Beverages have been one of the key drivers of growth in fast-moving consumer goods (FMCG) in Vietnam. The country’s non-alcoholic drink (soft drink) industry has seen significant growth over recent years and attracted major investment. There is undoubtedly much potential for the industry’s development, with growth being driven by an expanding middle class, increasing affluence, and changes in consumer lifestyles and preferences. 

Great promise

Beverage consumption in Vietnam is growing at a rate not seen elsewhere. Annual consumption growth stands at an impressive 7 per cent, while the figure in Japan and France is around 2 per cent, according to the Vietnam Association of Liquor, Beer and Beverage (VBA). Average revenue per capita increased to $26.50 in 2017 from $8.20 in 2010 and is expected to reach $30.50 this year, according to a report on Vietnam’s soft drink market from internet statistics portal Statista released in October. Average per capita consumption is estimated at 50.7 liters in 2018. “The soft drink market in Vietnam has great potential for investors,” said Mr. Nguyen Van Viet, Chairman of VBA. The presence of hundreds of soft drink manufacturers, domestic and foreign, is evidence of this potential, he added.

Beverage revenue, 2010-2021 ($ million)

The market has welcomed substantial investment from major foreign brands such as Coca-Cola, the Universal Robina Corporation (URC), and Suntory PepsiCo as well as domestic names over the last 20 years. Following its initial investment of $200 million to build its first beverage plant in 1994, Coca-Cola Vietnam now has three plants and three distribution centers, with two new plants to be built over the next few years. The beverage giant has also increased its production scale and annual capacity with additional investment. The company announced last year it would double its investment in its Hanoi facility, increasing production scale and annual capacity to 790 million liters by 2024 and 1.215 million liters by 2030. 

It employs around 2,500 workers 20 years after arriving in the country, more than 99 per cent of whom are Vietnamese, at plants in Hanoi, Ho Chi Minh City, and Da Nang. With a desire to bring simple moments of pleasure to Vietnamese consumers, the company has continued to invest in innovation and technology. “Since 2017, Coca-Cola Vietnam has proactively diversified our high-quality portfolio with the promotion of packaged juice and tea products to meet the rapidly changing tastes and demands of consumers,” Mr. Sanket Ray, Managing Director of Coca-Cola Vietnam, told VET.

URC Vietnam, meanwhile, a subsidiary of the Universal Robina Corporation - the largest consumer food and beverage product company in the Philippines - has been in Vietnam more than a decade and boasts well-known brands such as C2 and Rong Do. It has three plants in Binh Duong province, one in Quang Ngai, and one in Hanoi, and is investing in a central laboratory to serve these plants. “This significant investment reflects our commitment to continuously raising our safety and quality standards as we further boost quality ‘Made in Vietnam’ products in the global marketplace,” Mr. Laurent Levan, President and General Director of URC Vietnam, told VET.

Believing in local talent, who it views as being able to expand their skills and capabilities, the company has invested in developing local staff to deliver high quality products. It has a strong management and organizational structure, with some 1,800 staff.  

Significantly, Suntory PepsiCo Vietnam (SPVB) has become one of the leading soft drink manufacturers in the country and is the result of an alliance between PepsiCo Inc. and Suntory Holdings Limited in April 2013. It now has 13 popular soft drink brands, after first launching Pepsi and 7UP in the country in 1994. 

It opened a new beverage plant last year, at the Dien Nam - Dien Ngoc Industrial Zone in Quang Nam province’s Dien Ban town. Its fifth plant joins existing facilities in Ho Chi Minh City, Bac Ninh province, Can Tho city, and Dong Nai province. Assessing the potential of the Vietnam market, Mr. Uday Shankar Shinha, CEO of Suntory PepsiCo Vietnam, said he believes the room for beverage market growth is huge thanks to Vietnam’s young and growing population and higher consumer confidence. “We have been able to grow at a CAGR of 15 per cent over the last ten years,” he said. The company has succeeded in establishing a unique corporate culture, creating a friendly, open and dynamic working environment where everybody works towards a common goal and looks at the future positively. 

Matters to address

Production of soft drinks are forecasted to have increased six-fold in an 18-year period, from 800 million liters in 2000 to 4.8 billion liters this year, according to Statista. The industry is therefore one of the hottest in the FMCG market, the VBA believes. Bottled water, soft drinks, instant tea, and fruit juice account for 85 per cent of total annual production and consumption, with the remaining 15 per cent being mineral water. Volumes are estimated to reach 8.3-9.2 billion liters per year by 2020. 

Beverage volume growth, 2011-2021 (Unit: %)

Despite the potential, the challenge for soft drinks relates to Vietnamese customers becoming increasingly aware of healthier products due to diabetes, high blood pressure and other ailments being on the rise, according to Mr. Viet from VBA. With higher average disposable incomes, consumers have been more willing to pay extra for healthier products, according to an article published by Asia Briefing, a subsidiary of Dezan Shira & Associates providing legal, tax, and operational advisory services across Asia. In the time to come, the non-alcoholic drink segment is expected to continue recording positive retail value growth but at a slower rate than in the previous five-year period. 

Major leading manufacturers have changed their strategies as a result. “The diversification of product portfolios is a competitive strength,” said Mr. Shinha. “We cater to the changing tastes of and new demand from consumers. FMCG companies in general and beverage companies in particular must have product diversification.” At URC Vietnam, “shifting market trends and changing consumer tastes and preferences, particular among the young and the millennial generation, can be challenging,” Mr. Levan said. “We see this more as an opportunity for us to expand our business.”

Meanwhile, the Ministry of Finance (MoF) recently proposed the levying of a special consumption tax of 10 per cent on sweetened drinks in order to combat child and adult obesity. This also presents a challenge to soft drink manufacturers, as the imposition of such a tax would divide the food and beverage industry, according to Mr. Herb Cochran, Director of the Vietnam Trade Facilitation Alliance. “Enterprises would be hurt the most and might have to close down, since the price of beverage products would rise by about 12 per cent, slashing sales,” he said. “Taxing sweet drinks may not help reduce or prevent the problems.” 

URC Vietnam is aware of plans to apply special taxes on beverages, which would impact many companies in the industry, including URC. “However, we look forward to government policies and regulations that will help us operate a healthy business in Vietnam and allow URC to continue our investment in the local economy and give back to the community,” Mr. Levan said.
At Coca-Cola Vietnam, the company is aware of the government’s plans, which will certainly have an impact on the industry. “We do not oppose taxation, and the Coca-Cola system has consistently paid all taxes according to local laws,” Mr. Ray emphasized. However, it opposes efforts that discriminate against specific categories of products for additional, punitive taxes. “There is a need to conduct holistic studies on economic and health insights to provide specific scientific evidence of the true impact of the tax proposal,” he said.