Vietnam beverage industry reeling from 'successive shocks': industry insider

Vietnam’s beverage industry is struggling after experiencing "successive shocks" in recent years, including the Covid-19 pandemic, conflicts in different parts of the world and strict enforcement of the zero-alcohol policy.

Nguyen Van Viet, chairman of the Vietnam Beer, Alcohol & Beverage Association (VBA), tells The Investor that the industry has not benefited from polices that could have softened the blows it has suffered.

Heineken Vietnam has just announced the suspension of its brewery in the central province of Quang Nam. What do you feel about this development?

The company has surely considered things thoroughly before coming to this decision. No corporation or investor wants to close their factory. It was perhaps the last solution in this difficult time.

The beverage industry has faced continuous difficulties in recent years, including Covid-19, world conflicts and Decree 100/2019 on administrative sanctions for alcohol concentration violations. And it is forecast to confront even more difficulties when tax rates are revised upwards, increasing their cost burden. In particular, the Law on Road Traffic Safety and Order, recently passed by the National Assembly, will make people limit the use of alcoholic beverages even more.

Furthermore, even as alcoholic beverage businesses struggled with cutting profits and costs to maintain production, they were not eligible to benefit from support packages like the two-percentage-point VAT reduction.

Can you elaborate on the difficulties that the Vietnamese beverage industry is facing?

Actually, the beverage industry has faced successive shocks in recent years. Having just gone through the shock of the pandemic, they encountered strict enforcement of the zero alcohol policy, which badly affected their sales.

Beer producers in particular are now subject to many restrictions by at least four major laws: the law on preventing harmful effects of alcohol; the law on special consumption tax; the law on commerce; and the law on advertising and e-commerce. And as I said earlier, the VAT reduction package has not been applied to the alcoholic beverage industry.

As a result, restaurants have seen a sharp fall in diner numbers, forcing them to scale down operations or lay off employees, thus affecting the entire supply chain, even farmers.

In 2023, the beverage industry saw a single- to double-digit decline for the first time in decades.

This has forced businesses in the industry to narrow production and business activities, cut many workers and close regional offices; and some have even had to temporarily stop operations, greatly impacting social security in localities, local budgets and workers.

Amid the current difficulties, will the association propose specific solutions for beverage businesses to optimize production and business activities in the Vietnamese market?

For beer, the Ministry of Finance has proposed an excise tax of 80% in 2026 and for this to move towards 100% in 2030. The ministry estimates that this would push up retail prices by 20% year-on-year in 2026 and 2-3% per year afterward.

In response to this proposal, we will send an official written proposal to the Ministry of Finance, the government, and the National Assembly on considering reducing the tax increase and make a reasonable tax hike roadmap to avoid causing further "shocks" to enterprises, stabilizing the market and creating conditions for businesses to adapt to higher tax rates in the near future.

Increasing tax rates is just a solution. The government needs to research and implement solutions against smuggled, counterfeit and poor-quality goods and those of unknown origin to protect businesses and consumer health as well as prevent budget revenue losses.

The total financial loss from this informal sector is estimated at about $2,816 million, including $751 million from production and $2,015 million from smuggling and production of counterfeit goods.

We need to learn from international experiences, especially from neighboring countries with similar conditions such as Thailand and China. They have simplified procedures and cut taxes to attract investment and tourism.

Heineken Vietnam Brewery Limited Company, or Heineken Vietnam, has suspended operations at its factory in the central province of Quang Nam since June 12, citing multiple challenges in the local market.

It said the beer industry has been struggling with significant challenges post-Covid-19 stemming from the economic slowdown, leading to declined consumer confidence and demand.

Additionally, the enforcement of Decree 100, which stipulates zero-alcohol tolerance whilst driving, has led to changes in customer behavior.

As a result, the Vietnamese beer market experienced a double-digit decline in 2023 and has continued to see a single-digit decrease so far this year, Heineken said.