Vietnam Food and Drink Report Q1 2007

Vietnam has continued to attract the attention of multinational investors, with the fledgling beer industry one of the main beneficiaries this quarter. Although foreign brewers are still restricted from obtaining total ownership of Vietnamese entities, the sector remains enormously attractive. In BMI's newlypublished Vietnam Food & Drink Report for Q107 we examine why the Vietnamese beer industry has proved so popular, as well as exploring future prospects for the industry, and indeed the broader consumer goods sector.

At first glance, Vietnam should not be an attractive market to consumer goods manufacturers, particularly brewers, whose product is non-essential and would still classify as a luxury item for lower-income groups. In fact, BMI is forecasting that per capita food consumption will increase by just 6.3% over the forecast period to 2011, more than demonstrating the restrictive spending power of the vast rural population. However, the pace of beer industry development in the Asia Pacific region is such that expansion-oriented brewers constantly have to look to fledgling, presently unprofitable markets, in search of the next big thing. In the past three months alone, this has seen Danish major Carlsberg secure a 10% stake in government-owned Hanoi Beer Company (Habeco), to add to its existing Vietnamese interests, while UK-based Scottish & Newcastle received permission to construct a Greenfield brewing facility in partnership with local operator Vinataba and Anglo-South African giant SABMiller opened the doors of its US$45mn brewing facility.

Investment from these firms, in addition to fellow multinationals Asia Pacific Breweries and Anheuser-

Busch, as they seek strong long-term sales opportunities, is stimulating impressive industry growth. To 2011, BMI is forecasting that beer sales in volume terms will increase by 37.8%, thus outstripping the growth that we are forecasting for the spirits and wine sub-sectors. This is being supported by Vietnam's economic growth, which is slowly but steadily resulting in the appearance of consumer classes outside of the major urban centres of Hanoi and Ho Chi Minh City.

However, the very economic development that is helping fuel beer industry growth, is also behind BMI's desire to sound a note of caution. While a five-year growth forecast of 37.8% is impressive, it is actually inferior to the rate of growth that we forecasting in other perceived high-opportunity beer markets, such as India and China. This again comes back to the size and income levels of Vietnam's vast rural population. At the present time, beer - even economy variants - cannot find a true mass-market in the country, the product does only appeal to a minority - albeit growing minority - of the population. Underperforming sections of the Vietnamese economy look set to remain a feature of society, even though the government has expressed its desire to improve agricultural output and in turn rural living standards. While this remains the case, premiumisation opportunities in Vietnam will be limited. However, while worth bearing in mind, it certainly will not deter multinational interest in the short-term