Vietnam: Sabeco grappling with mounting challenges in Vietnam

Saigon Beer - Alcohol - Beverage Corporation (Sabeco) is grappling with mounting challenges as it struggles to recover from previous setbacks, including the impact of Decree 100 and stringent penalties for drivers with alcohol in their system, SGI reported on February 27.

Now, the company faces another major obstacle—a proposed increase in the special consumption tax on alcoholic beverages. In an already highly competitive food and beverage (F&B) market, this latest development poses a significant threat to Sabeco's business operations.

A recent survey by PwC highlights rising prices and consumer spending constraints as key concerns for Vietnamese consumers. Households are becoming more cautious, cutting back on non-essential expenses while prioritizing necessities, clothing, and healthcare. This shift in spending habits has led to a decline in beer and alcohol consumption, with many consumers opting for healthier alternatives.

Compounding this issue, the beer industry has faced significant challenges due to Decree 100, which enforces strict penalties for violations related to road and rail traffic. In the third quarter of 2024 alone, an estimated 30,000 F&B establishments nationwide shut down, with Ho Chi Minh City bearing the brunt—accounting for nearly 6% of all closures. As competition intensifies with major global brands like Carlsberg, Heineken, and Tiger strengthening their foothold, companies like Sabeco are struggling to maintain their market position.

Just as Sabeco was attempting to navigate these difficulties, a new proposal emerged to increase the special consumption tax on alcoholic beverages to 100%. The Vietnam Beer - Alcohol - Beverage Association (VBA) has strongly opposed this measure, warning that such a drastic tax hike would push industry players into “unprecedented difficulties.” According to VBA, prior assessments of special consumption tax impacts were based on pre-pandemic data from 2019, failing to consider the numerous post-pandemic challenges now plaguing the industry.

The beer sector dominates Vietnam’s alcoholic beverage market, holding a 98.6% market share. Key players—including Sabeco, Heineken Vietnam, Habeco, and Carlsberg—control nearly 95% of the industry’s total production. However, these companies are experiencing substantial declines in sales. In a rare setback, Heineken Vietnam reported a double-digit market decline in 2023. Meanwhile, Sabeco, which operates 26 factories across 20 provinces, has suffered from negative growth in output, revenue, and profit since 2021. Additionally, production costs have surged by 20-40%, while beer prices have remained stagnant, further squeezing profit margins.

While the aforementioned difficulties affect the entire industry, what truly alarms Sabeco’s shareholders is the company’s declining market share. Unlike some of its competitors, Sabeco remains heavily reliant on the domestic market, which is now showing signs of saturation. From 2018 to 2023, Sabeco lost a staggering 8% of its market share to rising competitors.

According to market analysts, Sabeco's struggles stem from an outdated product portfolio and sluggish adaptation to market trends, especially compared to its aggressive and well-financed foreign rivals. This lack of innovation has resulted in a sharp decline in beer market share—from 42% in 2018 to just 33.9% in 2023.

A report by FPT Securities Company (FPTS) indicates that Sabeco’s repeated price hikes to offset rising production costs have further eroded its market share, particularly between 2021 and 2023. Additionally, while competitors have diversified their product lines, Sabeco’s portfolio remains relatively narrow. Foreign beer brands, in contrast, have consistently expanded their offerings and strengthened brand recognition through aggressive marketing campaigns.

Statistics show that Sabeco’s mid-range beer segment—comprising legacy brands such as 333, Saigon Lager, and Saigon Export—accounted for 98% of its total sales from 2018 to 2023. Meanwhile, its premium segment, featuring brands like Saigon Chill, Saigon Special, Saigon Gold, and Saigon Export Premium, made up only 2% of its portfolio. In contrast, consumer preferences have shifted significantly towards premium beers. Previously, Vietnam’s beer consumption was concentrated in the mid-range and budget segments, which accounted for roughly 77% of total sales. Today, there is a clear trend toward high-end products, benefiting brands with a strong presence in that category.

Sabeco's difficulties extend beyond product diversification. Foreign beer companies have also ramped up their investments in advertising and marketing to bolster brand visibility. When compared to Heineken Vietnam, Sabeco’s promotional efforts appear lackluster. While Heineken consistently rolls out large-scale, high-impact brand campaigns, Sabeco's marketing initiatives have been relatively modest in scale and frequency. This gap in advertising strategy has contributed to Sabeco’s declining market share and weaker brand recognition.

To further complicate matters, Sabeco’s retail and distribution strategies have lagged behind competitors. The company has yet to fully embrace digital marketing, e-commerce, and modernized sales strategies that many foreign brands have successfully leveraged. Meanwhile, international players have built strong relationships with key distributors and retailers, ensuring prominent shelf placement and widespread availability.

As Sabeco navigates these mounting challenges, the company must urgently revamp its product strategy, enhance its marketing efforts, and find ways to mitigate rising production costs. To regain lost market share, Sabeco needs to focus on diversifying its product lineup, particularly in the premium beer segment, where consumer demand is growing. Additionally, the company must adopt more aggressive and innovative marketing campaigns to compete with foreign brands that have established a strong presence in Vietnam.

Ultimately, Sabeco’s survival in this fiercely competitive market will depend on its ability to adapt quickly to evolving consumer preferences, regulatory challenges, and market dynamics. If the company fails to make necessary changes, it risks losing further ground to both domestic and foreign competitors in the years to come.

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