Vietnam’s Beverage Market Update
Friday, 16 July 2010
Market structure and size
Despite the recent global financial crisis and economic recession, Vietnam’s beverage market has managed to remain a strong growth opportunity. Alcoholic consumption in 2009 was estimated at 28,034 billion VND, increasing by 4.47 percent year-on-year (approximately US$1.54 billion, falling by 5.88 percent due to the dong devaluation). Accordingly, beer sales were estimated at 2,005 million liters, increasing by 8.38 percent year-on-year. The figures for wine and spirits were 29.6 million liters (rising 6.09 percent year-on-year) and 16.5 million liters (rising 3.77 percent year-on-year), re- spectively. Although there are no official figures for soft drink sales in Vietnam, it is expected that soft drink consumption in the market is moving in the same positive direction as the alcoholic sector.
The alcoholic sector’s market structure is changing. The low-end market is contracting, as rising consumer incomes begin to erode consumer price sensitivity, according to Vietnam’s Beer, Alcohol, and Soft Drinks Association (VBA). Particularly, the high-end segment in Vietnam for brewery products, which currently accounts for 12 percent in terms of volume, and 20 percent in terms of value. Some major brands names are Heineken, Carlsberg, and Tiger. The respective figures for the middle and the low-end segments are 45 percent and 43 percent in terms of volume, and 50 percent and 30 percent in term of value.
In terms of regional patterns, the North is the biggest market for brewery products. The region consumed more than 1 billion liters of beer last year, accounting for more than 50 percent of the whole country’s consumption. Standing in second is the Southeast (including Ho Chi Minh City, Binh Duong, Binh Phuoc, and Dong Nai, with annual beer consumption of 750 million liters. On the other hand, the Southeast also had more than 50 percent of the total consumption in term of alcoholic products.
According to the General Statistics Office (GSO), Vietnam officially spent around US$32 million and US$4.5 million on importing alcohol and brewery products in 2009, respectively.
Market share
Vietnam has some 400 breweries nationwide, only 5 of which have a production capacity of over 100 million liters per annum, 15 with capacity of 15-20 million liters per annum. The rest are small provincial breweries with capacity of under 1 million liters.
A number of foreign players are present in the Vietnamese beer market, including the Danish major Carlsberg operating both alone and via a stake in Hanoi Beer, Alcohol, and Soft Drink Corporation (Habeco); the South African brewing giant SABMiller, operating in a joint venture with the local partner Vietnam Milk Corporation (Vinamilk); and the UK-based Scottish&Newcastle, with its partner Vietnam National Tobacco Corporation (Vinataba). Although S&N’s Vietnamese operation is expected to fall into the hands of Carlsberg after the Danish firm’s takeover of the UK brewery and asset split in partnership with Heineken; Heineken’s Vietnamese operation is controlled through Vietnam Brewery Limited, which is majority-owned by the Dutch brewery and the Asia Pacific Breweries Limited (APB), its regional affiliate.
However, despite the growing presence of multination- als, local firms continue to dominate the market. Among them, Saigon Beer, Alcohol, and Soft Drink (Sabeco) and Habeco control an impressive market share of 44 percent and 15 percent, respectively. In 2009, Sabeco’s revenue was estimated at VND14,956 billion, increasing by 60 percent year- on-year, with sales volume of 895 million liters, increasing by 15 percent year-on-year. The company ranked at 21st among the largest beverage corporations in the world. The respective figures for Habeco were VND 4,200 billion (an increase of 29.9 percent year-on-year) and 305 million liters (an increase of 26.2 percent year-on-year), totally controlling the market in the North.
With respect to the alcohol market, Vietnam has 2 significant producers including Hanoi Liquor JSC (Halico) and Binh Tay Liquor JSC, which are subsidiaries of Habeco and Sabeco, respectively. The two companies command more than 60 percent of the market, thanks to their quality products and reasonable price for Vietnamese consumers. Meanwhile, the high-end segment of spirits is still dominated by imported products. The government levies substantial duties on all imported alcoholic products, and there are also consumption taxes. As a consequence, there is a substantial black market for smuggled and fake products, which are estimated at a third of total alcoholic sales annually.
