Strong Competition from Foreign Companies in Vietnam’s Non-alcoholic Drinks Market

HCMC – The market share of foreign firms in Vietnam’s non-alcoholic drinks market held strong in 2014 with almost half the market belonging to these international companies. Statistics from the Vietnam Beverage Association show that the total value of the market increased by nine percent in 2014 to US$3.64 billion. There has been an average yearly growth rate of 13 percent from 2011-14 in the non-alcoholic beverage sector.

Growth was strong across a wide variety of non-alcoholic drinks in 2014 and this trend is expected to continue over the next four years with growth for the top products as follows: bottled green tea (17.8 percent), herbal tea (27.6 percent), tonic water (24.7 percent), carbonated soft drinks (11.8 percent), sport drinks (28.2 percent), and dairy milk (23 percent).

RELATED: Dezan Shira & Associates’ Business Advisory Services

Domestic Vietnamese businesses have struggled to compete with foreign businesses due to the latter’s numerous advantages over their local counterparts, such as the benefit of having established and well-known trademarks to supplement their high-quality human resources.

An additional reason for the increased dominance of foreign companies is that, as of January 1, 2015, soft drinks are no longer subject to import duties – this is due to Vietnam’s commitments under the ASEAN Trade in Goods Agreement (ATIGA). To be in compliance with ATIGA, the Ministry of Finance announced in Circular 165/2014 that 1,715 tariff lines were reduced from five percent to zero percent.

Once the ATIGA is fully implemented, certain materials used in soft drinks will have import tariff rates of 10-15 percent, while finished drink products will have a rate of zero percent. This will benefit foreign exporters of drinks at the expense of domestic producers who need to import ingredients.

RELATED: TPP to Drive Competition in Vietnam’s Beer Market

Earlier in June 2014, the Vietnamese government also decided not to add carbonated soft drinks to the list of items subject to a special consumption tax. The draft amendment would have set a 10 percent tax on carbonated soft drinks due to perceived public health risks like obesity and diabetes.  Eventually this proposal was not taken up after extensive consultations and public hearings where public stakeholders, including representatives from the business community, expressed their viewpoints.

Most non-alcoholic drinks in Vietnam are sold through traditional distribution channels such as independent small grocers. These small shops benefit from the convenience of being local and the purchasing habits of most Vietnamese consumers who are unused to buying many things in one place. However, modern distribution channels such as hypermarkets and supermarkets have started to become more popular in recent years.

One intriguing subsection of the non-alcoholic drinks market is bottled water. The largest suppliers of bottled water in Vietnam are Pepsi’s Aquafina, with a 40 percent market share, and Nestle’s La Vie brand, with a 30 percent market share. Around 70-80 percent of the bottled water market belongs to foreign companies. Other companies have also been looking to get into the market such as Coca-Cola which is investing US$300 million into Vietnam under its Dasani brand.

Another strong potential growth subsection of non-alcoholic drinks is green tea, where big brands, such as Real Leaf from Coca Cola, Vfresh from Vinamilk and Lipton Pure Green from Pepsi, have started appearing over the last five years. A report from market research firm Vinaresearch showed that 86 percent of consumers polled said they used nutritious drinks for its vitamins and nutrients. This is best seen in the especially strong performance of herbal tea and sport drinks in 2014.

Growth in the non-alcoholic drinks market is expected to continue in 2015. Tran Quy Thanh, Chairman of the Tan Hiep Phat Beverage Group, expects 20 percent growth during the 2015-19 period. With Vietnam expected to join the Trans-Pacific Partnership (TPP) later this year, conditions for imports should continue to improve.

Import and Export: A Guide to Trade in Vietnam

In this issue of Vietnam Briefing Magazine, we provide you with a clear understanding of the current business trends related to trade in Vietnam, as well as explaining how to set up your trading business in the country. We also attempt to give perspective on what will be Vietnam’s place in the Association of Southeast Asian Nations (ASEAN) in 2015, and look at some of the country’s key import and export regulations.

Tax, Accounting, and Audit in Vietnam 2014-2015
The first edition of Tax, Accounting, and Audit in Vietnam, published in 2014, offers a comprehensive overview of the major taxes foreign investors are likely to encounter when establishing or operating a business in Vietnam, as well as other tax-relevant obligations. This concise, detailed, yet pragmatic guide is ideal for CFOs, compliance officers and heads of accounting who need to be able to navigate the complex tax and accounting landscape in Vietnam in order to effectively manage and strategically plan their Vietnam operations.

An Introduction to Doing Business in Vietnam 2014 (Second Edition)
An Introduction to Doing Business in Vietnam 2014 (Second Edition) provides readers with an overview of the fundamentals of investing and conducting business in Vietnam. Compiled by Dezan Shira & Associates, a specialist foreign direct investment practice, this guide explains the basics of company establishment, annual compliance, taxation, human resources, payroll, and social insurance in the country.

• Previous Article Vietnamese Seafood Exports Strong in 2014 but Difficult to Maintain in 2015
• Next Article State Bank of Vietnam Credit Package Aims to Support the Housing Market