(Tiểu luận) final group projectsubject microeconomicstopic the soft drinksindustry in vietnam

NATIONAL ECONOMICS UNIVERSITY BUSINESS SCHOOL ……0O0…… FINAL GROUP PROJECT SUBJECT: MICROECONOMICS Topic: The soft drinks industry in Vietnam Group 4: Trịnh Quỳnh Anh_11220657 Nguyễn Minh Hòa_11222845 Lê Tuấn Kiên_11223154 Trần Bảo Quân_11225409 Dương Tuấn Đạt_11221228 Nguyễn Thị Ngọc Ánh_1122 Class:E-BDB Hanoi, 6/2023 Introduction I Introduction Definition a Soft drinks “Soft Drink” refers to nearly all beverages that are non-alcoholic It is usually but not necessarily carbonated, normally containing a natural or artificial sweetening agent, edible acids, natural or artificial flavours, and sometimes juice The natural flavour of soft drinks is mostly derived from natural plant sources, such as fruits, herbs or nuts Soft drinks, additionally, are distinguished from other beverages such as coffee, tea, milk, cocoa, and undiluted fruit and vegetable juices While the term "soft drink" can be applied to any non-alcoholic beverage, it is now commonly used exclusively for flavoured carbonated beverages Picture 1: flavoured carbonated beverages b Oligopoly market: By definition, the oligopoly market is a market structure dominated by a small number of relatively big firms, none of which can keep others from having significant influence In this market, the product of firms can be identical or differentiated, and there is always seen the interdependence between firms Other prevailing conditions are the substantial barriers to entry into the market and the imperfect information Oligopoly characteristics include (1) few major sellers, (2) the interdependence of firms, (3) product differentiation, (4) high barriers to new entry, (5) price-setting ability, and (6) non-price competition The soft drink market in Vietnam Soft drinks is a product category within the FMCG industry that has a large consumption rate, ranking among the top-selling products in this industry Globally, it is also a product that has been invested and participated in by many famous brands The concept of soft drinks can be traced back to the 17th century, but it was not until the 1880s that the beverage market became flooded with branded drinks, as it is today Some countries have reported that soft drinks have a high average daily usage rate, about nearly 50% Situated in a tropical region, Vietnam's beverage market has experienced significant growth on a global scale, especially after the COVID-19 pandemic However, it is revealed that Vietnamese people consume only 23 liters of beverages per year, which is much lower than the global average of 40 liters per year for consumers In fact, the majority of the annual production and consumption of the Vietnamese beverage market comes from soft drinks and RTD tea, etc., accounting for 85% II Analysis: Why does the soft drink market belong to oligopoly market Number of brands and market share The demand for soft drinks consumption has shown stable growth after the Covid-19 pandemic as activities resumed The retail sales volume of soft drinks in 2022 reached approximately 4.5 billion liters, an increase of about 5% compared to the same period in 2021 The soft drinks market in Vietnam is concentrated, with the top largest companies accounting for around 57% of the total market share in 2022  Pepsico maintains its leading position in the soft drinks sector (in terms of value) Pepsico also leads in various segments, including carbonated beverages, fruit drinks, bottled water, and sports drinks  Coca-Cola Vietnam holds the second position in 2022 and dominates in segments such as carbonated beverages, bottled water, and fruit drinks  Tân Hiệp Phát and URC Vietnam lead in the instant tea segment, while Red Bull ranks first in the energy drink segment  The energy drink segment is considered the most promising for growth The estimated Compound Annual Growth Rate (CAGR) for energy drinks in the period of 2017-2022 is 9.8%, followed by bottled water with a CAGR of 6.9% Not only is the non-alcoholic beverage market developing strongly, but the energy drink segment also attracts many domestic and foreign participants and witnesses intense competition According to a research, TCP Group, the owner of Red Bull and Warrior energy drink brands, plans to launch 10 new products in the next years, focusing on health products and investing around 340 million USD in various markets With this investment, Mr Saravoot Yoovidhya, CEO of TCP, stated, "The company aims to double its annual revenue, reaching 2.5 billion USD by 2024 and aiming for sustainable development." Companies like Hansen (USA) with Monster Energy, Coca-Cola with Coca-Cola Energy and Samurai, PepsiCo with Rockstar and Sting, Tân Hiệp Phát with Number 1, Masan with Wake-up 247, or Taisho (Japan) with Lipovitan have also engaged in investment activities to strengthen their positions in the market New competitors such as Compact Cherry, Night Wolf, etc., are also trying to enter the market However, energy drink manufacturers not only face strong competition within their segment but also compete with other segments According to a survey by vtown.vn, consumers currently favor tea, which accounts for nearly 37% of the market share Carbonated soft drinks come next, and energy drinks rank third in consumer preferences Energy drinks also have to contend with the popularity of coffee drinks According to Statista's prediction for the period 2021-2025, coffee may achieve a compound annual growth rate of 