(Tiểu luận) microeconomics topic the beer market in vietnam

NATIONAL ECONOMICS UNIVERSITY NEU BUSINESS SCHOOL -oOo - MICROECONOMICS TOPIC: THE BEER MARKET IN VIETNAM Lecturer: Tran Thi Hong Viet Subject: Microeconomics Class: EBDB Group 2: Members Nguyễn Thúy Hiền – 11222231 Trần Châu Giang – 11221833 Hoàng Ngọc Mai – 11224021 Vũ Hồng Nhi – 11224989 Trần Thị Lan Anh – 11220635 Vũ Thanh Tùng – 11226781 June, 2023 Table Of Contents A INTRODUCTION B BODY I Theory - some relevant microeconomic knowledge Definition of the term “Market”, “Demand” and “Supply” Determinants of Supply a The price factor of Supply b Non-price factors of Supply Determinants of Demand a The price factor of Demand b Non-price factors of Demand The market structure: Oligopoly .6 II The practical case: Beer market in Vietnam Number of brand and market share Product nature The structure of the beer market in Vietnam is Oligopoly a Beer market situation in Vietnam b Barriers to entry 10 c Non-price competition .11 d Interdependence 12 The determinants of the supply of the beer in Vietnam 13 a The recent status and quantities 13 b The price factor of coffee’s supply in Vietnam 13 c Some non-price factors of coffee’s supply in Vietnam .15 The determinants of the demand of the beer in Vietnam 16 a The recent status and quantities 16 b The price factor of beer’s supply in Vietnam 18 c Some non-price factors of beer’s supply on Vietnam 18 C CONCLUSION 22 D LIST OF REFERENCES 22 A INTRODUCTION As we know beer is the oldest drink in the world, the history of beer dates back to 6000 years BC Since then, the beer market has grown and gradually become a drink familiar in each of our lives And it entered the market in Vietnam at the end of the 19th century as the Hanoi brewery and Saigon beer The beer market in Vietnam is currently being likened to a “magnet” that attracts most beer manufactures big in the world Every year, the beer industry contributes hundreds of billions of dollars to the state budget, providing jobs and creating jobs for hundreds of thousands of direct and millions of indirect workers in the supply chain from packaging, transportation, storage, wholesale and retail as well as suppliers of input materials for production, meeting the needs of the market, serving for export, and competitive products in the context of economic integration Our team write an article about the beer market in Vietnam This report will analysis about market structures of the beer industry in Vietnam , based on knowledge of Microeconomics Additionally, our group will also identify a number of determinants affecting the supply- demand of the beer industry Although thoroughly researched, the report cannot avoid shortcoming Our team is looking forward to receiving teacher’s comments and suggestions Thank you so much! B BODY I Theory - some relevant microeconomic knowledge Definition of the term “Market”, “Demand” and “Supply” - A “Market” can be understood as a place or a system where buyers and sellers interact to exchange goods or services for a certain price, depending on the demand and supply conditions A market can be physical or virtual, local or global, legal or illegal, competitive or monopolistic - “Demand” refers to the various amounts of a product that consumers are willing and able to buy at various prices, in a given period of time - “Supply” is the various amounts of a product that producers are willing and able to supply at various prices during some specific period Determinants of Supply a The price factor of Supply The amount of a product that is offered depends on how much people are ready to pay for it, which is called price This is the most important thing that affects the availability of a product The rule of supply says that when an item becomes more expensive, more of it is supplied, and when it becomes cheaper, less of it is supplied This change in price is called the price fluctuation b Non-price factors of Supply - Input price: This is a very important factor that influences supply Inputs are the things that are needed to make a product, such as materials, workers, machines, and technology If the inputs are available in large amounts and at low prices, more products can be made This would increase the supply of a product in the market If the price of flour goes down, the company will have to pay less to make the same amount of bread This will decrease its production cost and increase its profit margin As a result, the company will be more willing to supply bread at the same price as before This will cause an increase in the supply of bread in the market - Technology improvement: Better and more advanced technology helps a company make more products, which increases the supply of the product For example, using better machines and devices can help more productivity - Transportation condition: This means that having a good transportation system helps increase the supply of a product Transportation is a problem that can delay the delivery of the product, because sometimes there are not enough transportation systems to deliver the product on time - Government tax policy: Changes in taxes have the opposite effect on the supply of a company When the government increases taxes, the product becomes less profitable This reduces the supply of the product by the company - Production cost: The cost of making a product and the supply of the product are basically opposite If the cost of making a product increases, companies will reduce their supply of the product to save money - Natural conditions: