enticing consumption trends, cocoa grinders are investing heavily across Asia, especially
in Malaysia and Indonesia. Although modest, growth in Indonesian cocoa production in the 2000s, along
with the implementation in 2009 of an ambitious public programme to boost output, made grinders believe
they could count on a stable supply of beans from Indonesia. As a result, although Europe remains by far
the largest grinding region (holding a 39% market share in 2013), global cocoa grinding capacity is
currently shifting to Asia. Grindings have grown at the fastest pace globally over the past five years, slowly
eating into Europe's market share. Asia now accounts for 21% of global grindings, compared with 18% a
decade ago.
Some emerging countries, including Vietnam and Thailand, mainly import cocoa powder due to their lack
of processing plants. This corresponds well to the taste of consumers in emerging countries, who usually
prefer milder chocolate products based on cocoa powder (cakes, biscuits and drinks) rather than cocoa
butter-based products, which tend to be stronger (such as chocolate bars and ice cream).

Food Chains Look To Expand Businesses
Burger King Thailand, a unit of US-based fast food company Burger King, aimed to double its
investment in 2014, shifting its focus to local customers in order to cut down on business risk. The company
planned to open about 10 new outlets in 2014. Five branches would be located in key tourist destinations.
Meanwhile, coffee and restaurant chain Black Canyon Thailand was optimistic that its performance would
improve in H214 and planned to open about 20 new restaurants in Thailand in 2014. The company said:
'The business was not as good as expected in the first quarter of this year due to the prolonged political
problems.'
Asia's Dairy Supply Deficit: Attractive Opportunities
Domestic and foreign interest in China's dairy industry has expanded rapidly in recent years, leading to
large investments in capacity and efforts to tap the import market. As a result, all eyes have now turned to
the next driver of dairy consumption growth, South East Asia.
Emerging countries in Asia, with the exception of China and India, do not have a long tradition of
producing milk. Domestic milk production in South East Asian countries covers only 5-30% of their
consumption needs. As a result, many Asian countries have grown largely dependent on milk powder
imports. Many dairy deficit countries have a governmental policy to expand their milk production and have
ramped up direct support to the sector via dairy genetics improvement programmes. We forecast double-
digit growth in liquid milk production from 2013/14 to 2018/19 for all Asian countries, with the exception
of Japan.
However, production expansion will fail to keep up with robust demand growth. Production in Asia is
hindered by a number of factors. The natural resources for making milk are not ideal in Asia. For milk
production, optimal conditions are an abundance of feed, land, water (it takes input of 10-15 litres of water
to make one litre of milk) and a moderate climate. The low availability of domestic feed grains, meaning a
reliance on imports, usually makes production costs higher in Asia than in Oceania or Europe. In China,
production growth will also be constrained by stricter government standards aimed at improving milk
quality. Although a number of large dairy projects are coming online, smaller producers are leaving in large
numbers as they are unable to comply with the new standards.
Meanwhile, consumption of dairy products will record unprecedented growth over the medium term. The
Asian region presents interesting characteristics supporting growing dairy consumption: high birth rates and

young populations, rising incomes and the emergence of a middle class, improving diets, urbanisation and
country-wide school milk programmes.
Overall, Asian countries mainly consume fresh milk produced locally. However, consumers are slowly
turning to more value-added products. In Vietnam, for example, the consumption of ultra-high temperature
(UHT) or sterilised liquid milk has a 90% penetration in cities and 70% penetration in rural areas, while
infant milk powder has a 43% penetration in cities and 30% in rural areas, according to a consumer panel in
2012 by Kantar Worldpanel. For functional dairy products (ie, products that provide health benefits
beyond their inherent nutritional value, such as probiotics, in the case of drinking yoghurt or milk),
penetration drops to less than 20% in cities and below 5% in rural areas. In urban areas, the fastest retail
growth area in terms of both volume and value is coming from infant milk powder and functional products.
In rural areas, consumption of most dairy products is blossoming, with infant milk powder, UHT liquid milk
and yoghurts recording the most robust growth.
Given the attractive features of the South East Asian market, the investment and mergers and acquisition
rush seen in India and China's dairy sectors could be repeated in these countries. However, most investment
is likely to be concentrated in the manufacturing sector, rather than in the upstream segment, due to the
limited milk production potential in these countries.

Drink
Malee Sampran Reports On 2014
In its 2014 annual report, Thai-based fruit and soft drinks manufacturer Malee Sampran announced a net
profit of THB307mn, representing a year-on-year (y-o-y) increase of 7%. The company has a 23% share of
Thailand's premium fruit juice market and a 52% share of the domestic canned fruit market. However, due
to difficult operating conditions during the political unrest seen in the country over the last year, Malee
focused more of its efforts onto its export markets. The company exports to 25 countries, including China
and Pakistan, and saw the proportion of its revenue from exports increase by 26% y-o-y to reach 22% of
total revenue.
In August 2014, the company bought the remaining 50% share of its joint venture (JV) company Prime
Agrico and changed its name to Malee Harvest Co, making it a 100% owned subsidiary company. The
year also saw its subsidiary company Malee Enterprise move to larger warehouses to make provision for
future business growth, improve warehouse management system efficiency and reduce transportation costs.
ThaiBev Looks To Strengthen Soft Drinks Performance
Thai Beverage (ThaiBev) announced in February 2015 that it is setting aside THB3bn across 2015-2020 to
launch and develop the 100Plus functional drink brand in Thailand, according to reports in the Bangkok
Post. 100Plus has been popular in Malaysia and many other neighbouring countries for a number of years
and ThaiBev anticipates that the investment will generate THB15bn in sales over the same period. ThaiBev
has assigned subsidiary Thai Drinks to handle the marketing and brand building. The company expects that
sales of 100Plus will be a major contributor to its aim of boosting Thai Drinks' non-alcoholic drinks sales
from THB30bn in 2014 to THB150bn by 2020.
The announcement follows ThaiBev's declaration in November 2014 that it was seeking to acquire the 'est'
soft drinks brand from Sermsuk Public Company Limited. ThaiBev considered the proposed acquisition
(which would be paid for over a period of three years) to be in line with the company's 'Vision 2020'
strategy, which includes a strategic imperative to develop core brands with the greatest growth potential in
South East Asia. Improving its sales of non-alcoholic drinks is important to ThaiBev and the company
hopes that these measures, together with the 2015 launch of the 'est' brand in Malaysia, will stem losses and
eventually lead to a positive bottom-line contribution from the segment.

Overall, ThaiBev posted strong results in 2014 following an impressive performance, with sales increasing
4.0% year-on-year to reach THB162bn, buoyed strongly by its alcoholic drinks exports sales.
Singha Launches First Cider Brand
In October 2014, Singha Corporation launched its first new alcoholic drink line in eight years with the
announcement of the Syder Bay brand, a range of low-alcohol, fruit-flavoured ciders. Syder Bay has an
alcohol content of just 3.5% and was launched with three initial flavours: Pop (apple), Reggae (peach) and
Jazz (red berry). Singha has developed the brand in response to global trends towards lower alcohol content
drinks resulting from rising concerns about the effects of alcohol consumption on health. Singha's
marketing director, Chatchai Wiratyosin, told the Nation: 'We expect Syder Bay to become the number one
brand in the local market for cider-based cocktail beverages within the next two years.' The company
expects to produce 20mn litres of Syder Bay in 2015, with a sales value of THB1.8bn.
Coca-Cola Pushes Into Thailand's Non-Carbonates Market
In August 2013, the Thai beverage unit of global drinks behemoth The Coca-Cola Company strengthened
its presence in the non-carbonates soft drink segment - exploring the ongoing opportunity for non-carbonate
growth - with the launch of its new herbal tea, Habu. This is indicative of the increasing demand for ready-
to-drink (RTD) products, driven by changing tastes and increasing health consciousness in the soft drinks
market.
According to ThaiNamthip Co, the local bottler of Coca-Cola, Fanta and Sprite products, the market value
of RTD herbal beverages in Thailand is worth roughly THB21bn, with annual growth rates of 25% over the
last three years. Demonstrating industry leaders' confidence in the non-carbonates segment's growth
potential, the firm has committed THB800mn to strengthen non-carbonate offerings, anticipating 10-15%
annual growth in this sector over the medium term.
Coca-Cola's non-carbonate unit currently holds 20% of Thailand's non-alcoholic RTD market. With an
existing strong presence across the non-carbonates segment, including Minute Maid fruit juices and bottled
water products, investment beyond the core carbonates segment is a trend we expect to gain momentum in
Thailand moving forward. Diversification beyond carbonated products also reflects the firm's international
efforts as carbonates sales continue to plateau in developed markets, while worldwide non-carbonated
volumes grew 6% in the second quarter of 2013, reflecting increased investment in recent years.

Sermsuk Ends PepsiCo Deal, Launches First Cola Drink
In November 2012, Thailand beverage company Sermsuk announced the launch of its first cola drink,
according to reports in the Bangkok Post. The company, which had terminated its long-running agreement
with PepsiCo, expected to register sales of THB8bn (USD260mn) from carbonated drinks in 2013. The new
product, 'est', will eventually be available in a variety of flavours, including lemon and lime. The company
intends to invest THB1.2bn (USD39mn) in the promotion of est. Sermsuk's president, Dhitivute Somchai,
said he expected the company to become the market leader in the Thai cola sector by 2015.
Nevertheless, Pepsi reaffirmed its commitment to Thailand by announcing THB18.4bn (USD600mn)-worth

of investment in two new production plants by 2015, bringing its investment in the country since 2000 to
over USD2.9bn. One of the facilities, which was constructed at Rayong at a cost of USD170mn,
commenced production on November 2 2012, just a day after PepsiCo's 59-year contract with Sermsuk
expired. PepsiCo intends to use the new factory to manufacture carbonated drinks in both aluminium cans
and plastic bottles, although it will not produce returnable glass bottles as they are being phased out by the
company.
Pepsi, which became the best-selling soft drink brand in Thailand after entering the market in 1952, has said
it plans to continue operating in Thailand 'for many generations to come'. Indeed, in August 2013, Pepsi
struck a sponsorship deal for the Asia Pacific region with football club Manchester United. The deal
provides Pepsi additional exposure in Thailand, Cambodia, Singapore, Malaysia, Myanmar, Laos and
Brunei.
However, the company has suffered profit losses in Thailand following the market entry of Sermsuk.
According to a spokesperson for the firm, its products have been 'pushed off the shelves of Thailand's
retailers' since its previous bottling partner launched est. The new drinks group, owned by local billionaire
Chareon Sirivadhanabhakdi, has already gained 19% of the country's cola sector since its introduction,
generating an estimated USD1.8bn in sales. PepsiCo suffered a significant decline in its Thailand
operations, dropping from a 48% market share in 2011 to 34% in 2012.
Global Brewers Targeting Thailand Through Joint Ventures
In October 2012, Danish brewing giant Carlsberg established a joint venture (JV) with Thai brewer Singha.
The new venture will promote Carlsberg's premium brands in Thailand, such as Kronenbourg 1664 and
Tuborg, while Carlsberg will sell Singha's beer outside of Thailand, with a focus on Europe. The move

suggests that Carlsberg finally feels ready to look at expanding its Asian business, which was made a low
priority as the firm wrestled to contend with declining sales in Russia.
Emerging market exposure is hugely important to beer companies. However, companies must refrain from
spreading themselves too thinly. This is especially true when a firm no longer has the chance to be a first
mover and is up against larger rivals in terms of market capitalisation and annual sales, as is the case with
Carlsberg. Recently, Carlsberg admitted that it had no plans to enter either Africa or Latin America, leaving
the firm's emerging market ambitions centred on Europe and Asia.
Carlsberg previously had a JV in Thailand with Chang Beverages, now part of ThaiBev. The venture was
set up in 2000 with the aim of becoming a significant brewing entity across Asia and saw Carlsberg inject
all of its Asian activities into the company. However, the JV later fell apart, with Carlsberg claiming that
Chang had not carried out its duties regarding the company. It was fully dissolved in 2005. The settlement
saw Carlsberg pay Chang USD120mn to buy out the firm from certain parts of the deal, including its 49%
interest in Carlsberg Brewery Hong Kong and 25% of Lao Brewery.
The deal left Carlsberg's Asian ambitions significantly reduced and was arguably responsible for the firm
shifting its attentions to Eastern Europe, with Carlsberg forking out a hefty sum to acquire the Baltika
business in Russia in 2008. This business has since been hard hit by a crackdown on alcohol consumption
and Carlsberg's reliance on Russia means that changes in tax legislation here have a huge influence on its
share price, which has been particularly volatile in recent years. Although Asia accounts for about 12% of
its annual sales, it has not been able to lean on still-strong growth across most of these markets post-2008 in
the way that some of its rivals have.

Mass Grocery Retail
Lawson Continues Its ASEAN Expansion
Since its formation in November 2012 as a joint venture (JV) in Thailand with Saha Group and Mitsubishi
Company (Thailand) Ltd, Japan based Lawson Inc has opened thirty-five 'Lawson 108' stores across the
country. The fascia is a combination of Saha Group's original '108 SHOP' and the Lawson brand name and
is part of the latter's plans to target Thai growth potential as it looks to increase its Association of Southeast
Asian Nations (ASEAN) footprint. By the end of 2014, Lawson had more than 12,000 outlets in Japan, 517
in China, 48 in Indonesia, and three outlets in Hawaii.
On March 30 2015, following the formation of JV with Philippines based Puregold Price Club, Lawson
opened the first of 50 stores it plans for the Philippines by the end of the year. Looking ahead, the
Philippines' JV anticipates opening a total of 500 stores across the country by 2020.
Central Group Announces 2015 Investment Plans
Thailand-based retailer Central Group announced in February 2015 that it planned to invest THB37bn
(USD1.14bn) over the year. The company told Reuters that it planned to accelerate revenue growth to 15%
this year (to circa THB287bn), compared with the 6.6% growth rate achieved in 2014. The company aims to
open 300 new food stores in Thailand under its supermarket and convenience store banners and nine new
hotels, both at home and overseas. Six new shopping malls are also included in the company's expansion
plans, most of which will be built in areas that border Thailand's neighbours, to take advantage of cross-
border trade.
In August 2014, Central Group announced that it was introducing a number of new store formats/fascias in
its retail business. The Bangkok Post reported Tops' president, Alistair Taylor, as saying that the adjustment
would cost THB1bn, covering all supermarket formats, and that the Tops Super format would be phased
out. A new discount format, Tops Superkhoom, would be introduced in densely populated areas and there
would also be a Tops Superkhoom Wholesale fascia. The Tops Market fascia will be retained for areas with
high-income residents and these stores will provide more premium products. Of the company's existing
stores, nine Tops Supermarket stores will be upgraded to Tops Market and 23 changed to Tops
Superkhoom. At the end of the makeover, the company's fascias would total eight variants: Tops Market,
Tops Supermarket, Tops Daily, Tops Superkhoom, Tops Superkhoom Wholesale, Tops Superstore, Central
Food Store and EaThai.

