Bordering China, Laos, Cambodia, the Gulf of Thailand, and the South China Sea is Vietnam, a country with a population of just over 90 million. In 2009 Vietnam broke through the 1,000 USD barrier of annual per-capita income and is now regarded as a ’middle income country’. In 2013 the GDP was 176 billion USD, equating to 1,960 USD per capita. These numbers demonstrate that Vietnam is enjoying an upturn. And they indicate that over recent years many economic sectors experienced rapid growth. In the following interview Dr. Van Viet Nguyen, who has profound knowledge of Vietnam’s beverage industry, talks about how the sector has developed, about the current situation and about visions for the future. Dr. Van Viet Nguyen has been chairman of the Vietnam Beer Alcohol Beverage Association for 20 years. Previously he was the general director of Habeco, one of the largest breweries in the country.
KHS competence: You have been working in the beverage industry since the economic upturn started in Vietnam in the 1990s. What has there changed since then?
Dr. Van Viet Nguyen: Virtually everything. In those days we didn’t have any large beverage producers. People drank almost exclusively tap water, perhaps mixed with a little syrup. The annual per-capita beer consumption was just about two liters, and traditional spirits such as rice liquor were mainly being produced at home. Over the last 30 years an industry has developed in Vietnam that produces an unprecedented variety of non-alcoholic and alcoholic beverages. The brewing sector experienced particularly strong growth during this period. It’s this sector that today is the most significant segment within the Vietnamese beverage industry.
“Companies who want to continue to be successful in the Vietnamese market will have to put quality at the center of all their activities.”
What is the annual per-capita consumption of beer, how has it developed over the years, and who are the big players among the breweries?
At the turn of the millennium the Vietnamese per-capita consumption of beer had reached a level slightly less than 10 liters, by 2005 it had exceeded 15 liters. Today it is about 32 liters. Over recent years annual beer sales have grown between 8% and 12% annually. For the next few years we expect an annual growth of about 5%. This comparatively low predicted growth rate is due to the fact that beer consumption in Vietnam has already reached a relatively high level. Within Asia our country ranks fifth or sixth in terms of per capita beer consumption after Japan, China, South Korea, and Laos, and about the same as Thailand. Today we have more than 117 breweries in Vietnam. Of which the largest four have a market share of 95%. These are Sabeco (approx. 45%), Habeco (approx. 21%), APB Vietnam (Asia Pacific Breweries Vietnam) (approx. 21%), and Carlsberg (approx. 8%).
Which styles of beer are the most popular in Vietnam?
Particularly popular are lager beers with a relatively low alcohol content of between 4 and 4.5%, because in Vietnam beer is regarded mainly as refreshing beverage. Receiving a high-quality product is important to the Vietnamese population. Incidentally, this applies not just to beer, but also for all other beverages and consumer goods to stand a chance of success in Vietnam. The consumers are very quality-conscious but also very price-conscious. Because of their usually very low income, the rural population in particular often has no choice but to focus on price.
Does this mean that beer and other beverages are still mainly consumed in towns and cities today?
It certainly does. If you consider that 60% of the rural population comprises only 20% of the national income, this is only logical. On the other hand, these figures illustrate the significant further growth potential for the beverage industry in Vietnam, bearing in mind that the rural population will also become more affluent in future.
How do the Vietnamese regard international premium beers? Is there significant potential for growth in Vietnam’s towns and cities?
In general, the Vietnamese don’t particularly differentiate between international premium beers and domestic brand name beers. The main thing is quality, as I said previously. On the other hand, I wouldn’t want to rule out the possibility that the consumption of international premium beers could be regarded as a kind of statement for the higher income bracket.
Dr. Van Viet Nguyen,
Chairman of the Vietnam Beer Alcohol Beverage Association.
Since Vietnamese breweries are quality- conscious to such an extent, one would also expect their beers to be highly regarded outside Vietnam. Is this reflected in high export rates?
When it comes to exports, we are still in the very early stages. Just about 1% of the beer production leaves our country, mainly in the direction of Southeast Asia. No doubt there is growth potential in this area. A further development that has already started in the Vietnamese market but is still in its infancy is craft breweries.
Over recent years, beer in cans has become enormously popular in Vietnam. Why do you think this is?
