Beer market report
With a population of 82 million and a burgeoning economy, Vietnam has been one of the brewing industry’s “last frontiers”. Vietnam’s accession to the World Trade Organisation (WTO) could make foreign investments easier. However, all the “usual suspects” of the global brewing industry already seem to have a foot or two in the door.
In January this year Vietnam gained accession to the WTO making it the 150th member. Accession to the WTO obliges Vietnam to open its beer market to all the WTO members such as Denmark, Japan, the Netherlands, and the United States. Of all the south-eastern Asian countries, brewers see the greatest potential for expansion in the Vietnamese market, although Thailand, Malaysia and to some extent in the Philippines still have some potential for growth.
Over the past five years, foreign brewers have been stepping up their activities in Vietnam in anticipation of rising levels of consumption. Brewers like Asia Pacific Breweries (a Heineken joint venture), SABMiller and Carlsberg are planning to invest millions of dollars in Vietnam through joint ventures or outright acquisitions. Greenfield operations and brewery expansions are generating output that has surpassed industry expectations: 10.5 million hl of beer in 2004, 11.6 million hl in 2005, and 13 million hl in 2005, according to market research company Canadean.
As per capita beer consumption figures for Vietnam vary widely, depending on how many inhabitants your source will admit to, Canadean’s estimates are probably the most reliable. The market research company says that per capita consumption was 14 litres in 2005 and is set to rise to 22 litres by 2011. If current growth rates continue, beer consumption will either hit 20 million hl in 2011, says Canadean or 25 million hl if the Ministry of Industry’s forecasts are to be believed.
Given that Vietnam is a “market economy with a socialist orientation”, so the official propaganda, the government must have seen the writing on the wall for its small breweries. In an effort to protect them from competition, the government in 2003 decided to ban foreign investors from new or increased investments in the construction of breweries, meaning that any new projects must be approved by the prime minister on a case-by-case basis.
However, ministries, government and the Communist Party are often at odds with each other. Also in this case. The Ministry of Industry (MoI) was not all that happy with the ban. Last year it asked the government to lift the ban because the policy has become a hurdle in attracting new global brewers to Vietnam so as to raise domestic production, competitiveness and export capability.
“We are hoping the ban will be removed once the MoI’s beer, alcohol and beverage development strategy wins the prime ministerial nod,” an MoI official was quoted as saying.
Here they come …
Perhaps in an effort to appease the international community post-WTO accession, Vietnam has signalled its willingness to consider the privatisation of the state-owned Hanoi Beer Company (Habeco), the country’s second largest state-owned brewer. We have to mince our words carefully here because in a communist country you do not believe that things will happen for sure until they have happened! According to Canadean, Habeco enjoys a market share of 6 percent. The country’s largest brewer is the state-owned Saigon Beer Company (Sabeco) with headquarters in Ho Chi Minh City (formerly Saigon) and a domestic a market share of 27 percent.
The announcement of Habeco’s privatisation is particularly exciting for Carlsberg, which has already established links with two Vietnamese breweries, one in Hanoi and one in Hue.
… Carlsberg …
Carlsberg views Vietnam as a driving force in the development of the region’s beer market. The Danish brewer entered Vietnam in 1993 through the formation of at joint venture with Viet Ha Brewery in Hanoi, which is owned by the Hanoi Peoples Committee. Carlsberg controls 60 percent of South East Asia Brewery, which is the name of the operation. In 1995 the second Carlsberg joint venture was founded, Hue Brewery, in which Carlsberg owns 50 percent, through the cooperation with the Hue Peoples Committee. The city of Hue is located in central Vietnam, 660 km south of Hanoi and is Vietnam’s most well-known ancient capital.
To put a damper on any excitement that foreign observers might have over the announcement of Habeco’s privatisation, let us remind you that this will be a privatisation “socialist-style”. The Vietnamese government will retain a 76 per cent stake of Habeco, with the remaining 24 per cent distributed between staff and investors.
Of this 24 per cent share, only 10 per cent will be available for purchase by a strategic business partner, leaving Carlsberg at best with the potential of a minority stake in the group. So much for privatising Habeco.
… and Asia Pacific Breweries…
Carlsberg’s major foreign competitor is Asia Pacific Breweries (APB). After purchasing the two Foster’s breweries, one of which is located in Da Nang, central Vietnam, and the other one near Ho Chi Minh City, in September 2006, APB continued its spending spree by purchasing the assets of Quang Nam Brewery (QNB) in January this year. This acquisition was executed via Vietnam Brewery Limited (VBL) in which APB owns a 60 percent stake.
This deal not only brings APB’s market share up to over 20 percent, it will also extend APB’s presence in central Vietnam. Located in Dien Ban district, QNB is the sole brewer in Quang Nam Province which is situated southwest of Da Nang Municipality. Equipped with an annual production capacity of 250,000 hl, QNB currently brews mainstream brands: Larger and its three variants Larger Green, Larger Red and Larger Metallic Red. Following the acquisition of QNB, APB will have five breweries in Vietnam. According to company sources, APB’s breweries will have a combined total annual production capacity of almost 4 million hl beer.
APB’s first majority-owned brewery in Vietnam, Vietnam Brewery Ltd (VBL) was established in December 1991 and commenced commercial operations in 1993. Situated in Ho Chi Minh City, the brewery brews and markets Tiger Beer, Heineken and its first Vietnamese beer, Bivina. VBL also introduced Amber Stout, Vietnam’s first Irish-type draught in 2003.
