Vietnam Beer Industry Analysis 2017

Contents
1. Report summary ................................................................................................................................... 2

2. Life cycle and performance ................................................................................................................... 2

2.1 Life cycle ........................................................................................................................................ 2

2.2 Trade performance ....................................................................................................................... 3

3. Competition landscape ......................................................................................................................... 3

3.1. Market share ................................................................................................................................. 3

3.2. Major players ................................................................................................................................ 5

3.3. Market segmentation ................................................................................................................... 6

3. Drivers and Barriers .............................................................................................................................. 7

4. Supply chain .......................................................................................................................................... 7

4.1. Feedstock ...................................................................................................................................... 7

4.1.1. Malt ....................................................................................................................................... 7

4.1.2. Hops ...................................................................................................................................... 8

4.1.3. Yeast ...................................................................................................................................... 8

4.2. Manufacturers .............................................................................................................................. 8

4.3. Distributors ................................................................................................................................... 8

5. Regulation ............................................................................................................................................. 9

6. Outlook ................................................................................................................................................. 9

7. Technology .......................................................................................................................................... 10

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1. Report summary
In the past five year, Vietnams beer consumption increased by 8.2% on average annually. The market
volume was estimated to be 4.08 billion liters in 2016. Most of the production is carried out domestically
as trade is negligible.

The beer market is dominated by 4 players, including Sabeco, Habeco (local), and Heineken, Carlsberg
(foreign). Other players are Masan Brewery, Sapporo, AB Inbev, etc. The market can be segmented into
premium, mainstream, and economy. While Heineken is the foremost brewery in the premium market,
geographical dominance is the order of the day among mainstream beer. For example, Sabeco has the
biggest share in the South, while Habecos stronghold is in the North.

The rapid growth of the domestic market is driven by Vietnameses penchant for beer, huge youth
population, expanding urbanization, improving income, and relative low beer consumption per capita.
However, the beer industry suffers from reliance on foreign raw materials, steep special consumption
tax (SCT), and fierce rivalries among breweries.

The value chain consists of feedstocks suppliers, manufacturers and distributors. Key ingredients
include malt, hops, and yeast, which are mostly imported. Regarding distribution, the most common
channel is on-trade, which means consumers buy and drink beer at the same premise.

In terms of regulation, SCT is a major point of contention as roughly a quarter of the retail price is
attributed to SCT. Meanwhile, Ministry of Industry and Trade (MOIT) is responsible for issuing license to
make beer. Since the number of license is limited, significant barrier to entry exists in the beer market.
Thanks to trade agreements, import tax for beer is expected to fall substantially.

Regarding outlook, the domestic beer market is projected to continue increasing by 4-5% annually in the
next few years. The market is likely to shaped by premiumization thanks to rising consumer buying
power and spending.

2. Life cycle and performance

2.1 Life cycle

From 2012 to 2016, the beer market of Vietnam expanded by CAGR 8.2% in terms of volume (Kirin Beer
University Report). As of 2016, the market size is estimated to be 4.08 billion liters., ranking only behind
China and Japan in Asia.

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 Vietnams beer consumption, 2012 2016 (bn liters)

4.08
3.89
3.57 3.67

2.98

2012 2013 2014 2015 2016

Source: Kirin Beer University Report

2.2 Trade performance

In 2016, beers import volume was only 31.4 million liters (UN Comtrade), representing a tiny fraction
compared to total domestic production. Likewise, export volume was 64.9 million liters. As for raw
materials import, refer to Section 6. Supply Chain

3. Competition landscape

3.1. Market share

Vietnams beer market is highly concentrated, with 4 biggest players accounting for more than 90% of
the market. Sabeco has the biggest share (45.8%), followed by Habeco (17.8%), Heineken (17.3%), and
Carlsberg (9.7%). It should be noted that both Sabeco and Habeco are domestic companies.

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 Vietnams beer market shares by brewery, 2015

1.4%
8.0%

9.7%

45.8%
17.3%

17.8%

Sabeco Habeco Heineken Carlsberg Sapporo Other

Source: Euromonitor
In terms of brands, Saigon Export (18.4%) and 333 (14.7%), both from Sabeco, are the two best-selling
ones. Other popular names include Hanoi Beer (Habeco, 13.6%), Saigon Lager (Sabeco, 11.8%), Heineken
(Heineken, 7.8%), Huda (Carlsberg, 6.7%), and Tiger (Heineken, 5.2%).

Vietnams beer market shares by major brand, 2015

Source: Euromonitor, FPTS

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3.2. Major players
Tracing it roots back to 1875, Sabeco has established itself as a foremost brewery in Vietnam, with
production capacity of 1.8 billion liters. Its strengths lie in strong presence in the mainstream segment,
wide distribution and factories network, successful entry into the North, and effective adoption of
modern marketing.

With capacity of 800 million liters, Habeco has a dominant position in the North. The company has
extensive distribution system, with 3 trading companies and 345 tier-one distributors. Habeco is also
able to leverage its vast amounts of capital to expand operation. However, compared to Sabeco and
Heineken, Habeco has fallen behind in terms of advertising and promotion.