8.28% per year The demand for soft drinks consumption has shown stable growth after the Covid-19 pandemic as activities resumed The retail sales volume of soft drinks in 2022 reached approximately 4.5 billion liters, an increase of about 5% compared to the same period in 2021 Product nature The product nature of soft drinks in Vietnam is characterized by the following aspects: a Carbonation: Soft drinks in Vietnam typically have carbonation, which gives them their characteristic fizzy or effervescent quality The carbonation is created by adding carbon dioxide to the beverage, resulting in the formation of bubbles b Variety of flavors: Soft drinks in Vietnam come in a wide range of flavors to cater to different consumer preferences Common flavors include cola, lemon-lime, orange, grape, strawberry, and tropical fruit flavors This variety allows consumers to choose their preferred taste profiles c Sweetness: Soft drinks in Vietnam are known for their sweet taste They typically contain sugar or high-fructose corn syrup to provide the desired level of sweetness However, there is also a growing trend towards low or no-sugar options as consumers become more health-conscious d Refreshing and thirst-quenching properties: Soft drinks are often consumed as a refreshing and thirst-quenching beverage in Vietnam, especially in hot and humid climates The combination of carbonation, flavors, and sweetness provides a cooling sensation and helps quench thirst e Packaging options: Soft drinks are available in various packaging formats, including cans, bottles (plastic or glass), and tetra packs These different packaging options provide convenience and choice for consumers, allowing them to select the most suitable size and format for their needs It's important to note that consumer preferences and market trends may evolve over time, and there could be variations in the product nature of soft drinks in Vietnam based on specific brands and product offerings Barriers to entry a Opportunity Currently, according to statistics from the Vietnam Beer, Alcohol, and Beverage Association (VBA), there are about 1,800 soft drink production facilities in Vietnam The annual growth rate in this sector is steadily increasing at around 6-7% per year, while in other markets such as France and Japan, the expected growth rate is only around 2% per year According to data from vtown.vn, carbonated soft drinks account for 23.74% of the soft drink market share in Vietnam However, it seems that they are not the dominant category, as tea holds a significant market share of 36.97% This preference for tea can be attributed to the cultural influence in Vietnam, where tea has been deeply ingrained in the minds of Vietnamese people Energy drinks follow closely behind with 18.28%, while fruit juice makes up 10.91%, and mineral water accounts for 5.45% Document continues below Discover more from: Marketing MKT999 Đại học Kinh tế… 238 documents Go to course Premium [NHÓM 7] Dookki 41 Báo cáo Marketing 100% (4) XÂYPremium DỰNG KẾ 16 HOẠCH BÁN HÀNG… Marketing 100% (1) Premium Chien-luoc-canh31 tranh-cua-honda-… Marketing 100% (1) IMCPremium Plan - ABCDÈG 133 Marketing None [HX21] [GIÁO ÁN DẠY Online] [BUỔI 1] Marketing None Premium Pestle Analysis of Apple Inc Marketing None With a market that has nearly 2,000 soft drink production facilities and a strong annual growth rate in the beverage sector, there are ample opportunities for brands to develop, especially as the current trend focuses less on brand loyalty This presents a chance for emerging brands to surpass more established ones b Barriers However, barriers exist for businesses in this market Even a minor misstep can significantly damage the reputation of a brand that has been meticulously built over many years For example, Tan Hiep Phat, a well-known beverage firm, faced a crisis when a fly was found in one of their products, which was highlighted in a Facebook post It took until 2018 for the brand to fully regain its reputation and resolve the local crisis Due to consumer demand for new products and unique flavors, competition in the market is increasingly intense For instance, Tan Hiep Phat introduced a new energy drink called Number Cola, while PepsiCo launched a yogurt drink made with pure orange Other brands have also introduced drinks made from aloe vera, blueberries, and bird's nest Additionally, there is a growing trend of small businesses and households producing homemade fruit and vegetable juices, as well as herbal drinks, to meet customer demands According to Mr Le Phung Hao, Chairman of the Vietnam Marketing Association, foreign direct investment (FDI) enterprises have advantages in terms of production scale For instance, Suntory PepsiCo Vietnam Beverage (SPVB), which entered Vietnam in 1994, initially offering Pepsi and 7Up, expanded its portfolio to include 11 brands by 2016, providing more choices to consumers, such as Aquafina, Sting, Lipton Ice Tea, and Ô Long Tea+ Plus While the market presents opportunities, it also poses challenges Food safety is a critical concern, and building a brand requires prioritizing quality assurance Consumers have become more discerning, and their preferences have evolved Market research firm Mintel has identified 12 new trends in the food and beverage industry, emphasizing the use of healthy, transparent, and natural ingredients, as well as stricter requirements for traceability and origin verification Previously, customers focused more on taste and personal preferences, but