Challenges in the Vietnam Beer Market

Vietnam beer consumption is suffering from the double whammy of Covid-19 and stricter anti-drunk driving restrictions. While demand could recover from Covid-19 in Q2 2020, anti-drunk driving laws will continue to impact consumption for the remainder of the year. Brewers need to pivot drastically from on-trade to retail and online channels and be prepared for near-term turbulence.

Vietnam Beer: Turbulent Times

The Vietnamese beer market’s two-decade tryst with destiny appears on the verge of a rude awakening. Successive decades of positive beer consumption growth face the twin headwinds of Decree 100 and Covid-19 in 2020. At 2.5%, Vietnam’s share of 2019 world beer consumption is seemingly small. However, in the past two decades, Vietnamese beer consumption growth has become the key driver of incremental global beer demand. At the end of 2019, effectively, nearly one out of every five incremental 33cl bottles consumed globally was driven by the Vietnamese consumer.

Table 1: Incremental beer consumption (million hectolitres)

Vietnam_beer_crisis_fig1
Source: Global Data 2020

The Old One-Two

Tet heralds the new year in Vietnam and generally sees heightened consumer demand. This year, however, consumption was severely compromised, owing to the anti-drunk driving laws introduced in January. Decree 100, as it is officially known, increased the financial penalties for drunk driving and has quadrupled the number of driving licence suspensions, in order to control road and rail traffic offenses.

With over 80% of consumption in the on-trade channel, the impact on beer demand was immediate and drastic. January beer consumption declined by ~25% YOY. February also saw a high-single-digit decline in volumes but this was comparatively lower due to the base effect from subdued February 2019 consumption. As brewers started preparing for summer sales, mandatory social distancing, and other travel restrictions to control the Covid-19 outbreak, decimated April demand. For the full year 2020, overall beer demand is projected to decline by ~15%.

Figure 1: Vietnam beer production, 2016-2020

Vietnam_beer_crisis_fig2
Source: Official statistics, Rabobank 2020

The Way Forward

While Covid-19 related measures will likely be lifted soon, brewers will need a strategy to tackle the impact of Decree 100 on domestic beer consumption. Both product and channel strategy need immediate calibration to retrieve lost market volume.

There has been a tremendous increase in online sales, and we see brewers creating specific packaging and trade campaigns to recover some of the lost on-trade volumes. Decree 100 will also impact the social consumption habits of Vietnamese beer consumers. Therefore, marketing campaigns, aided by innovation in packaging (growler/party-packs/concierge), will help build at-home social occasions. On the other hand, the on-trade channel will need support from brewers to tide over financial difficulties, and thus trade cost is likely to increase in 2020.

International brewers gained market share in YTD 2020, aided by product and channel innovation. Domestic brewers need to invest in product innovation and in building their direct route to consumers. In China, Tsingtao beer used the reach of social network apps to overcome supply chain challenges during Covid-19 and effectively created their direct route to consumers (see our article on community commerce and its application for beverage companies). Community commerce could provide a solution to drive direct-to-consumer sales and to reduce dependence on the on-trade channel.

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