Strong Competition from Foreign Companies in Vietnam’s Non-alcoholic Drinks Market
HCMC – The market share of foreign firms in Vietnam’s non-alcoholic drinks market held strong in 2014 with almost half the market belonging to these international companies. Statistics from the Vietnam Beverage Association show that the total value of the market increased by nine percent in 2014 to US$3.64 billion. There has been an average yearly growth rate of 13 percent from 2011-14 in the non-alcoholic beverage sector.
Growth was strong across a wide variety of non-alcoholic drinks in 2014 and this trend is expected to continue over the next four years with growth for the top products as follows: bottled green tea (17.8 percent), herbal tea (27.6 percent), tonic water (24.7 percent), carbonated soft drinks (11.8 percent), sport drinks (28.2 percent), and dairy milk (23 percent).
Domestic Vietnamese businesses have struggled to compete with foreign businesses due to the latter’s numerous advantages over their local counterparts, such as the benefit of having established and well-known trademarks to supplement their high-quality human resources.
An additional reason for the increased dominance of foreign companies is that, as of January 1, 2015, soft drinks are no longer subject to import duties – this is due to Vietnam’s commitments under the ASEAN Trade in Goods Agreement (ATIGA). To be in compliance with ATIGA, the Ministry of Finance announced in Circular 165/2014 that 1,715 tariff lines were reduced from five percent to zero percent.
Once the ATIGA is fully implemented, certain materials used in soft drinks will have import tariff rates of 10-15 percent, while finished drink products will have a rate of zero percent. This will benefit foreign exporters of drinks at the expense of domestic producers who need to import ingredients.
Earlier in June 2014, the Vietnamese government also decided not to add carbonated soft drinks to the list of items subject to a special consumption tax. The draft amendment would have set a 10 percent tax on carbonated soft drinks due to perceived public health risks like obesity and diabetes. Eventually this proposal was not taken up after extensive consultations and public hearings where public stakeholders, including representatives from the business community, expressed their viewpoints.
Most non-alcoholic drinks in Vietnam are sold through traditional distribution channels such as independent small grocers. These small shops benefit from the convenience of being local and the purchasing habits of most Vietnamese consumers who are unused to buying many things in one place. However, modern distribution channels such as hypermarkets and supermarkets have started to become more popular in recent years.
One intriguing subsection of the non-alcoholic drinks market is bottled water. The largest suppliers of bottled water in Vietnam are Pepsi’s Aquafina, with a 40 percent market share, and Nestle’s La Vie brand, with a 30 percent market share. Around 70-80 percent of the bottled water market belongs to foreign companies. Other companies have also been looking to get into the market such as Coca-Cola which is investing US$300 million into Vietnam under its Dasani brand.
Another strong potential growth subsection of non-alcoholic drinks is green tea, where big brands, such as Real Leaf from Coca Cola, Vfresh from Vinamilk and Lipton Pure Green from Pepsi, have started appearing over the last five years. A report from market research firm Vinaresearch showed that 86 percent of consumers polled said they used nutritious drinks for its vitamins and nutrients. This is best seen in the especially strong performance of herbal tea and sport drinks in 2014.
Growth in the non-alcoholic drinks market is expected to continue in 2015. Tran Quy Thanh, Chairman of the Tan Hiep Phat Beverage Group, expects 20 percent growth during the 2015-19 period. With Vietnam expected to join the Trans-Pacific Partnership (TPP) later this year, conditions for imports should continue to improve.
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