now they are more selective and cautious in their product choices Current consumers pay more attention to clear labeling, adherence to standards, and proper ingredient sourcing This demands that businesses provide transparent information, make quality commitments, and communicate more effectively with consumers c Typical barriers and recommendations Brand ownership: Well-established soft drink brands such as Coca-Cola, Pepsi, and local brands like Tan Hiep Phat have built strong reputations and widespread brand ownership This creates a barrier for new companies trying to enter the market, as they have to contend with the strong competition from existing brands Financial investment: To establish and grow a soft drink company, significant investment is required in manufacturing facilities, distribution networks, advertising, and marketing This poses a barrier in terms of financial resources and the ability of new companies to raise sufficient capital Regulations and standards: Strict regulations and standards regarding food quality and safety apply to soft drink products in Vietnam New companies need to comply with these regulations and meet the required quality standards to obtain the necessary licenses and permits for business operations Compliance with regulations can be challenging and timeconsuming for newcomers Distribution networks: Soft drink companies need a strong distribution network to ensure widespread availability of their products Established brands often have well-established relationships with distributors, making it difficult for new entrants to secure distribution partnerships and reach a wide consumer base Intense competition: The soft drink market in Vietnam is highly competitive Existing brands have built customer loyalty and have a significant market share New companies face challenges in differentiating their products and creating a competitive advantage in the market Non-price competition Non-price competition refers to the use of competitive strategies other than price adjustments to attract new customers from competitors It encompasses forms of competition that are unrelated to price changes and instead focus on advertising, marketing, and product innovation In the Vietnamese beverage market, non-price competition is an important factor for companies to attract and retain customers Here are some non-price competition strategies applied in the beverage industry in Vietnam: Creative advertising: Beverage companies often use creative advertising campaigns to enhance brand recognition and capture customer attention For example, using television commercials, radio ads, and online advertising to convey messages about the quality, taste, and value of the beverages  According to a study by ACNIELSEN in 2020, the beverage industry accounted for a significant proportion of advertising expenditure, with a 14.2% increase in advertising investment compared to the previous year  Example: Company A, a beverage manufacturer, recently ran a large-scale television advertising campaign to enhance brand awareness and recognition for their beverage products As a result of this campaign, Company A gained customer attention and increased their sales volume Special marketing strategies: Companies can employ special marketing strategies such as promotional campaigns, bulk purchase discounts, or loyalty programs to attract and retain customers For instance, creating combo packages or offering online ordering options to provide cost savings for customers purchasing beverages  According to the Vietnam Beverage Market Report 2020 by Vietnam Report, effective marketing strategies can increase beverage consumption and attract new customers  Example: Company B implemented a marketing strategy focused on an attractive promotional program where customers who purchase one bottle of beverage receive a free bottle This campaign attracted consumer interest and motivated increased purchases from Company B Product innovation: Innovation in beverage products can be a crucial factor in attracting new customers Companies can develop new beverages with unique flavors, high quality, and natural ingredients to differentiate themselves from competitors For example, launching sugar-free, low-calorie, or natural ingredientbased beverage lines to cater to health-conscious customer segments  According to the Vietnam Beverage Market Report 2020 by Vietnam Report, product innovation is an important factor for beverages to differentiate themselves and attract customers  Example: Company C developed a new line of beverages with natural ingredients and no added sugar This product received positive reviews from health-conscious consumers who prefer natural products Company C utilized product innovation to attract new customers and stand out from competitors Customer engagement: Building and engaging with customers through social media, events, or reward programs Beverage companies often create promotional campaigns or organize sports and music events to establish connections and strengthen customer relationships These figures and examples serve as references and may vary over time and specific market conditions By combining non-price competition strategies and academic data, beverage companies can gain a better understanding of the market and apply suitable strategies to attract customers and enhance business effectiveness II Factors that have affected the demand and supply of the soft drink market in Vietnam Factor affecting Vietnam’s soft drink supply 