At the same time, the company announced the launch of the first of its Tops Superstore outlets at Central
Plaza, Salaya. This new format is expected to generate revenue of about THB100mn per month and is based
on a retail area of 4,500sq m. The Central Plaza Tops Superstore is the result of a THB120mn investment
and will be followed by the opening of two or three stores of the new format each year from April 2015
onwards.
Tesco Approached With Offer To Buy Tesco Lotus
Tesco was recently faced with a dilemma when Dhanin Chearavanont, Thailand's richest businessman and
controlling owner of Siam Makro, offered a multi-billion pound deal to acquire its Tesco Lotus stores. The
retail giant rejected the offer, Reuters reported in February 2015, although Mr Chearavanont was thought to
be considering a further bid.
Tesco Lotus has thrived in Thailand's high-growth MGR market and its 1,700+ stores highlight that this has
been one of the parent company's most successful overseas ventures. However, with the company's
domestic problems showing no immediate signs of abating, a new offer for Tesco Lotus (which is valued in
the region of GBP6.6bn) may see it sacrificed for the cash.

Competitive Landscape
Table: Key Players In Thailand's Food Sector
Sales
(THBmn,
unless Sales
Company Sub-Sector stated) (USDmn) Fiscal Year End Employees Est.
Charoen Pokphand Foods Food: meat: fish,
Plc ready meals 426,039 12,625 December 2014 24,000 1978
Thai Union Frozen
Products Food: fish 121,400 3,700 December 2014 13,000 1988
Food and
beverages: hot CHF18,272
Nestl Thailand drinks, chocolate mn* 19,349 December 2014 3,000 1968
Food and
beverages: EUR19,703
Unilever Thailand processed foods mn** 26,175 December 2014 1,700 1931
Food
and beverages:
PepsiCo processed foods na 6,727*** December 2014 10,000 1984
Food: frozen
Asian Seafoods seafood 7,779 230.5 December 2014 6,200 1964
Thai President Foods Plc Food: noodles 11,692 361 December 2014 3,824 1972
Pakfood Public Co Ltd Food: fish 6,960 222 December 2011 595 1972
Food and
F&N Dairies Thailand beverages: dairy 10,000e 304e December 2013 na na
Food: noodles,
Oishi Group bread 12,404 382.7 December 2014 4,808 na
Surapon Foods Public Co Food: frozen
Ltd foods, fish 4,981 153.6 December 2014 4,422 1977
Tropical Canning (Thailand)
Plc Food: fish 5,490 169.3 December 2014 2,232 na
Food: bakery
President Bakery products 6,853 211.5 December 2014 2,977 1982
Kiang Huat Seagull Trading
Frozen Food Food: fish 2,790 82.7 December 2014 3,720 na
Siam Food Products Plc Food: canned fruit 3,482 107.4 December 2014 2,618 1970
e = estimate, na = not available; *sales for Oceania and Africa; **sales for Asia and Africa; *** sales for Asia, Middle East &
Africa (AMEA). Source: BMI, investor relations, trade press

Table: Key Players In Thailand's Drink Sector
Sales (THBmn, Sales

Company Sub-Sector unless stated) (USDmn) Fiscal Year End Employees Est.
Beverages:
Thai Beverages Plc alcoholic 162,040 4,996 December 2014 23,000 2003
Food and
beverages: hot
drinks,
Nestl Thailand chocolate CHF18,272mn* 19,349 December 2014 3,000 1968
Food
and beverages
: processed
Unilever Thailand foods EUR19,703mn** 26,175 December 2014 1,700 1931
Beverages:
Sermsuk (ThaiBev) soft drinks 10,385 320.5 December 2014 9,527 1953
Beverages:
PepsiCo soft drinks na 6,727*** December 2014 10,000 1984
Beverages:
Coca-Cola Thailand soft drinks na 5,746 December 2014 9,000 1949
Beverages:
Singha Corporation alcoholic 17,066e 550e December 2012 2,000 1933
Food and
beverages:
F&N Dairies Thailand dairy 10,000e 304e December 2013 na na
Thai Asia Pacific Brewery Beverages:
(APB) alcoholic EUR2,088mn 2,283 December 2014 8,000 1993
Beverages:
Tipco Foods Public Co aoft drinks 5,508 169.9 December 2014 1,098 1976
Beverages:
Malee Sampran soft drinks 4,767 147.1 December 2014 1,440 1964
Beverages:
sparking
Haad Thip Pcl drinks 5,249 155.5 December 2014 1,489 1969
e = estimate, na = not available; *sales for Oceania and Africa; **sales for Asia and Africa; *** sales for Asia, Middle East &
Africa (AMEA); Asia Pacific. Source: BMI, investor relations, trade press

Table: Key Players In Thailand's Mass Grocery Retail Sector
Sales
(THBmn,
Country unless Sales, Fiscal Year No Of
Parent Company Of Origin stated) USDmn End Fascia Format Outlets Est.
CP All (previously
CP 7-Eleven Co Thailand/ December Convenience
Ltd) Japan 357,766 11,033 2014 7-Eleven Store 8,000 1988
UK/ February
Tesco Lotus Thailand GBP3,615mn 5,881 2015 - - 1,439 1998
- - - - - Tesco Lotus Hypermarket 350 -
Tesco Lotus
- - - - - Value Hypermarket 149 -
Tesco Lotus Convenience
- - - - - Express Store 740 -
Tesco Talad
- - - - - Lotus Supermarket 200 -
Siam Makro Plc Thailand/ December Cash-and-
(CP Group) Japan 141,828 3,757 2014 Makro carry 82 1988
Siam Cash-and-
- - - - - Frozen carry 5 -
France/ December Big C
Casino Group Thailand EUR3,513mn* 3,912 2014 Supercenter - 465 1993
- - - - - Big C Hypermarket 105 -
- - - - - Big C Extra Hypermarket 15 -
Big C
- - - - - Jumbo Hypermarket 2 -
Big C
- - - - - Market Supermarket 31 -
Convenience
- - - - - Mini Big C Store 312 -
Tops Super,
Tops
Central Food December Market,
Retail*** Thailand 250,000 7,408 2014 Tops Daily Supermarket 108 1996
Tops
- - - - - Superstore Supermarket 1 -
Tops
- - - - - Superkoom Supermarket 12 -
Tops
Superkoom Cash and
- - - - - Wholesale Carry 4 -
Central
- - - - - Food Hall Supermarket 5 -
Siam FamilyMart Japan/ February Convenience
(FamilyMart**) Thailand JPY41,080mn 346 2014 FamilyMart Store 1,096 1993

Key Players In Thailand's Mass Grocery Retail Sector - Continued
Sales
(THBmn,
Country unless Sales, Fiscal Year No Of
Parent Company Of Origin stated) USDmn End Fascia Format Outlets Est.
Siam-Jusco Co Japan/ JPY209,217m February
Ltd (Aeon Group) Thailand n 1,683 2015 - - 100 -
- - - - - MaxValu Supermarket 61 1985
MaxValu Mini-
- - - - - Tanjai supermarket 39 2009
e = estimate; *Asia sales; **overseas segment sales; ***group sales; figure does not include Pure by Big C fascia
(134 health and beauty outlets); ASEAN segment sales. Source: BMI, investor relations, trade press

Company Profile
Chokchai Group
SWOT Analysis
Strengths
A diversified core products portfolio provides an extensive reach into the Thai
consumer market.

Chokchai has managed to strengthen brand recognition through its dairy parlours,
which should facilitate expansion into the dairy sector.

The integration of its dairy chain should allow Chokchai to lift production efficiencies
and produce cost savings.

Facilities compliant with good manufacturing practices allow for export-based
strategies.
Weaknesses
Bird flu scares and other regional food-hygiene and health issues have eroded
profitability across the food processing industry.

Over-reliance on the Thai food and drink sector leaves it particularly exposed to
domestic demand fluctuations.

The nature of Chokchai's product offerings leaves it vulnerable to commodity price
volatility.
Opportunities
Added-value production represents an excellent means to boost sales and profits
both domestically and, more importantly, on the export market.

A rapidly expanding middle class should serve to buoy the demand for Chokchai's
processed food products.

Potential for export expansions in high-growth regional markets could lend
considerable dynamism to Chokchai's revenue growth.
Threats
Intense competition from Thailand's leading agribusiness company, Charoen
Pokphand Foods, may lead to an erosion of its existing market share.

Competition in the sector will increase in the face of the rising investments by the
company's rivals, such as Danone and Nestl.


Negative economic headwinds threatening to depress consumer spending.

Volatile feed and raw material costs threaten to undermine Chokchai's profitability.
Company Overview Chokchai is one of the leading Thai agro-industrial groups. In late 2006, Chokchai
decided to add ice cream parlours and burger chains to its existing steak house fast
food business in a bid to further diversify its revenue streams. Demand for the
company's Umm!..Milk dairy parlours has since been particularly strong. The group has
widened its interest outside the agricultural sector to create six additional companies
covering fields including tourism, hospitality, retailing, production, catering and
consulting, although dairy remains its main business.
Strategy Chokchai divides its business into two groups, with one side operating within dairy and
the other in animal feed. These two groups operate seven separate companies,
focusing on both the core areas of business, as well as restaurants, tourism and real
estate.
In 2008, Chokchai announced plans to invest USD3.2mn in turning its existing dairy
production facility into a fully integrated dairy farm. Although minor in comparison with
the investments being made in Thailand by multinational dairy majors, Chokchai's move
was notable in terms of its wider strategy. The company planned to use increased
output not only to boost dairy sales but also to facilitate expansion of its increasingly
premium fast food business. Chokchai now processes 100% of its output, primarily in
the form of pasteurised milk, yoghurts and ice creams, in facilities compliant with good
manufacturing practices.
Chokchai is likely to continue expanding its Umm!..Milk outlets in the country and is
considering how best to expand in other countries (following interest being shown from
investors in Singapore, Malaysia and Vietnam). This makes sense given that the brand
in general contributes substantially to Chokchai's overall revenues. The Bangkok Post
reported that the company intended to use the 'Model 25' concept for Umm!..Milk
franchises, selling the right to operate 25 dairy shops per contract rather than one
branch per contract - investment to operate 25 branches is projected at THB30-40mn.
In August 2014, the company opened its new office at the Chokchai dairy farm and
reported that, following 2013 revenue of THB2bn, it was expecting 5% year-on-year
revenue growth for 2014. Of this total, approximately 35% comes from agribusiness
and tourism and 30% from food and retail. In an interview with the Bangkok Post,
Phuwanat Bangpan, Executive Vice-President for Retail and Marketing, said: 'Our

Chokchai farm business has average annual [revenue] growth of 5%. We're happy with
this even though that's just half the figure of the past 10 years.'
Financial Data For financial year ending (BMI estimates):
2013 sales: TBH2.0bn


Charoen Pokphand Foods
Company Overview
Charoen Pokphand Foods (CPF) is the largest integrated agri-industrial company in Thailand and is
47.9% owned by Thailand-based agribusiness conglomerate CP Group. CPF boasts a well-established
value chain in the areas of livestock (poultry and pork) and aquaculture. Its operations include upstream
activities (feed, which is used for internal operations and sold) and downstream businesses via the Five Star
Marketing and CP Fresh Mart retail brands. Although 60% of CPF's revenues are from the local market,
the company also has operations in animal feed, farming and meat processing in nine countries in Asia and
Europe.
SWOT Analysis
Strengths
CPF possesses a strongly integrated and well-diversified value chain.
The company boasts advanced integrated farming technologies and its production standards meet most
international quality and safety requirements.
Weaknesses
The company remains vulnerable to cyclical product prices, as poultry and swine production life cycles
are short and volatile.
CPF is vulnerable to Thailand's government control on prices, where food prices are a sensitive policy
issue. A strong anti-inflationary macro policy could limit the rise of livestock prices.
Opportunities
A strong presence and further expansion projects in developing countries, especially in Asia (China,
Vietnam, Laos, etc), will help CPF to benefit from fast-growing emerging markets.
Lifting of the EU and Japanese ban on Thai raw chicken exports in 2012 and 2013 respectively could
ramp up export sales, as Japan and the EU are the two largest markets for poultry exports.
The company is moving towards processed food activities (which currently account for 12% of revenue),
which is likely to help stabilise margins as the farm business is usually more volatile.

Threats
Although CPF boasts a good track record regarding disease outbreaks, it is still vulnerable to epidemics.
More specifically, a disease outbreak in the industry could hamper CPF's feed business.
A change in food safety and quality regulation imposed by importing countries may hamper earnings
growth.
Challenging Year Ahead

CPF - Revenue Growth, % y-o-y (LHS) & Income, THBbn (RHS)
Source: CPF
Core View
We remain cautious on the outlook for CPF's performance over 2015 and 2016. The ongoing
oversupply in Thailand's poultry sector is unlikely to abate in the coming quarters, which will continue to
weigh on profitability in the livestock segment. Meanwhile, the Thai economic situation has deteriorated,
which will soften domestic demand.
However, we continue to foresee long-term growth potential for CPF, as we view its overseas expansion
and increased focus on the feed and high-value food segments as positive moves.

Diversification Strategy
CPF - Revenues By Region, LHC & By Product, RHC (% of total)
Source: CPF
Latest Results
CPF's performance remained lacklustre in Q214 (April-June), amidst declining profitability in

Thailand's poultry sector and a slower-than-expected recovery of the aquaculture business from Early
Mortality Syndrome (EMS). CPF's performance recovered over Q114-Q314 after it was badly hit since
Q212 by the EMS outbreak in the shrimp business and oversupply in the Thai poultry sector. However,
oversupply issues reappeared in late 2014, which have dragged local meat prices lower over Q414-Q215,
while CPF's shrimp business has not yet fully recovered.

Livestock Margins Weighing On Profitability

CPF Operating Margins - Overall (LHC) & By Segment (RHC), %
Source: CPF, BMI
CPF's revenue in Q215 decreased on a y-o-y basis (by 2.0% to THB104mn) for the second consecutive
quarter. The company's core net loss (excluding changes in fair value and gains from selling assets)
decreased by 91% y-o-y to THB267mn. Margins remained low, with operating margins at 2.1%, down 1.8
percentage points y-o-y.
Both livestock and aquaculture operations weighed on CPF's performance this quarter. In particular, Thai
operations dragged profitability lower, due to renewed oversupply pressures in the Thailand poultry sector
and to mounting economic woes. Margins in the aquaculture sector remained in negative territory in Q215.
Overseas markets fared slightly better, helped by Vietnamese operations.

Weak Margin Outlook

Thailand - Feed & Livestock Price Ratios
Note: An increase in the ratio implies livestock price outperformance. Source: BMI, CPF
We remain cautious on the outlook for CPF's performance over the rest of 2015. Oversupply in the
poultry sector is unlikely to abate in the coming quarters, which will continue to weigh on local poultry
prices and on profitability in the livestock segment. The local economic situation has deteriorated (see
'Mounting Headwinds Warrant A Growth Forecast Downgrade', August 17), which will soften domestic
demand. Our Country Risk team forecasts GDP growth to remain below the five-year average in 2015 and
2016, due to growing external challenges and the potential for renewed political turmoil. Gradual recovery
from EMS and the resulting improvement in aquaculture margins in FY15 will only partially offset the
lacklustre performance of the livestock segment.