This means that weather has a direct effect on the supply of some products Some products depend on the weather to grow These are called natural products If there is a good rainfall, the farmer will have more water to irrigate the orange trees This will increase the growth and quality of the oranges As a result, the farmer will have more oranges to sell in the market - Calamities: Natural calamities, such as war or pandemic, also affect the supply of products Sometimes there are not enough products because of war or pandemic These products are in short supply even if they are very expensive - Expectation: What the company wants and aims for In theory, a company only increases its supply of a product when the price is high because this meets its goal of making more money But sometimes, some companies want to supply more even if they make less money The reason for this is that they want to have more customers and also improve their image and reputation Determinants of Demand a The price factor of Demand The change in price causes a movement along the demand curve It changes the amount of demand The price of goods and the amount of demand have an opposite relationship b Non-price factors of Demand - Consumer income: Income affects how much consumers can buy For most of the normal goods, income and demand go together When income goes up, the demand for normal goods goes up too, and when income goes down, the demand for normal goods goes down too But for the inferior goods, it is the opposite Demand goes down when income goes up and vice versa - Price of related goods: Related goods are either complementary goods or substitute goods Complementary goods are goods that are used together If the price of these goods goes up, the demand for those goods goes down Substitute goods are goods that can replace each other If the price of these goods goes up, the demand for those goods goes up too - Taste and preferences: These factors have a big effect on demand because they show what consumers like - Market size: The demand will go up if there are more customers - Expectation: This is the prediction about changes in factors like price, income, or preferences They will change the demand now The market structure: Oligopoly An oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence The concentration ratio measures the market share of the largest firms (The Investopedia Team, 2023) Some characteristics of oligopoly are: - Few firms: Under oligopoly, there are a few large firms that dominate the market and have significant market share The exact number of firms is undefined, but it must be low enough that the actions of one firm significantly influence the others - Barriers to entry: There are high barriers to entry in an oligopoly market, such as economies of scale, brand loyalty, government regulations, and distribution networks These barriers prevent new entrants from entering the market and competing with the existing firms - Non-price competiton: Firms in an oligopoly compete on other factors than price, such as advertising, innovation, quality, and customer service This is because price competition can lead to a price war and lower profits for all firms Non-price competition can help firms differentiate their products and gain market share - Interdependence: Firms in an oligopoly are interdependent, meaning that each firm's decision affects the other firms' profits and reactions Firms have to anticipate and respond to the moves of their rivals, which can lead to strategic behavior and game theory analysis - Nature of the product: Firms in an oligopoly can produce either homogeneous or differentiated products Homogeneous products are Document continues below Discover more from: Microeconomics Đại học Kinh tế Quốc… 648 documents Go to course 53 379 89 Premium 16 bo de trac nghiem kinh te vi mo co dap an Microeconomics 100% (62) Premium Giao trinh kinh te vi mo Lecture notes Full lectures Microeconomics 97% (79) Premium Test Bank for Microeconomics Microeconomics 100% (14) Premium Microeconomics midtermEXAM 1đề Lẻ Microeconomics 100% (13) Premium Midterm vi mô - Đề mid term thầy Bảo số Microeconomics 100% (10) Premium Giao trinh kinh te hoc Microeconomics 122 identical or very similar, such as gasoline or steel 1Differentiated products are slightly different or have different brand names, such as cars or soft drinks The nature of the product affects the degree of competition and the pricing strategy of the firms The most prominent feature in this market is the interdependence of the firms This means that each firm’s decision affects the other firms’ profits and reactions, and vice versa This creates a situation where firms have to anticipate and respond to the moves of their rivals, which can lead to strategic behavior and game theory analysis Interdependence also makes the demand curve and the price-output determination of the firms indeterminate, as they depend on the actions and expectations of the other firms II The practical case: Beer market in Vietnam Number of brand and market share Vietnam has a vibrant and diverse beer industry, ranked in the top 10 in the world in terms of production and consumption, with revenue expected to reach 6.53 billion USD expected by 2022 (Nguyen, M ,2023) The exact number of beer brands in Vietnam is hard to determine, but it is estimated that there are over 100 active breweries in Vietnam as of 2020 The beer market in Vietnam is largely dominated by five big beer brands in 2021: Heineken, Sabeco, Habeco, Carlsberg and AB InBev