1.1 Price factor 1.1.1 Price of soft drink According to the law of supply, when the price of a good increases, the quantity supplied for that good increases, and vice versa Current situation of the beverage industry in Vietnam:  Consumption of non-alcoholic beverages in Vietnam  The demand for non-alcoholic beverages has been steadily growing after the Covid19 pandemic, as activities have resumed The retail sales volume of non-alcoholic beverages in 2022 reached around 4.5 billion liters, representing a 5% increase compared to the same period in 2021  The Vietnamese beverage market is concentrated, with the top companies holding approximately 57% market share in 2022, based on value, for the period from 2017 to 2022  Pepsico maintains its leading position in the beverage sector (in terms of value) Pepsico also leads in various segments, such as carbonated drinks, fruit juices, bottled water, and sports drinks  Coca-Cola Vietnam holds the second position in 2022, with a significant market share in segments like carbonated drinks, bottled water, and fruit juices  Tan Hiep Phat and URC Vietnam lead in the ready-to-drink tea segment, while Red Bull ranks first in the energy drink segment  Export of non-alcoholic beverages from Vietnam: The export of non-alcoholic beverages has seen significant growth The export turnover of carbonated drinks reached around 44,000 USD in 2022, marking an increase of approximately 42% compared to the same period in 2021 The export turnover of non-carbonated soft drinks reached around 167,000 USD, also experiencing a growth of approximately 42% compared to the same period in 2021 1.1.2 Substitute goods and Complementary goods price The change in consumer preferences is an important factor in the competition between substitute products and soft drinks Over time, consumers may have changes in their taste preferences, nutritional requirements, or social environment that can influence their preferences This creates opportunities for substitute products to compete with soft drinks In addition, price and quality also influence consumer purchasing decisions If substitute products are reasonably priced and meet the required quality standards, consumers may choose to purchase the substitutes instead of soft drinks This puts pressure on soft drink manufacturers to ensure that their products provide high value and quality to compete with substitute products There are numerous alternatives to soft drinks available on the market Fresh fruit juice, purified water, tea, coffee, natural beverages, and mineral water are popular options Consumers can choose the type of product that suits their needs and personal preferences In the competition between substitute products and soft drinks, consumer benefits play a crucial role Substitute products can meet consumers' requirements for nutrition, health, or personal preferences At the same time, this competition also creates diversity and choice for consumers, while encouraging soft drink manufacturers to develop and improve the quality of their products Factors affecting Vietnam’s soft drink demand 2.1 Price factors: Price of the product According to Law of Demand, there is an inverse (negative) relationship between the price of a product and the amount of that product consumers are willing and able to buy during some period of time, ceteris paribus As price rises, buyers want to buy less of a product, and they want to buy more of a product when price falls The soft drink market in Vietnam has a variety of price segments, from low-cost products to high-end products Popular brands like Coca-Cola, Pepsi, Sting, Fanta, and Mirinda often cost more than low-priced soft drinks brands like Tan Hiep Phat, Lavie, Number 1, Revive, and many other local soft drink brands The price list of favorite drinks in Vietnam is shown in the following table: 2.2 Non-price factors: 2.2.1 The income of consumers: Consumer income, which is correlated with their socioeconomic level, is the money available for spending in a particular household Soft drinks are considered normal goods Therefore, there is a direct relationship between the income and the quantity demanded, meaning that demand for goods goes up when income is higher and goes down when income is lower According to the General Statistics Office (GSO), the average monthly income of employees in the first months of 2022 is 6.5 million VND, an increase of 5.3% compared to that in the same period in 2021 and an increase of 11% in comparison with that at the same time in 2020 Besides, according to World Bank, Vietnamese’s per capita income has gradually risen over the last few years, which is shown in the following graph: Along with that, the consumption of soft drinks in Vietnam's market also experienced a moderate increase during a year period from 2014 to 2027 2.2.2 Price of related goods:  Substitute goods: A substitute is a good that can be used in place of another for satisfaction of a particular want When an increase in the price of one good causes demand for another good to increase (a positive relationship) There are several substitutions for soft drinks such as bottled water, tea, fruit juices, energy drinks, etc Take tea as an example, tea is a common substitute for soft drinks due to its affordable price and suiting customers’ taste packaged dry tea is sold with the price of 40.000 – 60.000 per 250g If the price of green tea decreases, this will result in a reduction in demand for soft drinks in the local market because customers