Below Average Margins
Select Companies - Operating Margins (%)
Note: NH Foods was previously Nippon Meat Packers. Source: BMI, Bloomberg
Company Strategy: Overseas Expansion And Product Diversification
We continue to see long-term growth potential for CPF, as we view its overseas expansion and increased
focus on the feed and high-value food segments as positive moves. With operations across many Asian
countries and further overseas expansionary plans, we believe CPF is well positioned to benefit from fast-
growing food consumption in emerging markets, especially in Asia. We forecast poultry consumption to
showcase strong growth between 2014 and 2019 in the countries where CPF is established, with poultry
demand growing 26.9% to 16.3mn tonnes in China, 40.5% to 1.2mn tonnes in Vietnam and 5.5% to 1.5mn
tonnes in Turkey.
The 2012 acquisition of a majority stake in CP Pokphand (CPP), the largest feed-mill producer in China
and the largest agri-industry operator in Vietnam, is partially responsible for the increased exposure to these
markets. CPF will be able to benefit from the ongoing consolidation of the livestock sector in China, as the
shift from backyard farming to industrialised production will boost demand for feed. In 2014, CPP will

diversify its feed-based business in China and open a ready-to-eat food processing plant, which will
enhance sales of high-value products.
We also view positively CPF's goal to focus on value-added food products, while replicating in overseas
markets the successful integrated formula implemented in Thailand. CPF's plan to shift away from the
volatile farm business, which accounted for 32% of revenue in FY13 (compared with 43% in FY11),
towards the more stable feed and food businesses could help to reduce its earnings volatility.
CPF is one of the most integrated livestock producers in Asia, as its competitors in the region are less
diversified in terms of products and along the value chain. GFPT, another Thai livestock producer, is only
focused on the poultry business. It is also looking into expanding its value-added cooked chicken products.
CPF also competes with Japfa Comfeed in Indonesia, which has only just started to diversify towards the
aquaculture and beef businesses. Japfa plans to continue focusing on the Indonesian market and on the
upstream sector. This strategy will impede the company from benefiting from the growing consumption of
more manufactured value-added meat products in Asia.
Elevated Debt
Select Companies - Net Debt/EBITDA
Source: BMI, Bloomberg

Low Margins And High Debt
CPF had historically enjoyed relatively strong margins relative to its peers (FY09-FY11). However,
operating and profit margins faltered over FY12-FY13 owing to a challenging environment and have now
dropped below the industry average. Margins improved somewhat in FY14, but are likely to remain around
these levels in FY15, due to renewed oversupply issues in the poultry business. We remain cautious on
CPF's debt position, as its total debt/EBITDA ratio is now at 6.4x, the highest among its peers for the third
consecutive year.
Valuation
CPF's twelve-month trailing price-to-earnings (PE) ratio has decreased significantly in 2015 and is now
standing at 13.9x, compared with 30.7x a year ago. CPF's PE ratio is now above the SETI (currently at
17.1x) and peers in the sector (at 14.8x). We believe this makes CPF's valuations look relatively
attractive overall from a long-term perspective, given our positive view on the company's performance on a
three-year horizon.
Further Weakness Ahead

CPF - Share Price (THB, weekly chart)

Share Price Analysis
We believe CPF's share price will remain weak over the remainder of 2015 and trade towards support
coming at THB17.50. The share price will show more strength on a one-to-two year horizon when
performance and profitability improves.
Table: Charoen Pokphand Foods' Financial Highlights, 2009-2014
2010 2011 2012 2013 2014

Revenues, THBmn 189,049 206,099 357,175 389,251 426,039
Revenues Growth, % 14.53 9.02 73.30 8.98 9.45
Operating Income, THBmn 12,066 14,703 8,077 1,894 14,443
Operating Margin, % 6.38 7.13 2.26 0.49 3.39
Net Income, THBmn 13,563 15,837 18,790 7,065 10,562
Profit Margin, % 7.17 7.68 5.26 1.82 2.48
Net Debt/EBITDA 2.30 2.31 8.65 15.68 6.42
Earnings Per Share, THB 2.04 2.38 2.59 0.96 1.43
PE Ratio 12.11 13.64 13.03 33.33 19.06

Thai President Foods

SWOT Analysis
Strengths
A diverse range of products including beverages, noodles and snacks allows it to
cater to the diverse tastes of the Thai consumer.

MAMA is a massively powerful brand within Thailand, with the company holding more
than 50% of the instant noodle market.

Strong brand awareness ensures long-standing consumer loyalty and recognition.

Stakes in distributors give TPF important control over its supply chain.

TPF's vegetarian and halal product offerings leave the company poised to exploit the
growing demand in these niche markets.
Weaknesses
Domestic noodle dominance and sector maturity reduce growth prospects for TPF.

Rising health consciousness could potentially dent sales, as the company does not
have a strong presence in the 'health' or 'light' noodle and snack sub-sectors.

A commitment to growth via exports leaves TPF vulnerable to rising shipping costs.
Opportunities
Healthier snack foods and beverages represent important growth potential for TPF.

Strong interest in Thai foods in developed markets could help boost TPF's profits.

Emphasis on production standards, food origin and hygiene play to areas of strong
consumer sentiment.

In the competitive instant noodle market, premiumisation is an important growth
opportunity.
Threats
Price sensitivity of Thai consumers could limit TPF's revenue opportunities.

Negative economic headwinds are threatening to depress consumer spending.

Structural challenges in potential markets, such as Bangladesh and India, could
frustrate TPF's expansion reach.

Company Overview Thai President Foods (TPF) is the largest manufacturer and distributor of instant noodle
products in Thailand. The company's key brands include MAMA, Ruski and Mendake
for its instant noodle products and Bissin and Homey for its biscuit products. TPF has
an estimated market share of over 50% in the profitable instant noodle market, led by
its flagship MAMA brand. The company is also involved in biscuit and beverage
production. Saha Pathana Inter-Holding Public Company and Nissin Foods Products
are two major shareholders in TPF and they own a 21.8% and 20.1% stake
respectively. The company has been listed on the Stock Exchange of Thailand since
1994.
Strategy The near-term demand picture for TPF looks fairly upbeat. Being the market leader in
the Thai instant noodle market, with an estimated market share of 52.6%, TPF looks
poised to capitalise on the country's burgeoning demand for instant noodles.
Urbanisation, rising disposable incomes and longer working hours are among the key
driving factors behind our positive demand outlook for instant noodles in the country.
Thai consumers are leading increasingly urbanised lifestyles and this has fuelled a
greater demand for convenience food products such as instant noodles. Rising
consumer affluence, meanwhile, will continue to encourage greater spending on higher-
value food products such as cup noodles, which typically carry higher price tags than
pack noodles.
While the domestic demand picture is undeniably positive for TPF's long-term revenues,
the company's strong expansionary focus and product innovation will also play a
significant role in driving its revenue growth. TPF's commitment to product innovation
and strong brand appeal should facilitate its expansion into the developing world and
ensure robust domestic consumption levels for its products. Specifically, TPF has
introduced halal and vegetarian instant noodle variants to cater to the increasingly
sophisticated tastes of the Thai consumer. These higher-value products should serve as
a major boon to revenues when the premiumisation trend in some of the world's most
exciting regional economies starts to gather force over the medium term.
TPF also retains a strong focus on expanding its presence in both Thailand and
overseas markets. Domestically, TPF will continue to ramp up its production capacity as
it looks to cater to the country's growing appetite for instant noodles.
TPF also has noteworthy overseas expansion plans. The company exports its products
to various countries in Europe, Asia and the US, as well as Australia and Canada. This is
certainly an enviable geographic spread and TPF is looking to further strengthen its
international reach, which we believe should instil greater dynamism in the company's
long-term growth. Bangladesh and India, in particular, have emerged on TPF's
investment radar; the company is scouting for potential partners to set up an instant
noodle factory in Bangladesh. Although the business environment in these emerging
markets is likely to prove challenging, given issues such as underdeveloped

infrastructure and endemic corruption, the positive macroeconomic growth outlooks

and exciting demographic profiles of these countries should prove positive for TPF over
the long term.
Company Data For financial year ending December:
2014 sales: THB11.7bn, growth of 2.6%


Thai Union Frozen Products
SWOT Analysis
Strengths
A diverse geographic footprint allows it to offset declines in its developed markets
with stronger growth in emerging markets.

Product portfolio contains pet food, which is well received in a number of global
markets.

A commitment to generating cost savings through production capacity expansions
and improvements in production efficiencies should mitigate the impact of commodity
price volatility.
Weaknesses
Heavy reliance on the US market has left it particularly vulnerable to currency
fluctuations in the US dollar and dissipating demand in the US.

The need to step up quality controls and safety checks in the wake of regional food
safety and hygiene scares will necessitate higher levels of capital expenditures from
TUF, thus weighing on its profitability.

The nature of its seafood business has left TUF exposed to commodity price
fluctuations in shrimp and tuna.
Opportunities
Emerging markets, such as Africa and Asia, provide extremely promising long-term
growth prospects for TUF.

The Thai government's efforts to improve the efficiency of the domestic agribusiness
industry should lift the competitiveness of these products in exports markets.

Thailand's healthy economic growth and steady urbanisation will continue to fuel the
demand for higher-value processed food products.
Threats
Fluctuating raw material prices and energy costs remain key threats to TUF's
profitability.

The surge of cheaper imports from regional economies such as China and India, as
these markets start to overcome their structural failings, could erode TUF's sales
revenues.


Subdued demand in the US and Europe could place a drag on TUF's overall
revenues.

The country's poor record on human trafficking and July 2014 downgrade by the US
on its watchlist could lead to trade sanctions.
Company Overview Thai Union Frozen Products (TUF) is a Thailand-based manufacturer and exporter of
frozen and canned seafood including tuna, salmon, sardines, mackerel, fish snacks,
shrimps, cephalopods, shellfish, pet foods and microwavable ready-to-eat products.
The company operates under the brands of John West, Petit Navire, H Parmentier,
Mareblu, Chicken of the Sea, Century, Sealect and Fisho. Besides its dominance in
Thailand, TUF also has a geographically diverse footprint across developed and
emerging markets. The US, Europe and Japan are its three largest export markets, but
TUF also exports to Africa, Oceania, the Middle East, Asia (except Japan), Canada and
South America. TUF is reportedly the largest global producer of canned tuna,
accounting for 19% of processing volumes. Tuna represents around 47% of its annual
revenues.
Strategy In 2010, TUF acquired MWBrands from private equity firm Trilantic Capital Partners for
EUR680mn (USD943.8mn), as it looked to correct an overreliance on the US market.
The takeover increased the proportional contribution of Europe to its total sales from
13% to around 33%.
MWBrands has helped to develop TUF's revenue growth while also offering a strategic
springboard for TUF to grow its presence in Europe, as well as unlocking synergies that
could lift production efficiencies and provide it with immense economies of scale.
TUF's strong profit growth also reflects its ability to hedge against higher raw material
prices. Initiatives to hedge against commodity price volatility through financial
contracts, making adjustments to selling prices and improving efficiencies in raw
material procurement appear to be reaping fruits for TUF.
With raw material prices likely to moderate further in the near future, we believe inflation
will become less of a threat to TUF. Furthermore, developing economic activity in the
US and the UK will help boost sales, where the company derives a great deal of its
revenue.
While developed markets will continue to account for the bulk of its revenues in the near
term, we expect TUF to channel a significant proportion of its investments to the
emerging markets of the Middle East, Asia, Africa and South America. These markets

are characterised by low existing spending levels and yet this low base also means that
these are tremendous growth opportunities that TUF cannot secure in developed
markets.
On the other hand, the volatility of commodity prices, in particular shrimp and tuna, will
persist and remain one of the biggest risks to TUF's earnings outlook. However, TUF
has acknowledged this concern with the implementation of cost-cutting initiatives and
direct sourcing of raw materials. TUF's commitment to improving profitability through
expansions in production capacity, streamlining its supply chain and improving its
production efficiency should allow the company to mitigate the adverse impact of
commodity price volatility, at least to some degree.
While the volatility of commodity prices remains a key concern, TUF's strong export
diversity and cost-cutting measures will augur well for its long-term growth, with
developing markets holding the key to potentially explosive growth prospects.


Thai Asia Pacific Brewery (Thai APB)

SWOT Analysis
Strengths
Backed by a strong parent company, thus set to deliver strong growth through our
forecast period.

The regional brand heritage of APB's Tiger and the international heritage of Heineken
appeal to aspirational young consumers.

Product development at the economy end of the market has widened APB's
customer base.

A strong and effective focus on brand-building has resulted in high brand recognition.

Development of a Thai-specific brand could help APB boost market share in a
country in which local brands dominate.

Exposure across many Asian markets means that the company is well diversified.
Weaknesses
Thai Beverage is a formidable competitor and APB must keep its market share
ambitions realistic in accordance with the head start its rival has.

Strong anti-alcohol lobby in Thailand, supported by the country's widespread
intolerance of alcohol consumption.
Opportunities
Tourism represents a major opportunity for APB, particularly given the global
recognition its brands have gained.

With the Heineken brand, APB is in a good position to take advantage of a substantial
premiumisation trend.

ThaiBev is reportedly interested in wine, which is growing in importance in Thailand
and an area in which APB could venture into.
Threats
With alcohol consumption frowned upon by a significant proportion of the population,
the industry is vulnerable to government excise-raising tax hikes.

Alcohol advertising regulations show no sign of loosening under a new government.

Company Overview Singapore-based Asia Pacific Brewery (APB) - established as a joint venture between
Netherlands-based brewer Heineken and Singapore conglomerate Fraser and Neave
(F&N) - is one of the largest brewers of the Asia Pacific region. In 2012, Heineken
secured full control of APB, after the shareholders of F&N voted in favour of the firm's
SGD5.6bn (USD4.5bn) bid. Heineken previously held a 42.5% stake in APB.
APB operates more than 30 breweries in more than 20 countries including Singapore,
Malaysia, Papua New Guinea, New Zealand, Mongolia, Sri Lanka, China, Indonesia and
Thailand. In Thailand, it produces the popular Heineken beer, as well as its flagship
Tiger brand and the economy brand Cheers.
Strategy A strong international brand appeal has been instrumental in protecting domestic
market share while facilitating the domestic brewer's push into international markets,
particularly given the industry's reliance on the tourism sector. APB has successfully
entrenched its brand identity (Tiger) among local consumers and is likely to continue
ramping up aggressive marketing and branding initiatives as the alcoholic drinks market
globalises.
However, while focusing on its Tiger brand in other markets, APB has also adapted its
strategy for the Thai market, in which the economy beer segment is the most profitable
by a long way. It is now committing resources to the growth of its economy brand,
rather than trying to switch consumers to its premium products. The company has
recently focused its efforts on building three brands: Heineken, Tiger and Cheers. While
APB's focus on the mass-market segment of the Thai alcoholic drinks sector is likely to
serve as a major boost to its revenues, given the inherent price sensitivity of Thai
consumers, the country's dogmatic anti-alcohol lobby and potential alcohol excise
hikes could erode future sales opportunities for APB.
Indeed, the potential for new legislation to limit alcohol sales and the
increasingly consolidated nature of the alcoholic drinks industry mean that industry
players could find it increasingly difficult to maintain domestic revenues over the long
run; this is where the importance of a well-diversified geographic footprint comes into
play.
Among the leading trio, APB boasts the strongest geographical balance, which will
continue to play a major role in shaping its earnings growth. APB's presence in
developed markets can be used to support expansions into emerging markets that, as
they mature, can then support expansions into frontier markets. Already, the brewer is
one of our outperformers among the world's leading brewers in terms of revenue
growth.

