Vietnam beer market set to see big changes
VIETNAM’S beer market is forecast to see big opportunities this year, as the country has always been held great potential for domestic and foreign beer enterprises. Fierce competition is incoming, as more foreign brands are looking to tap the market.
The information was released in the Vietnam Industry Research and Consultancy’s ( Virac’s) latest report.
With a population structure among the youngest in the world – 56 per cent of the population is under the age of 30 – Vietnam Beer Association ( V BA) predicts t hat tota l consumer expenses in Vietnam will double and reach approx imately $173 billion by t his year.
A report by US global marketing research firm Nielsen Corp said 56 per cent of Vietnamese consumers are under 30 years old and Vietnam’s middle class will double from 12 million (in 2014) to 33 million (in 2020). It is estimated that Vietnam will have two million more consumers joining the middle class, becoming the fastest-growing middle class segment in Asia.
The strong export markets of Vietnam, such as ASEAN countries and China, are all markets with high growth in food and beverage consumption. Along with a series of free trade agreements, Vietnamese food and beverages have been largely able to access key free export markets (without tariffs).
In the context of international economic integration, mergers and acquisitions (M&A) will contribute to raise the size, competitiveness, market share, reputation and efficiency of larger businesses and start a new development cycle.
For example, Thai Beverage Pcl, a company owned by a Thai billionaire, spent 110 trillion dong ($4.8 billion) to buy 53.59 per cent of Saigon Beer Alcohol and Beverage Corp (Sabeco) in December 2017.
This is not only the largest M&A deal in Vietnam’s history, but also the largest M&A deal in the Asian beer industry.
Beer consumption
Last year, the total beer production reached more than five billion litres (up 22.9 per cent over 2018) and consumption reached over four billion litres (up 29.1 per cent).
Beer sales reached over 65 billion dong (up 0.5 per cent). Canned beer consumption accounted for 66.8 per cent of total beer consumption, followed by bottled beer 29.9 per cent, while draft beer is 3.1 per cent and accounts for a modest market share of fresh beer at 0.1 per cent.
Regarding imports, the imported beer output reached more than 37 million litres (up 8.9 per cent over 2018). The three main sources of beer supply in Vietnam are the Netherlands (25 per cent), Mexico (17 per cent) and Belgium (16 per cent).
Compared to beer consumption in Vietnam, beer imports into the country account for a relatively small proportion. Domestic and foreign direct investment (FDI) beer enterprises dominate the domestic market, with the advantage of cheap beer prices, which suits the taste of the majority of customers.
The export beer output increased 46 million litres last year over, reaching $45.87 million. The export volume decreased by about seven per cent. The main reason is that Vietnam’s beer quality has not been highly appreciated and not created a brand in the international market. Equatorial Guinea (about 20 per cent) is the largest market for Vietnamese beer.
Challenges
The law coming into effect on January 1 has been effective in adjusting the drinking habits of many people. It is forecasted that the beer industry growth rate in the year will not maintain the double-digit level as in previous years – it will reach six-to-seven per cent in the following years, although each year Vietnam has one million more people of legal age to drink alcoholic beverages.
In the stock market, shares of the two “giants” in the beer industry, Sabeco and Habeco, have dropped from 0.4 per cent to 0.8 per cent. Meanwhile, the share value of the entire industry declined by nearly 13 per cent last year.
Experts predict that the beer and wine industry will adjust towards a shrinking trend by this year’s end, in which small businesses will be most affected.
Alcoholic beverages in Vietnam are subject to taxes at two stages – import and domestic consumption. These include three different taxes – import tax (from five to 80 per cent depending on type of free trade agreement), VAT (10 per cent) and excise taxes (up from 50 per cent to 65 per cent from 2018).
This can affect the profitability of beer companies, especially those in the mid-end segment, as this is a competitive segment and customers are most vulnerable to the impact of the best-selling prices.
Production licences can be considered a major obstacle for new businesses. To open a beer factory in Vietnam, businesses must be licensed by the Ministry of Industry and Trade.
While the regulations are quite clear, implementation can be difficult. Even if all provinces were willing to facilitate new breweries to collect taxes, the licensing would depend on the beer and beverage planning of the ministry, which may have been registered many years in advance.
Virac said Vietnam’s beer industr y st i l l faces many challenges such as communication, risks of changing consumer tastes and M& A, requiring continuous efforts and improvement to enhance the position in the internationa l market.