In addition, the soft drinks market is dominated by multi- nationals i.e. Coca Cola and Pepsi, which jointly command a dominant market share of almost 90 percent. The major focus of the multinationals is on carbonated soft beverages, while small local firms produce other types of drinks and are fighting for the remaining share. Saigon Beverages Joint Stock Company (Tribeco), which produces a range of soft drinks, is the country’s leading producer of soymilk, with an estimated 85 percent share of the soymilk segment. Besides growth in this market, there has also been a boom in bottled tea, with the traditional beverage competing with products from multinationals such as Pepsi, or Coca Cola. The Tan Hiep Phat Group became the first company selling bottled tea in 2006, after investing US$20 million in production equipment and launching the 0 Degree brand, following it with the Dr. Thanh brand. Last year, the sales from bottled tea increased by 30-40 percent, according to Maximark, a chain of supermarkets.
Investment
In recent years, foreign-invested enterprises, including Carlsberg, SABMiller, have begun to intensify their investment in the Vietnamese beer market.
In March 2009, three years after entering into a brewing joint venture, the South African SABMiller revealed that it had bought out the local partner Vinamilk. Leaving Vinamilk free to focus on the dairy industry that it still dominates, the acquisition is expected to give SABMiller freedom to pursue its own strategy and improve its market power. Accordingly, SABMiller will need to boost investment in not only production but also its own supply chain network. Thus, SABMiller’s investment in its Vietnamese unit is expected to rapidly increase in next few years.
In November 2009, the Danish brewing giant Carlsberg announced a plan to acquire the remaining 50 percent stake in Hue Brewery Joint Stock Company as part of its objective to strengthen its position in Vietnam. In 1994 Carlsberg had originally purchased a 50 percent stake in the Vietnamese brewery through a preliminary agreement with Hue People’s Committee. Also, Carlsberg offered to increase its stake in Habeco to 30 percent, after an increase to 15.77 percent in April 2008.
This was followed by the announcement in late December by the Japanese brewing Sapporo that it had acquired a 65 percent stake in Kronenbourg Vietnam, a joint venture signed between Carlsberg (50 percent) and Vinataba (50 percent). The US$25.4 million deal will see Sapporo take full ownership of Carlsberg’s stake and 15 percent of Vinataba’s interest. Sapporo has already confirmed that the construction of a new brewery will be among its first priorities upon completing the acquisition.
Industry perspectives
The outlook for Vietnam’s beverage market remains very promising, thanks to high economic growth and increasing personal income. The nominal GDP was estimated at US$90.07 billion in 2009, meanwhile, GDP per capital was estimated at US$1,023. This growth trend is expected to continue. In addition, a developing tourism industry and a large young population both may have a strong impact on consumption growth.
According to Decision No. 2435/QD-BCT, dated 5/21/2009, by the Ministry of Industry and Trade, Vietnam will continue to encourage economic sectors, especially foreign-invest- ed ones, to foster the production of high-quality drinks at industrial scale so that the local beverage industry will grow rapidly. Under the Master Plan, the country is set to gain a beverage annual growth rate of 13 percent during 2011-2015, and 8 percent during 2016-2025.
Vietnam plans to produce 2.5 billion liters of beer by 2010, 4 billion liters by 2015, and 6 billion liters by 2025. The respective figures for alcohol are 80 million liters, 188 million liters, and 440 million liters. Also, the country aims to produce 2 billion liters of soft drinks by 2010, 4 billion liters by 2015, and 11 billion by 2025. The industry’s export value is expected to reach US$70-80 million by 2010, and US$140-150 million by 2015.
To develop beer production, existing breweries will be upgraded, and new breweries with a minimum annual capacity of 100 million liters will be built. The government is encouraging foreign-invested enterprises and joint ventures to produce high-quality beer for domestic consumption and export. A Total VND42.1 trillion will be invested in beer production by 2025.
Regarding alcohol, Vietnam is encouraging large-scale production using modern technologies, and tapping well-known foreign trademarks, while discouraging small-scale production in order to ensure foodstuff safety and hygiene. It will mobilize VND4.31 trillion for alcohol development by 2025.
The government is also encouraging the beverage sector to manufacture soft drinks at industrial scale using local inputs, especially fresh fruits. Some VND15.35 trillion will be needed for soft drinks production during the 2011-2025 period.
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