To tap into the opportunities up in the north, APB commissioned its second brewery in Vietnam, Hatay Brewery Ltd (HBL) which became fully operational in October 2003. Occupying a land area of 30 hectares in Hatay, this wholly-owned brewery of APB brews, packs and markets Tiger Beer, Anchor and Heineken for consumers from the 29 provinces in northern Vietnam.
In August 2006, APB acquired two more plants in Vietnam. They had been owned by Foster’s. That is why the two breweries continue to brew, market and distribute the Foster’s Lager brand as well as local brands Biere Larue, BGI, Flag and Song Han in Vietnam.
“With five breweries strategically located in the southern, central and northern Vietnam, we are well positioned to serve the growing number of beer consumers nationally more efficiently and effectively; and, poised to achieve the next level of growth”, said Koh Po Tiong, CEO of APB in a statement.
… and SABMiller …
SABMiller’s entry into Vietnam comes more than a decade after a wave of foreign brewers such as Carlsberg, Asia Pacific Breweries, Foster’s and San Miguel of the Philippines established a presence there. Last year SABMiller announced that it would open a brewery in joint venture with the country’s largest dairy company, Vinamilk. Under the terms of the agreement, each company will hold a 50 percent interest in the joint venture, which will have an initial USD 45 million investment capital. The brewery was built in Binh Duong province, outside Ho Chi Minh City, and became operational at the end of March. With an initial capacity of 500,000 hl of beer the brewery can be upgraded to 2 million hl.
As anticipated, SABMiller first launched a local mainstream brand, Zorok.
Mai Kieu Lien, chief executive officer of SABMiller Vietnam, announced that besides Zorok, the brewery would market several other brands such as Peroni, Pilsner Urquell and Miller. Its products would be distributed via the sales system of Vinamilk.
The reason, among others, why SABMiller chose Vinamilk for a partner is Vinamilk’s extensive distribution network, which will give the joint venture access to more than 20,000 outlets in southern Vietnam.
… and Scottish & Newcastle …
The last international brewer - to date - wanting to profit from the Vietnamese’s thirst for beer is Scottish & Newcastle. The Scottish have teamed up with the state-run Vietnam Tobacco Corporation and seem to be in negotiations over obtaining a licence to build a brewery in Long An province, in the south of Vietnam.
At this stage, the project has not been confirmed by S&N. There has not been a Stock Exchange announcement on the subject. But insiders quoted by the English media believe that it will be a greenfield site project in the order of USD 70 million or 500,000 million hl of beer.
The lure of rising beer consumption has also attracted outsiders to the brewing industry. At the end of May it was announced that Vietnam’s largest shipbuilder, Vinashin, has obtained a loan worth USD 27 million from the state-owned Bank for Investment and Development of Vietnam (BIDV) to build a brewery in the northern Ha Nam province.
According to reports in the local media, Vinashin Beer Joint Stock Company was formed earlier this year. The brewery project is estimated to cost USD 130 million in total investment – of which the Czech Export Bank (CEB) is contributing 50 percent.
The BIDV and CEB loans are repayable over a 10-year term.
In exchange for the loan from the Czech bank, Vinashin Beer will buy its equipment from the Czech company ZVU Potez. The brewery’s capacity is said to be 1 million hl.
With the competition in Vietnam’s beer market hotting up, small breweries will have to struggle to survive. According to the Ministry of Industry (MoI), there are currently some 300 breweries nationwide, whose numbers will go down if they cannot meet the market requirements for product quality and packaging set by the international brewers. In fact, the number of breweries has already declined: from 469 in 1998 to 329 in 2004.
All brewers, domestic and foreign, are banking on the expectation that Vietnam’s economy will continue to grow at the annual rate of 7 percent. In 2005 GDP per capita was USD 640, the inflation rate was 8.3 percent and the local currency was still not fully convertible. Although Vietnam only ranked 119th in the Human Development Report, its rapid growth make it the second most buoyant economy in the world behind China. As prices have remained on a low level, despite the high inflation, the number of people living below the poverty line has dropped to 29 percent in 2002 from 58 percent in 1993 (Source: Oxfam).
Vietnam still imports more goods than it exports. 70 percent of its people live off farming, forestry and fishing. Among Vietnam’s export goods are crude oil, textiles, shoes, sea food, coffee and rice. Due to the volatility of market prices for most of these goods, the Vietnamese economy benefits as well as suffers in equal measure if prices for these goods go up or down.
The “market economy with a socialist orientation”, which the Communist Party has been promoting since 1986, has led to the country opening up and to large-scale privatisation (in Vietnam they talk about "equitisation“) of state-owned sectors of the economy, writes the German think tank Konrad Adenauer Foundation in a recent research note. Agriculture, retailing and services have already been liberalised, which means that 70 percent of all economic activity is conducted within the framework of a market economy. The share of industry in GDP has risen to 41 percent in 2005. That’s why the 10th Peoples Congress of the Communist Party of Vietnam in 2006 formulated the goal of Vietnam joining the industrialised nations by 2020.
However, the economy is still much more socialist than the Communist Party would like us to believe. The “equitisation” of the state-owned companies is progressing very slowly. Which may have something to do with the fact that the government and the party are probably reluctant to give up their influence, their prestige, their baksheesh and thus drag their feet over the privatisation issue. The hesitation over the privatisation of Habeco gives ample evidence to this assumption.
The state-owned companies contribute, says the Konrad Adenauer Foundation, 40 percent to GDP, 37 percent to industrial output and 35 percent to exports. At the same time they only provide 10 percent of all jobs, waste a lot of state money with their inefficient way of production and hamper the development of private initiatives in many sectors.
But who said that the transition would be quick and smooth?