Company Data For financial year ending September (Indochina and Thailand):
2014 revenue: EUR2,088mn (Asia Pacific Group)

2013 revenue: EUR2,394mn (Asia Pacific group)
2012 revenue: SGD1,213mn; growth of 17.4%
2011 revenue: SGD1,033.4mn, growth of 10.5%

Thai Beverages Plc (ThaiBev)
SWOT Analysis
Strengths
A diverse brand portfolio allows ThaiBev to target a wide consumer base.

ThaiBev's strong distribution network will leave it poised to capitalise on growing
demand for energy drinks and bottled water.

International diversification ambitions leave ThaiBev poised to leverage on strong
regional growth prospects.
Weaknesses
ThaiBev is pursuing growth through a series of acquisitions, which is a costly method.

The company has passed the cost of the most recent tax hike on to consumers,
raising selling prices and potentially denting sales volumes.

A relatively weak overseas presence leaves its revenues and earnings particularly
exposed to demand fluctuations in Thailand.
Opportunities
Rising tourism creates strong opportunities for premium sales.

Strong Western interest in Asian beers creates a strong sales opportunity for ThaiBev.

The high-growth wine category is one ThaiBev may consider entering.

Rising health consciousness could drive sales for ThaiBev's non-alcoholic beverages,
such as bottled water and energy drinks.
Threats
ThaiBev faces limited sales opportunities with the country's widespread intolerance of
alcohol consumption and dogmatic anti-alcohol lobby.

Thai Asia Pacific Breweries, which is owned by Heineken, is a powerful competitor
and could threaten ThaiBev's market share.

Alcohol advertising regulations show no sign of loosening under the new government.

With alcohol consumption frowned upon by a significant proportion of the population,
the industry is vulnerable to government excise-raising tax hikes.

Company Overview ThaiBev dominates the spirits industry and its flagship Chang brand is number two in
the beer market. In addition to its existing alcohol interests, ThaiBev also has interests
in the non-alcoholic beverage and food sub-sectors. The brewer was listed on the
Singapore Exchange in May 2006. Through its subsidiary, International Beverage
Holdings Limited, ThaiBev has a presence in over 80 countries, distributing its flagship
brands Chang, Mekhong and SangSom.
Strategy While ThaiBev's beer sales have been impacted by recent supply disruptions and
softening domestic demand, the brewer has also been able to offset these pressures
with a stronger performance in its spirits and soft drinks divisions. With challenging
demand conditions lying ahead, we believe ThaiBev's spirits and soft drinks businesses
will continue to lend support to top-line growth in the near term.
Growth in ThaiBev's beer unit has significantly underperformed that of its other
businesses, such as soft drinks, food and spirits in FY2011, bearing out the difficult
operating conditions in the domestic beer market. Floods in 2011 severely hampered
distribution infrastructure in Thailand, as floodwaters broke supply chain links and
hampered both domestic consumer spending and tourism activities. These distribution
challenges caused disruptions to ThaiBev's beer production and distribution networks
and, in turn, placed a major dampener on the brewer's overall beer sales. Interestingly,
the effects of the widespread floods and softening domestic demand conditions were
relatively less pronounced in the other business divisions of ThaiBev.
We believe ThaiBev's stronger showing in spirits can be largely linked to the relatively
resilient nature of this sector to the underlying demand dynamics in the mass market.
The strong performance of the spirits division can also be attributed to the brewer's
relatively extensive production and distribution networks. ThaiBev has 18 distilleries
responsible for the production of its spirits brands across the country.
While beer has a promising near-term outlook, we believe ThaiBev will lean on its
stronger-performing soft drinks, spirits and food units to better contend with the
ongoing demand pressures in beer. Over the longer term, ThaiBev is pursuing a
strategy of expanding its footprint in the country's food and non-alcoholic beverage
segments. ThaiBev has aggressively snapped up acquisition opportunities as it looks to
diversify its product offerings. The company has recently acquired white spirits
specialist United Products Company, soft drinks producer SPM Foods and Beverages,
ready-to-drink coffee manufacturer Wrangyer, Japanese restaurant chain operator Oishi
Group and Chinese spirits firm Yunnan Yulinquan Liqour. In January 2013, the company
acquired Singapore conglomerate Fraser and Neave for USD11.2bn.
While these acquisitions have provided ThaiBev with instant access to the domestic
food and non-alcoholic beverages sectors, the high costs associated with this method
of pursuing growth is likely to act as a deterrent and the company is likely to turn its
head towards organic growth as a means of building its domestic market share. As a

result of this strategy, the company is highly indebted, with Standard & Poor's cutting
its credit rating to 'junk' status.
Continuous product development and new product launches are therefore likely to
remain at the forefront of ThaiBev's growth strategy. Harnessing the global emerging
shifts towards health consciousness, the company has recently revamped the look of its
Wrangyer energy drink and introduced other non-alcoholic beverages such as Ranger
and Power Plus. ThaiBev's well-established distribution networks in Thailand should
also prove supportive of its organic growth strategy.
Internationally, ThaiBev will continue to build on the premiumisation of its product

portfolio as it seeks to exploit the strong premiumisation opportunity on offer in its
international markets, with the repackaging of its Chang and Mekhong beers a case in
point.
2014 sales: THB162.0bn, increase of 4.0%

2013 sales: THB155.8bn, decrease of 3.2%

Singha Corporation (formerly Boon Rawd Brewery)

SWOT Analysis
Strengths
Strong brand loyalty will continue to support the company's sales.

It only produces locally, giving it considerable cachet among domestic consumers.

Product diversity serves to cushion the company against some of the anti-alcohol
trends.

Strong international brand appeal - Singha - facilitates its push into foreign markets.

The company has a significant distribution network across Asia.
Weaknesses
The need for sustained marketing and promotional expenditure to protect its market
share could weigh on its profitability.

Relatively weak exposure to some Asian emerging markets means that Singha has
not been able to fully exploit the region's exciting growth prospects.

Singha's premium beer exports will continue to face limited sales opportunities in
emerging economies, at least in the near term.
Opportunities
Tourism represents a major opportunity for the company, particularly given the global
recognition its brands have.

Rising demand for non-alcoholic and energy drinks should provide a solid growth
opportunity for the company.

A growing interest in Asian beers from Western consumers will provide strong growth
opportunities in the export sector.

Myanmar offers massive untapped potential for Singha to capitalise on, although we
stress that the market remains a long-term play and is particularly fraught with risks.

Recent collaboration with Carlsberg opens up new markets for growth and entry.
Threats
With alcohol consumption frowned upon among a significant proportion of the
population, the industry is vulnerable to government excise-raising tax hikes.


Alcohol advertising regulations show little signs of loosening under a new
government.

Singha faces limited sales opportunities with the country's widespread intolerance of
alcohol consumption and dogmatic anti-alcohol lobby.

Volatile barley prices could serve to undermine profits and capacity for reinvestment
with the company unlikely to be able to pass these rising costs on to consumers in
such a competitive industry.
Company Overview Singha Corporation, formerly known as Boon Rawd Brewery, is a privately owned
beverage company in Thailand. Boon Rawd was the first brewery in Thailand and, with
its Singha beer, competes with ThaiBev's Chang as the most popular beer in the
country. The company produces Singha beer, Singha Light beer, Singha soda water,
Singha water, Leo beer, Thai beer, Moshi green tea and B-ing Lifestyle drink. It owns
two German breweries, which until 2001 produced Singha beer for the European
market. Currently, however, all beers produced by the brewery are brewed
domestically. The company operates three breweries and six soda and drinking water
factories and exports to more than 50 countries worldwide.
Strategy We stress the importance of building a well-diversified geographic footprint for Singha.
The potential for new legislation to limit alcohol sales and the increasingly consolidated
nature of Thailand's alcoholic drinks industry mean that industry players could find it
increasingly difficult to maintain domestic revenues in the long run, underlining the need
for geographical diversification. Singha clearly recognises the importance of a strong
international presence as it plans to double the contribution of its foreign markets to
20% of its total revenues by 2015. Singha aims to establish itself as the third-leading
beer brand in the Asia Pacific region and seeks to fulfil its regional ambitions by
establishing partnerships as well as ramping up its local production capacity to boost
export growth.
Interestingly, Singha has singled out Myanmar as its top priority amid its regional
expansion plans. Singha plans to install a brewery in Myanmar with an initial capacity of
80-100mn litres per annum and plans to eventually leverage on its Myanmarese
presence to support its expansion push into other regional markets, such as China.
Currently, Singha sells around 40mn litres of beer to Myanmar per year through exports.
The brewer's planned expansion in Myanmar not only signals its confidence in the
country's long-term consumer growth story but also underlines an increasing flurry of

investment across the country's consumer-facing scenes as the sector gradually

liberalises. Focusing on the beer sector in particular, the government is granting
licences to manufacturers interested in setting up breweries in a bid to encourage
greater investment in the sector. Despite these positives, we stress that the
Myanmarese consumer sector is likely to feature as a longer-term play, on account of
elevated risks.
Singha plans to pursue growth in Myanmar via joint ventures and organic expansions.
Singha plans to set up its own manufacturing operations in Myanmar, as well as link up
with domestic breweries through joint ventures to locally produce Singha. We
particularly like Singha's strategy of partnering local breweries. By leveraging on its
partners' local market expertise and existing production capabilities, this should
facilitate Singha's ambitions of securing a strong competitive position in Myanmar and
help lower the brewer's overall costs of production.
Meanwhile, Vietnam remains another key focus for Singha and the brewer is reportedly
in the process of selecting a local distributor in the country, while also conducting a
feasibility study on setting up a brewery in Vietnam. While Vietnam remains an attractive
market given its favourable demographics and a rapidly emerging middle class, the
brewer is likely to face stronger competitive headwinds in expanding in Vietnam, which
probably explains its stronger focus on the Myanmarese market. Being a relative
latecomer to Vietnam, Singha will have to compete against more established market
players, such as Sabeco and Habeco, in building its market share.
Company Data For financial year ending (BMI estimate):
2012 sales: USD550mn

2010 sales: USD533.5mn

Siam FamilyMart
SWOT Analysis
Strengths
Franchising of the stores allows some freedom for individual operators.

The retailer stands to benefit enormously from its parent's need to diversify away from
the mature Japanese market.

Fast food operations provide the company with a diverse approach to retailing.

Ownership restructuring in 2012 has made expansion easier for the company.
Weaknesses
The company has been experiencing a variety of internal problems, including
technological weaknesses, the limitations of franchising, poor product mix and human
resource difficulties.

Siam FamilyMart's inability to pass on rising operating costs to consumers due to
price sensitivity could weigh on its profitability.

Its expansion plans will require significant sums of capital expenditures and could
take a toll on its profitability.
Opportunities
Secondary towns and cities provide opportunities for convenience retail expansion as
incomes rise.

Potential expansion in regional markets offers very exciting opportunities for growth.

Added convenience encourages loyalty as incomes rise and priorities and lifestyles
change.
Threats
The competitive pricing environment in Thailand leaves the company little room to
pass higher operating costs on to its customers.

The convenience sector has not entirely escaped legislation and the Thai
government's increasingly interventionist stance may hamper Siam FamilyMart's
future expansion plans.

FamilyMart is still facing strong competition from the more successful retail operators,
such as CP All.


Negative economic headwinds threatening to depress consumer spending.
Company Overview Siam FamilyMart is the Thai subsidiary of Japanese convenience major FamilyMart. It
has just under 1,000 convenience stores in Thailand, with FamilyMart's global network
at almost 20,000 stores. FamilyMart is presently the second-largest convenience store
chain in the country, mainly operating stores in Bangkok, Pattaya and Phuket.
Strategy FamilyMart has battled a number of internal logistical problems in Thailand in recent
years. In 2007, BMI cited five key problems with its business: competition, IT
weaknesses, human resource problems, poor product mix and the limitations of
franchising. Some THB400mn (USD13.4mn) was allocated towards addressing these
problems in 2007, with the company also juggling the challenge of further expansion - a
vital consideration if FamilyMart was to keep pace with its rivals. The company has
invested in IT upgrades, while also seeking to improve its management and supervisor
training structure. It has also sought to open more company-managed outlets,
recognising that, while franchising allowed for faster expansion, it does not allow for all-
important control over branding and stock issues.
However, the biggest challenge the company faces is improving its product mix and
this could, in turn, be the key to improving its competitive position. CP All and Tesco
Lotus Express have been at the forefront of driving this trend and FamilyMart must now
follow suit. The adage that non-food items contribute more to sales and profitability
than food items, due to their superior margins, does not apply in the convenience
format. Here, stores lack the size and inclination to stock or sell goods expensive
enough to make this true and, as such, high-value food items must be a priority.
Consequently, FamilyMart will boost its ratio of food to non-food products, with both
fresh and healthy pre-prepared foods counting for the bulk of the increase.
BMI sees a continuing opportunity for FamilyMart to leverage its parent here. Familiar
with intense market competition, Japanese retailers have been at the forefront of sector
innovation. The local subsidiary can look to learn from its parent and introduce more of
these concepts to Thailand, thus both driving and benefiting from convenience retail
premiumisation.
Looking to exploit Thailand's convenience retail growth prospects, Siam FamilyMart is

to accelerate its pace of expansion over the coming years. For convenience retailers,
the demand picture is exciting. The sector will particularly benefit from strong forecast
private consumption growth, which will in turn push up demand for higher-value,
innovative and aspirational retail concepts and products among Thai consumers.

FamilyMart reorganised the ownership structure of its Thai business in 2012, entering
into a partnership with Central Retail Corporation Ltd. As a result, Siam FamilyMart was
reclassified from consolidated subsidiary to affiliated company. It has an ambitious
growth plan, which it is currently following, including plans to have 3,000 stores
operational within Thailand by 2017. However, while group revenues increased year-on-
year in FY2013 by 1.5% to JPY334,087mn, the business reorganisation in Thailand saw
revenue there fall by 15.9% to JPY17,101mn.
Company Data For financial year ending February (group):
2014 sales: JPY345.60bn (overseas segment: JPY41.08bn)

2013 sales: JPY334.09bn (Thailand: JPY17.1bn)
2012 sales: JPY329.22bn (Thailand: JPY20.3bn)
2011 sales: JPY319.89bn
2010 sales: JPY287.18bn

Tesco
SWOT Analysis
Strengths
The UK's leading retailer by annual sales and market share.

The world's second-largest grocery retailer by annual sales.

Solid exposure to emerging markets, with non-UK sales accounting for around 30%
of annual group revenue.
Weaknesses
Given Tesco's exposure to the UK, it is increasingly difficult for it to pursue growth
within its core food retail business. With about 69% of its annual sales accounted for
by the UK, how Tesco performs domestically still largely determines its top- and
bottom-line trajectory.

Unprofitable site selection in recent years had led to declining operating efficiency.
Opportunities
Potential to further expand into the UK's non-food retail sector and into new business
areas such as financial services.

Convenience stores in the UK are a fast-growth area, which Tesco could continue to
take advantage of.

