Organic food company Bellamy's Australia (ASX: BAL) has announced plans to enter the Vietnamese market this year, banking on similar macrotrends that have made its Chinese business so successful.
Bellamy's CEO Andrew Cohen made the announcement in a webcast today after the group posted 65 per cent EBITDA growth for FY18 to reach $71 million.
"It is a large, high-growth market that looks to foreign brands in the same way China does and we note the early success of a major organic competitor that hit in that market which has already secured 5 per cent market share," Cohen said.
In an investor presentation, the group highlighted Vietnam had the fastest growing upper and middle class in South East Asia with expectations the demographic would rise from the 20 million seen in 2015 up to 33 million in 2020.
Euromonitor data estimates Vietnam's baby formula and food market is worth around $1 billion a year with a 15-20 per cent annual growth rate, but this is still dwarfed by the $30 billion Chinese market.
The company is still waiting on registration for its Chinese-label formula products with China's State Administration for Market Regulation (SAMR, formerly known as CFDA), following an application in December last year that specifically relates to offline channels in China - an outlet that represented less than 6 per cent of Bellamy's business in FY18.
Food regulators in Asia tend to be sensitive to perceived pressure from companies hoping to gain market access, and Bellamy's has emphasised it is very respectful of SAMR's process.
The Tasmania-based company does not expect Chinese-label formula products to have a great impact in FY19 but is hopeful they will generate a "meaningful revenue stream in FY20 and beyond".
"We remain confident in our SAMR registration prospects and despite delays are well progressed in the application process," Cohen said.
"We believe the recent announcement of the new SAMR structure and the re-commencement of approvals is a positive sign for registration.
"Our business continues to actively plan and organise for a winning China offline model, including our plan to take direct control of trade marketing and sub-distributor and key retailer relationships."
While Bellamy's continues to benefit from its "brand authenticity" and Australian provenance in the Chinese market, Cohen recognises trading conditions were challenging in the second half of FY18, citing "slower Chinese cross-border growth across the category as well as increased competition".
"We view these changes as short-term challenges that need to be cycled in FY19. They can be confidently overcome by continued investment in our brand and product portfolio," Cohen said.
"We remain excited about the opportunity ahead for our brand. The underlying growth for both organic formula and food is very significant, especially in China."
In a bid to revamp its appeal, Bellamy's has also announced a rebrand that looks to "stay true to the heritage and visual cues of our existing brand, but also bring the modern, fresher and more premium look and feel to our product". This has been undertaken in conjunction with a new product roll-out that includes enhanced cereals, prebiotics and a first-to-market no added sugar custards and dairy smoothies.
Entering new territory, Cohen also highlighted the launch of a new exotic fruits range in pouches that "align to Chinese preferences and will be an important driver for our Chinese business".
"The medium to long term outlook remains compelling, supported by category fundamentals, our differentiated position and future brand and channel opportunities. We have laid the foundations with an ambition to build a $500 million revenue business by FY21," Cohen said in a release.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
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