Beer Market Segmentation in Vietnam

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PRODUCT EXTENSION: THE CASE OF BIVINA BEER IN VIETNAM

Dr. Truong Quang Associate Professor School of Management Asian Institute of Technology PO Box 4 Klong Luang, Pathum Thani 12120 Thailand Tel: (66-2) 524 6016 Fax: (66-2) 524 5667 E-mail: qtruong@ait.ac.th

and Pham thi Huyen National University of Economics Hanoi, Vietnam

Submitted to: Asian Journal of Marketing June 1999, Revised November 1999

PRODUCT EXTENSION: THE CASE OF BIVINA BEER IN VIETNAM

ABSTRACT

There is a strong link between the growth of market share and the profitability of a company with the power of its brand. Like other emerging economies, in Vietnam, the domestic companies have been facing tough competition brought about by multinational corporations (MNCs) with their well-established brands from all over the world. More often than not, the Vietnamese companies seem to neglect the issues of branding in positioning their products. This study analyzes the importance of brands and the process of branding management in a newly opened-up market like Vietnam. To illustrate the issue, we will examine the case of BIVINA a newly introduced beer brandof Vietnam Brewery Limited (VBL). Interviews with managers and a consumer survey are carried out to investigate the competitors reaction and consumers perception toward this new brand. At the end, some recommendations are proposed for the domestic companies to manage their brands successfully.

INTRODUCTION Investors should consider Vietnam a potential marketplace for beer consumption. With a population of 78 million people in 1997, Vietnam is one of the most populated countries in the world. The increase in income and improvement in the peoples living standard, brought about by a more liberalized economic policy since 1987, have triggered increased beer demand and consumption. Currently, Vietnamese consumes eight liters of beer on the average per year. While this is still low in comparison with Asian consumption level of 17 liters per head per year, brewers and distillers consider Vietnam a growing market for beer industry (VIR, June 1997). According to an estimate,

Vietnams beer consumption has grown from 12 to 20 % a year (Chinh, 1997). The main

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drinkers are in the age group between 25 and 45 years old, which are accounted for nearly half of the population. To meet the growing demand, more than 500 million liters of beer are canned or bottled and sold every year in Vietnam (Van Thong, 1998).

BEER SUPPLIERS The emerging beer market has attracted a large pool of beer suppliers of many sizes and sources. Beer production plays an important role in the domestic food processing industry of Vietnam today. Local Breweries There is practically a brewery in every city and province in Vietnam. In total, about fifty breweries produce regional specialties with a total capacity of 1,000 liters a day (Hanh Dung, 1998). The Vietnam Beverage and Beer Corporation (VINABECO) has a near total control over the local beer producers, occupying 75% of the total output of the sector (Hanh Dung, 1998). The two biggest state-owned breweries are located in Hanoi (Hanoi Brewery) and Hochiminh City (Saigon Beer Company). Together, they play a key role in the domestic brewing industry, which includes 320 breweries of state-owned, private and foreigninvested companies. Although representing only 24% of the total industry output, the Hanoi Brewery and Saigon Beer produce some 500 million liters a year and enjoy a combined market share of 40-50% (Duc Hung, 1996; Van Thong, 1998). There is tough competition among local brands for survival. In the process, weak brands began to drop out of business or incurred big losses.

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Foreign and Joint Ventures Breweries So far, twelve foreign beer producers have been licensed to set up joint ventures in Vietnam. They include famous brands in the world such as Heineken, Tiger, San Miguel, and Carlsberg. They are present across the country covering all segments of the beer market in the form of 30 different brands, owning 15 state-of-the-art production lines with a total invested capital of US$595 million. Yet, all together they produce roughly 10 million hectoliters per year, only a half of the designed capacity (Van Thong, 1998). Smuggled Beers In the early stages, local beer production was not enough to meet the demand in the north. The gap was filled up by such cheap but popular brands as Van luc and Bang tuong, illegally brought in from China. Although they do not represent a large share of the market, the smuggling activities still persist up to the present day, despite the continued efforts from domestic breweries to improve their production and marketing methods. The main reason is that illegally imported beers are not subject to any taxes, and therefore are affordable to low-income beer drinkers. Bia hoi a Local Home-made Beer Covering the lowest market segment is bia hoi, a special type of home made beer in Vietnam. It is a draught or barrel beer that is produced in a less sophisticated and hygienic way. Bia hoi is a brandless and cheap beer, which targets the low-income drinkers. It is suggested that this has taken a significant market share from the mainstream beer segment, and could account for 20-25% of all beer consumed in Vietnam (VIR, October 1997).