UK sales have started to improve following Tesco's turnaround plan announced in
January, although much still needs to be done.

A simplified pricing system will improve customer perceptions.

Threats
The rise in the popularity of budget supermarkets, such as Aldi and Lidl, and the
subsequent price war in UK retail will continue to affect Tesco over our forecast
period to 2019.

Increased international exposure of other supermarket majors, such as Walmart and
Carrefour, will likely leave Tesco a distant third.

Increasing scrutiny over Tesco's practice with suppliers could limit its ability to
bargain aggressively on suppliers' prices.

Company Overview
The world's second-largest retailer by annual sales, behind Walmart, UK-based retailer Tesco has
experienced a tough time both internationally and at home since its profit warning in January 2012. Long-
established as the UK's leading retailer by annual sales and market share, in the last few years Tesco has
been losing market share in the UK to budget supermarkets such as Aldi and Lidl. Tesco has withdrawn
from Japan and the US and ceded control of its Chinese enterprise. In our view, its attention will most likely
return to the UK, marking a great shift in its business plan.
Latest Financial Results
In June 2015, Tesco reported a 1.3% decline in like-for-like sales, beating analysts' expectations. These
results show an improving trend compared with previous quarters (see chart below), following a disastrous
FY15 (ending February 28) when the retailer reported a net loss of GBP6.4bn (before tax). Despite
deflationary pressure, Tesco's sales performance improved in the UK (like-for-like sales of -1.3%, against
-5.1% in Q315 and -1.7% in Q415), while Central Europe and Turkey were bright spots. Nonetheless, a full
recovery will require significant efforts and we believe that the retailer will continue to be affected by a
challenging UK retail landscape over the coming years. While Tesco's share price has started to recover
since its December low, it remains well below pre-2012 levels.

Improving Sales But Path To Recovery Still Lenghty

Tesco - Like-For-Like Sales (Y-o-Y %, LHS) & Share Price (GBp, RHS)
Source: Bloomberg, BMI
UK Retail Landscape Set To Remain Challenging
Over our forecast period to 2019, we believe that legacy UK retailers (Tesco, Sainsbury's, Asda and
Morrisons) will continue to suffer from the growing popularity of discount retail. Over the past few years,
German discounters Lidl and Aldi have taken market share away from the legacy retailers, with their high-
volume, low-price models and their efforts to improve customer perceptions about the quality of their
products. Recently, Lidl and Aldi have improved their image in the UK, by offering more fresh products
and premium items such as wine and craft beer. In order to address declining sales, legacy retailers have
engaged in aggressive cost cutting, which will impact their margins over the long term.
Another challenge for legacy retailers comes from high-end retailers like Waitrose, which have maintained
their market share. Consumers in the UK are becoming increasingly health-conscious and are keen to
indulge in better-quality products in some categories. We expect this trend to continue as the consumer
outlook improves in the UK. Lastly, large out-of-town hypermarkets have lost the favour of consumers,
who are demanding more convenience. Reflecting this trend, we forecast convenience store sales to grow at
a compound annual rate of 3.7% over 2014-2019, against 0.7% for hypermarkets and 0.9% for
supermarkets.

Convenience And Price Dominate

United Kingdom - Food Retail Sales Growth (Local Currency, %) By Format
7.5
2.5
-2.5
2013 2014 2015f 2016f 2017f 2018f 2019f
Supermarkets Hypermarkets Discount stores
Convenience stores
e/f = BMI estimate/forecast. Sources: National Sources/BMI
Review Of Tesco's Turnaround Plan To Revive UK Sales
While we believe that the worst is past for Tesco, the retailer needs to continue stepping up efforts to return
to growth in the UK. As mentioned above, Tesco reported a slower decline in sales in Q116, suggesting
some improvement. In addition, we believe that the bulk of property write-downs are over, following the
GBP4.7bn property impairment in early 2015. The company also launched an ambitious turnaround plan in
January 2015, following the appointment of new CEO Dave Lewis. We review below some of the key
measures to revive sales in the UK and progress.
Lower Prices & Improved Customer Perception
In order to avoid further market share losses, legacy retailers have aggressively cut prices in their
supermarkets and hypermarkets. For Tesco, this means lowering the price of entire product categories and
simplifying its pricing system. In the past, legacy retailers have been criticised for their complex
promotions. Over the past few months, Tesco revamped its 'Everyday Value' and fresh products ranges and
has cut prices consistently across its 'price architecture', so customers enjoy long-lasting reductions instead

of one-off promotions. The simplified pricing system is expected to improve customer perception. These
efforts have started to be felt, as Tesco reported a 1.4% rise in volumes in the UK in Q116. Nonetheless,
with like-for-like sales remaining in negative territory in Q116 (1.3% y-o-y), much remains to be done.
While we expect lower prices to have a positive impact on sales growth over the coming quarters, which
will help Tesco protect its market share, the deflationary environment will have a long-term negative impact
on margins. We previously argued that lower prices will be passed on to suppliers, especially on medium-
sized UK food manufacturers that have limited bargaining power when dealing with major retailers (see
'Price War Headwind For UK Food and Drink Manufacturing', February 17). Nonetheless, Tesco's
margins have also been hit and we expect them to remain under pressure over the coming years. Tesco used
to enjoy some of the highest margins in the industry on a global basis, alongside Walmart (see chart below).
Tesco is now under formal investigation from the Groceries Code Adjudicator for non-compliance with the
supply code of practice. Potential breaches include delaying payments to suppliers and seeking retrospective
payments. Such scrutiny could limit Tesco's ability to pass lower prices on to suppliers. We now believe
that Tesco's operating margins will remain in the 2-4% range, compared with around 6% in recent years.
Margins To Remain Subdued For Tesco

Selected Food Retailers - Operating Margins (%)
F0: most recent financial year; f-1: year before Source: Bloomberg, BMI

Store Expansion Freeze & Asset Base Optimisation
Another challenge for Tesco is to address the unprofitability of some of its outlets. In the 2000s, during the
so-called 'space race' in UK retail, grocery retailers focused on increasing their store count, often leading to
unprofitable site selection (see 'Tesco: Worst Past, But Weak Recovery Ahead', April 24). Reflecting this
issue, Tesco's asset base has increased at a much faster pace than its revenue in recent years, leading to
declining asset turnover. In addition, Tesco's revenue generated by retail square footage has steadily
declined in recent years (see chart below), illustrating the trend of poor site selection.
Asset Base Optimisation An Urgent Concern For Tesco
Tesco - EBIT Per Retail Square Footage (LHS) & Asset Turnover (RHS)
In order to address declining operating efficiency, we expect Tesco to continue reducing its store count, as
an effort to optimise its asset base. Earlier this year, Tesco closed 43 unprofitable stores; we believe that a
lot more closures are required to protect its margins. On the other hand, new store openings will be severely
limited, as Tesco announced in January that it was exiting plans to open an additional 49 outlets. We believe
that, over the coming years, the limited number of store openings will be concentrated in the Tesco Express
format, which has been outperforming the other Tesco banners in recent years on the back of growing
demand for convenience. We therefore expect capital expenditures to remain low by historical standards
over the coming years, following Tesco's decision to cut capital expenditures by GBP1bn in FY16.

Capex To Continue Their Downward Trend

Tesco - Capital Expenditure (GBPbn, LHS) & Capital Expenditure/Sales Ratio (%, RHS)
Cost Cutting & Improving Operating Efficiency
A last major set of measures to revive sales in its UK stores is to reduce operating costs, in order to protect
margins in a context of lower generalised prices. As part of its turnaround plan, Tesco announced its goal to
save GBP250mn per annum in operating costs. Thousands of jobs are expected to be lost and Tesco will
shut down its current UK headquarters. In our view, a key area of improvement for Tesco is the
management of its inventory. In line with its competitors Sainsbury's and Morrisons, Tesco's inventory
turnover has deteriorated over the past few years. In FY09, it took on average 19 days for Tesco stores to
replace their inventory. This number increased to more than 22 days in FY14. Although there has been
some improvements in FY15, further efforts are needed as Tesco's inventory turnover remains lower than
peers.

Room To Improve Inventory Turnover

Selected UK Retailers - Inventory Turnover Days
International Operations: Divestures Will Limit Long-Term Growth
Over the coming months, we expect Tesco to divest part of its international operations, as part of its efforts
to refocus on its core market - essentially the UK. In the 2000s, rapid growth enabled Tesco to pursue
aggressive international expansion. However, this has left Tesco with operations in many countries that are
not profitable or have experienced subdued growth. As the retailer focuses on returning to growth in the
UK, which accounts for more than two-thirds of annual revenue, it will reduce its international presence. In
recent years, Tesco has exited both the US and Japan, while also adapting its operations in China into a joint
venture with China Resources Enterprise.

Highly Reliant On UK Sales

Tesco - Revenue By Geography (%) - FY15
Earlier in June, we highlighted that South Korea and Turkey were the most likely divestures for Tesco (see
'South Korea And Turkey Most Likely Divestures For Tesco', June 5). In South Korea, which is Tesco's
2nd largest market in terms of revenue, like-for-like sales have been severely impacted by new regulations
on store openings, the interdiction to operate every other Sunday and high competition in the retail sector.
On June 9, it was reported that six firms had been invited to a bidding process. Tesco Kipa, Tesco's
subsidiary in Turkey, is another likely candidate for divesture, especially as Tesco already tried to sell the
unit in early 2014, failing to find a suitable buyer. If Tesco decides to reduce its international presence even
further, other potential candidates are Thailand and Malaysia, where like-for-like sales have declined
recently, and Hungary, especially if the government continues to impose adverse regulations on foreign
retailers.
While in the short term we believe that refocusing on its core markets will help Tesco return to growth in
the UK, it will limit growth opportunities for the retailer over the longer term. Over 2014-2019, we forecast
MGR sales (in local currency terms) to grow at a compound annual rate of 1.3%. Combined with the rising
popularity of discount retailers, this will create very limited growth opportunities for legacy food retailers.

In contrast, we forecast much stronger growth in Tesco's overseas markets in Eastern Europe and Asia (see
chart below). Therefore, we caution that reducing its international presence will impact Tesco's long-term
growth prospects, especially while global retailers Walmart and Carrefour are now committed to their
overseas operations.
Growth Prospects Limited In The UK

Selected Countries - MGR Sales Growth (Local Currency, %)
20
15
10
-5
2013e 2014e 2015f 2016f 2017f 2018f 2019f
United Kingdom Turkey Malaysia Thailand South Korea
Czech Republic Hungary
e/f = BMI estimate/forecast. Sources: National Sources/BMI

Table: Tesco's Financial Highlights
2011 2012 2013 2014 2015

Sales Revenues, GBPmn 60,454.0 63,915.0 63,405.0 63,557.0 62,284.0
Sales Growth, % 6.2 5.7 -0.8 0.2 -2.0
Operating Income, GBPmn 3,696.0 3,896.0 3,895.0 3,148.0 1,544.0
Operating Margin, % 6.1 6.1 6.1 5.0 2.5
Net Income, GBPmn 2,655.0 2,806.0 28.0 974.0 -5,741.0
Profit Margin, % 4.4 4.4 0.0 1.5 -9.2
Net Debt/EBITDA 1.5 1.5 1.4 1.6 3.2
EPS, GBP 0.3 0.3 0.0 0.1 -0.7
PE Ratio 11.8 8.1 21.5 14.1 na
Note: Financial Year to February. Source: Bloomberg, BMI

Central Food Retail Company Ltd (CFR)
SWOT Analysis
Strengths
The backing of large parent company Central Retail Corporation is a major strength
behind its competitive position.

Location of CFR supermarkets within larger department stores offers additional
convenience to customers.

CFR benefits from being a local operator with strong ties to local communities.

CFR's private-label offerings appeal strongly to price-conscious Thai consumers.

The company has a diverse product offering, including ready-to-eat and ready-to-
cook foods.
Weaknesses
The need to invest heavily in market share maintenance could erode CFR's
profitability.

Despite the benefits of locating CFR supermarkets within larger department stores,
the company suffers from lack of exposure.
Opportunities
Restrictions on large-scale store openings serve to undermine the expansionary
efforts of CFR's rivals, such as Big C and Tesco Lotus.

Private labelling is an excellent means of building sales and customer loyalty in this
consumer-oriented but price-conscious market.

The group is reportedly setting aside THB10bn per annum for investment expansion
activities, which should support its longer-term growth.

Added-value in-store offerings should allow for further sales growth in spite of
crowding.
Threats
Price sensitivity restricts the opportunity to pass on rising operating costs to
consumers, thus undermining retailer margins.

While the new government has temporarily shelved legislation hampering mass
grocery retail outlet expansion, the threat of new restrictive laws remains.


Large-scale store restrictions could yet extend to smaller formats, severely inhibiting
the company's business strategy in Thailand.
Company Overview Central Food Retail (CFR) is the largest supermarket chain in Thailand. CFR is one of
the units owned by Central Retail Corporation. CFR is focused on the capital Bangkok
and has about 123 branches nationwide. Most stores are housed within the Central and
Robinson Department stores, with the remainder operated as freestanding
supermarkets of 800-5,000sq m in floor area. CFR operates three main formats, namely
Tops Super, Tops Market and Tops Daily, as well as food halls under the Central Food
Hall brand. However, in August 2014, CFR opened its first Tops Superstore at Central
Plaza, Salaya, and said that it would open two or three new Tops Superstores per year
from 2015 onwards.
Strategy CFR aims to be the most successful supermarket operator and wholesaler in Thailand
through innovation and integration. The company sources its fruit and vegetables locally
and from foreign countries, with a focus on quality. In a bid to differentiate itself from its
competitors and to increase customer loyalty, CFR will retain a strong focus on
developing its private-label offerings and announced in May 2014 that it had invested
THB30mn on its own brand range, adding 3,000 more products and introducing the 'My
Choice Thai' range.
With incomes remaining relatively low in Thailand, CFR's focus on developing its private
label portfolio should help facilitate shopper traffic across its stores and help the retailer
in securing a stronger domestic market foothold. Across the Asia Pacific region, private
labels have continued to gain traction against branded consumer goods in recent years.
However, even as economic conditions take a turn for the better, the shift of
consumption habits towards private labels across Asia, including Thailand, is likely to
remain firmly entrenched over the coming years, as a growing number of consumers
acknowledge private labels as a very compelling alternative to proprietary branded
goods. Initially, as cheaper alternatives to their brand-label counterparts, private labels
have often been associated with inferior or inconsistent quality and private labels tend
to benefit only in times of economic uncertainty. However, as retailers successfully
position their own-label brands as offering greater value for money and good quality, a
greater number of consumers have begun to perceive private labels as credible
alternatives to branded goods, representing a growing appetite for CFR's private-label
offerings.

Financial Data 2014 sales: THB250bn


Big C Supercentre
SWOT Analysis
Strengths
The financial backing of expansion-oriented and financially powerful parent Casino
supports its domestic expansionary ambitions.

Growing market dominance provides Big C with a stronger platform to leverage off
the domestic spending boom in Thailand over the coming years.

Big C's enlarged scale could provide it with stronger bargaining power and improved
purchasing terms, thus lowering costs.
Weaknesses
Big C's large-scale hypermarket format limits the retailer's scope for expansion in the
increasingly crowded cities.

