(Tiểu luận) microeconomics topic the beer market in vietnam

The structure of the beer market in Vietnam is Oligopoly...9 a.. Every year, the beer industrycontributes hundreds of billions of dollars to the state budget, providing jobs andcreating

NATIONAL ECONOMICS UNIVERSITY NEU BUSINESS SCHOOL

-oOo -MICROECONOMICS

TOPIC: THE BEER MARKET IN VIETNAM

Lecturer: Tran Thi Hong Viet

Subject: Microeconomics

Class: EBDB 4 Group 2: Members

Nguyễn Thúy Hiền – 11222231

Table Of Contents

A INTRODUCTION 3

B BODY 3

I Theory - some relevant microeconomic knowledge 3

1 Definition of the term “Market”, “Demand” and “Supply” 3

2 Determinants of Supply 4

a The price factor of Supply 4

b Non-price factors of Supply 4

3 Determinants of Demand 5

a The price factor of Demand 5

b Non-price factors of Demand 5

4 The market structure: Oligopoly 6

II The practical case: Beer market in Vietnam 7

1 Number of brand and market share 7

2 Product nature 8

3 The structure of the beer market in Vietnam is Oligopoly 9

a Beer market situation in Vietnam 9

b Barriers to entry 10

c Non-price competition 11

d Interdependence 12

4 The determinants of the supply of the beer in Vietnam 13

a The recent status and quantities 13

b The price factor of coffee’s supply in Vietnam 13

c Some non-price factors of coffee’s supply in Vietnam 15

5 The determinants of the demand of the beer in Vietnam 16

a The recent status and quantities 16

b The price factor of beer’s supply in Vietnam 18

c Some non-price factors of beer’s supply on Vietnam 18

C CONCLUSION 22

D LIST OF REFERENCES 22

A INTRODUCTION

As we know beer is the oldest drink in the world, the history of beer datesback to 6000 years BC Since then, the beer market has grown and graduallybecome a drink familiar in each of our lives And it entered the market inVietnam at the end of the 19th century as the Hanoi brewery and Saigon beer.The beer market in Vietnam is currently being likened to a “magnet” that attractsmost beer manufactures big in the world Every year, the beer industrycontributes hundreds of billions of dollars to the state budget, providing jobs andcreating jobs for hundreds of thousands of direct and millions of indirectworkers in the supply chain from packaging, transportation, storage, wholesaleand retail as well as suppliers of input materials for production, meeting theneeds of the market, serving for export, and competitive products in the context

of economic integration Our team write an article about the beer market in Vietnam

This report will analysis about market structures of the beer industry in Vietnam , based on knowledge of Microeconomics Additionally, our group will also identify a number of determinants affecting the supply- demand of the beer industry.

Although thoroughly researched, the report cannot avoid shortcoming.Our team is looking forward to receiving teacher’s comments and suggestions.Thank you so much!

B BODY

I Theory - some relevant microeconomic knowledge

1 Definition of the term “Market”, “Demand” and “Supply”

- A “Market” can be understood as a place or a system where buyers andsellers interact to exchange goods or services for a certain price,depending on the demand and supply conditions A market can bephysical or virtual, local or global, legal or illegal, competitive ormonopolistic

- “Demand” refers to the various amounts of a product that consumers are

willing and able to buy at various prices, in a given period of time

- “Supply” is the various amounts of a product that producers are willing

and able to supply at various prices during some specific period

2 Determinants of Supply

a The price factor of Supply

The amount of a product that is offered depends on how much people areready to pay for it, which is called price This is the most important thing thataffects the availability of a product The rule of supply says that when an itembecomes more expensive, more of it is supplied, and when it becomes cheaper,less of it is supplied This change in price is called the price fluctuation

b Non-price factors of Supply

- Input price:

This is a very important factor that influences supply Inputs are the thingsthat are needed to make a product, such as materials, workers, machines, andtechnology If the inputs are available in large amounts and at low prices, moreproducts can be made This would increase the supply of a product in themarket If the price of flour goes down, the company will have to pay less tomake the same amount of bread This will decrease its production cost andincrease its profit margin As a result, the company will be more willing tosupply bread at the same price as before This will cause an increase in thesupply of bread in the market

- Technology improvement:

Better and more advanced technology helps a company make moreproducts, which increases the supply of the product For example, using bettermachines and devices can help more productivity

