Competitive pressure is increasing, while beer consumption is decreasing.
Market share decline
2017 was a difficult year for Hanoi Beer – Alcohol – Beverage Joint Stock Company (HoSE: BHN) in the context of increasingly fierce competition in the beer industry and increased cost pressures. BHN is showing signs of losing market share even in the traditional market in the North. BHN achieved a net revenue of VND 9,802 billion (down 1.9% compared to 2016), of which the net revenue from beverage segment was VND 7,867 billion (down 3.2% compared to 2016). Gross profit reached 2,568 billion VND (down 7.9% compared to 2016) due to the gross profit margin decreased from 27.8% in 2016 to 26.2% in 2017. Profit before tax and net profit respectively 839 billion dong and 658 billion dong, down by 29% YoY and 18% YoY. BHN is facing challenges including:
Total consumption reached 481.9 million liters, down 8.5% compared to 2016. Beer consumption reached 479 million liters (down 9% compared to 2016) due to the consumption of bottled beer. Red color 450ml significantly decreased (down 24% compared to 2016), leading to the contribution of the total revenue of this product decreased from 47.7% (2016) to 39.6% (2017).
Meanwhile, in 2017, total beer consumption of the industry reached 4,006 million liters, up 6% from the previous year. BHN used to focus on expanding into Bia Bia segment with high output but low profit margin. This constrains growth as consumers’ incomes increase and thus shifts to the trend of using higher-end products. In addition, consumers also tend to switch from large to small bottles and pay more attention to packaging than before.
Higher affordability and a growing selection of high-end products, strong marketing campaigns, and imported foreign brands significantly impact revenue when BHN doesn’t launch any additional product lines. new product. BHN has increased marketing expenses in the past few years to VND 568 billion in 2017 but still ineffective. Marketing costs increase in value as well as in the proportion of revenue, but revenue growth tends to the opposite. Selling expenses / sales ratio of BHN in 2017 was 12.9%, lower than other consumer goods companies such as VNM (22%), KDC (15%) and MSN (14%).
Uncompetitive margins make distributors / wholesalers switch to warehousing of rival brands. Special consumption tax increased from 55% to 60% from January 1, 2017, causing more severe impact on profits because BHN could not push costs to consumers. The average selling price in 2017 increased by only 2-3% over the same period.
In 2018, BHN plans a total sales volume of 500 million liters, up 3.8% compared to 2017, EBT will increase by 19.3% to VND 1,001.8 billion.
According to BMI, BHN is still Vietnam’s third largest brewer, but its current market share is 16% (2015-2016: 18%), far behind its peers – SAB (40%) and Heineken ( 25%). The market share has been lost to all competitors, typically Heineken’s market share was only 17.3% in 2015. All BHN breweries have a designed capacity of 800 million liters / year. but currently operating 62.5% of capacity to produce 500 million liters.
Most of BHN’s packaging is obsolete, making it difficult to compete with peers. BHN found that consumers now prefer cans over bottles and small bottles over large ones. Therefore, management will focus on improving the design and packaging to strengthen the product portfolio, promote brand recognition and product distribution outside the Northern market.
BHN has recently replaced the red bottle with new blue bottle products with a capacity of 450ml and plans to launch 355, 330ml bottles this year to protect market share in the main segment. The new Hanoi Premium 330ml beer can, introduced in November 2017, is receiving positive feedback on the quality.
In the first quarter of 2018, the company’s net revenue reached VND 1,426 billion (up 11.8% compared to the same period last year), profit before tax reached VND 383 billion (up 4.3% over the same period) and Net profit reached VND 110 billion (up 12.1%), equivalent to EPS of VND 567 (Q1 / 2017: VND 530) and only completed 13.6% of the EBT target. Gross profit margin decreased from 28.8% in the first quarter of 2017 to 26.8% in the first quarter of 2018.
The average selling price has increased by 5-6% since the beginning of 2018 due to the 5% SCT increase. At the same time, the cost of input materials increased by 2-3%. BHN is trying to reduce selling expenses and business management to offset but not successful.
Looking back on the business results in the first 6 months, revenue and gross profit margin have not reached expectations, the possibility that BHN can complete the 2018 plan is relatively low.
BHN is still Vietnam’s third largest brewer, but its current market share is 16% (2015-2016: 18%), far behind its peers – SAB (40%) and Heineken (25%). .
One obstacle for beer enterprises is the special consumption tax rate next year but SSI Retail Research assesses the high possibility that it will increase because the special consumption tax in Vietnam for alcohol is still lower than other countries.
Other Government policies to limit consumption of beer and other alcoholic beverages: The Ministry of Health is drafting a proposal to the National Assembly regarding the restriction of alcohol consumption. Under the proposal, beer and alcoholic beverage companies will be banned from advertising in any form for products with an alcohol content exceeding 15%.
Products with a lower alcohol content will be banned from advertising in public places, television and movies, products that contact young audiences. The bill also proposes a minimum distance between retailers of alcoholic beverages is 500 meters and regulates hours of beer sales.
Ministry of Industry and Trade believes that beer consumption trend is continuing to decrease. CAGR of 2021-2025 for beer industry is 5%, lower than the current period of 2015-2020 by 7%.
In 2018, the Ministry of Industry and Trade plans to divest an 82% stake in BHN. However, the main problem in Habeco’s divestment is that Carlsberg is prioritized in buying State shares in Habeco based on the committed contract signed between the Ministry of Industry and Trade and Carlsberg when Carlsberg purchased 17.51% of the company in 2008.
Nhu Mai / SSI Retail Research
* Source: Investment bridge