New rules put brakes on alcohol sector

VOV.VN - Vietnam started aggressively enforcing regulations against drunk driving on January 1, in a country where having a drink before riding or driving home was a commonplace practice.

new rules put brakes on alcohol sector hinh 0
Having a drink before riding or driving home ever seen as a commonplace practice in Vietnam.
A short-term shock

In the first half of January alone, Vietnamese police have issued over 6,279 fines totaling almost US$1 million to errant motorists, which works out to an average of almost US$150 per fine (or 70 percent of an average Vietnamese worker’s monthly salary).

The laws also reduced the scope of alcohol advertising, by prohibiting the advertising of alcoholic beverages on television and other media platforms between 6:00 pm and 9:00 pm, advertising alcoholic drinks to those under 18 years of age or employing underage actors in alcohol adverts, and advertisements for drinks with an alcohol content of 15 percent or more.
Unsurprisingly, bars and pubs immediately began reporting a decline in sales between 10 percent to 50 percent in January.

Thus, Fitch Solutions, a macro-research entity of Fitch Group noted the new law revised down its forecasts for the Vietnamese alcohol market. Fitch analysts predicted that the beer segment will be the hardest hit, given the dominance of beer in Vietnam’s alcohol sector while beer normally makes up 98.4 percent of the alcohol market in Vietnam.

Carlsberg has already forecast that their growth in Asia will be in the single digits due to both the anti-drink driving laws in Vietnam and the spread of coronavirus (Covid-19).

Slower beer production and sales

The research entity forecast that Vietnam’s alcohol revenue will increase from VND40.8 trillion (US$1.8 billion) in 2019 to VND43.6 trillion (US$1.9 billion) in 2020, a lower growth rate of 6.9 percent as compared to 10.3 percent in 2019. In the medium term (2020-2024), it projected alcohol revenue to increase to VND59.4 trillion (US$2.5 billion), at an average growth rate of 7.8 percent.

The reason why Fitch analysts anticipated a sharp reduction in growth rates this year, followed by a moderate expansion over the medium term because they believe that the law will only be a short-term demand shock.

Given that the fines are currently very hefty (up to US$1,725, or almost nine months of an average Vietnamese worker’s salary), they expected that in the short term drinkers in Vietnam will decrease their consumption of alcohol out of fear of infringing the new law.

Alcohol market still fundamentally strong

Fitch analysts do not forecast however negative growth rates or contractions on beer consumption, as fundamentally Vietnam is still an attractive market for beer consumption.

With consumer spending projected to increase at an average rate of 10.6 percent, from US$145 billion in 2020 to US$211 billion in 2024, on the back of incomes rising at an average rate of 6.8 percent per annum, the analysts expected that there is still solid demand for more beer amongst the Vietnamese as they get increasingly wealthier.

Second, given that beer consumption represents such a big proportion of drinking (as seen from the complete dominance of beer in the alcohol segment), the experts do not assume that the important place that beer plays in the social life of Vietnamese will disappear overnight just due to one law.

Thirdly, they still believed that Vietnam’s beer consumption will continue to grow, albeit at a slower rate because it will simply take time for the Vietnamese to reduce their consumption habits. Even at such an early stage, businesses have already come up with ways to mitigate the effects of the new anti-drunk driving laws.

Some Vietnamese bars have announced that they will offer to drive their customers back, allow them free overnight parking services on premises, or subsidise their cab rides back.

In the longer term, consumer habits may change around new regulations—the Vietnamese may continue to increase alcohol consumption, but develop more responsible consumption habits like drinking at pubs nearer to their home, or simply drinking at home.

These behavioural changes may continue to drive up beer consumption, though perhaps at a slightly slower rate than before the new law came into effect.

VOV

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