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Treasury & Capital Markets
Thai brewers thirst for Vietnam’s lucrative beer market
Thailand’s ThaiBev is ramping up its presence in Vietnam through marketing of its partly owned local brands via football sponsorship – but many pitfalls remain for the unwary
Nguyen Tuong Thuy 21 Aug 2018

With its youthful population and beer-drinking culture, Vietnam is fast becoming a major battleground for the world's major brewers, keen to tap this thirsty market. And the Thais are making the competition amongst global brewers even fiercer.

The Thais have cottoned on to the economic potential that flows from football's deep-rooted place in the culture of Vietnam. For in Vietnam football is king, and during one-off football events like the World Cup and Euros beer consumption rockets in this nation of around 95 million people. The Thais are wise to the connection.

Britain is the home of football. The 2018/19 premier league season recently kicked off in England, and Bia Saigon's logo adorns Leicester City Football Club's famous shirts. Leicester City has reached a multi-year global partnership agreement with Thailand's largest beverage producer, ThaiBev. The new partnership sees ThaiBev's subsidiary company, Ho Chi Minh City-based Sabeco, become Leicester City's official sleeve sponsor.

Sabeco, which sells brands such as Saigon Beer and 333, is Vietnam's top beer producer and more than 50% owned by ThaiBev. Bia Saigon, as the logo shows, is the Vietnamese writing way for Saigon Beer.

Throughout the season, Leicester City supporters who want their shirt to match the one worn by the team on the pitch have the option of adding the Bia Saigon sleeve badge to replica shirts at no additional charge. Supporters that have already purchased a 2018/19 replica shirt can also have the sleeve badge added free of charge at the Foxes Fanstore at King Power Stadium.

Sabeco produces 1.59 billion litres of output per year. The brand is developing a very strong presence at Leicester City. The export beer's branding appears throughout the stadium, across interview backdrops and digital advertising boards. Sabeco also seeks to engage with the club's fanbase through matchday activations.

ThaiBev's signature premium beer, Chang, became the stadium beer partner at King Power, and provides the matchday beer offering from refurbished branded kiosks.

Over 1.5 billion litres of Chang beer are produced every year. It is Thailand's fastest growing beer and is distributed to many countries.

However, these production volumes are smaller than Vietnam-based Sabeco's 1.59 billion litres. That explains why ThaiBev sought to buy a stake in Sabeco with an astonishing US$4.8 billion acquisition in December 2017, securing a 53% share. In Vietnam, the face value of each share is 10 thousand Vietnam Dong (some US$0.43) but the unit price ThaiBev paid was 320 thousand Vietnam Dong, 32 times higher.

ThaiBev is the flagship business of TCC Group, led by Charoen Sirivadhanabhakdi, the self-made billionaire widely regarded as Thailand's king of mergers and acquisitions.

Before the Sabeco acquisition, ThaiBev was considered a rival. Following the billion-dollar deal, Sabeco stated aims are to grow its share of the Vietnamese market from around 40% to 50%, partly by utilising the strength of new owner ThaiBev's retail network.

This January, Koh Poh Tiong, chairman of board executive committee of Singapore-based Fraser and Neave, another beverage maker under TCC, told the first corporate meeting following the acquisition that Sabeco products would be delivered across the whole of Vietnam, leveraging the Thai group's existing retail network of supermarkets and convenience stores. He also said the group's backing would help Sabeco expand beyond beer into such markets as soft drinks and spirits. He added Sabeco products would be able to tap into regional markets, such as Thailand and Singapore, on the back of the group's hotel network.

Tiong acts as Sabeco's chairman, while another representative from ThaiBev, Bennett Neo Gim Siong, was appointed CEO on Aug 1. ThaiBev is working on a number of areas - including procurement, marketing and R&D - to develop synergies with Sabeco.

Happy hours but not a happy game

The Thais believe the Vietnamese beer market continues to be highly profitable and are consequently optimistic about the prospects of beer brewers.

Indeed, alcohol-induced relaxation has long since been a regular pastime in Vietnam. This includes people in bygone days who made their own rice wine at home to the American soldiers who loved locally-made 33 Beer during the Vietnam War. Today, beer often costs less than a bottle of water, and the Vietnamese have developed a new love of beer.

Nowadays, young people like to fill large, newly built beer halls for drinks after a long and hot day. Bui Vien Street and streets nearby in downtown Ho Chi Minh City or Ta Hien near Sword Lake in Hanoi have become the "beer heaven" and the sleepless areas. Foreigners are launching small businesses and making their own beer in the country. Foreign companies from Heineken to Japan's Sapporo are putting faith in the Vietnamese market to drive their sales growth.

Sapporo now has a firm foothold in the premium segment, and recently quadrupled the capacity of its plant to 200 million litres a year.

Denmark's Carlsberg, the world's third-largest brewer, owns 17.5% of Habeco (Hanoi Beer Alcohol and Beverage Joint Stock Corp.) and is negotiating to increase this holding to almost 62%.

On August 13, Carlsberg revealed that the brewer had increased its stake in Cambodian brewer Cambrew from 50% to 75%. Carlsberg CEO, Cees 't Hart, said more M&A could be on the agenda as cutting its net debt had given it "room to manoeuvre". The UK's Financial Times quoted him as saying Carlsberg remained quite interested in Vietnam: "Where we are able to acquire businesses where it makes sense to us, we will."

The Vietnamese beer market has already exceeded the four-billion-litre mark, and is expected to reach 4.6 billion litres by 2025 and 5.5 billion litres by 2035. Clearly demonstrating the underlying strength of demand, this market continued to expand by over 5% per year whilst many other markets plateaued or even declined in recent years.

Heineken has bought many beer brands in the country to become the biggest player in terms of market share. Heineken prospers in Vietnam, and currently owns Tiger, BGI, Bivina, Larue and various other brands. Sabeco also prospers, though other brewers do not make satisfactory profits, according to Nguyen Van Viet, chairman of the Vietnam Beer Alcohol Beverage Association, or VBA.

He added that several local and foreign brands, such as BGI, San Miguel and Foster's, have fallen by the wayside.

Meanwhile, Vietnamese policymakers worry that as the drinking culture increases, so will deleterious effects, such as Vietnam's rates of drunk driving and alcohol-related health problems. The World Health Organization says the country already has a large number of cases of hepatitis B, the main cause of liver cancer.

From an industry perspective, VBA chairman Viet notes, "Beer and alcohol production play an important role in the development of the economy and society."

This is a theme Australian officials echo, crediting its beer-related exports for comprising the major plank of improved trade with Vietnam. Australia is Vietnam's biggest supplier of wheat and other products required to produce beer. Market experts are also of the view that beer partially acts as a barometer for the way the local economy is growing in Vietnam.

These experts foresee competitive pressures in the beer market becoming fiercer, and suggest that for companies to succeed they must diversify their product range and popularise their brands.

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