In recent years, Heineken Vietnam witnessed double-digit growth on the back of Tigers sales. Having
been in the country since 1991, the Dutch brewery now has 5 factories in the South. Determining
Vietnam as a key market in Asia Pacific, Heineken is active in scaling up its business. In 2016, Heineken
acquired a Carlsbergs factory in Vung Tau and will invest a further $185 million USD to advance its
capacity.

Carlsberg has established 2 brewing facilities in Vietnam, including Hue Brewery in Hue (360 million
liters) and South East Asia Brewery in Ha Noi (65 million liters). In addition, Carlsberg has 17% stake in
Habeco. The brewery also distributes its own brands such as Carlsberg and Tuborg. However, their
revenue is insignificant compared to Huda, a Carlsbergs local brand. Thanks to Huda, Carlsberg has a
leading position in Central Vietnam.

Regarding other players, Masan Brewery is a subsidiary of Masan, a leading domestic consumer goods
corporation. The brewery has two production lines, one in Phu Yen (50 million liters) and the other one
in Hau Giang (100 million liters). With Su Tu Trang (White Lion) brand, Masan positions itself in the
mainstream segment in Mekong Delta. Meanwhile, in 2011, Sapporo launched its first factory in
Vietnam with capacity of 40 million liters. Sapporo enjoyed early success thanks to heavy investment in
the restaurant channel and Vietnameses preference for Japanese products. However, due to fierce
competition, revenue stagnated in recent years and its factory operated below full capacity. AB Inbev is
another foreign player. As a number one brewery globally, AB Inbev opened a manufacturing complex
in Vietnam in 2015, with capacity of 25 million liters. In addition to producing Budweiser for the
domestic market, AB Inbev also imports and distributes Corona, Becks, etc.

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3.3. Market segmentation
The beer market of Vietnam can be segmented on the basis of price, i.e. premium, mainstream, and
economy. Premium category is further divided into luxury, premium itself, and affordable premium. For
a bottle/ can of 330 ml, luxury beer costs more than 23,000 VND (VCSC, 2016). Premium one varies from
15,500 to 18,500 VND, while affordable premium lies within 12,000-13,500 VND. Mainstream beer goes
from 8,500 to 10,000 VND, and economy beer is priced under 8,000 VND.

Vietnams beer market segments, 2015

8.0%
21.0%

71.0%

Premium Mainstream Economy

Source: Heineken Vietnam Brewery

In the premium segment (luxury, premium, affordable premium), Heinken and Tiger (Heineken) holds a
leading position, accounting for two-third of the market share. Saigon Special (Sabeco) also has sizable
foothold. The mainstream market is more characterized by geographical dominance (examined in
Section 3. Major players)

Vietnams beer market shares - premium, 2015 Vietnams beer market shares - mainstream, 2015

5.0% Tiger Sabeco

(Heineken)
16.0% Habeco
Saigon
20.0%
47.0% Special 7.0% 45.0% Hue
(Sabeco) 9.0% Brewery
Heineken
Heineken
28.0% (Heineken)
22.0%
Others
Others

Source: Heineken Vietnam Brewery, VCSC

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3. Drivers and Barriers
The rapid growth of Vietnams beer market is fueled by:

Vietnameses preference for beer: beer makes up 94% of total alcohol consumption in Vietnam.
Beer is widely drunk in family and friends gatherings, whether at home or restaurants.
Young population: The mean age of Vietnamese is 30 years old, compared to 37 in Thailand and
China. Every year, there are 1 million young adults who reach the legal drinking age of 18.
Rapid urbanization: from 2001 to 2016, urban population ratio increased from 24.9% to 34.2%
(World Bank). It is estimated that beer consumption in urban area is 1.6 times greater than rural
region (Heineken Brewery Vietnam).
Rising income: Vietnam ranks among the most swiftly growing economies in Asia. Improving
income should result in higher discretionary spending on beer.
Upside potential: although Vietnamese drinks more than some countries per capita,
consumption is still less than Japan and South Korea.

On the downside, the beer industry encounters multiple challenges, including:

Dependence on imported feedstock: covered in Section 6.1 Feedstock

High special consumption tax: discussed in Section 7. Regulation
Internal competition: intense rivalry among breweries has already pushed up marketing cost
significantly. Companies are also under pressure to adopt latest technology and increase
production capacity.

4. Supply chain
The value chain of beer starts with feedstock, including malt, hops, yeast. Beer is then brewed and
packaged, before being distributed to consumers.

4.1. Feedstock

4.1.1. Malt
Malt is a key ingredient in brewing beer. Malt originates from barley, which are first geminated by
immersing in water, and then prevent from further germinating by drying. The malting process results in
enzymes necessary to convert starches into fermentable sugar. It should be noted that barley is mostly
grown in temperate climates.

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In Vietnam, the majority of malt is imported, amounting to 452,100 tons in 2016 (UN Comtrade). In
terms of quantity, Australia is the leading import source (30.3%), followed by France (19.3%), Belgium
(12.8%), Germany (11.5%) and China (10.9%). Domestically, Interflour one of the largest grain
processor in South East Asia, has built a malt factory in Vietnam in 2017. The facility is the first of its kind
with annual capacity of 110,000 tons.

