Vietnam sees rapid growth of its Soft Drink Industry

In Vietnam, non-alcoholic beverages have been one of the key growth drivers in the food and beverage industry, with this segment attracting substantial investments from both domestic and overseas investors.
As an emerging economy, growth in beverage consumption in the country is at 7% and this is impressive compared to developed countries like Japan (2%) and France (1.5%). Per capita consumption of beverages in Vietnam is estimated at 50.7 litres in 2018.
The growth in Vietnam’s beverage segment is mainly attributed to its expanding middle class, growing consumer affluence, and changes in their lifestyles and preferences.
Vietnam has received substantial investment from major foreign brands such as Coca-Cola, the Universal Robina Corporation (URC), and Suntory PepsiCo as well as domestic players over the last 20 years. The following Table 1.0 is a summary of major investments in this segment.
Based on Statista figures, soft drink production in Vietnam have grown 6-fold over an 18-year period from 800 million litres in 2000 to 4.8 billion litres projected in 2018.
The industry is therefore one of the hottest segment in the FMCG market, said Vietnam Beverage Association. Bottled water, soft drinks, instant tea and fruit juice accounted for 85% of total annual production and consumption, with the remaining 15% being mineral water. Volumes are estimated to reach 8.3 to 9.2 billion litres per year by 2020.
Despite the tremendous growth potential, this segment does have its own challenges. Vietnamese consumers are becoming more and more health conscious, thereby demanding for low-sugar, low-calorie products. With growing disposable incomes, consumers are willing to pay more for healthier products. It is expected that the rate of growth in this segment will start to taper off in the near future. However, one sub-category which is assured of continuous rapid growth is bottled water.
Apparently, to maintain steady growth, beverage companies have to diversify into healthier segments like 100% juice, functional beverages and the likes to capture consumer interests. This shifting market trends and changing consumer tastes particular among the young and the millennial generation, can be challenging but could also offer a new market opportunity.
Apart from challenges faced from consumers, beverage companies also need to handle adjustments in future government regulations, for example the recent proposal to levy special consumption tax of 10% on sweetened drinks in order to combat child and adult obesity. This will certainly affect the manufacturers’ profit margins and selling prices, which will ultimately affect consumers.