- Transportation condition:

This means that having a good transportation system helps increase thesupply of a product Transportation is a problem that can delay the delivery ofthe product, because sometimes there are not enough transportation systems todeliver the product on time

- Government tax policy:

Changes in taxes have the opposite effect on the supply of a company.When the government increases taxes, the product becomes less profitable Thisreduces the supply of the product by the company

- Production cost:

The cost of making a product and the supply of the product are basicallyopposite If the cost of making a product increases, companies will reduce theirsupply of the product to save money

- Natural conditions:

This means that weather has a direct effect on the supply of someproducts Some products depend on the weather to grow These are called

natural products If there is a good rainfall, the farmer will have more water toirrigate the orange trees This will increase the growth and quality of theoranges As a result, the farmer will have more oranges to sell in the market.

- Calamities:

Natural calamities, such as war or pandemic, also affect the supply ofproducts Sometimes there are not enough products because of war or pandemic.These products are in short supply even if they are very expensive

- Expectation:

What the company wants and aims for In theory, a company onlyincreases its supply of a product when the price is high because this meets itsgoal of making more money But sometimes, some companies want to supplymore even if they make less money The reason for this is that they want to havemore customers and also improve their image and reputation

3 Determinants of Demand

a The price factor of Demand

The change in price causes a movement along the demand curve Itchanges the amount of demand The price of goods and the amount of demandhave an opposite relationship

b Non-price factors of Demand

- Consumer income:

Income affects how much consumers can buy For most of the normalgoods, income and demand go together When income goes up, the demand fornormal goods goes up too, and when income goes down, the demand for normalgoods goes down too But for the inferior goods, it is the opposite Demand goesdown when income goes up and vice versa

- Price of related goods:

Related goods are either complementary goods or substitute goods.Complementary goods are goods that are used together If the price of thesegoods goes up, the demand for those goods goes down Substitute goods aregoods that can replace each other If the price of these goods goes up, thedemand for those goods goes up too

- Taste and preferences:

These factors have a big effect on demand because they show whatconsumers like

- Market size:

The demand will go up if there are more customers

- Expectation:

This is the prediction about changes in factors like price, income, orpreferences They will change the demand now

4 The market structure: Oligopoly

An oligopoly is a market structure with a small number of firms, none ofwhich can keep the others from having significant influence The concentrationratio measures the market share of the largest firms (The Investopedia Team,2023)

Some characteristics of oligopoly are:

- Few firms: Under oligopoly, there are a few large firms that dominate the

market and have significant market share The exact number of firms isundefined, but it must be low enough that the actions of one firmsignificantly influence the others

- Barriers to entry: There are high barriers to entry in an oligopoly market,

such as economies of scale, brand loyalty, government regulations, anddistribution networks These barriers prevent new entrants from enteringthe market and competing with the existing firms

- Non-price competiton: Firms in an oligopoly compete on other factors

than price, such as advertising, innovation, quality, and customer service.This is because price competition can lead to a price war and lower profitsfor all firms Non-price competition can help firms differentiate theirproducts and gain market share

- Interdependence: Firms in an oligopoly are interdependent, meaning that

each firm's decision affects the other firms' profits and reactions Firmshave to anticipate and respond to the moves of their rivals, which can lead

to strategic behavior and game theory analysis

- Nature of the product: Firms in an oligopoly can produce either

homogeneous or differentiated products Homogeneous products are

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identical or very similar, such as gasoline or steel Differentiated products

are slightly different or have different brand names, such as cars or soft

drinks The nature of the product affects the degree of competition and the

pricing strategy of the firms

The most prominent feature in this market is the interdependence of the

firms This means that each firm’s decision affects the other firms’ profits and

reactions, and vice versa This creates a situation where firms have to anticipate

