(Tiểu luận) topic supply, demand and marketequilibrium for beer and brewing industry in vietnam

It entered the Vietnamese market in the late 19th century with the establishment of the Hanoi Brewery and Saigon Brewery.The industry of producing and processing of beer and its products

FOREIGN TRADE UNIVERSITY MAJOR: INTERNATIONAL ECONOMICS

TOPIC: SUPPLY, DEMAND AND MARKET EQUILIBRIUM FOR BEER AND BREWING INDUSTRY IN VIETNAM

Beer is the oldest alcoholic beverage in history, dating back to around 6000 BCE Since then, the beer market has developed and gradually become a familiar drink in our daily lives It entered the Vietnamese market in the late 19th century with the establishment of the Hanoi Brewery and Saigon Brewery.The industry of producing and processing of beer and its products of Viet Nam in recent years has developed dramatically This movement has provided diverse products with various modes and types for the national economic life and satisfied the domestic demand In addition, this sector has contributed significantly to the state budget, creating jobs for the labor force, contributing to ensure livelihood and stabilizing social status

Along with global marketing strategies, both foreign and national brands have created significant competitive pressures in the battle for market share of beer Therefore, having a good perspective about beer market is essential For that reason, we decided to choose the topic: “Supply, Demand and Market Equilibrium for beer and brewing industry in Viet Nam” to analyze the domestic market of brewing products and help consumers gain a better understanding about it.Hopefully our study can enrich your microeconomic knowledge, and provoke your interest in beer production Thank you and we would be appreciated

if you could leave any comments or ideas

INTRODUCTION TO VIET NAM BREWING INDUSTRY

Since the 1970s, thanks to the renovation and opening policies of the Communist Party and the government of Socialist Republic of Viet Nam, the livingstandards of the people have significantly improved, and there has been a rapid increase in tourism and foreign investment in Vietnam, which has further stimulated the development of various economic sectors As a result, the

Vietnamese beer industry has experienced substantial growth within a short period.This progress has been achieved through investments, the revitalization of existing breweries, expansion of joint ventures with foreign countries, and the

establishment of new breweries by local, central, private, and joint-stock entities nationwide

Currently, with nearly 4 billion liters of beer consumed in 2016, Vietnam has become the third-largest beer market in the world, following Japan and China

In 2017, Vietnam entered the top 10 largest beer markets in the world Although beer consumption in Vietnam continues to rise, it is not yet among the top 20 countries in terms of per capita beer consumption The rapid increase in beer consumption has propelled Vietnam to a higher position in the rankings of major beer markets in the region and the world Vietnam is currently the highest beer-consuming country in Southeast Asia, ranking third in Asia after Japan and China, and is in the top 25 worldwide The total volume of beer consumed in Vietnam over the past 8 years (2010-2017) has reached 25.23 billion liters, averaging 3.5 billion liters per year for the Vietnamese population.At the end of 2017, the Vietnamese beer market experienced a major shake-up when 53.59% of the shares

of Saigon Beer Alcohol Beverage Corporation (Sabeco), with a value of nearly $5 billion, were acquired by Thaibev

Due to the immense attractiveness of the market, leading global beer brands such as Heineken, Tiger, Carlsberg, Budweiser, Sapporo, and Sacabeo have all entered Vietnam As a result, the Vietnamese beer market has become more competitive with the presence of over 30 major global beer brands The increasing number of international beer brands has intensified competition in the Vietnamese beer market, especially in the premium beer segment Faced with the strong offensive of foreign beer brands, domestic beer producers naturally cannot remain idle, and they have implemented new strategies to develop and compete fiercely in the Vietnamese beer market.

CHAPTER 1: BASES ANALYZE SUPPLY, DEMAND AND MARKET EQUILIBRIUM

Supply and demand: Definition

1 Demand

Definition: Demand is the quantity of products or services that buyers are willing and able to buy at different prices in certain period of time given everything else constant There are many things that determine the quantity demanded of any good, but when analyzing how market work, one determinant plays thecentral role – the price of goods

Quantity demanded is the amount of goods that buyers are willing and able

The demand curve illustrates how the

quantity demanded of a good changes

as its price varies Because lower

price increases the quantity

demanded, the demand curve slope

downwards

Shift in demand curve: There are

many variables that can shift the

demad curve Here are the most

important:

Income

Price of related goods

(complementary goods and

substitute goods)

12

Quantity supplied: Quantity supplied is the amount of commodity that

suppliers are willing and able to sell

Supply curve: The supply curve

illustrates how the quantity supplied of a

good changes as its price varies

Because higher price increases the

quantity supplied, the demand curve

slope upwards

Shift in supply curve: There are many

variables that can shift the supply curve

Here are the most important:

