MARKET: Pastures New

Multinational brewers are recognising the distinct opportunities offered by the Vietnamese market. At the same time, domestic companies are stepping up the ante in order to become more competitive ahead of privatisation. By Euromonitor’s Catherine Mars

The Vietnamese beer market is one of the most dynamic globally with consumption growing at 9% per year, according to Euromonitor International. This promising market is also largely untapped with per capita consumption of only 16 litres in 2007, compared to 29 litres per capita in China and 113 litres per capita in Germany. The population’s growing thirst for beer, coupled with the country’s accession to the WTO in January 2007, bodes well for brewers, particularly those offering global brands. Not only is the growing consumer base becoming increasingly wealthy, younger consumers in particular are becoming increasingly westernised. As a result of exposure to international trends, there is a growing drinking culture in Vietnam and consumers have a mounting desire for international brands. In fact, Euromonitor International expects that continued investment by leading international brewers will lead to fierce competition among beer producers. Players tipped to enter the market in the mid-term include Scottish & Newcastle, along with some Chinese breweries.

Local knowledge and international brands
The Vietnamese market has attracted considerable interest from global brewers over the past couple of years. SABMiller Vietnam, a joint venture between the second largest brewer globally and Vietnam Dairy Products Co (Vinamilk) was set up in June 2006. Vinamilk’s extensive distribution network gives SABMiller access to more than 20,000 beer-selling outlets in southern Vietnam. In 2007 the joint venture introduced its first beer, Zorok, which it hopes to develop into a mainstream beer in the country. Additionally, the company plans to brew some of SABMiller’s premium international brands such as Peroni, Pilsner Urquell and Miller at its brewery in Binh Duong province, which has a capacity of 100 million litres per annum. Scottish & Newcastle is also exploring opportunities in this market. In February 2007 the company joined forces with Vietnam Tobacco Corp (Vinataba) to form Kronenbourg Vietnam Ltd. The JV plans to set up a greenfield site in Long An Province which will be used primarily for the production of S&N’s Kronenbourg 1664 brand (which has in the past been imported into Vietnam).

Even players who are more established in the Vietnamese market are taking steps to expand their positions. Asia Pacific Breweries (Heineken’s partner in Asia) commenced operations in Vietnam in 1993 and now controls five breweries in southern, central and northern Vietnam. Having acquired the Foster’s breweries in central and south Vietnam in September 2006, Asia Pacific Breweries continued on its expansion track with acquisition of Quang Nam Brewery in January 2007.

Carlsberg, which holds 8% of the market by total volume, also entered Vietnam in 1993 through a joint venture with Viet Ha Brewery, based in northern Vietnam. The following year the company entered into a second joint venture, this time with Hue Brewery in central Vietnam, and in early 2007 the company acquired a 30% shareholding in Halong Brewery, located in the northeastern Quang Ning province. However, the most exciting development was the 2007 agreement between Carlsberg and Hanoi Alcohol Beer & Beverage Corp (better known as Habeco), the country’s second largest brewer, in which Carlsberg agreed to buy a 10% stake when the state-owned brewer is privatised. Additionally, the Hanoi Vung Tau joint stock company, a joint venture between Carlsberg and Habeco, formed in September 2007, will build a new brewery in Vung Tau province in the south of the country to brew Carlsberg’s namesake beer as well as Habeco’s Hanoi Beer, which is the leading beer brand in northern Vietnam.

Consolidation gets closer
The last two years have been eventful on the mergers and acquisitions front as domestic companies team up in order to survive in an increasingly competitive environment. In 2006 and 2007 Saigon Alcohol Beer and Beverages Corp (Sabeco), the market leader with a 32% volume share, acquired Dong Xuan Liquor Co, Vida brewery in Nghe An and Dong Nai brewery. Number two in the market, Habeco has lifted its capacity from 160m litres to 200m litres per year through the acquisition of small breweries in Thanh Hoa, Hai Duong, Thai Binh, Quang Binh provinces and Haiphong city since 2003.
While Habeco and Sabeco remain state-owned companies, they are expected to be listed in the first quarter of 2008. As an initial step, both companies have been restructured to enhance their competitiveness. Thanks to these changes, awareness and distribution of the Hanoi and Saigon beer brands have improved. Capital raised during the IPOs is expected to be used to expand the capacity of both companies. Increased production capacity is crucial as these companies attempt to keep up with the ever-growing volume demand for beer.

Carlsberg, chosen as Habeco’s foreign strategic investor, will take a 10% stake in the company when it is listed. Habeco is expected to benefit from Carlsberg’s know-how in developing strong branding and marketing strategies. Although the government plans to sell a 20% stake in Sabeco during its IPO, no shares will be allocated to foreign strategic partners. However, the company is reportedly considering cooperative projects with foreign partners which will help boost the image of Vietnamese beer abroad. Euromonitor International believes that multinationals including Asahi Breweries, Anheuser-Busch, InBev, Kirin Brewery and Thai Beverage, will line up for the opportunity to form a strategic alliance with Sabeco.
Following privatisation, the Vietnamese beer market is expected to become increasingly consolidated. The two major domestic players will be better organised and focused to enhance their competitiveness against multinationals. However, in order for smaller players to survive they will either need to band together or look for strategic alliances with multinationals, offering their local knowledge and established distribution channels in exchange for the marketing savvy of international brewers. Either way, integration and competition is expected to result in more choices for Vietnamese consumers, with cheaper prices and improved quality.

© db February 2008