Beer companies struggling under the pandemic
Beer companies struggling under the pandemic
Beer companies have been facing a turbulent time since early 2020, and now under the fourth wave of the Covid-19 pandemic, the revenues are dropping even more drastically than last year.
Illustrative photo.
|
Beer giants in difficulty
The year 2020 is said to have been the most difficult year for the beer industry in the last 20 years, due to the impact of three major factors occurring at the same time. The three disasters of the Covid-19 pandemic, Decree 100 or law on prevention of alcohol impact, and natural disasters, all caused a sharp decline in net revenue in 2020 for most beer businesses.
For instance, Saigon Beer-Alcohol-Beverage Corporation (SAB) saw net revenue decrease by 26.2% to VND 27,961 bn. According to SAB, among Fast Moving Consumer Goods (FMCG), beer demand was most negatively affected by the Covid-19 pandemic that lasted for the first three quarters of 2020, decreasing monthly by 3.6%, 22.9%, and 11.9%, respectively. This deeply reduced profits of beer businesses, especially that of SAB, the largest beer company in Vietnam with 26 factories with a total production capacity of about two billion liters per year. Another giant, Hanoi Beer-Alcohol-Beverage Corporation (BHN), also recorded a decrease in revenue of upto VND1,900 bn, down to VND7,514 bn.
The revenue of leading beer giants in the country decreased substantially, which shook these giant beer corporations. For example, Saigon Binh Tay Beer Group Joint Stock Company, one of the large volume processing units for SAB, saw revenues fall suddenly. In 2020, the processing beer output that SAB assigned to Sabibeco after many adjustments to the plan decreased from 218 million liters to 169 million liters. However, the actual delivery volume only reached 88.5% of the plan, equivalent to 70% compared to 2019.
Sabibeco total revenue dropped sharply from VND 2,873 bn to VND 2,008 bn down by 30%, and gross profit margin decreased to only 7%. Although operating costs were reduced, the loss in joint ventures nearly tripled to VND 39 bn, making Sabibeco see a net loss of VND 100 bn. Thus, since the peak of VND 247 bn in 2015, Sabibeco profits plummeted and expected to drop even more after customer No. 1, SAB, returns it to a new owner.
Cost cutting
Since transferring to the Thai owner, SAB has stepped up its policy of cutting business costs. By proactively cutting business costs and increasing selling price of some key products by 2% in the first half of the year, SAB saw profit after tax decrease by only 8.1% to VND 4,937 bn. In addition, SAB was lucky when the price of raw production materials such as barley, aluminium and hops unexpectedly dropped in the fourth quarter of 2020 due to the Covid-19 pandemic across the world.
Positive results in the last quarter of 2020 continued to be maintained until the first quarter of this year with revenue increasing by 19.4% to VND 5,893 bn. With this figure, every day in the first quarter, SAB sales revenue were approximately VND 65 bn. This significant improvement in revenue helped SAB regain its profit growth momentum in the first quarter. Specifically, pre-tax profit in the period reached VND 1,231 bn, up 30% compared to the profit of the same period in 2020 of VND 945 bn. Similarly, BHN revenue also increased sharply by 78% in the first quarter, reaching VND 1,375 bn, and gross profit margin improved from 19% to about 24%. The strong increase in revenue helped BHN record a profit of VND 47.6 bn, while the same period last year it had lost about VND 98 bn.
According to the first quarter report of Kantar World panel, most consumer goods industries recorded negative growth in the first quarter, except beer. The reason is due to the sudden growth of the FMCG market in the first quarter of 2020 due to the psychology of hoarding goods when the pandemic started. The recovery of the beer market lasted until April, helping beer production in the first four months of 2021 reach 341 million liters, up by 37%.
More difficulties
Since the end of April, the fourth wave of Covid-19 pandemic has pushed beer businesses into a much more difficult situation. This is because social distancing measures were implemented on a much larger scale and lasted much longer than last year. The social distancing policy led to stagnation of tourism, hotels, restaurants, discos, and bars. Besides, the impact of the Covid-19 pandemic caused a decrease in worker income and reduced demand for alcohol consumption, thereby making it difficult for profits to grow in the first quarter of the year.
According to Phu Hung Securities Company (PHS), the negative impact of the Covid-19 pandemic has affected people's income and spending needs. Consumer trends have also changed during the pandemic. Accordingly, consumers focus on essential healthy products such as fruit juice or milk instead of alcoholic beverages to increase resistance to dangerous and complicated infections from the pandemic. It is forecast that the beer industry will take about two years to recover to pre-Covid levels.
Strict regulations put pressure on people and revenue and profit of beer companies in 2021 will be affected despite the hot season. In fact, as soon as the fourth wave of the Covid-19 pandemic struck, beer stocks quickly fell due to investors’ concerns about consumption volume being negatively affected. For example, SAB price decreased from VND 180,000 per share in April to VND 150,000 per share in May. Compared to the price at the beginning of the year of around VND 190,000 per share, the decrease due to the impact of the pandemic is upto 20%. Similarly, BHN at the beginning of the year was still trading at a price of nearly VND 80,000 per share, but now it has decreased to around VND 50,000 per share.
As of now, although business results of the second quarter have not yet been announced, it is forecast that the revenue of beer enterprises will decrease even further. The decline will be even greater in the third quarter due to the pandemic and the application of Directive 16 across all southern provinces. Although beer companies have built their business plans for 2021 very carefully, their goal of seeing profits rise seem dim if the Covid-19 pandemic continues to disrupt the daily lives of people in general.