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COMPETITIVE SITUATION Beer industry represents one of the toughest markets in Vietnam, and is regarded as a high risk business by many existing suppliers (Huyen, 1999). The competition becomes more intense every day, yet new entrants continue to join the market and new brands are introduced. There were, in total, 317 breweries in the country in 1996 with a designed production capacity of 867 million liters a year, but just only 400 million liters were actually produced, due to the under-developed situation of the market. At present, the most popular beer brands in Vietnam can be listed across all segments, in the following order: Tiger (JV), 333 (local), Heineken (JV), Saigon (local), BGI (JV), bia hoi (local), San Miguel (JV), Hanoi (local), Carlsberg (JV), and Halida (JV) (Hanh Dung, 1998). It is fair to say that the most important attribute to the success of a beer brand lies with the product quality itself. Many brands such as San Miguel and Carlsberg, which are distributed around the world, do not achieve much in Vietnam, because their products apparently do not suit the Vietnamese specific taste. Other reasons can be their illdesigned advertising campaigns, or the color, the foam and the alcohol content of their beers do not match the consumers desires and preferences as will be described later. To cope with increasing competition, brewery companies tend to fill up niches in the mainstream and saving segments. They have introduced new brands at lower prices like the cases of BIVINA of BVL and Foster of BGI. As a usual practice, 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

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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 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.

Market Potential For the year 1998, beer consumption of eight liters/year/person in Vietnam is still considered low as compared with other neighboring countries, for instance Thailand (12 liters), China (13 liters), Taiwan (25 liters), the Philippines (25 liters) and Singapore (30 liters) (Duc Hung, 1996). One survey shows that only 10% of Vietnams population actually drink beer (Duc Hung, 1996). From this low base, it is projected that at a growth rate of 20%, the beer output of the country will only reach 26 liters/year/person in 2010. This still seems moderate in comparison with such top-of-the-list countries as Japan (62 liters), USA (100 liters), and Germany (140 liters) (Duc Hung, 1996; Van Thong, 1998).

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Figure 1. Annual Beer Consumption in Selected Countries, 1998

USA G e rm a ny F ra n c e V i e tn a mCountry

T h a i la n d P h i li p p i n e s T a iw a n C hina S ing a p o re Japan H o ng K o ng 0 50L it e r s p e r c a p it a

100

150

Indeed, Vietnams beer market is still growing, despite the current crisis in the region. In 1998, total sales volume increased by 21.8%, but most of the growth (nearly 29%) came from the low-income segment (VBL Report, 1998). The higher demand for cheaper beers can be seen as a change in consumers behavior in a time of crisis. As a result, one witnessed a surge of 8% in bia hoi against a comparable fall in demand for premium beers in 1997 (Chinh, 1998). Market Segmentation The beer market in Vietnam can be divided in three segments, namely premium, mainstream and saving, based on the differences in taste, social classes, and monthly income. While all these factors can influence consumers choice, price is often seen as the most important decision criteria. The three segments and their characteristics are presented in Table 1. The premium segment. It represents 15% of the market where drinkers can afford

to pay a premium price for a high quality beer. Players in this segment consist of

