(Tiểu luận) final group projectsubject microeconomicstopic the soft drinksindustry in vietnam

The soft drink market in Vietnam Soft drinks is a product category within the FMCG industry that has a large consumption rate, ranking among the top-selling products in this industry.. N

NATIONAL ECONOMICS UNIVERSITY

BUSINESS SCHOOL

……0O0……

FINAL GROUP PROJECT SUBJECT: MICROECONOMICS

Topic: The soft drinks industry in Vietnam

Group 4: Trịnh Quỳnh Anh_11220657

Nguyễn Minh Hòa_11222845

Lê Tuấn Kiên_11223154

Trần Bảo Quân_11225409

Dương Tuấn Đạt_11221228

Nguyễn Thị Ngọc Ánh_1122

Class:E-BDB 4

Hanoi, 6/2023

Introduction

I Introduction

1 Definition

a Soft drinks

“Soft Drink” refers to nearly all beverages that are non-alcoholic It is usually but not necessarily carbonated, normally containing a natural or artificial sweetening agent, edible acids, natural or artificial flavours, and sometimes juice The natural flavour of soft drinks

is mostly derived from natural plant sources, such as fruits, herbs or nuts Soft drinks, additionally, are distinguished from other beverages such as coffee, tea, milk, cocoa, and undiluted fruit and vegetable juices

While the term "soft drink" can be applied to any non-alcoholic beverage, it is now commonly used exclusively for flavoured carbonated beverages

Picture 1: flavoured carbonated beverages

b Oligopoly market:

By definition, the oligopoly market is a market structure dominated by a small number of relatively big firms, none of which can keep others from having significant influence In this market, the product of firms can be identical or differentiated, and there is always seen the interdependence between firms Other prevailing conditions are the substantial barriers to entry into the market and the imperfect information

Oligopoly characteristics include (1) few major sellers, (2) the interdependence of firms, (3) product differentiation, (4) high barriers to new entry, (5) price-setting ability, and (6) non-price competition

2 The soft drink market in Vietnam

Soft drinks is a product category within the FMCG industry that has a large consumption rate, ranking among the top-selling products in this industry Globally, it is also a product that has been invested and participated in by many famous brands The concept of soft drinks can be traced back to the 17th century, but it was not until the 1880s that the beverage market became flooded with branded drinks, as it is today Some countries have reported that soft drinks have a high average daily usage rate, about nearly 50%

Situated in a tropical region, Vietnam's beverage market has experienced significant growth on a global scale, especially after the COVID-19 pandemic However, it is revealed that Vietnamese people consume only 23 liters of beverages per year, which is much lower than the global average of 40 liters per year for consumers In fact, the majority of the annual production and consumption of the Vietnamese beverage market comes from soft drinks and RTD tea, etc., accounting for 85%

II Analysis: Why does the soft drink market belong to oligopoly market

1 Number of brands and market share

The demand for soft drinks consumption has shown stable growth after the Covid-19 pandemic as activities resumed The retail sales volume of soft drinks in 2022 reached approximately 4.5 billion liters, an increase of about 5% compared to the same period in 2021

The soft drinks market in Vietnam is concentrated, with the top 5 largest companies accounting for around 57% of the total market share in 2022

 Pepsico maintains its leading position in the soft drinks sector (in terms of value) Pepsico also leads in various segments, including carbonated beverages, fruit drinks, bottled water, and sports drinks

 Coca-Cola Vietnam holds the second position in 2022 and dominates in segments such as carbonated beverages, bottled water, and fruit drinks

 Tân Hiệp Phát and URC Vietnam lead in the instant tea segment, while Red Bull ranks first in the energy drink segment

 The energy drink segment is considered the most promising for growth The estimated Compound Annual Growth Rate (CAGR) for energy drinks in the period

of 2017-2022 is 9.8%, followed by bottled water with a CAGR of 6.9%

Not only is the non-alcoholic beverage market developing strongly, but the energy drink segment also attracts many domestic and foreign participants and witnesses intense competition According to a research, TCP Group, the owner of Red Bull and Warrior energy drink brands, plans to launch 10 new products in the next 3 years, focusing on health products and investing around 340 million USD in various markets With this investment, Mr Saravoot Yoovidhya, CEO of TCP, stated, "The company aims to double its annual revenue, reaching 2.5 billion USD by 2024 and aiming for sustainable development."

