Glass half-empty
With consumption down and costs rising, brewers in Vietnam are improving their operations in anticipation of an eventual recovery.
Prior to 2019, Vietnam regularly topped the charts in beer consumption in Southeast Asia and even secured ninth place globally at one time. Recent statements from major brewers, however, acknowledge a significant decline in worldwide sales and particularly in Vietnam.
CONTINUED DECLINE
According to VIRAC Research’s overview of the beer industry in early 2023, both major beer players in Vietnam - the Hanoi Beer Alcohol Beverage Corporation (Habeco) and the Saigon Beer Alcohol Beverage Corporation (Sabeco) - experienced a substantial downturn in revenue and profit in the first quarter of the year.
Ninety-eight per cent of Habeco’s total revenue comes from the sale of goods, with the remaining 2 per cent from service provision. Despite the company’s efforts to cut various costs, such as business management and sales costs, especially for advertising, promotions, and support, a sharp increase in the price of input materials has pushed up the cost of goods sold, resulting in Habeco reporting an after-tax loss of VND3.7 billion ($152,545). This is the first time the company has reported a loss since the first quarter of 2020, when talk of pandemic first emerged. In the same period last year, the company posted a profit of VND34.5 billion ($1.4 million).
Similarly, Sabeco also saw declining business results in the first quarter of this year. Revenue was VND6.213 trillion ($256 million), down 15 per cent compared to the same period of 2022. Revenue from beer sales accounts for about 90 per cent, alongside 8 per cent from raw material sales and a small percentage from other beverages, alcohol, and other sources. However, Sabeco is more stable than its counterpart Habeco, with gross profit margins fluctuating around 30 per cent. The company continues to allocate significant funds to sales and business management expenses. At the end of the first quarter, net profit was VND1.004 trillion ($41.4 million), a decline of about 19 per cent. This was the third consecutive quarter of falling profits for Sabeco after peaking at VND1.793 trillion ($73.9 million) in the second quarter of last year. Sabeco attributes the lower profit to intensified competition among beer brands, coupled with falling consumer
demand and rising input costs.
On July 31, meanwhile, Heineken revised its profit forecast for 2023 downwards, citing Vietnam’s slow economic growth, which resulted in lower-thanexpected revenue in the first half of the year. It anticipates growth in operational profit after one-time payments this year to range from 0 per cent to 4-6 per cent. This marks a decline from its earlier projection of 5-10 per cent. In the first half of 2023, Heineken experienced a 5.6 per cent fall in beer sales compared to the previous year. Despite increased revenue due to price hikes, the company’s operational profit still fell 8.8 per cent compared to the same period last year. It attributes its business results in Asia, particularly in Vietnam, one of its major markets, to the impact of slow economic growth.
VIRAC Research’s beer industry report for early 2023 indicates that Decree No.
100/2019/ND-CP, stipulating penalties for motorcyclists with high blood alcohol levels, was tightened in major cities, which significantly reduced consumption in the opening months of the year. Expected sharp increases in production costs for key ingredients, such as filter aid powder (rising by about 25 per cent), hops (10 per cent), rice (4 per cent), and sugar (8 per cent), will further impact profitability.
Analysts note that beer purchasing trends are slowing down, prompting companies to launch promotional campaigns and advertisements to boost sales. Some beer distributors have reported a significant slowdown in the market, both in the wholesale and retail segments. According to Mr. Ralf Matthaes, Managing Director of Infocus Mekong Research, the main impact on beer consumption has been Covid-19, leading to a permanent change in consumer behavior. Before the pandemic, on-trade beer sales (in bars and restaurants) constituted 60-70 per cent of all consumption, but with the pandemic forcing people to stay at home and resulting in them becoming more health conscious, the average Vietnamese consumer is not going out as often as previously.
RECOVERY ANTICIPATED
As the end of the year and the new year approach, which is typically the peak season for Vietnam’s beer industry, with festive activities extending to the Tet holiday in February, the situation remains challenging. Vietnam’s economy continues to face difficulties and consumers are still tightening their belts, especially as promotional activities within the industry are being constrained.
“As the holiday season - Christmas, the western new year, and Tet - approach, beer sales will spike,” Mr. Matthaes said. “However, as we are still in a recession and Vietnamese people continue to count their pennies, with overall FMCG consumption in 2023 down 15-30 per cent depending on
category, Tet in 2024 will have a lesser impact on beer sales than in previous years.”
“With the stabilization of financial markets and recovery around the world, Vietnam’s exports will grow and help revive consumption,” a representative from Sabeco said about the prospects for recovery. “In addition, there are currently a lot of FDI sources pouring into Vietnam, which will have a positive impact on people’s livelihoods and boost consumer spending.”
Additionally, the revival of tourism is seen as a factor for the beer industry’s anticipated recovery. According to VIRAC Research’s overview of the beer industry in early 2023, the industry is expected to continue its recovery through State-driven initiatives to open up and encourage tourism. This presents a wide opportunity to stimulate consumption in the beer industry and in the beverage industry as a whole.
“We hope there will be more tourists coming to Vietnam, with the number reaching 15 million, like before Covid,” the Sabeco representative said. “This not only indicates the amount of beer tourists consume
but also means that people working in the tourism industry and hotels will have jobs, and their incomes will increase. We expect these favorable factors to become a reality from the second half of this year.”
Even amid ongoing business challenges, major beer companies are persistently implementing investment plans and upgrading their systems in anticipation of the beer industry’s recovery in the near future.
According to Sabeco, it intensified strategic projects this year to consolidate its breweries. This includes acquiring controlling ownership of Sabeco - Binh Tay, which encompasses six breweries, two packaging plants, and the Sagota beer brand. Additionally, Sabeco is in the process of increasing its ownership in the Saigon Beer Western Region Beer Joint Stock Company from 51 per cent to over 70 per cent. In March, Sabeco held a breaking ground ceremony for its Quang Ngai Brewery, doubling its capacity, and initiated solar energy projects at nine existing breweries.
Heineken Vietnam also has plans to invest an additional $142 million in expanding its Vung Tau Brewery from 2023 to 2025. This will increase its total investment in the Vung Tau operations to over $500 million and raise the brewery’s capacity from 11 million hectoliters a year to 16 million. This brewery is Heineken’s largest in Southeast Asia and the sixth to open within the joint venture between Heineken and the Saigon Trading Corporation (Satra) after 30 years of operations. Heineken anticipates entering a period of robust recovery soon, driven by lower costs for energy and commodities coupled with increases stemming from improved productivity.
“At present, Vietnam ranks 41st globally in beer consumption, at 45.1 liters per capita per year, compared with the Czech Republic, which ranks first, with 140 liters per capita per year, so there is still room for growth,” Mr. Matthaes said.