Canned beer is relatively new in Vietnam and was only introduced in the mid-2000s. Initially the main incentive for consumers to buy canned beer was that it is tamper-proof. Canned beer can also be used to demonstrate a western lifestyle, although this aspect is a later phenomenon. Whatever the reasons why individuals choose cans – their success is indisputable, no doubt not least due to the high convenience factor. Within just under 10 years, cans have managed to conquer 40% of all beer sales – at the expense of glass bottles, the share of which has fallen to 50%. Beer in kegs comprises the remaining 10% of beer sales.
Is beer equally popular among men and women in Vietnam today?
No, Vietnam is still a very traditional country. Our tradition dictates that women should drink very little alcohol. I feel that this attitude will only change very slowly.
What is your vision for the future for the Vietnamese beer market?
I see no reason why the per-capita consumption of beer shouldn’t reach 50 liters within the next 10 years. Not least because the rural population will increasingly be able to participate in the consumption of industrially produced foods and beverages. In my view the main beneficiaries of this growth will be the breweries who have understood how important beer quality is for Vietnamese consumers. For this reason I also see plenty of opportunities for small quality-oriented breweries, such as craft breweries.
Let’s consider the market for non-alcoholic beverages. Is this market also dominated by only a handful of producers?
Yes, that’s right. The ranking shows three companies at the top: PepsiCo Vietnam (approx. 26% market share), Tan Hiep Phat (approx. 23%) and Coca-Cola Vietnam (approx. 11%). The ten largest producers of non-alcoholic beverages hold a market share of around 75%. If one looks at the non-alcoholic beverage market as a whole, it becomes clear that it has developed tremendously over recent years. In 2010 the sales figures were just under 32 million hectoliters, in 2011 around 39 million, in 2012 more than 42 million hectoliters and by 2013 they had reached 45 million hectoliters.
Which non-alcoholic beverages are particularly popular in Vietnam?
Bottled water, including still and carbonated mineral water, accounts for almost 60% of sales. This is followed by carbonated soft drinks and non-carbonated fruit drinks with just over 35%. Innovative products such as wellness and energy drinks account for around 5% of sales. Segments that experience growth at present are water and non-carbonated fruit beverages, while for carbonate soft drinks, wellness and energy drinks there is a slight downturn right now.
“Within just under 10 years,
cans have managed to capture
40% of all beer sales”
For which non-alcoholic beverage segments do you see further significant potential for growth?
Primarily for bottled water. At present the main clientele for bottled water is still the urban population, while water from the tap is still the standard in rural areas. With growing prosperity of the rural population it is very likely that bottled water will become more popular as an alternative, not least for hygiene and health reasons. I would also predict an increasing trend towards healthy products. Bottled non-alcoholic beverages which offer a specific added benefit, such as vitaminized water, tea drinks and wellness drinks enriched with fibers, therefore have good potential for growth in my view. All in all, I think we can expect annual growth rates between 6 and 8% for bottled non-alcoholic beverages in Vietnam over the next ten years.
What is the packaging situation for non-alcoholic beverages?
90% are sold in PET bottles. The remaining 10% are largely accounted for by the glass bottle, with only a small proportion sold in cans or kegs. This ratio is likely to develop even further in favor of PET bottles in future.
Let’s talk about the question of how alcoholic beverages with higher alcohol content than beer will develop in Vietnam. For example, is the traditional rice wine still popular?
In rural areas, rice wine – notably the homemade variety – is still the number one among the stronger alcoholic beverages. We estimate that around 200 million liters are consumed every year. In towns and cities rice wine is also popular, although here it is the bottled brands that are significant. Around 25 million liters are sold every year. The total market volume of bottled spirits and wine is around 65 million liters per year. Rice wine is the best-selling spirit in the country, and it also has the highest growth rates (more than 30%).
Wine, vodka, and cognac also enjoy high growth rates, although based on significantly lower sales level. Today around 5 million liters of vodka and cognac are consumed in Vietnam every year, while the wine consumption is 13 million liters per year. The reason is that these products are expensive, which means that only Vietnamese with a higher income can afford them. People who eat out in a good restaurant, accompanied by a glass of wine and followed by a cognac as a digestive, demonstrate their high social status.
Assuming you could give all Vietnamese beverage producers just one recommendation for the future – what would it be?
That’s simple: ensure quality, quality, and more quality. Companies who want to continue to be successful in the Vietnamese market will have to put quality at the center of all their activities. This also includes investing in outstanding raw materials and in the best technical solutions. And of course it also applies to marketing and service.
Dr. Van Viet Nguyen, thank you very much for this interview.