and respond to the moves of their rivals, which can lead to strategic behavior

and game theory analysis Interdependence also makes the demand curve and

the price-output determination of the firms indeterminate, as they depend on the

actions and expectations of the other firms

II The practical case: Beer market in Vietnam

1 Number of brand and market share

Vietnam has a vibrant and diverse beer industry, ranked in the top 10 in

the world in terms of production and consumption, with revenue expected to

reach 6.53 billion USD expected by 2022 (Nguyen, M ,2023) The exact

number of beer brands in Vietnam is hard to determine, but it is estimated that

there are over 100 active breweries in Vietnam as of 2020 The beer market in

Vietnam is largely dominated by five big beer brands in 2021: Heineken,

Sabeco, Habeco, Carlsberg and AB InBev These brands make up more than

94% of the beer market in Vietnam However, there are also a lot of other

smaller and independent beer brands in Vietnam, especially in the craft beer

segment, such as Pasteur Street Brewing Company, Heart of Darkness Brewery,

Platinum Beer, Furbrew and 7 Bridges Brewing Company

According to the chart that illustrates the market share of Vietnam beer in

2021 below, Heineken, Sabeco, Habeco and Carlsberg made up 44.4%, 33.9%,

7.4% and 8.7% respectively (Statista, 2021) The remaining percentages belong

to smaller firms Besides selling their products in the local area, these firm also

target export markets that have high standards, such as Europe The firms have

different levels of market share, with most of it concentrated in the large ones

Giao trinh kinh te hoc

Microeconomics

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Premium

Example 1: Sabeco and Heineken are two beer brands with strong

positions in the competitive market in Vietnam and what sets themapart is the ingredients and flavors In Sabeco's beer, the ingredients arebarley malt, hops and grains and the alcohol content is 5.3%, so it has abitter and rich taste and combined with a cheap price, suitable for themajority of consumers Vietnam Meanwhile, Heneiken's beer has rice,malt, hops and alcohol content lower than that of Sabeco, 2%, so it has

a higher production cost, targeting high-income consumers and love theunique and luxurious (MyBest, 2021)

Example 2: Businesses also introduce various beer products with

distinct tastes and forms to cater to market needs, enhance recognitionand expand market share as a way to diversify their products

(Beer products of Heneiken)

(Beer products of Habeco)

3 The structure of the beer market in Vietnam is Oligopoly

a Beer market situation in Vietnam

For many years, the beer market has been dominated by a group of fourlarge companies, namely Heineken, Sabeco, Carlsberg and Habeco These fourcompanies accounted for 94.4% of the market share of Vietnam's beer industry

in 2021, of which Heineken and Sabeco alone had a total market share of 78.3%,overwhelming the other two companies (MBS)

According to Bloomberg data, Sabeco's after-tax profit margin was13.49%, higher than Habeco (4.1%) In addition, Sabeco has a much lowerCapex/revenue ratio than other beer industry enterprises, only at 1.25%compared to the industry average of 3.54%

Market share of beer brands in Vietnam in 2021 (Source: MBS)

Habeco's revenue from 2016 to

2021 (Source: MBS)

Sabeco’s revenue from 2016 to 2021

(Source: MBS)

b Barriers to entry

- Regulations and policies

Regulations and policies related to beer production, business and advertising cancreate barriers to the development of the beer market Regulations on taxes,licenses, approval procedures and quality control can create significantchallenges and costs for beer producers and traders

Regulations on prevention and control of harmful effects of alcohol, beer

- Competition from imported beer

Competition from imported beer brands is also an obstacle Famous beer brandsfrom abroad often have resources and recognition from customers, making itdifficult to access and compete in the market for domestic beer producers

- Consumer perception "beer market research"

Some consumers still have limited perception of beer and do not show diversity

in choosing beer The priority of some consumers is still price and brand ratherthan quality and diversity of products This can limit the access and consumption

of special and craft beers

- Limitations on distribution and marketing "beer market research"Beer distribution and marketing also face some challenges Especially whenaccessing rural areas or remote areas, distribution and marketing becomedifficult This can limit market expansion and access to potential customers

- Health awareness and other consumption trends

With increased health awareness and different consumption trends, someconsumers may reduce beer consumption or switch to other types of drinks Theincrease of trends such as drinking less alcohol, drinking non-alcoholicbeverages or healthy diets can affect the growth of the beer market."

c Non-price competition

Foreign companies often spend a large sum of money in advertising andpromotion (A & P) to get the consumers’ awareness for their products The mosttypical A & P activities used by them are erecting billboards at crowdedcrossroads, commissioning foreign ads agency to develop attractive clips to beshown on prime time TV, putting large ads in leading newspapers, sponsoringkey sportive and social events, providing free-of-charge name boards togroceries with their logos, and using promotion girls in restaurants and weddingparties As a typical case, Tiger and Heineken brands had made quick and large