Beer Monopoly




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Posted January 2015

Déjà-vu in Saigon

Vietnam beer market | What do China, Vietnam, Laos and Cuba have in common? Well, nominally, they are the last remaining Marxist-Leninist states. If that sounds, oh so last century, it is. Vietnam has since come a long way: Saigon is bustling, prosperous, easy going. You don’t sense that communist dogma is affecting everyday life. But don’t be fooled: 2015 is an auspicious year for Vietnam’s communist rulers: decorations up in Saigon mark it as the 40th anniversary of the fall of Saigon, the 70th anniversary of the founding of the People’s Army and, incidentally, the 140th anniversary of the country’s largest and now state-owned Saigon Brewery. The government has ambitious plans to privatize as many as 400 state enterprises. The question is: will it sell down its controlling stake in the brewery too?

Walking down Saigon’s historic main street, Dong Khoi St, recently, I could not help noticing its profound makeover since being laid out by the colonial French in the 19th century. Originally called Rue Catinat with beautiful Art Deco apartment blocks, it became Tu Do St (Freedom St) in the 1950s – an apt name for all the insalubrious bars and clubs which sprung up to “service” the huge influx of American military personnel during the two decade existence of U.S. backed South Vietnam. After the end of the Vietnam War in 1975, there was yet another name change: Tu Do St became Dong Khoi St (Total Revolution St). In 2000, on my first visit, it still sported many beer bars, but its heydays as a partying strip were clearly over. Fast forward to 2015 and you could see both the effects of the wrecking ball and Saigon’s new found wealth. Old colonial buildings had given way to glitzy office buildings and seedy bars to western designer boutiques selling luxury handbags – the real stuff not fakes.

While this sort of transformation is not exclusive to Saigon, you can imagine my surprise when I walked past a line of government billboards pointing out the ambush skills of Uncle Ho’s soldiers. In case tourists did not get the message, the posters sported English translations. Of course, the street exhibition coincided with this year’s anniversaries. But I wondered if anyone, except elderly American and European tourists, remembered “Uncle Ho”, the communist revolutionary and President of North Vietnam, who gave Saigon its current name Ho Chi Minh City? In my mind’s eye I saw images of student protesters in Europe and the United States in the turbulent 1960s chanting “Ho-Ho-Ho-Chi-Minh” to show their opposition to the Vietnam War. Pondering what all this possibly meant to Saigon’s nine million inhabitants, most of whom are under 25 years of age, I wandered on, past the old-fashioned Hotel Continental, where Graham Greene had written his novel “The Quiet American” (1955), past the French opera building and the Caravelle Hotel, famous for its cocktails on its rooftop bar, until I reached the end of Dong Khoi St and the Saigon River. From across the river I was greeted by eight giant billboards. Four to the left apparently praised Vietnamese communism, while four Heineken billboards to the right blinked on and off, momentarily turning swaths of dark water into bright green and red light.

I briefly contemplated how Heineken could secure such a permanent fixture for its advertising, while Saigon Brewery (SABECO), the city’s biggest and oldest, had limited itself to smallish signage as part of the New Year decorations in the streets. Was it because the Ministry of Industry and Trade controls about 89 percent of SABECO and is a central government department headquartered in Hanoi, whereas Heineken’s Vietnam Brewery is 40 percent owned by the SATRA Group, which is under the control of the local Ho Chi Minh City Peoples Committee? Both may be part of the communist political structure, but as centres of power they are quite distinct from each other. Mine was a mean thought because I was told later that Heineken had paid the sort of money for its advertising that others could only dream of.

With analysts oohing and aahing at the prospect of beer volume growth in China, I’d say that Vietnam has not received the attention its beer market deserves. It was only the odd throwaway remark that “Vietnam became the second market world-wide for the Heineken brand in 2012” or that “China, Vietnam and several African countries will achieve the fastest profit pool growth (10% pa) between 2012 and 2017” that should have alerted us to the fact that Vietnam’s beer consumption has risen rapidly from 11 million hl in 2003 to 31 million hl in 2014, excluding imports, according to figures published by the Vietnam Beverages Association (VBA) on 23 January 2015.


Nice profits to have

That may not seem much compared with China’s near 500 million hl beer sales, yet in terms of profitability per hl Vietnam is already four times as profitable as China. Nomura, a bank, reckons that in 2012 Vietnam’s beer profit pool (EBIT) was USD 355 million, which made the country rank fifth in Asia, behind Japan, Australia, China and the Philippines. The country sports a sizeable premium beer segment (anywhere between 10 and 15 percent of the total market, depending on whose estimates you trust), where margins are three times that of mainstream beer, says SABMiller. Profit margins are a big secret in Vietnam, but in the year before Asia Pacific Breweries (APB) was fully taken over by Heineken, it disclosed an EBIT margin of 27 percent for Vietnam, which would have been higher than its competitors’ margins, thanks to APB’s alleged 80 percent share of the premium segment.

In case people still need a reason why Heineken fought so hard to get full control of APB, the brewer of Tiger beer and “pharmacy of the brewing industry” (Germain Hansmaennel) with its focus on the high-end, be reminded that the Indochina region (Cambodia, Laos and Vietnam) accounted for almost half of APB’s total profits (EBIT) in 2011, with Vietnam contributing the lion’s share.

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