An ongoing price war with Tesco Lotus will only undermine its operating margins.

The need to invest heavily in market share growth, through product and store
expansions, could weigh on Big C's profitability.

Following Big C's recent acquisition of Carrefour's hypermarket stores, the retailer
has a smaller cash pile and lower financing capacity to fund its near-term expansion
plans.
Opportunities
Private labelling is an excellent means of building sales and customer loyalty in this
consumer-oriented but price-conscious market.

Big C's expansion into the convenience segment will enable the retailer to secure
additional revenue streams.

Rising disposable incomes in Thailand will encourage an increasing number of Thai
consumers to trade up to modern retailing, particularly in rural areas.
Threats
While the new government has temporarily shelved legislation hampering mass
grocery retail outlet expansion, the threat of new restrictive laws remains.

Tesco Lotus remains a powerful player in the Thai hypermarket sector, which could
undermine Big C's expansion efforts.


Price sensitivity restricts the opportunity to pass on rising operating costs to
consumers, thus undermining retailer margins.
Company Overview Big C Supercentre is a Thailand-based mass grocery retailer operating a chain of over
100 hypermarkets in the country under the store banner Big C. The company is
majority-owned by French retailer Casino and offers a diverse range of products, such
as fresh food and beverages, clothes and various electrical appliances. In 2010, Big C
acquired 42 stores from Carrefour, of which 34 were hypermarkets, for EUR868mn
(USD1.1bn). Big C Supercentres also operate a chain of health, cosmetics and
pharmacy stores under the Pure brand, in addition to 24-hour Mini Big C convenience
outlets.
Strategy Big C and Tesco Lotus are waging a price war as they attempt to win market share from
each other. However, in our opinion, such a strategy is unlikely to translate into
substantial market share gains for either, given that they are arguably evenly matched in
financial power and their existing market dominance. With Tesco Lotus and Big C
already dominating the entire hypermarket retail landscape in Thailand, we are sceptical
about the potential benefits the retailers could reap from their aggressive price-cutting
strategies. Due to the companies' market dominance, there are arguably limited market
share gains that Tesco Lotus and Big C could pick up from smaller-scale competitors.
While one may argue that the more financially powerful retailer should find itself in a
stronger position to absorb the impact of price cuts on its bottom line and fulfil its
market share ambitions, we note that both Tesco Lotus and Big C have the strong
financial backing of their parent companies and a retail price war between the duo will
only come at the expense of their margins, without any meaningful share gains.
We expect greater dynamism in the local retail scene as Big C and Tesco Lotus battle it
out for market leadership. Casino, the majority shareholder of Big C, acquired 42 stores
from Carrefour, of which 34 were hypermarkets, for EUR868mn (USD1.1bn) in
November 2010. Big C completed the transformation of these outlets to Big C and Big
C Extra stores during 2011.
We believe it would make more strategic sense for Tesco Lotus and Big C to compete
against each other in customer service, product variety and quality. By strengthening
their competitive advantages in these regards, Tesco Lotus and Big C could develop
their own unique proposition and carve out their own niches in the hypermarket sector,
such as fresh foods and organic produce. Such a strategy should allow both retailers to
tap into the growing premiumisation momentum over the coming years, as increasingly

affluent Thai consumers develop a greater penchant for a more conducive shopping
environment and are willing to fork out a premium for higher-quality grocery produce.
Given its enlarged scale, we believe Big C will ramp up its expansionary activities in the
near term to build up a stronger market share. Indeed, Big C has allocated THB2-3bn
(USD66.9-100.3mn) for a major expansion drive. The retailer's recent opening of two
cash and carry outlets in Thailand further underlines its domestic market ambitions as it
looks to develop a market presence covering all consumer bases in the country.


Global Industry Overview
Although the March-June second quarter did not provide another deal to rival the Q1 3G Capital
orchestrated merger between Kraft Foods and Heinz, the consolidation theme remained intact with some
notable deals across North America and the Asia Pacific region.
Globally, the eurozone consumer continues to look marginally stronger than it did at the beginning of
2015 (notwithstanding the ongoing Greece crisis), with deflationary pressures easing in countries such as
Spain. However, the US and the UK will continue to lead developed world opportunities.
Touching on food prices, our Agribusiness and wider Commodities teams expect global agricultural prices
to broadly trade sideways over Q3.
Expected To Trade Sideways Over Q3
S&P GSCI Agricultural Index

2015 Likely To Be Another Good M&A Year

North America Food Manufacturing Miscellaneous/Diversified M&A Deal Count and Total Value
(USDbn)
M&A Remains A Key Theme
We noted in February 2015 that the total deal count in US food manufacturing would remain high in 2015,
as public companies looked to take advantage of favourable industry dynamics to pursue bolt-on
acquisitions. Low interest rates, typically solid credit ratings and, in many cases, near all-time high share
prices (which increases purchasing power when common stock is used as currency) would
encourage moves. Although Q2 did not produce a grandstand deal to rival the 3G Capital-orchestrated
merger between Kraft Foods and Heinz, we saw a steady flow of mergers and acquisitions primarily
involving the US and the UK, or foreign companies exposed to these markets. Key drivers aside from the
financial factors mentioned include the pursuit of synergies (both cost and revenue) and scale, as well as
increased competition between retailers and manufacturers for a leg up in bargaining, particularly in the UK
where a hoghly competitive price war is taking place.
Companies less able to withstand the cut-throat competition in retail are more vulnerable to being acquired,
particularly publically listed firms where falls in share prices have pushed down market values. In June

2015, UK chocolate manufacturer Thorntons was acquired by Italy's Ferrero (the fourth-largest
confectionery group in the world by annual sales). From the acquirer's perspective, the deal addresses its
relatively weaker exposure to the UK compared to mainland Europe while also reflecting how Thorntons
was more vulnerable to being acquired given the fall in its share price, as the chart below illustrates.
We previously highlighted that food manufacturers are being pressured by legacy food retailers, such
as Tesco and Sainsbury's, when renegotiating contracts (see 'Food Companies Collateral Damage In Price
War', October 24 2014). For a year or so, Thorntons has suffered from weak sales in supermarkets and we
believe that a takeover by Ferrero, which has greater bargaining power thanks to its size and its power
brands (especially Nutella), will help in negotiating better contracts.
Takeover Offer Arrived During A Tough Period

Thorntons - Share Price (LHS, GBp) & Sales Growth (RHS, %)
Moving to food retail, we have held a view for some time that the US industry was ripe for consolidation -
this has played out, primarily in the dollar store format, over the past eighteen months. In May 2015, we
touched on the rationale behind the proposed merger between Netherlands-based Ahold and Belgium-based
Delhaize - namely that it was a defensive move (see 'Ahold-Delhaize Merger Reflects Increasing
Competition In US Retail,' May 12). The deal has since progressed from an early negotiation to an agreed
all-share merger (pending shareholder and regulatory approval), worth USD25bn.

Publically sold as a merger of equals, this is effectively a takeover of the smaller Delhaize by Ahold, with
the Dutch retailer owning 61% of the proposed entity. Both retailers are heavily exposed to the US, so this
merger is something that is likely to have been discussed at board level for some time, particularly over the
past two to three years. During this time, retail consolidation has picked up, Walmart has been gaining
ground in the smaller store category and the mid-level mainstream supermarket segment has been fighting a
twin battle against lower-cost discounters and the growing premium category, which is trying to attract
more volume by widening its breadth and pricing to generate greater scale.
On a wider industry level, the deal is particularly noteworthy for the following reasons:
As the table below shows, the US food retail sector is relatively less consolidated than some of its
developed world peers, such as Australia and the UK (based on estimated market shares that may not take
into account ongoing/pending deals). It might get progressively harder to pass larger deals such as the
Delhaize-Ahold merger in the future, but for the time being we see scope for more deal making, although
mainly of the bolt-on variety.
Just as food manufacturers are merging to create larger, leaner entities with greater power to negotiate
with retailers, the retailers themselves are trying to respond; the proposed EUR500mn of cost synergies in
the Ahold-Delhaize deal will most likely include forces that come from the stronger negotiating footing
that greater scale brings.
Table: Australia, Uk And Usa Estimated Herfindahl-Hirschman Index Scores - Food Retail Industry
Australia 2689
UK 1128
USA 962
Note. Herfindahl-Hirschman Index is used to assess the level of concentration in an industry. It is calculated by adding the
squares of the market shares of the top eight companies in a particular industry. 1000-1800 = moderately concentrated
and > 1,800 = highly concentrated. Source: Trade Press, BMI.

Reasonable Outlook But Growth Not Decisive Factor Behind Merger
United States Selected Indicators - Historical and Forecast
2,000 2.75
1,500 2.5
1,000 2.25
500 2
0 1.75
2010
2011
2012
2013
2014e
2015f
2016f
2017f
2018f
2019f
Total mass grocery retail sales, USDbn (LHS)
Private final consumption, real growth % y-o-y (RHS)
e/f = estimate/forecast. Source: National Sources, BMI
Finally, when an industry is mature and the wider economy provides little to no top-down impetus, the
example of Japanese beverage company Suntory shows how a market can be 'grown.' In May 2015, it
acquired the vending machine business of Japan Tobacco for USD1.2bn.
The bulk of Suntory's higher-ticket deal making has focused on foreign companies and brands; however, the
recent vending machine deal was clearly made with the domestic market in mind. Vending machines are
particularly ubiquitous across Japan - there are more than 5mn of them and they turnover more than
USD40bn per annum, according to the Financial Times.
In value terms, vending machines are more significant than convenience stores in terms of total turnover for
soft drinks meaning Suntory, as a major soft drinks bottler (including the PepsiCo franchise), has made a
major step in attempts to widen its reach through this deal. For drinks companies, reaching the market
through as many contact points as possible is a well-rehearsed strategy. Once the deal closes, Suntory will
use these new contact points to peddle its PepsiCo stable as well as its own brands. In a country with a sub-

par outlook for consumer spending growth, a shrinking population and a highly competitive market for
beverages (soft and alcoholic alike), expanding reach on this scale shows clear potential for growth.
Infant Formula Provides Margin And Growth
Infant formula will remain one of the most attractive sectors within the global food and drink industry,
especially in emerging markets. Asia will be the most attractive region for infant formula producers, driven
by a combination of large consumer bases, rising disposable incomes and women entering the labour force.
Globally, infant formula stands out as the most attractive sub-component of the wider packaged foods
industry, based on its profitability and growth profile. We highlight some key reasons why below:
Margin profile: Unlike the other major food sub-categories, such as processed foods, canned foods, pasta,
soup and others, infant formula brands are generally far less substitutable due to the nature of the product.
A good deal of spending goes into marketing brands and developing reputations for quality so higher
price points can be charged, which pushes up gross margins beyond those that other areas of food
manufacturing can generally reach.
Exposure to emerging markets: Birth rates are much higher in emerging markets and key ones like China,
Brazil and Russia have been huge markets for infant formula manufacturers like Mead Johnson for some
time. It derives most of its sales from growth markets.
Growth outlook: Given how well suited this industry is to the emerging market consumer story, there is
much more growth expected over the long term compared with other, less dynamic areas within the wider
packaged food market.

EM Strength
Mead Johnson - Asia/Latin America Division Revenue (USDbn)
Mead Johnson is the leading global pure-play infant formula company. Other key players include Nestl
and Danone. Over the next five years, we believe that emerging Asia will be the most attractive region for
infant food manufacturers. First, countries such as Indonesia and the Philippines offer sizeable and young
consumer bases. For instance, the Philippines had an estimated population of 100.1mn in 2014, with
children below four years of age accounting for 11.5% of the total. Second, as disposable incomes rise over
the next five years, infant formula products will become more affordable and sales will expand rapidly,
especially considering that infant formula is already very popular in those countries. For instance, Indonesia
is already Danone's second-largest market globally for baby food. Therefore, as GDP per capita rises from
USD3,441 in 2014 to USD5,537 in 2019, infant formula sales will accelerate. Third, higher female
participation in the labour market will also drive infant food sales.
Emerging Markets Profit Margin Power
Profit margins in key industries such as beer and carbonated soft drinks are likely to remain higher in
emerging markets, where monopolies are generally more prevalent than in developed markets. Monopolistic

market share fuels bargaining and pricing power. The Latin American beer sector offers a case in point. A
number of key markets will remain highly profitable over our forecast period to 2019, although we expect
sales growth to be slower than in Asia or Africa.
The three largest beer markets in Latin America - Brazil, Mexico and Colombia - share favourable market
structures for incumbents, translating into high margins. The Brazilian and Colombian markets are
dominated by a single strong player. In Brazil, Ambev - a subsidiary of Anheuser-Busch InBev (AB
InBev) - controls about 70% of the market. Meanwhile, in Colombia, SABMiller enjoys a quasi-monopoly,
accounting for more than 95% of sales. In Mexico, despite the strong presence of two global brewers - AB
InBev (following its acquisition of Grupo Modelo) and Heineken - the degree of competition is still
moderate. Combined with the limited bargaining power of customers and suppliers, the Mexican beer
market is also highly profitable (see 'Improving Consumption Outlook To Drive Premium Beer Expansion',
February 13). As a result, the Latin America business units of beer majors tend to drive margins up, as
illustrated in the chart below.
Latin America Beer Industry Highly Profitable For Beer Majors

AB InBev (LHS) & SABMiller (RHS) - Operating Margins By Region (%)
On the other side of the coin, China is a rare example of a relatively unprofitable beer market. It
remains fragmented, with small regional breweries accounting for almost a third of the market. Combined
with high distribution costs and the no-frills image of beer, the industry has a low-margin profile.

Incumbents have not been able to generate anywhere near the same premiumisation momentum as in other
key emerging markets, so scale is particularly important in driving overall profitability.
To this end, we saw the move by China Resources Enterprise (CRE) to divest its non-beer business in
Q215 as a positive strategic development. On April 20, CRE announced that it would sell its non-beer
business to its parent company, China Resources Holdings, for HKD28.0bn (USD3.6bn). We believe that
focusing on its beer business will help CRE boost its margins and increase its market power. Although CRE
is the clear market leader in the beer category with its brand Snow Beer (controlled at 49% by SABMiller),
its margins are low by global standards.
Low Margins A Consequence Of Market Fragmentation

China Beer Industry Market Shares (LHS) & Selected Brewers Operating Margin (%, RHS)
Source: Company Information, Bloomberg, BMI
Craft Beer Story: The Boston Beer Company Case Study
We continued to touch on the craft beer success story over Q215.I In April, we published an article
comparing some of the differences in balance sheets and wider business models between some of the major
global manufacturers and the largest pure craft beer company - The Boston Beer Company.
Boston Beer's much stronger relative profitability will continue for the foreseeable future, given its more
streamlined balance sheet. This takes into account the size of its balance sheet compared to global majors

like AB InBev. The relative absence of joint ventures and goodwill owing to Boston Beer's primary focus
on domestically focused organic expansion make for a relatively smaller balance sheet compared to the
level of operating profit it is able to generate.
In February 2015, we published an article arguing that the moment of peak beer volumes in the US had
passed (see 'Margins Provide Silver Lining In Peak Beer Era,' February 3). Based on our data, per capita
beer sales peaked at 82 litres in 2008 and have since declined to 76 litres in 2014. This figure will flatline to
2019, driven mainly by the hugely successful craft beer boom. We do not expect volumes to return to the 82
litre peak.
The US craft beer industry is worth about USD14bn in sales per year, according to the Financial Times,
representing about 18% of the consolidated beer market, based on our value sales data for the US. The
emergence of the craft beer industry has prompted a rapid increase in breweries in recent years. Defined
loosely as breweries producing fewer than 6mn barrels a year, craft brewers traditionally focus on high-
quality ingredients and innovative flavouring. The phenomenal growth over recent years of Boston Beer,
owner of the Samuel Adams brand, has been the highest profile example of the success of the craft product.
AB InBev is the dominant beer manufacturer in the US. In the financial year to December 31 2013,
its operating margin for North America was 37%. Although Boston Beer does not have the operating
margin profile of an AB InBev in the US (AB InBev is in a different league to everyone else in margin
terms ), Boston Beer (trailing operating margin of 16.2%) looks particularly strong on a number of return
and efficiency measures, which capture how its business model differs from the traditional blue-chip global
beer multinationals (including SABMiller, Heineken and the aforementioned AB InBev).