4.1.2. Hops
Hops are flowers of the hop plant Humulus lupulus used as a flavoring and preservative agent in beer.
Hops can add bitter, citric, and floral taste. Hops may also be utilized for their antibacterial effect.
Despite constituting only 2% of production cost, hops play an integral part in modern brewery.

Again, hops are mostly imported. In 2016, Vietnam procured 634.4 tons of hops (UN Comtrade), mainly
from Germany (75.4%), Czech (13.6%) and Italy (9.8%).

4.1.3. Yeast
Yeast is the microorganism that facilitates fermentation in beer. Besides, yeast also affects the taste
and attributes of beer. Vietnams breweries also rely on foreign suppliers, sourcing mostly from Brazil
and Japan.

4.2. Manufacturers
Already discussed in Section 3. Market share, and Section 4. Major Players.

4.3. Distributors
Beers distribution network consists on-trade and off-trade. On-trade is the channel at which the
product is sold and consumed at the premise, e.g. hotel, restaurants, beer clubs, etc. On the other hand,
in off-trade, shoppers purchase the product in one place and consume at a different place. In Vietnam, it
is estimated that 73.6% of total beer is consumed on-trade (Euromonitor, 2015). On-trade is driven by
the increasing tendency to dine and drink outside. From 2010 to 2015, the amount of restaurants was
approximated to grow from 244,000 to 276,000.

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5. Regulation
In Vietnam, special consumption tax (SCT) accounts for 25.5% of the beers retail price (Euromonitor,
2015). From 2013 to 2017, SCT for bear increased from 45% to 60% and is scheduled to reach 65% in
2018. SCT weighs heavily on mainstream breweries as customers are most sensitive to price increase in
this segment. On the other hand, demand for premium beer is relatively inelastic. In the higher-end
segment, price is just another purchase criterion, in addition to brand message, value and image.

Recent regulatory change in SCT is a subject for debate on how to determine the taxable price. The
government stipulates that the taxable price of beer is the selling price of trading companies - the final
phase of the distribution process. Also, the taxable price must not be 7% lower than the average
monthly price of first-tier distributors. Previously, taxable price was the selling price to the first internal
distributor. The decrease in the monthly price gap from 10% to 7% also makes it difficult for breweries
to adjust for seasonality and annual SCT increase.

Regarding licensing, the Ministry of Industry and Trade (MOIT) is in charge of authorizing factories to
produce beer. While the official procedure seems straightforward, obtaining a new production license
depends on the long-term planning of MOIT. For example, Masan Brewery was only permitted to open a
beer factory in Hau Giang thanks to an unused license issued to another company. Due to difficulties in
license application, foreign companies typically establish a joint-venture with local companies who are
familiar with the process.

The domestic beer industry is expected to be more competitive when numerous Free Trade
Agreements (FTA) come into effect. The current import tariff for beer made from malt is 35%
(Customs). At the moment, the preferential rate under ASEAN Trade in Goods Agreement (ATIGA) and
ASEAN China FTA (ACFTA) is 5%. With the upcoming EU Vietnam FTA (EVFTA), beers tariff will be
phased out in 10 years.

6. Outlook
In the next five years, Vietnams beer consumption is projected to increase by 4-5% annually (VCSC).
The growth engine is already covered in Section 4. Drivers and Barriers.

In addition, the domestic beer market is increasingly shaped by premiumization, which is defined as
the move to more expensive and higher quality products. Premium segments expand faster than
category sales in many countries, on the back of higher consumer buying power and spending (Nielsen
Global Premiumization Report, 2016). In Vietnam, the volume of imported premium beer increased by

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16.08% in 2015, which was much higher than the 5-6% growth of other beer segments (Euromonitor).
Domestic breweries have also come up with their own premium lines. For example, Sabeco recently
launched Saigon Gold, while Habeco introduced Truc Bach. By and large, foreign companies benefit from
premiumization as Vietnamese tends to associate overseas goods with quality. In addition, Sabeco and
Habeco have long been affiliated with inexpensive brand image so it will be difficult to change the
customer perception.

7. Technology
The beer brewing process mainly consists of malting, mashing, boiling, fermentation, and bottling
(Beeriety):

Malting: refer to Section 6.1.1 Malt

Mashing & soaking: malt grains are first crushed and then put in hot (not boiling) water for an
hour. The aim is to activate enzymes in the malt to produce sugar. Subsequently, water is
drained from the mix, which is now filled with sugar. This sticky, sweet liquid is known as wort.

Boiling: the wort is boiled for an hour, while hops and other additives are added (refer to
Section 6.1.2 Hops for more details). Once the boiling is done, the mixture is moved into a
whirlpool to separate solid from liquid. It is subsequently cooled down.

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 Fermentation: yeast is added to the wort for fermentation. The yeast consumes sugar and
release alcohol together with CO2 The fermentation and storage process takes weeks or months
at room temperature.

Bottling: the beer is now bottled and either artificially carbonated like soft drinks, or naturally
carbonated by the CO2 that the yeast produces.

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