Price of related good (Complementary goods and substituted goods)Tastes

CHAPTER 2: APPLICATION IN BEER AND BREWING INDUSTRY

1 Demand of beer in Vietnam market

Number of consumers:

- At the end of 2018, Vietnam experienced significant growth both in

terms of population and beer consumption With a population reaching96.9 million people, representing a notable 9.5% increase compared to

2010, the nation witnessed a remarkable surge in the consumption of beer, reaching a staggering 62% growth rate These statistical figures shed light on the immense level of beer consumption within the Vietnamese population.On average, in 2018, each Vietnamese individual consumed approximately 43.3 billion liters of beer This consumption rate translates to an estimated total consumption of 4.2 billion liters of beer throughout the year Such figures highlight the significant role that beer plays in the daily lives and social activities ofthe Vietnamese people

- Several factors contribute to this substantial beer consumption trend in

Vietnam Firstly, the country's demographic structure, often referred to

as the "golden population," signifies a large proportion of the population being of working age With a growing middle class and an increasing level of disposable income, the desire for leisure activities and socialization has intensified Beer consumption has become intertwined with social gatherings, celebrations, and relaxation, making it an integral part of the Vietnamese lifestyle

- Additionally, the rising levels of education and awareness among the

Vietnamese population have led to an increased appreciation for quality products Foreign beer brands, such as Heineken, have capitalized on this demand, positioning themselves as premium brandsthat offer high-quality beer The allure of these international beer brands, with their distinct flavors, premium packaging, and

sophisticated branding, has contributed to their rapid growth in the Vietnamese market

- Moreover, the stability and positive outlook of Vietnam's economy

have bolstered consumer confidence and spending power As the country continues to attract foreign investments and experience economic growth, individuals are more willing to indulge in recreational activities, including beer consumption

Consumer’s income:

- The development of Vietnam over the past 30 years is indeed highly

commendable, driven by the comprehensive economic and political

reforms known as “Đổi mới” since 1986 These reforms have played apivotal role in propelling rapid economic growth, transforming Vietnam from one of the poorest countries globally to a nation with a burgeoning average income.

- From 2002 to 2018, Vietnam witnessed a remarkable increase in GDP

per capita by 2.7 times, reaching over 2,700 USD in 2019 This substantial growth has had a profound impact on the overall well-being of the population, with over 45 million individuals lifted out of poverty The poverty rate, which was previously over 70%, has dramatically decreased to less than 6% These statistics highlight the significant improvement in living standards and economic conditions that the Vietnamese people have experienced

- The rise in income levels among the Vietnamese population has

inevitably influenced their consumption patterns, including the demand for beer As people's incomes increase, they tend to allocate a larger portion of their budget to discretionary goods and services, such

as beverages This has resulted in an upsurge in the quantity demand for beer, as individuals have more disposable income to spend on leisure activities and socializing

- However, it is important to note that the impact of income on beer

consumption is not uniform across all types of beer As income levels rise, there is typically a shift in preferences from lower-quality or "bia hơi" (draft beer) to higher-quality packaged beer or "bia lon." This change in consumer behavior can be attributed to an increased desire for products that are associated with higher quality, branding, and perceived status

Price of related goods:

Substitute goods:

- The entrance of global beer brands like Tiger, Heineken, and

Budweiser into the Vietnamese market has significantly impacted the dynamics of the beer industry With their established reputations and high-quality products, these brands have gained a strong foothold and

a loyal consumer base in Vietnam However, their presence has also led to an increase in the availability of substitute goods in the beer market

- The availability of various beer brands and styles has created a diverse

range of choices for consumers As a result, consumers now have the flexibility to switch between different types of beer based on factors such as price, taste, and brand preference When the price of a

particular beer brand or type increases, consumers may seek out more affordable alternatives, which can include both local and international beer brands

Complementary goods:

- Complementary goods have a significant impact on the demand for

beer in Vietnam These goods are products or services that enhance the overall beer-drinking experience and are often consumed alongside beer The availability and quality of complementary goods can influence consumer preferences and contribute to increased beer consumption

- One aspect of complementary goods is the wide range of snacks and

appetizers that pair well with beer When there is a variety of tasty andcomplementary food options available, consumers are more likely to indulge in beer consumption The combination of beer with delicious snacks creates a desire for people to enjoy the beverage alongside these food items, ultimately driving up the demand for beer

- The availability of proper beer glasses and accessories also

contributes to the demand for beer Specialized glassware designed fordifferent beer styles enhances the visual appeal and drinking experience, attracting beer enthusiasts