Peak Beer Gone

United States Per Capita Beer Consumption (litres) - Historical and Forecast
100
75
50
25
0
2010 2011 2012 2013 2014e 2015f 2016f 2017f 2018f 2019f
Beer sales, litres per capita
e/f = estimate/forecast. Source: Beer Institute, Trade Press, BMI
The table below ranks Boston Beer and the three largest global beer manufacturers by their trailing return
on invested capital (operating profit after tax/capital employed). By this measure, which assess the before-
interest return to providers of debt and equity capital and indeed the other two asset-focused measures,
Boston Beer is delivering higher profits scaled by its total capital base and utilising its asset base more
efficiently than the global majors.
The point of deploying these ratios and profitability metrics was to use them to illustrate how Boston Beer's
business model differed. The clear conclusion is that Boston Beer's business model is built around a much
smaller asset base in relative terms, shown most clearly by the asset turnover ratio (an efficiency gauge).
Boston Beer's annual sales in it last financial year were 70% greater than its total asset base (ratio of 1.7x) -
by comparison, SABMiller's was much lower at 0.3x.
One distinguishing factor behind the disparity is Boston Beer's utilisation of contract brewing, using the
excess brewing capacity of other breweries, which provides a lot of flexibility to its cost structure. These
breweries would not appear as assets on the balance sheet and therefore do not impact the asset or capital
(total equity plus total debt) denominations in any of the ratios we are highlighting.

The biggest difference is that Boston Beer, as a much smaller manufacturer and with production taking
place only in the US, has a different type of balance sheet. A large proportion of the asset bases of
Heineken, AB InBev and SABMiller include investments in joint ventures and associates. These are either
fully consolidated or accounted for using the one-line equity method. There are also often large amounts of
goodwill on the balance sheets of the big three. Their balance sheets are therefore much larger, which
pushes down the ratios shown here. Pure income statement return measures, such as net income or operating
profit margin, are of course not impacted.
Table: Boston Beer Company, Ab Inbev, Heineken And Sabmiller - Selected Trailing Return And Efficiency Ratios
Trailing 12M Return On Trailing 12M Asset Trailing 12M Return On

Invested Capital (%) Turnover Ratio Assets (%)
Boston Beer Company 36.7 1.7 17.3
AB InBev 14.6 0.3 6.5
Heineken 10.9 0.6 4.4
SABMiller 9.1 0.3 6.1
Developed World Food Retailing: A New Era Of Targeted Capex
We argued in May 2015 that the greatest food retail opportunities in developed markets will be in
convenience and e-commerce. Leading global retailers will maintain moderate levels of capital expenditure
over the coming years. While Walmart and Carrefour will focus their spending on e-commerce and
improved services, Tesco will continue to cut capital expenditure, reflecting excessive store expansion in
the past.
Over our forecast period to 2019, demand for convenience will drive growth in the mass grocery retail
(MGR) sectors of developed economies. Hypermarkets will underperform, while the greatest opportunities
will be concentrated in the convenience and discount formats, as well as in online retail (see 'Food & Drink
Global Industry Overview - Q115', April 15). Therefore, leading retailers such as Walmart, Tesco and
Carrefour are stepping up to diversify their operations and reduce their bias towards the hypermarket
format.
Combined with changes in the structure of the MGR sector, market saturation has translated into lower
capital expenditures (as a proportion of sales) over the past five to ten years. Since 2008, leading global

retailers have cut their capital expenditures due to tough macroeconomic conditions in their home markets.
As illustrated in the chart below, this phenomenon was particularly salient for Tesco, as the so-called 'space
race' in UK retail led to rapid store expansion in the 2000s and often led to unprofitable decisions (see
'Tesco: Worst Past, But Weak Recovery Ahead', April 24).
Lower Capex Era In Food Retail
Selected Food Retailers - Capital Expenditures/Sales Ratio (%)
f0 = latest financial year; f-1= previous financial year... Source: Bloomberg, BMI
Over the next few years, we expect capital expenditures/sales ratios to remain moderate for global food
retailers, with capital expenditures more targeted at improving in-store services and e-commerce systems,
rather than expanding store counts as seen previously. Nonetheless, we expect a diverging path between
Carrefour and Walmart on the one hand and Tesco on the other. Carrefour and Walmart have addressed
issues in their domestic markets, where sales have now started to recover. Carrefour will increase its capital
expenditures from EUR2.4bn in 2014 to EUR2.5-2.6bn in 2015, focusing on renovating existing stores and
improving in-store services, while Walmart will increase its investment in e-commerce. On the other hand,
Tesco will continue to cut its capital expenditures, reflecting past excesses in the UK retail sector and the
need to cut spending to offer lower prices to consumers.

The Manufacturers Side: Australia Case Study
Australia's food retailing industry is dominated by two players. Coles (owned by Westfarmers) and
Woolworths account for about 80% of the organised food retail market, making Australia's one of the most
concentrated food retail markets in the developed world. We computed Australia's estimated Herfindahl-
Hirschman Index (HHI) score (see the earlier table), alongside the UK and the USA, in order to illustrate
this point. Such is the extent of the duopoly that, according to local news reports, for every Australian dollar
spent in food retail, AUD0.80 goes to either Coles, Woolworths or one of their affiliates.
In a developed market like Australia, where the vast majority of food sold is in formal stores, food and drink
manufacturers prefer a much less consolidated market. The sheer size and reach of Coles and Woolworths
gives them significant power in the negotiating of contracts. Large manufacturers have limited bargaining
power, as they cannot afford to have their products not sold by either.
Over recent years, the private label category has grown significantly and has been increasingly targeted by
the Australian retailers, putting further gross margin pressure on many food manufacturers. They have had
to compete against a tide of growing interest in private label and value products, illustrated by the success of
Aldi, which is now very close to being the third-biggest retailer in Australia by market share, at about 7%.
In 2011, global food manufacturer Heinz (before it was bought by 3G Capital and subsequently merged
with Kraft Foods in 2015) publically criticised the structure of the Australian retail market and said it was a
very difficult environment for suppliers. Although spending levels are high on a per capita basis, the
relatively small size of the consumer market (population of 23mn) and the structure of the retail market will
continue to temper Australia's appeal for global manufacturers.
Government Legislation: The Shifting Economics Of UK Pub Industry
In June 2015, we touched on the unfavourable economics of the UK pub industry, broadly reflecting high
tax rates, more off license consumption and the smoking ban. To counter this, some of the larger pub
operators, particularly JD Wetherspoon (Wetherspoons) have been adapting, such as by more aggressively
targeting the breakfast trade.
With so many locations, Wetherspoons has the scale to actively pursue this line of business; breakfast will
become increasingly important as a driver of the overall business over the next two to three years, as the
economics of the pub industry continue to work against the industry's primary business.

Branded coffee shops still represent one of the most attractive industries in UK food and drink. Led by
Whitbread-owned Costa Coffee, the profitability profile of these stores is attractive and the strongest pure-
players, such as Costa, are particularly well positioned to continue generating good same-store growth
numbers while maintaining a steady stream of new domestic store openings.
With more than 2,000 stores in the UK, Costa leads the market ahead of Starbucks and Caf Nero; in
2012, Costa accounted for about one-third of Whitbread's total sales, up from around 10% in 2006. The fact
that Costa has become progressively more important to the company reflects the strength of its brand and
the growing popularity of the on-trade coffee industry. Quick-service restaurants, such as Pret A Manger
and Eat, also push coffee as part of their offerings. More pubs will have to target this space going forward,
given how the structural forces holding back the traditional pub industry are lodged in place.
Frontier Markets: The Other Side Of The Coin
A long-term view that is particularly obvious is multinational manufacturers and retailers scaling up their
operations in frontier markets. Sub-Saharan Africa figures heavily in the plans of many companies and has
been heavily targeted over recent years.
However, the wheels have come off slightly over recent months. In June, we argued that the narrative of a
booming middle class in Sub-Saharan Africa (SSA) could be juxtaposed with the challenges faced by some
fast-moving consumer goods (FMCG) companies in the region over recent years. Over our forecast period
to 2019, our Africa Country Risk team expects private consumption to become a more prominent driver of
growth, as exports suffer from weaker commodities prices. Low oil prices will benefit oil-importing
countries like Kenya and Tanzania, with consumers enjoying higher real disposable incomes (see 'After The
Commodity Boom: The New Growth Path', April 7). Nonetheless, this consumer story is a layered one, as
some FMCG companies will face difficulties in establishing a strong consumer base in the region, which is
indicative of the greater challenges some sectors face.
Most recently, Nestl announced it was to cut the workforce in its Equatorial Africa division by 15%, as it
overestimated the size of the region's middle class. Below, we take a closer look at the income structure of
households in SSA and analyse implications for FMCG companies.

African Middle Class To Remain Constrained
Selected Countries - Share Of Households With Net Income Above USD5,000 (%)
60
40
20
0
2013 2014e 2015f 2016f 2017f 2018f 2019f
Ghana Nigeria Kenya Uganda India
e/f = estimate/forecast. Source: National Sources, BMI
In spite of rising disposable incomes, the African middle class will remain limited in size over the next five
years. While SSA is often expected to follow Asia as the next consumer growth story, we note that its
consumer base is much smaller and that, on the back of lower incomes, the number of households with
discretionary purchasing power is limited. By 2019, we expect 47.2% of Indian households to fall into the
USD5,000-plus income bracket (a total of 131.5mn households), against 9.9% in Kenya (1.3mn households)
and 24.0% in Nigeria (14.4mn households).
Kenyan consumers have experienced some of the biggest benefits from lower oil prices (see 'Oil Boost: The
PICK Of The Bunch', February 26), but most income groups still have limited purchasing power, which will
remain the case over the next five years. By 2019, more than 40% of households will still live on a net
income below USD1,000, which corresponds to purely subsistence levels. By the same time, less than 10%
of households will have a disposable income above USD5,000, meaning that modern forms of consumption
and the purchase of premium food products will remain limited, available only to a small portion of the
population.

Inequalities will remain salient, with 45.3% of total income concentrated among the richest 10%, against
42.7% in 2014. This will benefit luxury industries that do not require high volume sales to be profitable -
our Autos team holds a positive outlook for the sale of premium car brands in the country (see 'Growing
Income Provides Premium Brand Growth', March 2). However, this will prove problematic for food and
drink companies, whose strategies tend to rely on high volume sales.
That said, we still believe that global food and drink companies will benefit from establishing a strong
presence in the region, assuming they adapt their product portfolio to low income levels. With discretionary
incomes limited for a great majority of the population, we expect the strongest opportunities to arise at the
lower end of the spectrum. SABMiller has experienced rapid growth in the region by developing low-cost
beer, with products sourced locally. Therefore, we see Nestl's decision to reposition its product portfolio
towards more staple goods (eg, stock cubes and powdered milk) at the expense of more premium items (eg,
pet food and Nespresso) as a positive strategic development. In the long term, a presence in the region will
enable food companies to climb up the value chain, although we believe that it will take more than a few
years.
Table: Food and Drink Core Views - Q215 Roundup
Short-Term Outlook
Grain prices to trade sideways over the Q315 period.
Consumer sentiment in the EU to remain particularly weak, with the exception of the UK. The US to remain a
developed world outperformer.
Deflation to ease across a number of European economies, including Spain and Poland, affecting food retailing across
all formats - including discounting.
Long-Term Outlook
Consolidation activity to pick up across the global food and drink industry; organic growth and cost-cutting have been
the key area of focus since 2008. Manufacturers and retailers will look for deal synergies and greater market power as
they look for a leg up on one another.
Companies with strong emerging market exposure will largely continue to outperform in underlining sales growth
(stripping out foreign exchange impact), although the best opportunities may now be beyond the BRIC countries.
Profit margins in key industries, such as beer and carbonated soft drinks, are likely to remain higher in emerging
markets, as monopolies are generally more prevalent than in developed markets. Monopolistic market share fuels
bargaining and pricing power.
Multinationals will increasingly pursue opportunities in frontier markets.
Competition from locally based food and drink brands to intensify as industry players and conglomerates challenge
established global companies.
Infant formula will be one of the most attractive categories in food manufacturing due to its margin profile and potential
for growth in emerging markets, where birth rates are generally high and incomes are rising.