These brands make up more than 94% of the beer market in Vietnam However, there are also a lot of other smaller and independent beer brands in Vietnam, especially in the craft beer segment, such as Pasteur Street Brewing Company, Heart of Darkness Brewery, Platinum Beer, Furbrew and Bridges Brewing Company According to the chart that illustrates the market share of Vietnam beer in 2021 below, Heineken, Sabeco, Habeco and Carlsberg made up 44.4%, 33.9%, 7.4% and 8.7% respectively (Statista, 2021) The remaining percentages belong to smaller firms Besides selling their products in the local area, these firm also target export markets that have high standards, such as Europe The firms have different levels of market share, with most of it concentrated in the large ones 100% (7) Product nature Most beer products available in the market share some common benefits They can quench thirst and provide entertainment as well as lower the chances of getting some illnesses like heart problems and kidney stones and enhance memory Hence, each beer brand needs to create its own distinctive taste and ingredients to stand out in the competitive market These two factors also help to differentiate the products from other companies Example 1: Sabeco and Heineken are two beer brands with strong positions in the competitive market in Vietnam and what sets them apart is the ingredients and flavors In Sabeco's beer, the ingredients are barley malt, hops and grains and the alcohol content is 5.3%, so it has a bitter and rich taste and combined with a cheap price, suitable for the majority of consumers Vietnam Meanwhile, Heneiken's beer has rice, malt, hops and alcohol content lower than that of Sabeco, 2%, so it has a higher production cost, targeting high-income consumers and love the unique and luxurious (MyBest, 2021) Example 2: Businesses also introduce various beer products with distinct tastes and forms to cater to market needs, enhance recognition and expand market share as a way to diversify their products (Beer products of Heneiken) (Beer products of Habeco) The structure of the beer market in Vietnam is Oligopoly a Beer market situation in Vietnam For many years, the beer market has been dominated by a group of four large companies, namely Heineken, Sabeco, Carlsberg and Habeco These four companies accounted for 94.4% of the market share of Vietnam's beer industry in 2021, of which Heineken and Sabeco alone had a total market share of 78.3%, overwhelming the other two companies (MBS) According to Bloomberg data, Sabeco's after-tax profit margin was 13.49%, higher than Habeco (4.1%) In addition, Sabeco has a much lower Capex/revenue ratio than other beer industry enterprises, only at 1.25% compared to the industry average of 3.54% Market share of beer brands in Vietnam in 2021 (Source: MBS) Sabeco’s revenue from 2016 to 2021 (Source: MBS) Habeco's revenue from 2016 to 2021 (Source: MBS) b Barriers to entry - Regulations and policies Regulations and policies related to beer production, business and advertising can create barriers to the development of the beer market Regulations on taxes, licenses, approval procedures and quality control can create significant challenges and costs for beer producers and traders 10 Regulations on prevention and control of harmful effects of alcohol, beer - Competition from imported beer Competition from imported beer brands is also an obstacle Famous beer brands from abroad often have resources and recognition from customers, making it difficult to access and compete in the market for domestic beer producers - Consumer perception "beer market research" Some consumers still have limited perception of beer and not show diversity in choosing beer The priority of some consumers is still price and brand rather than quality and diversity of products This can limit the access and consumption of special and craft beers - Limitations on distribution and marketing "beer market research" Beer distribution and marketing also face some challenges Especially when accessing rural areas or remote areas, distribution and marketing become difficult This can limit market expansion and access to potential customers - Health awareness and other consumption trends With increased health awareness and different consumption trends, some consumers may reduce beer consumption or switch to other types of drinks The increase of trends such as drinking less alcohol, drinking non-alcoholic beverages or healthy diets can affect the growth of the beer market." c Non-price competition Foreign companies often spend a large sum of money in advertising and promotion (A & P) to get the consumers’ awareness for their products The most typical A & P activities used by them are erecting billboards at crowded crossroads, commissioning foreign ads agency to develop attractive clips to be shown on prime time TV, putting large ads in leading newspapers, sponsoring key sportive and social events, providing free-of-charge name boards to groceries with their logos, and using promotion girls in restaurants and wedding parties As a typical case, Tiger and Heineken brands had made quick and large 11 impacts on the Vietnamese market by a large scale A & P campaign in their attempt to conquer the market quickly, by using a wide combination of all means mentioned above This marketing method has subsequently followed by other brands like San Miguel, Carlsberg, BGI, but on a much smaller scale Creative advertising of Heineken Advertising cost of Sabeco and Habeco (Source: Cafebiz) Revenue