Brewing giant Carlsberg has upped its 16.07% stake in Vietnamese brewer Hanoi Beer Alcohol and Beverage Corporation (Habeco) to 30%. Reflecting the Danish firm's growing desire to expand its footprint in South East Asia's high-growth beer markets, the deal also hints at a change of strategy for Habeco which has to date focused on economy brands in order to ward off the threat of international competition. Extending their existing partnership, the two brewers expect to exceed market growth over the next few years; to 2013, BMI expects volume sales of beer in Vietnam to increase by 5.9% annually.
nitially operating via joint ventures in Halong and Hue, Carlsberg acquired a 16.07% stake in Habeco for DKK545mn (US$107.5mn) in 2008. With Habeco dominating beer sales in the north of the country, particularly in the increasingly affluent city of Hanoi, the acquisition cemented Carlsberg among a small band of brewers who could claim to boast anything like significant market share in the country. More pertinently, the deal enabled Carlsberg to widen its product portfolio and ensure that it was catering for both ends of the market. Carlsberg's eponymous brand became the premium flagship, its local Halida product occupying the mainstream, while Habeco's Bia Hoi catered for the economy segment.
Carlsberg's decision to increase its stake in Habeco can be viewed in light of two factors. Firstly, competition in the sector continues to intensify as multinationals seek to eek out the few truly explosive growth opportunities that remain in the regional beer market. Vietnam's proximity to the dynamic frontier beer markets of Laos, Cambodia and Myanmar have made it a particularly popular choice and as well as Habeco's fierce southern rival Saigon Beer Alcohol and Beverage Corporation (Sabeco), Carlsberg competes with Singapore's Asia Pacific Breweries (a joint venture between Fraser & Neave and Heineken), Anglo-South African major SABMiller and Anheuser-Busch InBev (currently constructing a brewery in the country).
While increasing competition has made it important for Carlsberg to expand, simple capacity expansions are not the most viable choice. Vietnam's beer market has grown at a rapid pace, supported by economic growth, rising tourism and favourable age demographics (see chart). However, the expansion pace of the market leaders has raised concerns that the beer industry is now oversupplied, particularly when one considers that much of the country still lives in poverty, unable to participate in the proliferating consumer goods industries even at the economy end. The risk of oversupply (huge capacity expansion projects are already underway) makes Carlsberg's stake purchase a wise choice for pursuing sales growth.
For Habeco the deal deepens its relationship with one of the international players it has been trying to hold off. As well as the share sale, the two companies are now expected to co-operate in other key business areas, perhaps marketing and distribution to effectively combine their respective expertise. Faced with multinational competition in recent years, Habeco has focused closely on its competitive strengths. The company has continued to pursue growth in the Bia Hoi segment, this low margin but high volume, keg-only product now accounting for 40% of its total sales. The unique distribution challenges of Bia Hoi - it is sold in the Hanoi area's plethora of street cafés, typically to lower income consumers - has kept international players out of this segment and given local players some breathing space. In extending its relationship with Carlsberg, Habeco is expressing an interest in widening its own product portfolio and looking for ways to improve margins.
Carlsberg estimates that together, it and Habeco control 33% of Vietnam's beer market, putting them on level pegging with Sabeco which dominates in the higher-spending south. Together, the two partners will be optimistic about achieving market leadership, after which wider regional growth is likely to become a priority.