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Heineken, Tiger, Carlsberg, San Miguel, etc. The products in this segment are sold from 9,000 VND (13,850 VND = 1 USD in 1998) and up. The price varies slightly depending on the kind of restaurant or bar where it is sold, and the type of beer and the sale season. With an alcohol content of 5% and higher, most products in this segment are packed in cans or in quart (330 ml) or pint size (660 ml) bottles. VBL is, by far, the biggest producer in this segment with two brands Heineken and Tiger. All together, it occupies more than 85% of the market segment share (Huyen, 1999). Heineken, which serves the top-of-the-market segment, has 22% of the market share; while Tiger is leader in the segment, originally took 71% share for its own in 1997, but was down to 62% in 1998 (VBL Report, 1998). Other brands such as San Miguel, Tuborg, Red Horse and Foster share the remaining 10 to 15% of the segment. However, as the competition has become more intense, many of them have been forced out of the market. The mainstream segment. This segment serves the middle income class consumers representing 50% of the total beer market. Almost all producers in this segment are local Vietnamese brands, selling for a price varying from 4,000 to 9,000 VND a bottle/can. The popular product format is the 45 cl bottle, although the shape of the bottle may differ from one brand to another. The alcohol content in this segment is between 3% and 5%. The major players in this segment are Saigon Beer Company with its long existing Saigon and 333 brands in the South, and Hanoi Brewery with Hanoi brand in the North. Halida brand of Southeast Asia Pacific Company (SEAC) and BGI of Tien Giang Brewery are also present but on a much smaller scale. Some other regional

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beers have made themselves known in the Southern provinces like Dongthap and Tayninh, but all have failed to move beyond their home ground (Van Thong, 1998). The mainstream brands are mostly consumed during party occasions and middle-class evening celebrations. The sales volume of this segment reached more than 2.5

million hectoliters in 1997. There is virtually no nationwide beer brand which cover the whole segment which would have been seen as the reason for VBL to introduce BIVINA and BGI to follow suit with Red Horse to fulfill unmet demands. The saving segment. This segment covers the bottom of the market and constitutes 35% of the total beer consumption. It consists of many local low-quality brands, brandless beers, and all kinds of bia hoi. They are low-alcohol beers (from 1.5-2%) that aim mainly at the low-income class in the society. They are produced from small to medium size workshops (sometimes in the home backyard) so that their quality is uncontrollable. The advantage of these beers is their low price and serving convenience.

Table 1. Beer Market Segmentation in Vietnam SegmentPremium

Price rangeEqual or higher than 9,000 VND

Brand playersHeineken Tiger Beer Carlsberg San Miguel

Typical consumerHigh-income class in the society

QualityPremium quality People perceive this segment stands for world class quality Alcohol level: 5% or higher Medium quality with alcohol level of 3-5%

PackagingCan (330 ml) Pint bottle (660 ml) Quart bottle (330 ml)

Market share15%

Mainstream

From 4,000 8,000 VND

Hanoi Halida Saigon 333

Medium-class People who do not have much money but do

Can (330 ml) Bottle (450 ml)

50%

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Saving

Less than 4,000 VND per glass/bottle

BGI Huda Foster La Rue Vida Thanh hoa etc. Generic beer and bia hoi

not want to drink low quality beers To be used in ceremonies, parties, and feasts Low-income class (esp. in the North)

In general, quality of brands in this segment is acceptable and stable No quality guaranteed, except for some brands produced by Hanoi Brewery and Halida Can be of high alcohol content Bottle (660 ml) or unpacked Usually sold in liter or big can in liter unit to wholesalers and sold in cup or bottle to customers at sidewalk stands 35%

It should be noted that market share figures are difficult to define as they are often exaggerated in favor of local leading brands, which makes the attempt to divide segments become difficult if not meaningless. Tiger Beer, for instance, positions itself as an upmarket product, but in reality appears in both middle-and upper income segments. Figure 2 highlights the blurred lines between segments according to the consumers perceptions as revealed by this research.

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Figure 2. Brand Mapping of Vietnamese Beer Market

Premium price Carlsberg San Miguel Tiger Beer BGI Heineken

Larue Foster Huda Halida Kaiser HP Low quality Bottled local beers Thanh Hoa BIVINA

333 Saigon Hanoi Premium quality

"bia hoi" Chinese beer BIVINA Sister brand Direct competitors Others

Other beers

Saving price

Customer Behavior The Vietnamese have a very specific manner of drinking beer. They usually drink in groups and drink it with ice and, and often take the same brand when they sit together. Following are some typical characteristics of Vietnamese beer consumers behavior.

Taste.

The Vietnamese favor beer with little foam and sweeter taste. Northerner...

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