per one advertising of Sabeco and Habeco (Source: Cafebiz) d Interdependence Domestic beer producers depend on foreign beer producers for importing raw materials, such as malt and hops, as well as for accessing advanced 12 technology and management skills Foreign beer producers depend on domestic beer producers for expanding their market share, adapting to local tastes and preferences, and complying with local regulations and standards Therefore, both domestic and foreign beer producers have mutual interests and benefits from cooperating and competing in the beer market in Vietnam The determinants of the supply of the beer in Vietnam a The recent status and quantities According to CleverAds, Vietnam’s beer market has flutuated between 2019 and 2023 In 2019, the total beer production in Vietnam reached over billion liters, an increase of 22.9% compared to the same period in 2018 The consumption also reached over billion liters, showing a growth of 29.1% compared to the previous year However, due to the prolonged impact of social distancing measures from the Covid-19 pandemic and additional management policies imposed by the government, the business operations of beer companies suffered significant losses From 2020 to 2021, the beer market experienced a decline of 20%-30% in consumption After successfully controlling the Covid-19 outbreak, various service and entertainment industries, such as karaoke and bars, resumed their operations As a result, the beer consumption market gradually recovered and showed promising signs It is predicted that beer consumption in Vietnam will continue to increase significantly in 2023 13 Therefore, beer production has also increased to meet the growing demand of Vietnamese consumers Based on these results, the beer production in Vietnam has been on the rise over the past year b The price factor of coffee’s supply in Vietnam Raw material price also impacts on supply The specific nature of the beer industry requires certain ingredients, some of which may need to be imported Conflicts and economic sanctions between Russia and Ukraine, as well as sanctions imposed by Western countries on Russia, and the COVID-19 pandemic have affected global supply chains and prices, causing comprehensive and profound impacts on the world economy Vietnam is not immune to these impacts, especially in terms of importing and exporting ingredients for the beer industry International payment risks and disrupted supply chains can increase production and transportation costs Additionally, the declaration by major shipping companies not to transport goods to and from Russia has led to intense competition and increased transportation costs 14 Due to icreasing of ingredient prices, some beer manufacturing companies have had to raise their prices From the second quarter of 2022, beer prices had to increase by 15%-30%.Because prices increase dramatically, consumers have a trend to find a substitute products or limit beer consumption It led to the consumption of products falling down causing a reduction in supplying of goods to avoid surplus However, some companies may choose to maintain their original prices in order to meet the demands of their customers This approach has limitations as it may result in lower revenue for the company In the long term, this can also impact the production process c Some non-price factors of coffee’s supply in Vietnam - Technology Technology is also one of the factors influencing beer production Nowadays, in Vietnam, there are numerous large breweries competing with each other, not only in terms of price but also in terms of taste, uniqueness, and meeting the demands of consumers and societal requirements This necessitates constant competition among major breweries, utilizing top-of-the-line machinery and advanced technology to produce delicious beers that hold the number one position in consumers' hearts.As a result, increased consumption leads to an increase in production Additionally, advanced technology helps to improve productivity by enabling the production of more within the same timeframe It saves both time and unnecessary labor costs 15 For example: Heiniken use new technology to produce new beer They has introduced a non-alcoholic beer that retains the delicious taste of Heineken while containing only 69 calories per 330ml bottle This caters to the current consumer trend towards a balanced lifestyle and increased focus on personal health As a non-alcoholic beer, Heineken provides consumers with a new choice for any time of the day They can enjoy Heineken at their workplace, in the gym, during lunch breaks, and even before driving, as it is a non-alcoholic beverage - Government policy The government has implemented certain policies that can directly and significantly impact beer production The government has issued national policies to combat the harmful effects of alcohol abuse As a result, there are regulations related to the production, business, and consumption of alcoholic 16 beverages, including beer The Commercial Law restricts the trading of alcohol as a regulated product The Investment Law considers alcohol business as a conditional sector, and the conditions are specified in Government Decree 105/2017/ND-CP regarding alcohol business These regulations include prohibitions on selling alcohol to individuals under 18 years old, requirements for licensing alcohol production activities for individuals under 18 years old, and regulations for granting licenses for alcohol production, distribution, wholesale, retail, and