will turn to buy a substitute – green tea Another example is bottled water which is a popular substitute for soft drinks in Vietnam It is widely available, affordable, and appeals to health-conscious consumers who prefer a healthier and sugarfree option  Complementary goods: A complementary good is a product or service that adds value to another In other words, they are two goods that the consumer uses together For instance, Soft drinks are commonly served as beverages with fast food meals, including burgers, pizzas, fried chicken, or sandwiches The refreshing taste and carbonation of the soft drink can complement the savory and sometimes greasy nature of fast food 2.2.3 The number of consumers: The demand for goods in the market is affected when individual demand increases in the present, or when potential consumers can buy goods or services at different prices The higher the number of consumers, the greater the demand In some cases, there will be more consumers due to the growth of population: During this period, the consumption of soft drinks has also witnessed an increase: 2.2.4 Taste or preferences of consumers: Consumer tastes and preferences have a direct impact on the demand for a consumer good Nowadays, there have been many famous types of soft drinks such as Coca Cola, Pepsi, 7Up, Sting, Fanta, Sprite, A survey done by Vinaresearch in 2013 reveals the preference of Vietnamese consumers when it comes to soft drinks In this survey, it is reported that up to 97.4% of the respondents said that they had used to drink Coca-Cola before This brand continues to lead the way in the brand drink in the last month and drink most often with the rate of 82.8% and 27.4%, respectively Pepsi and Up are the next most popular brands of carbonated soft drinks with more than 90% of respondents saying they have tried it Moreover, Vietnamese consumers often have a preference for sweeter flavors in soft drinks Many popular soft drink brands in Vietnam offer a range of sweet options, catering to the local taste preference for sugary beverages Vietnamese consumers also show a preference for local soft drink brands, which often have their unique flavors and formulas Popular local brands include Trà xanh Không Độ, C2, Number 1, and many more These brands offer flavors and taste profiles that are tailored to the local market 2.2.5 Expectations Nowadays, consumers are more conscious of the benefits of a healthy lifestyle and balanced diet Awareness of health issues such as obesity, diabetes, and cardiovascular diseases has led to a demand for non-caloric, low-sugar, non-carbonated, or naturally flavored beverages The health and wellness market has become a significant part of the beverage industry Consumers are increasingly interested in consuming products that are good for their health, provide nutritional benefits, and are not harmful Thus, there is an increased demand for natural, preservative-free, artificial color-free, and sugar-free beverages Overall, the expectation for the soft drink market to become healthier is driven by the increasing consumer demand for healthier and more nutritious products This presents opportunities for businesses in the industry to develop and provide soft drinks that meet these needs 2.3 Other factors In the soft drink market, there are several other factors besides price and purchasing power (demand) and price and production capacity (supply) that can influence its specific demand and supply Here are some other important factors that can affect the demand and supply in the soft drink market: - Economic factors The overall economic situation of a country or region can influence the demand and supply When the economy is growing and incomes are increasing, consumers tend to spend more on soft drinks, leading to increased demand Conversely, in an economic recession, demand may decrease due to constraints on consumers' financial resources - Changing trends and preferences Changes in consumer trends and preferences can also affect the demand and supply in the soft drink market For example, if there is a trend towards focusing on healthy eating and reducing sugar intake, the demand for calorie-free or low-calorie beverages may increase - Marketing strategies and advertising Marketing strategies and advertising can influence the demand and supply of soft drinks Creative and effective advertising campaigns can enhance brand awareness and stimulate consumer demand Similarly, discount programs, promotions, or bundle offers can also impact the demand and supply in the market - Policies and regulations Government policies and regulations can have a significant impact on the soft drink market For example, imposing special taxes or advertising restrictions on high-sugar beverages may reduce demand Conversely, policies that encourage the production and consumption of calorie-free drinks can increase supply - Market changes and competition Changes in the market and competitive landscape can also influence the demand and supply in the soft drink market For example, the emergence of new competitors, product diversification, or the development of new distribution channels can create competition and affect the demand and supply in the market These factors collectively interact and influence the demand and supply dynamics in the soft drink market Understanding and carefully analyzing these factors can help businesses in the soft drink industry make strategic decisions regarding supply and demand, marketing, and product development