Companies like Hansen (USA) with Monster Energy, Coca-Cola with Coca-Cola Energy and Samurai, PepsiCo with Rockstar and Sting, Tân Hiệp Phát with Number 1, Masan with Wake-up 247, or Taisho (Japan) with Lipovitan have also engaged in investment activities

to strengthen their positions in the market

New competitors such as Compact Cherry, Night Wolf, etc., are also trying to enter the market However, energy drink manufacturers not only face strong competition within their segment but also compete with other segments According to a survey by vtown.vn, consumers currently favor tea, which accounts for nearly 37% of the market share Carbonated soft drinks come next, and energy drinks rank third in consumer preferences Energy drinks also have to contend with the popularity of coffee drinks According to

Statista's prediction for the period 2021-2025, coffee may achieve a compound annual growth rate of 8.28% per year

The demand for soft drinks consumption has shown stable growth after the Covid-19 pandemic as activities resumed The retail sales volume of soft drinks in 2022 reached approximately 4.5 billion liters, an increase of about 5% compared to the same period in 2021

2 Product nature

The product nature of soft drinks in Vietnam is characterized by the following aspects:

a Carbonation: Soft drinks in Vietnam typically have carbonation, which gives them

their characteristic fizzy or effervescent quality The carbonation is created by adding carbon dioxide to the beverage, resulting in the formation of bubbles

b Variety of flavors: Soft drinks in Vietnam come in a wide range of flavors to cater to

different consumer preferences Common flavors include cola, lemon-lime, orange, grape, strawberry, and tropical fruit flavors This variety allows consumers to choose their preferred taste profiles

c Sweetness: Soft drinks in Vietnam are known for their sweet taste They typically

contain sugar or high-fructose corn syrup to provide the desired level of sweetness However, there is also a growing trend towards low or no-sugar options as consumers become more health-conscious

d Refreshing and thirst-quenching properties: Soft drinks are often consumed as a

refreshing and thirst-quenching beverage in Vietnam, especially in hot and humid climates The combination of carbonation, flavors, and sweetness provides a cooling sensation and helps quench thirst

e Packaging options: Soft drinks are available in various packaging formats,

including cans, bottles (plastic or glass), and tetra packs These different packaging options provide convenience and choice for consumers, allowing them to select the most suitable size and format for their needs

It's important to note that consumer preferences and market trends may evolve over time, and there could be variations in the product nature of soft drinks in Vietnam based on specific brands and product offerings

3 Barriers to entry

a Opportunity

Currently, according to statistics from the Vietnam Beer, Alcohol, and Beverage Association (VBA), there are about 1,800 soft drink production facilities in Vietnam The annual growth rate in this sector is steadily increasing at around 6-7% per year, while in other markets such as France and Japan, the expected growth rate is only around 2% per year

According to data from vtown.vn, carbonated soft drinks account for 23.74% of the soft drink market share in Vietnam However, it seems that they are not the dominant category,

as tea holds a significant market share of 36.97% This preference for tea can be attributed

to the cultural influence in Vietnam, where tea has been deeply ingrained in the minds of Vietnamese people Energy drinks follow closely behind with 18.28%, while fruit juice makes up 10.91%, and mineral water accounts for 5.45%

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With a market that has nearly 2,000 soft drink production facilities and a strong annual growth rate in the beverage sector, there are ample opportunities for brands to develop, especially as the current trend focuses less on brand loyalty This presents a chance for emerging brands to surpass more established ones

b Barriers

However, barriers exist for businesses in this market Even a minor misstep can significantly damage the reputation of a brand that has been meticulously built over many years For example, Tan Hiep Phat, a well-known beverage firm, faced a crisis when a fly was found in one of their products, which was highlighted in a Facebook post It took until

2018 for the brand to fully regain its reputation and resolve the local crisis

Due to consumer demand for new products and unique flavors, competition in the market is increasingly intense For instance, Tan Hiep Phat introduced a new energy drink called Number 1 Cola, while PepsiCo launched a yogurt drink made with pure orange Other brands have also introduced drinks made from aloe vera, blueberries, and bird's nest Additionally, there is a growing trend of small businesses and households producing homemade fruit and vegetable juices, as well as herbal drinks, to meet customer demands According to Mr Le Phung Hao, Chairman of the Vietnam Marketing Association, foreign direct investment (FDI) enterprises have advantages in terms of production scale For instance, Suntory PepsiCo Vietnam Beverage (SPVB), which entered Vietnam in 1994, initially offering Pepsi and 7Up, expanded its portfolio to include 11 brands by 2016, providing more choices to consumers, such as Aquafina, Sting, Lipton Ice Tea, and Ô Long Tea+ Plus