on-site consumption The Road Traffic Law specifies alcohol concentration limits for drivers of motor vehicles, including cars and trucks These government regulations have a significant impact on the beer market and its production processes Government policies have significantly impacted the revenue of the beer industry, leading to a decline in production as the demand has also decreased due to the implementation of these policies For example: Hanoi Beer-Alcohol-Beverage Corporation (Habeco) experienced a nearly 50% drop in revenue in the first quarter of 2020 compared to the same period in 2019, resulting in a 55% decrease in profit equivalent to 148 billion Vietnamese dong Similarly, Sabeco also concluded the first three months of the year with a 47% decrease in revenue, recording the lowest profit since the first quarter of 2016 In particular, beer is subject to special consumption tax with the current tax rate being 65% Excessive consumption of beer can have negative health implications and other serious consequences for society As a result, sellers have to increase beer prices to account for the tax and ensure their revenue This, in turn, limits beer consumption Additionally, the production of beer is also affected by these policies The determinants of the demand of the beer in Vietnam a The recent status and quantities While the beer consumption market in many other countries has reached saturation, the beer market in Vietnam has continued to grow rapidly, placing it among the top in the world According to Euromonitor, in 2010, the total beer consumption in Vietnam was around 2.4 billion liters With an estimated population of 88.5 million at that time, on average, each Vietnamese person consumed about 27.1 liters of beer in 2010 17 By the end of 2018, after nearly a decade, while the population of Vietnam reached 96.9 million (a 9.5% increase compared to 2010), the nationwide beer consumption had increased by 62% Specifically, the beverage industry analysis report by FPT Securities Company (FPTS) stated that Vietnam is one of the largest beer markets in the world In 2017, the total domestic beer consumption reached billion liters, accounting for 2.1% of the global beer production and ranking 10th in the world and 3rd in Asia (after China and Japan) In 2018, the domestic beer industry had around 110 manufacturing enterprises with an estimated production volume of 4.3 billion liters and an estimated consumption volume of 4.2 billion liters, showing a similar growth rate compared to 2017 Therefore, on average in 2018, each Vietnamese person consumed nearly 43.3 liters of beer Moreover, if we consider only the working-age population (15-60 years old), each person in this age group consumed an average of 86.6 liters of beer in the past year According to the same report, during the period from 2007 to 2017, the compound annual growth rate (CAGR) of the Vietnamese beer market was consistently at 8.3%, which is very high compared to other markets This led to Vietnam's market scale rising 15 places, from 25th to 10th in the world During the period of 2020-2021, due to the impact of the COVID-19 pandemic, beer consumption also significantly decreased The total beer consumption was only around 3.9 billion liters per year As of 2022, Vietnam's beer consumption accounted for 2.2% of the global market, at approximately 3.8 million liters of beer per year This has made Vietnam the leader in beer consumption among ASEAN countries A recent study published in The Lancet also revealed that Vietnam, India, and Japan were the three countries with the fastest-growing alcohol consumption from 2010 to 2022 Compared to 2010, Vietnam's beer consumption in 2022 has increased by nearly 90% Vietnam ranks first in the world in terms of this growth rate, with double the rate of the second-ranked country, India, and 16 times higher than the United States 18 b The price factor of beer’s supply in Vietnam Under the influence of the Covid-19 pandemic and the energy crisis in Europe, as well as the Russia-Ukraine conflict, supply chains have been disrupted The prices of raw materials have been continuously increasing in the first three months of 2022 For example, can lids have increased by 30-40%, bottle caps by 35%, and paper boxes by 15% These prices are forecasted to continue rising According to Cafef, Hanoi Beer Alcohol Beverage Corporation (Habeco), the company that owns brands such as Hanoi Beer, Hanoi Draft Beer, and Truc Bach Beer, announced price adjustments for draft beers starting from April 10, 2022 Specifically, draft beer in quantities of 30-50 liters will increase by an additional 1,001 Vietnamese Dong per liter, keg beer in 2-liter containers will increase by an additional 4,117 Vietnamese Dong per liter, and draft beer in 1-liter bottles (pack of 6) will increase by an additional 7,062 Vietnamese Dong per liter Earlier, on January 1, the company had already announced an increase of 616-1,110 Vietnamese Dong per liter Despite the rising prices of beer, the demand for beer consumption among Vietnamese people still increases steadily c Some non-price factors of beer’s supply on Vietnam - The consumer’s income The average monthly salary in Vietnam in 2020 stood at approximately 4.2 million VND Regarding household expenditure, the average spending per person per month across the country in 2020 reached 2.89 million VND, representing a 13% increase from 2018 However, due to the impact of the COVID-19 pandemic, the growth rate of spending was slower compared to the 19