Care For A Glass Of Wine? Vietnam’s Growing Middle Class Is Demanding Higher Quality Alcohol

Một, hai, ba, vô! The sight of people gathered around a low table at an outdoor restaurant, sharing a plate of snails and drinking ice-cold beers is one of the most notable scenes in Vietnam. One of Asia’s top alcohol consumers, the Vietnemese consider drinking as a way to build social connections, show appreciation or celebrate even the smallest of wins. 

According to a survey conducted by the Ho Chi Minh City University of Education, Vietnamese agree that drinking alcoholic products is to observe social etiquette, exhibit a proper manner at work, and build and maintain social networking and business relationships. This mindset has existed in Vietnamese society for ages, and it will remain a vital part of the local culture for centuries to come.

Along with Vietnam’s remarkable economic progress —  even amidst a pandemic — the drinking culture has evolved. Beer remains the most popular alcoholic beverage, but the country’s growing middle class is starting to feel an unquenchable thirst for the more sophisticated wine. Red and white wines have become a staple at many social gatherings, business banquets, or formal family dinners.

A new report from Vietnam Briefing states that wine is among products that have seen considerable growth in sales over recent years in the country. The market is booming, with hotels, restaurants and retailers now offering a wide variety of wine sourced from around the world.

This has taken further prominence due to China’s recent tariffs of over 200% on Australian wine for a five-year period. While this has left Australian winemakers looking for alternative markets, ASEAN countries, such as Vietnam, are emerging as key wine trading partners, the report reads.

Thanks to customs duties exemptions and free trade agreements, the popularity of Australian wine is growing at an exciting pace in Vietnam, a considerably low-price-sensitive market. The promising alcohol market could become Australia’s strongest trade partner, to compensate for the loss of China and to mitigate the effects of the coronavirus pandemic to the wine industry.

Vietnam already accounts for the third-largest ASEAN wine consumer market, as its consumption accounted for 15.3 million liters in 2020. According to the World’s Top Exports data, from 2018 to 2019, wine consumption increased by 173.6%. 

The best-selling wines are reds with around 65% of the market, followed by whites with 25%, and sparkling wines with 10%, according to the same report.

Westernization of tastes

As Vietnamese people’s standard of living improves and their spending power expands, their obsession with foreign brands have also gone stronger. A stroll along Ho Chi Minh City’s District 1 will let you see how much the Vietnamese love Western brands. Looking for Gucci and Louis Vuitton products? You won’t have any problem spotting them in intimidating boutiques, which are actually never without local customers.

The trend has also impacted the consumption of wine. While it’s not traditionally consumed in streets like beer, Vietnam’s high spenders choose premium, expensive wines from France, Italy, Chile, the US or Australia. The country’s historical link with France is most definitely the reason French wines represent 35% of market share, with Bordeaux being the most popular.

Even on traditional celebrations such as Tet, wine occupies a significant space on the table, or is given as a corporate year-end gift to business partners and employees. In fact, the New Year holiday generates up to 80% of wine sales.

Industry opportunities and challenges

Vietnam’s openness and preference for foreign wine brands present a significant opportunity for importers and producers. Vietnamese are willing to pay more to get products with higher quality.

Australian investors especially can make use of two free trade agreements, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the ASEAN-Australia-New Zealand Free Trade Area, to gain entry to the Vietnamese market.

Investors should study the specific FTA that would best suit their market entry. For example, wine of fresh grapes (HS Code 2204) sees a tariff rate of 27% as per the CPTPP and 20% as per the AANZFTA by January 2022. However, by January 2026, as per the CPTPP, it would decrease to 15% lower than AANZFTA’s 20% and by 2028 it would go down to zero, reads the Vietnam Briefing report.

However, as with any emerging economy, opportunity comes with risk. While Vietnam is generally welcoming foreign investments, the government imposes policies to protect the domestic industry.  Foreign investors should factor in several issues depending on the product and market size, and do extensive research and analysis to fully understand this promising market.