While the market presents opportunities, it also poses challenges Food safety is a critical concern, and building a brand requires prioritizing quality assurance Consumers have become more discerning, and their preferences have evolved Market research firm Mintel has identified 12 new trends in the food and beverage industry, emphasizing the use of healthy, transparent, and natural ingredients, as well as stricter requirements for traceability and origin verification

Previously, customers focused more on taste and personal preferences, but now they are more selective and cautious in their product choices Current consumers pay more attention

to clear labeling, adherence to standards, and proper ingredient sourcing This demands that

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businesses provide transparent information, make quality commitments, and communicate more effectively with consumers

c Typical barriers and recommendations

Brand ownership: Well-established soft drink brands such as Coca-Cola, Pepsi, and local

brands like Tan Hiep Phat have built strong reputations and widespread brand ownership This creates a barrier for new companies trying to enter the market, as they have to contend with the strong competition from existing brands

Financial investment: To establish and grow a soft drink company, significant investment

is required in manufacturing facilities, distribution networks, advertising, and marketing This poses a barrier in terms of financial resources and the ability of new companies to raise sufficient capital

Regulations and standards: Strict regulations and standards regarding food quality and

safety apply to soft drink products in Vietnam New companies need to comply with these regulations and meet the required quality standards to obtain the necessary licenses and permits for business operations Compliance with regulations can be challenging and time-consuming for newcomers

Distribution networks: Soft drink companies need a strong distribution network to ensure

widespread availability of their products Established brands often have well-established relationships with distributors, making it difficult for new entrants to secure distribution partnerships and reach a wide consumer base

Intense competition: The soft drink market in Vietnam is highly competitive Existing

brands have built customer loyalty and have a significant market share New companies face challenges in differentiating their products and creating a competitive advantage in the market

4 Non-price competition

Non-price competition refers to the use of competitive strategies other than price

adjustments to attract new customers from competitors It encompasses forms of competition that are unrelated to price changes and instead focus on advertising, marketing, and product innovation

In the Vietnamese beverage market, non-price competition is an important factor for

companies to attract and retain customers Here are some non-price competition strategies applied in the beverage industry in Vietnam:

1 Creative advertising : Beverage companies often use creative advertising campaigns

to enhance brand recognition and capture customer attention For example, using television commercials, radio ads, and online advertising to convey messages about the quality, taste, and value of the beverages

 According to a study by ACNIELSEN in 2020, the beverage industry accounted for a significant proportion of advertising expenditure, with a 14.2% increase in advertising investment compared to the previous year

 Example: Company A, a beverage manufacturer, recently ran a large-scale television advertising campaign to enhance brand awareness and recognition for their beverage products As a result of this campaign, Company A gained customer attention and increased their sales volume

2 Special marketing strategies : Companies can employ special marketing strategies

such as promotional campaigns, bulk purchase discounts, or loyalty programs to attract and retain customers For instance, creating combo packages or offering online ordering options to provide cost savings for customers purchasing beverages

 According to the Vietnam Beverage Market Report 2020 by Vietnam Report, effective marketing strategies can increase beverage consumption and attract new customers

 Example: Company B implemented a marketing strategy focused on an attractive promotional program where customers who purchase one bottle

of beverage receive a free bottle This campaign attracted consumer interest and motivated increased purchases from Company B

3 Product innovation : Innovation in beverage products can be a crucial factor in

attracting new customers Companies can develop new beverages with unique flavors, high quality, and natural ingredients to differentiate themselves from competitors For example, launching sugar-free, low-calorie, or natural ingredient-based beverage lines to cater to health-conscious customer segments

 According to the Vietnam Beverage Market Report 2020 by Vietnam Report, product innovation is an important factor for beverages to differentiate themselves and attract customers

 Example: Company C developed a new line of beverages with natural ingredients and no added sugar This product received positive reviews from health-conscious consumers who prefer natural products Company C utilized product innovation to attract new customers and stand out from competitors

4 Customer engagement : Building and engaging with customers through social

media, events, or reward programs Beverage companies often create promotional campaigns or organize sports and music events to establish connections and strengthen customer relationships

These figures and examples serve as references and may vary over time and specific market conditions By combining non-price competition strategies and academic data, beverage companies can gain a better understanding of the market and apply suitable strategies to attract customers and enhance business effectiveness