Vietnam's F&B industry posts mixed results in Q1

Vietnam's F&B industry posts mixed results in Q1

Despite an overall positive trade performance, Vietnam’s food and beverage (F&B) industry posted mixed results in the first quarter of 2025.

According to a report by FiinGroup released on June 19, total revenue from the F&B industry dropped by 10.1 per cent on-quarter, primarily due to a 15.4 per cent decline in domestic sales following the Tet holiday. This drop can be attributed to seasonal spending patterns, where consumer budgets tighten after the holiday period, compounded by inflationary pressures that have dampened overall purchasing power.

However, F&B export growth of 13.1 per cent on-year partially offset this decline, driven by strong demand for flour, seafood, and processed foods. Flour milling was a standout performer, with both export and domestic sales doubling, which benefited from global food security concerns. Meanwhile, sectors like dairy and sugar faced weaker domestic demand, and beer and malt liquor struggled due to low consumer spending amid regulatory risks and increased import competition.

The report also reveals that the profitability of Vietnam's F&B sector in the first quarter of 2025 reflected a challenging environment, with key financial indicators showing a decline compared to the previous quarter. This was primarily driven by increased expenses from fluctuating raw material prices, logistics costs, and exchange rates, which collectively pressured profit margins.

Despite higher export volumes, the sharp drop in prices for certain agricultural products led to reduced profits for many businesses, especially in the rice sector. To counter these pressures, F&B enterprises plan to raise prices in 2025 to maintain their profit margins. However, this could further impact consumer purchasing decisions amid an environment of weakening demand. Companies may need to implement strategies such as increasing automation, renegotiating raw material contracts, and diversifying their market focus to adapt to these challenging conditions.

The newly implemented US tariffs have created substantial challenges for export-oriented businesses. While a temporary reduction to 10 per cent during the 90-day negotiation window (April 10-July 9) offers some relief, the long-term impact of higher tariffs could significantly reduce profitability for key export products like seafood, cashews, and coffee.

The sharp decline in prices of certain agricultural products, such as rice, negatively impacted profitability for businesses reliant on these commodities. This highlights the vulnerability of the sector to global price fluctuations and the need for better risk management strategies.

Lower consumer spending power, coupled with inflationary pressures, has reduced demand for discretionary products like beer and premium dairy items. This has forced businesses to adopt aggressive pricing strategies, further squeezing margins.

Looking forward, the outlook for Vietnam's F&B sector remains cautiously optimistic. Export momentum is expected to continue, supported by potential demand from international markets. Expanding into alternative markets, such as the EU and China, could help mitigate the impact of US tariffs. High-value segments like processed foods and seafood offer significant growth potential in these markets. Flour milling, oils, and fisheries also show growth potential, driven by both export and domestic demand.

The domestic F&B market is expected to recover gradually, particularly in the summer months, when demand for beverages and dairy products typically increases, though consumer spending power will remain a critical concern. The rise of Gen Z consumers is also reshaping the domestic market. This demographic prioritises convenience, innovation, and unique dining experiences, creating opportunities for businesses to develop creative products and services.

Overall, the F&B sector has demonstrated resilience in the face of external pressures, and with strategic adjustments and enhanced government support, it is well positioned to navigate the complexities of the current economic landscape. The continued evolution of consumer preferences, alongside proactive measures to strengthen supply chains and optimise production processes, will be essential to achieving sustained growth and profitability in the years ahead.

VIR