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The dizzying growth of Vietnam's alcohol market

70% surge in average consumption spurs spirited competition

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Vietnam brewed 4.67 million kiloliters of beer in 2015, up 20.1% on the year.   © Reuters

HANOI -- Vietnam's young population and brisk economy are making it a key battleground for suppliers of alcoholic beverages.

The average adult in Vietnam swallowed 6.6 liters of alcohol in 2015, up 70% from 2005, according to the Ministry of Health. Beer consumption last year hit 3.4 million kiloliters, up 10% from the previous year and 41% from 2010. With long-dominant state players slated to be privatized, global companies are positioning themselves to further capitalize on the double-digit market growth.

Heineken Vietnam Brewery plans to boost its local beer production capacity by a factor of 12 by 2025. Ladofoods, a Vietnamese wine supplier, aims to double its production capacity by 2018 and nudge its way upmarket.

The details of Heineken's plans have yet to be finalized, according to the Ministry of Industry and Trade. But the Dutch brewer is poised to expand its plant in the southern province of Ba Ria-Vung Tau, acquired from Denmark's Carlsberg in the summer. Heineken apparently wants to produce more of its namesake brand, as well as Tiger beer, to increase supplies to the country's biggest beer market -- Ho Chi Minh City.

Besides the plant in Ba Ria-Vung Tau, Heineken runs facilities in Ho Chi Minh City, Danang and two other locations in Vietnam. It is looking to boost annual production capacity to 610,000 kl, from the current 50,000 kl.

At the moment, the government-owned Saigon Beer Alcohol and Beverage, or Sabeco, controls 45% of the domestic beer market. Hanoi Beer Alcohol and Beverage, another state entity known as Habeco, has a 20% share.

The two companies are expected to be fully privatized by 2017, and their nationwide sales networks make them attractive partners for foreign producers looking to expand. Heineken is expected to bid for stakes in the brewers, as are Japan's Asahi Group Holdings and Kirin Holdings and Thailand's Thai Beverage and Boon Rawd Brewery.

Positively bubbly

Vietnam is one of the few fast-growing beer markets. In 2015, 4.67 million kiloliters were brewed in the country, the world's eighth-largest market, according to a survey by Kirin. The figure was up 20.1% from the previous year -- far surpassing Belgium's 8.8% growth, the second-fastest rate.

Globally, the Kirin survey found that beer output last year dipped 1.1%. In Asia, which accounted for a third of the world total, production declined 1.3%.

Among the 25 major countries surveyed, Vietnam and India were the only two where beer production had grown for at least 10 straight years. Vietnam is on a 15-year streak. And the growth of its market is particularly striking when you consider that its population is not expanding as fast as India's.

What Vietnam has going for it is youth -- the average age is 28 -- and one of the strongest economic growth rates in Southeast Asia. 

A type of cheap draft beer called bia hoi is poured from barrels at restaurants and bars across the country. A glass typically costs less than a dollar. But some of the biggest international brewers see a golden opportunity in the country's population of about 90 million and relatively high per-capita beer consumption. 

Belgium's Anheuser-Busch InBev, the world's No. 1 brewer, started operating its first Vietnamese plant last year in the southern province of Binh Duong.

In July, Sapporo Holdings released a new brand of beer targeting the lower end of the market. It goes for 20-30% less than the Japanese company's higher-end offerings.

Carlsberg has rolled out its Tuborg brand, popular in Europe, and intends to spend millions of dollars to promote it in Vietnam.

The opportunities extend well beyond beer. As the economy develops, Vietnamese are also drinking more whiskey and wine. The number of liquor stores selling imported wine is increasing.

Taste of Italy

Ladofoods is making the most of the growing thirst for wine. Founded in 2012, it already controls 10% of Vietnam's overall wine market and supplies 50% of domestically produced wine. It is listed on the Hanoi Stock Exchange.

The company plans to double the annual production capacity of its plant in the southern province of Lam Dong by 2018, to 10,000 kl. It is also working to enhance its expertise and carve a premium niche in a market where imported wine reigns and domestic offerings are sold only at low prices.

Ladofoods is importing soil and grapevines from Italy and bringing in European experts to offer advice. Generally, its products sell for around 100,000 dong ($4.42) a bottle. But as it ramps up output, it hopes better grapes and winemaking techniques will allow it to expand its range to 3 million done bottles.

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