Food and Drink Core Views - Q215 Roundup - Continued
Traceability will become increasingly important, particularly in Western Europe following the 2013 horse meat scandal.
Discount retailing will continue to outperform supermarkets and hypermarkets across much of Europe.
Intensifying competition in food retail in developed markets will lead to an era of lower profit margins and more
targeted capital expenditure investment.
Emerging market-based industry players and private equity firms will increasingly pursue developed market
investments for the purposes of diversification, access to stellar brands and potentially the transfer of technology.
Private equity interest in food and drink companies in frontier regions such as Sub-Saharan Africa will increase.
Hypermarkets will underperform in developed markets, where convenience, discount and online retailing are the
strongest opportunities.
Conversely, hypermarkets remain a great opportunity in less-developed retail markets, particularly adjacent to
shopping centres/malls.
Investment in innovation will increase as producers seek differentiation; emphasis will be placed on protecting
innovations.
Companies will divest brands that are perceived to be at risk from private label substitution.
Bottled water, juices and energy drinks will be outperformers in global soft drinks.
Government legislation will play an increasing role in marginalising unhealthy food and beverage products.
Source: BMI

Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only
is the total population of a country a key variable in consumer demand, but an understanding of
the demographic profile is essential to understanding issues ranging from future population trends to
productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2015, the change in the structure of
the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show
indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split
and life expectancy.
Population
(1990-2050)
75
50
25
0
1990
2000
2005
2010e
2015f
2020f
2025f
2030f
2035f
2040f
2045f
2050f
Thailand - Population, mn
e/f = BMI estimate/forecast. Source: National Sources/BMI

Thailand Population Pyramid

2015 (LHS) & 2015 Versus 2050 (RHS)
Source: World Bank, UN, BMI
Table: Population Headline Indicators (Thailand 1990-2025)
1990 2000 2005 2010e 2015f 2020f 2025f
Population, total, '000 56,582 62,343 65,559 66,402 67,400 67,857 67,899
Population, % y-o-y na 1.2 0.7 0.2 0.3 0.1 0.0
Population, total, male, '000 28,028 30,588 32,158 32,552 32,981 33,140 33,101
Population, total, female, '000 28,554 31,754 33,400 33,849 34,419 34,717 34,798
Population ratio, male/female 0.98 0.96 0.96 0.96 0.96 0.95 0.95
na = not available; f = BMI forecast. Source: World Bank, UN, BMI
Table: Key Population Ratios (Thailand 1990-2025)
1990 2000 2005 2010e 2015f 2020f 2025f
Active population, total, '000 36,938 43,174 45,859 47,675 48,598 48,396 47,128
Active population, % of total population 65.3 69.3 70.0 71.8 72.1 71.3 69.4
Dependent population, total, '000 19,643 19,168 19,699 18,726 18,802 19,461 20,771
Dependent ratio, % of total working age 53.2 44.4 43.0 39.3 38.7 40.2 44.1

Key Population Ratios (Thailand 1990-2025) - Continued
1990 2000 2005 2010e 2015f 2020f 2025f
Youth population, total, '000 17,100 15,071 14,645 12,837 11,764 10,656 9,812
Youth population, % of total working age 46.3 34.9 31.9 26.9 24.2 22.0 20.8
Pensionable population, '000 2,543 4,097 5,054 5,889 7,038 8,804 10,958
Pensionable population, % of total working age 6.9 9.5 11.0 12.4 14.5 18.2 23.3
f = BMI forecast. Source: World Bank, UN, BMI
Table: Urban/Rural Population & Life Expectancy (Thailand 1990-2025)
1990 2000 2005 2010e 2015f 2020f 2025f
Urban population, '000 16,648.9 19,415.6 21,137.0 22,397.5 24,016.2 25,767.7 27,672.6
Urban population, % of total 29.4 31.1 32.2 33.7 35.6 38.0 40.8
Rural population, '000 39,933.8 42,927.8 44,422.5 44,004.8 43,384.5 42,090.3 40,227.3
Rural population, % of total 70.6 68.9 67.8 66.3 64.4 62.0 59.2
Life expectancy at birth, male, years 67.4 67.2 68.9 70.5 71.5 72.5 73.5
Life expectancy at birth, female, years 73.6 74.8 75.9 77.2 78.1 79.0 79.8
Life expectancy at birth, average, years 70.4 70.9 72.4 73.9 74.8 75.7 76.6
Table: Population By Age Group (Thailand 1990-2025)
1990 2000 2005 2010e 2015f 2020f 2025f
Population, 0-4 yrs, total, '000 5,367 4,667 4,486 3,919 3,507 3,219 3,070

Population By Age Group (Thailand 1990-2025) - Continued
1990 2000 2005 2010e 2015f 2020f 2025f
Population, 70-74 yrs, total, '000 667 1,178 1,409 1,664 1,754 2,215 2,995
Population, 75-79 yrs, total, '000 451 695 950 1,145 1,371 1,459 1,862
Population, 80-84 yrs, total, '000 257 366 490 681 837 1,018 1,098
Population, 85-89 yrs, total, '000 111 167 211 290 413 519 642
Population, 100+ yrs, total, '000 1 2 2 3 4 6 10
Table: Population By Age Group % (Thailand 1990-2025)
1990 2000 2005 2010e 2015f 2020f 2025f
Population, 0-4 yrs, % total 9.49 7.49 6.84 5.90 5.20 4.74 4.52

Population By Age Group % (Thailand 1990-2025) - Continued
1990 2000 2005 2010e 2015f 2020f 2025f
Population, 100+ yrs, % total 0.00 0.00 0.00 0.01 0.01 0.01 0.01

Glossary
Food & Drink
Food Consumption: All four food consumption indicators (food consumption in local currency, food
consumption in US dollar terms, per capita food consumption and food consumption as a percentage of
GDP) relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/
section.
Off-trade: Relates to an item consumed away from the premises on which it was purchased. For example, a
bottle of water bought in a supermarket would count as off-trade, while a bottle of water purchased as part
of a meal in a restaurant would count as on-trade.
Canned Food: Relates to the sale of food products preserved by canning. This is inclusive of canned meat
and fish, canned ready meals, canned desserts and canned fruits and vegetables. Volume sales are measured
in tonnes as opposed to on a unit basis to allow for cross-market comparisons.
Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products. Chocolate sales
include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum;
and sugar confectionery sales include hard-boiled sweets, mints, jellies and medicated sweets.
Trade: In the majority of BMI's Food & Drink reports, we use the UN Standard International Trade
Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and Vegetable
Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits. Where an alternative classification is used due to
data availability, this is clearly stated.
Drinks Sales: Soft drinks sales (including carbonates, fruit juices, energy drinks, bottled water, functional
beverages and ready-to-drink tea and coffee), alcoholic drinks sales (including beer, wine and spirits) and
tea and coffee sales (excluding ready-to-drink tea and coffee products that are incorporated under BMI's
soft drinks banner) are all off-trade only, unless stated.
Mass Grocery Retail
Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by
companies with a network of modern grocery retail stores and modern distribution networks. MGR differs
from independent or traditional retail, which relates to informal, independent-owned grocery stores or
traditional market retailing. MGR incorporates hypermarket, supermarket, convenience and discount
retailing, and in unique cases cooperative retailing. Where supermarkets are independently owned and not
classified as MGR, BMI will state so clearly within the relevant report.

Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of
general merchandise goods (non-food items) and typically more than 2,500sq m in size. Traditionally only
found on the outskirts of towns, hypermarkets are increasingly appearing in urban locations.
Supermarket: Supermarkets are the original and still most globally prevalent form of self-service grocery
retail outlet. BMI classifies supermarkets as more than 300sq m, up to the size of a hypermarket. The
typical supermarket carries both fresh and processed food and will stock a range of non-food items, most
commonly household and beauty goods. The average supermarket will increasingly offer some added-value
services, such as dry cleaning or in-store ATMs.
Discount Stores: Although most commonly between 500sq m and 1,500sq m in size, and thus of the same
classification as supermarkets, discount stores will typically have a smaller floor space than their
supermarket counterparts. Other distinguishing features include the prevalence of low-priced and private
label goods, an absence of added-value services, often called a no-frills environment, and a high product
turnover rate.
Convenience Stores: BMI's classification of convenience stores includes small outlets typically less than
300sq m in size, with long opening hours and located in high footfall areas. These stores mainly sell fast-
moving food and drink products (such as confectionery, beverages and snack foods) and non-food items,
typically stocking only two or three brand choices per item and often carrying higher prices than other
forms of grocery store.
Cooperatives: BMI classifies cooperatives as retail stores that are independently owned but club together
to form buying groups under a cooperative arrangement, trading under the same banner, although each is
privately owned. The arrangement is similar to a franchise system, although all profits are returned to
members. The term is becoming more archaic, with fewer cooperatives remaining that conform to this
model. Most cooperative groups now have a more centralised management structure, operate more like
normal supermarkets, and are thus classified as such in BMI's reports.

Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined.
Common to our analysis of every industry is the use of vector autoregressions. Vector autoregressions allow
us to forecast a variable using more than the variable's own history as explanatory information. For
example, when forecasting oil prices, we can include information about oil consumption, supply and
capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient
historic data or data quality is poor. In such cases, we use either traditional decomposition methods or
smoothing methods as a basis for analysis and forecasting.
BMI mainly uses ordinary least squares estimators. In order to avoid relying on subjective views and
encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear
model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods
of 'industry shock', for example when poor weather conditions impede agricultural output, dummy variables
are used to determine the level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including but not exclusive to:
R2 tests explanatory power; adjusted R2 takes degree of freedom into account
Testing the directional movement and magnitude of coefficients
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)
All results are assessed to alleviate issues related to auto-correlation and multi-collinearity

BMI uses the selected best model to perform forecasting.
Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features where a purely mechanical forecasting process would not.
Sector-Specific Methodology
Within the Food & Drink industry, issues that could result in human intervention might include but are not
exclusive to:
Significant company expansion plans;
New product development that might influence pricing levels;
Dramatic changes in local production levels;
Product taxation;
The regulatory environment and specific areas of legislation;
Changes in lifestyles and general societal trends;
The formation of bilateral and multilateral trading agreements and negotiations;
Political factors influencing trade;
The development of the industry in neighbouring markets that are potential competitors for foreign direct
investment.
Example Of Food Consumption Model
(Food Consumption)t = 0 + 1*(GDP)t + 2*(inflation)t + 3*(lending rate)t + 4* (foreign exchange

rate)t + 5*(government expenditure)t + 6*(food consumption)t-1 + t
Sources
BMI uses the following sources in the compilation of data, developments and analysis for its range of Food
& Drink reports: national statistics offices; local industry governing-bodies and associations; local trade
associations; central banks; government departments, particularly trade, agricultural and commerce
ministries; officially released information and financial results from local and multinational companies;
cross-referenced information from local and international news agencies and trade press outlets; figures
from global organisations, such as the World Trade Organization (WTO), the World Health Organization

(WHO), the UN Food and Agricultural Organization (FAO) and the Organisation for Economic Co-
operation and Development (OECD).
Risk/Reward Index Methodology
BMI's Risk/Reward Index (RRI) provides a comparative regional ranking system evaluating the ease of
doing business and the industry-specific opportunities and limitations for potential investors in a given
market. The RRI system divides into two distinct areas:
Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub-categories:
Industry Rewards: This is an industry-specific category taking into account current industry size and
growth forecasts, and the openness of the market to new entrants and foreign investors, to provide an
overall score for potential returns for investors.
Country Rewards: this is a country-specific category, and the score factors in favourable political and
economic conditions for the industry.
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that calls into question the likelihood of expected returns being realised over the assessed time
period. This is further broken down into two sub-categories:
Industry Risks: This is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry and the relative maturity of a market.
Country Risks: This is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score.
We take a weighted average, combining industry and country risks, or industry and country rewards. These
two results in turn provide an overall Risk/Reward Index, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
index a weighted average of the total score. Importantly, as most of the countries and territories evaluated
are considered by BMI to be 'emerging markets', our index is revised on a quarterly basis. This ensures that
the index draws on the latest information and data across our broad range of sources, and the expertise of
our analysts.
In constructing these indices, the following indicators have been used. Almost all indicators are objectively
based.

Table: Food & Drink Risk/Reward Index Indicators
Rewards
Industry rewards
Indicator denotes overall breadth of market. Wealthier markets
Food and drink consumption per capita, USD score higher.
Per capita food consumption growth, five- Lead Food & Drink growth indicator. Scores based on compound
year compound annual growth, % annual growth over our five-year forecast period.
Subjective score reflecting how relatively developed the industry
Market fragmentation is. Higher score reflects a more fragmented industry.
Country rewards
Population size, mn Indicator denotes size of market.
Proxy for wealth. Size of population is important but needs to be
considered in relation to spending power. High-income states
GDP per capita, USD receive better scores than low-income states.
The size of the 0-15 age group as a percentage of the total
working age population. Younger populations are generally
Youth population, % considered to be more desirable.
Risks
Industry risks
The proportional contribution of the organised food retailing
sector; higher scores reflect better developed routes to
Mass grocery retail penetration, % consumers and more efficient internal trade systems.
Subjective score based on the industry-specific regulatory
Regulatory environment environment and the presence of potentially restrictive legislation.
Country risks
Score from BMI's Country Risk Index (CRI). It evaluates likely
growth trajectory over a two-year forecast period, based on
BMI's forecasts and projections of business and consumer
Short-term economic growth confidence.
Middle 60% of population as % of total spending. Higher score is
Income distribution an indicator of incomes being spread more equitably.
From CRI. It evaluates the risks to business posed by official
Lack of bureaucracy bureaucracy, the broader legal framework and corruption.
Subjective score from CRI to denote predictability of openness to
Market orientation foreign investment and trade.
From CRI. Poor power/water/transport infrastructure act as
Physical infrastructure bottlenecks to sector development
Source: BMI

Weighting: Given the number of indicators/datasets used, it would be inappropriate to give all sub-
components equal weight. Consequently, the following weights have been adopted:
Table: Weighting
Component Weighting
Rewards 60%
- Industry rewards 30%
- Country rewards 30%
Risks 40%
- Industry risks 20%
- Country risks 20%
Source: BMI

Thailand Food &amp; Drink Report - Q4 2015

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Thailand Food &amp; Drink Report - Q4 2015

Uploaded by

Copyright:

Available Formats

Q4 2015

Part of BMIs Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: September 2015

BMI Research 2015 Business Monitor International Ltd

Part of BMIs Industry Report & Forecasts Series

Published by: BMI Research

Copy deadline: September 2015

BMI Research 2015 Business Monitor International Ltd

BMI Industry View ............................................................................................................... 7

Industry Forecast .............................................................................................................. 15

Macroeconomic Forecast ................................................................................................ 31

Industry Risk Reward Index ............................................................................................. 35

Market Overview ............................................................................................................... 41

Business Monitor International Ltd Page 4

Industry Trends And Developments ................................................................................ 51

Competitive Landscape .................................................................................................... 62

Company Profile ................................................................................................................ 66

Global Industry Overview ................................................................................................ 114

Demographic Forecast ................................................................................................... 132

Business Monitor International Ltd Page 5

Table: Population By Age Group (Thailand 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Glossary ........................................................................................................................... 137

Methodology .................................................................................................................... 139

Business Monitor International Ltd Page 6

BMI Industry View

Headline Industry Data (local currency)

2015 alcoholic drinks value sales: +3.4%; CAGR to 2019: +5.0%.

2015 soft drinks value sales: +5.6%; CAGR to 2019: +7.6%.

2015 mass grocery retail sales: +3.0%; CAGR to 2019: +3.8%.

Key Industry Trends And Developments

Business Monitor International Ltd Page 7

Business Monitor International Ltd Page 8

Business Monitor International Ltd Page 9

SWOT Analysis - Continued

Business Monitor International Ltd Page 10

Business Monitor International Ltd Page 11

SWOT Analysis - Continued

Business Monitor International Ltd Page 12

Mass Grocery Retail

Business Monitor International Ltd Page 13

SWOT Analysis - Continued

Business Monitor International Ltd Page 14

Business Monitor International Ltd Page 15

Private Consumption Slowing

Source: National sources, BMI

Business Monitor International Ltd Page 16

We have revised down our food consumption 1,500 6

forecast for 2015 and 2016, on the back of slower

reasonably strong growth in Thailand's food

reasonably bullish forecast figures, as it will make a

Business Monitor International Ltd Page 17

2012 2013 2014 2015f 2016f 2017f 2018f 2019f

f = BMI forecast. Source: National sources, BMI

2015 chocolate value sales (local currency)

2015 gum value sales (local currency) growth:

However, we do not expect a sudden onrush of

driven by the increasing emergence and availability

Business Monitor International Ltd Page 18

2012 2013 2014 2015f 2016f 2017f 2018f 2019f

f = BMI forecast. Source: National sources, BMI

Business Monitor International Ltd Page 19

2014 2015f 2016f 2017f 2018f 2019f

f = BMI forecast. Source: National sources, BMI

Thailand Food & Drink Report - Q4 2015

Thailand Food & Drink Report - Q4 2015