- Furthermore, accessories like bottle openers, coasters, and beer

koozies add to the overall beer-drinking experience, making it more enjoyable and enticing for consumers

Consumers’ taste:

- Consumer taste for beer in Vietnam has undergone significant changes

over the years Historically, the Vietnamese beer market was dominated by lighter, lower-alcohol content beers, often referred to as

"bia hơi" or draft beer These beers were popular due to their affordability and accessibility, and they catered to the local preference for lighter, less bitter flavors

- However, with the rapid economic development and rising income

levels, consumer tastes for beer in Vietnam have become more diverseand sophisticated There is now a growing demand for a wide range ofbeer styles, including lagers, ales, stouts, and craft beers Vietnamese consumers are increasingly interested in exploring different flavors, experimenting with new beer varieties, and embracing the global craftbeer movement

- As a result, the Vietnamese beer market has witnessed the entry of

numerous international beer brands, offering a broader selection of options to consumers Brands like Heineken, Tiger, Carlsberg, Budweiser, and craft breweries from around the world have gained popularity and established a strong presence in Vietnam These brandscater to the evolving tastes of Vietnamese consumers who seek premium, high-quality beers with distinct flavors and unique brewing techniques

- Furthermore, the emergence of local craft breweries has also

contributed to the diversification of consumer taste in Vietnam Craft beer enthusiasts now have access to a growing number of Vietnamese-made artisanal beers, often characterized by their rich flavors, innovative ingredients, and small-batch production methods These craft breweries have not only introduced new beer styles to the marketbut have also fostered a culture of beer appreciation and education among consumers

2 Supply of beer in Vietnam market

Price of inputs:

- Beer is a popular alcoholic beverage in Vietnam, enjoyed by locals

and tourists alike As with any product, the price of beer is affected by

a variety of factors, including the cost of inputs.The inputs of beer can

be broken down into three main categories - raw materials, labor, and overhead costs

- Raw materials refer to the ingredients used to make the beer, such as

hops, malt, and yeast

- Labor costs include the wages of the workers involved in the brewing

process, from the brewers to the packaging and distribution teams

- Finally, overhead costs encompass everything else, from the cost of

equipment and utilities to marketing and advertising expenses.The price of inputs can vary depending on a number of factors, including weather conditions, global market trends, and government regulations.For example, if there is a drought in the area where hops are grown, the price of hops may increase due to decreased supply Similarly, if there is a global shortage of a particular raw material, such as malt, then the price of malt may increase.Labor costs can also vary depending on a variety of factors, including the level of experience and education of the workers, as well as the cost of living in the area

In Vietnam, the minimum wage for workers in the beer industry is

currently set at 4.42 million VND per month (approximately $191 USD) However, this may vary depending on the specific job and location.Overhead costs can also have a significant impact on the price of beer In Vietnam, beers industries attach special importance tothe marketing campaigns According to the research, every households

in Vietnam own at least one television Therefore, many industries focus on TV advertisements to attract customers since watching televsion every meal has become one of many common habits of Vietnamese people They also organize several free tryout of their newbeer products, and the industries get profit by getting more consumers

as well as the television station claim profit by charging money for amount of advertising time

Technologies and equipments:

- Vietnam has been known for its beer culture, with Saigon Beer being

one of the most popular local brands The production of beer in Vietnam has come a long way, and now involves various technologies and equipment to ensure the consistent quality of the product

- One of the most important pieces of equipment for beer production is

the brewhouse, which is responsible for boiling, mashing, and lautering the grains to create the wort Breweries in Vietnam have adopted modern brewhouses, which allow for greater control over the brewing process These brewhouses come equipped with sensors and automation systems that ensure the temperature, pH, and other critical parameters are maintained throughout the brewing process This helps

to prevent inconsistencies in the brewing process and ensures that the beer produced is of a consistent quality

- Fermenters are another critical piece of equipment for breweries in

Vietnam After the wort is created, yeast is added to the mixture, and the fermenters help to convert the sugars in the wort to alcohol Modern fermenters are designed to control the temperature and oxygen levels in the fermentation process, which helps to prevent the growth of unwanted bacteria This ensures that the beer produced is safe for consumption and has a consistent flavour.One of the most significant technological advancements in beer production is the use

of centrifuges to clarify the beer Centrifuges are used to remove impurities from the beer, which helps to improve the clarity and shelf life of the product This process is particularly important for separating the solid particles and yeast from the liquid, resulting in a clearer and more stable beer.Before the use of centrifuges, brewers