The heady days of doing business in Vietnam’s beer market have disappeared, so it’s no surprise Heineken has taken action.

The Dutch giant has decided to “temporarily suspend” operations at one of its six breweries in Vietnam.

According to Heineken, the site, located in Quang Nam in central Vietnam, has the smallest capacity of its breweries in the country.

The move comes against a backdrop of declining beer sales in Vietnam.

Heineken, which first began brewing in Vietnam in 1991, pointed to an “economic slowdown” in the country, which has hit demand for beer.

The Amstel brand owner also said the recent strict enforcement of Decree 100 – a law that imposes stiff penalties on drink-driving – has seen consumers “forming new habits and changing their relationship with alcoholic drinks”.

Vietnam, once seen as a key emerging market in Asia Pacific for global beer groups, has seen its market fall flat.

The Amstel brewer said beer sales fell at a “double-digit” rate in Vietnam last year.

In 2023, Heineken saw its revenue in Vietnam decline “organically in the low twenties, behind the category” amid destocking and a shift in demand to more mainstream brands.

After the slump of 2023, Vietnam’s beer market has endured a “mid-single-digit decline year-to-date in 2024”, Heineken says.

The brewer did see its underlying revenue in Vietnam rise “in the mid-teens” in the first quarter of this year, it reported in April. The company pointed to “volume growth in the low-teens”, helped by it lapping the destocking it saw in the early months of 2023.

The slowdown in Vietnam – and Heineken’s performance relative to the market – has been a hot topic among analysts covering the brewer in recent quarters. The country’s significance for Heineken can perhaps be underlined by the drag it had on the Tiger brewer’s overall volumes last year. Heineken’s total beer volumes dropped 4.7% in 2023 and the group said just two markets – Nigeria and Vietnam – accounted for “60% of the decline”.

Heineken itself describes Vietnam as “a key market” for the business in Asia Pacific and, when the brewer reports its first-half numbers on 29 July, its commentary on Vietnam will be closely watched.

Kevin Baker, head of global beer and cider research at GlobalData, Just Drinks’ parent, says Heineken’s move to halt operations in Quang Nam is “not surprising” given the macro and regulatory pressures facing Vietnam’s beer market. “As well as a downturn in the beer market, brewers have also seen increasing costs, impacting profitability,” Baker said.

GlobalData figures show 46.4 million hectolitres of beer were sold in Vietnam last year, down more than 12% on 2022.

The data and research group is forecasting volumes will fall again in 2024 to just over 43.6 million hectolitres. GlobalData’s projections to 2029 only have 45.5 million hectolitres of beer being sold in Vietnam that year.

“Looking forwards, it is highly unlikely that the drink-driving regulations will be relaxed and the special consumption Tax that is applied to beer is set to rise from the current level of 65% to 70-80% in 2026 and to 90-100% by 2030. Therefore, reducing capacity and cutting costs is a sensible move from Heineken.”

Last month, it was reported Vietnam’s government is considering raising the consumption tax on alcoholic beverages to 100% by 2030. The tax, applied to a range of luxury goods and non-essential items, is currently 65% and affects beer and strong liquor.

A proposal, which is in draft stages, suggests raising this to 70-80% by 2026 and 90-100% by 2030, according to a report by Reuters.

One beer industry analyst, who wanted to stay anonymous for this article, believes Vietnam’s beer market is likely to enter a new stage.

“The volume decline in Vietnam, caused by regulation and economics, is substantial and adjusting the cost base is prudent,” the analyst says.

“My view is that the days of high volume growth in Vietnam are gone but companies like Heineken and Carlsberg can keep consumers interested [through] innovation and bringing new products to the Vietnamese consumer. After a brief period of consolidation and volume decline, a new phase of lower volume growth could start.”

According to GlobalData, when looking at volumes, Heineken remains the largest brewery in Vietnam. The group accounted for 18.5 million hectolitres in 2023, GlobalData says, with the locally-owned Saigon Brewery at 17.3 million hectolitres. Both brewers saw volumes drop more than 10% last year, the figures show.

Fernand de Boer, an analyst covering Heineken at investment bank Degroof Petercam, says the brewer “messed up a little bit” in Vietnam with some “overstocking”, which led to the destocking the group saw in 2023.

“If you look at last year, you could say okay, the issues they had in Vietnam last year were partly because of macro but also because they didn’t do well in reading the market etc. and so that part was self-inflicted,” de Boer says. “They tried to correct it and I think they are broadly now quite stable.”

Looking further ahead, de Boer believes Vietnam remains an appealing proposition for brewers. “I think medium-term, long-term, it remains an attractive market. For me, that’s clear and they [Heineken] have a good position,” he says.

“I think if you look at most Asian countries, you could say there is still, one, room for a growing population, with still a growing middle-income class and beer consumption can still go up.”

The unnamed beer industry analyst suggests one large market in Asia could offer lessons to brewers operating in Vietnam.

“Growth comes in two forms, volume and value. The days are gone when we expected all countries to grow to 100 litres [of consumption] per capita so the question is where Vietnam will level off after years of strong volume growth?” the analyst explains.

“Partly this is dependent on actions by brewers. When will they shift focus to premiumisation? Vietnam could see volumes grow slower but value growth pick up. China could serve as a blueprint. CR Snow has seen volume growth stagnate, but EBIT per hectolitre explode.”

At GlobalData, Baker expects Vietnam to remain an important part of brewers' growth plans even if regulation is likely to dampen demand. He calls out one area brewers could explore.

"The biggest opportunity is going to be in developing the market for alcohol-free beer," Baker says. "Asia as a whole underperforms in the global alcohol-free beer market but the imposition of the drink-driving regulations and higher taxes on beer could create the ideal conditions for the development of the segment. Heineken are extremely well-placed with Heineken 0.0 to captalise on this. There could also be opportunities 'beyond beer' in the wider non-alcoholic beverage market."