Alcohol — VietEcon

UNIT: BILLIONS OF VND. SOURCE: THE LEADER VN

Continuing on our survey of drinks in Vietnam, today I wanted to look at the alcohol market. First, I saw this article on the battle between Heineken and Sabeco (which is majority owned by ThaiBev, famous for Chang beer).

The history here is that Sabeco had over 50% market share in in Vietnam back in 2011. In 2012, Heineken bought Vietnam Brewing Limited, which was the second biggest brewer at 30%.

Heineken is a fierce competitor and by the time Sabeco was bought by ThaiBev, it’s share had fallen below 40%. Now with a new owner, Sabeco is trying to take back some of that share.

But complicating matters is the fast growth of the craft beer scene in Vietnam. I couldn’t find numbers around craft beer, but I would assume that revenues are actually very small compared to the big ones - I would assume less than 5% on revenue and probably less than 1% in terms of volume (craft beer average prices are considerable more - like $5 vs less than $1). I am basing this on the US, where the long-developed craft beer market still makes up just 13%. Production in the US has gone up from 5.7m barrels in 2004 up to almost 26m in 2018, but still is just a small part of the overall market. I assume Vietnam is the same. I would expect these craft brewers in Vietnam to start to grow more quickly as they reach scale, and eventually I would assume that one or two would be bought by the big boys.

There is going to be more competition coming up, with beer giant San Miguel Brewery looking to build a much bigger brewery when “the market looks attractive.” I would think that would be now, but what do I know.

So there is a big battle for market share, but unlike in the US, there is actually growth in Vietnam.

Vietnam, Asia’s third-largest beer consumer after China and Japan, has seen beer volumes climb by an average 6.6% for the last six years compared to an increase of just 0.2% for consumption globally, according to market research firm Euromonitor International.

In this growth environment, the shifting market share is not as big a deal, because volumes can still increase for everyone. Of course a company doesn’t want to see their product lose out, especially to a similar competitor. But if volumes and profits continue to grow, it is easier to take.

Market share isn’t all important. Profit is also important, and on that metric, Heineken is actually much more profitable (see the chart above to the right). That’s on much lower revenue figures. In total, these two made around $500 million in profits in 2017. That’s a lot, and I bet that goes up significantly over the next 5 years.

Other alcohol sales: I also wanted to look at other alcohol sales in the market. The largest is rice wine, and there is some move to a premium product there (Son Tinh), but mostly it seems to be small distilleries.

I also think that wine will eventually become a bigger part of the market (it is tiny now - just 3% of the market in terms of revenue). This will be driven by rising per capita income at the high end, where people want to show off their wealth. We have seen that in Japan and then in China. There is a small movement now in Vietnam.

Would would benefit from a growing wine market? Australian wine sales should grow because of the new trade agreement that reduced tariffs, albeit over 10 years. Chilean wine imports grew because of its own free trade agreement with Vietnam.

It will be interesting to see how this all shakes out. In so much of the developed world we are seeing declining volumes and revenue (beer sales fell last year in the US), and so it is exciting to be in a market that is growing and has lots of opportunities.