Although Vietnam is the world’s second biggest producer of coffee (after Brazil) and coffee shops proliferate on the streets of Hanoi and Ho Chi Minh City, domestic consumption lags way behind that of neighbouring countries.
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| Coffee shop in HCM City |
Now local and international coffee producers are hoping to boost consumption in the country as they seek a more sustainable model for an industry that has been susceptible to historical swings in the global coffee price.
Helped by favourable climate conditions, Vietnam is forecast to produce a record crop of 1.3m tonnes of coffee in the next harvest, likely to be worth more than $3bn, according to a survey of traders by Bloomberg.
The vast majority – around 93 per cent – of Vietnam’s coffee crop, mostly composed of low-grade robusta beans, is exported for use in instant coffee blends.
Outside Vietnam’s increasingly wealthy cities, green tea remains the drink of choice and even many coffee farmers rarely drink the black stuff.
“On a per capita basis, Vietnam consumes one quarter of what is consumed in Thailand and other neighbouring countries,” Rashid Qureshi, managing director of Nestlé Vietnam, tells beyondbrics.
Nestlé, the Swiss food giant, is among those trying to shift consumption patterns and tap into the increasing prosperity in this country of nearly 90m people.
“There’s a huge opportunity to keep developing local consumption by highlighting the benefits of coffee and developing products that are more in line with local needs and the taste profile,” says Qureshi.
In the past, most Vietnamese coffee drinkers were happy to sit around and wait five minutes for their coffee to drip slowly through a traditional French-style filter, adding condensed milk and/or ice to taste. In these more hectic days, instant coffee is all the rage.
In 2008, Nestlé launched a Vietnamese-style instant black coffee powder, followed by a white coffee powder last year. Qureshi says these brands have already secured 15 per cent of the soluble coffee market and he is confident Nestlé can continue to expand its market share.
Nestlé said last month it would invest $270m to build new factories in Vietnam to produce soluble coffee, mostly for the local market, and decaffeinated coffee for export.
The investment is part of the company’s “Creating Shared Value” programme, under which Nestlé will also work directly with farmers to improve the quality of their output while reducing their use of water and fertiliser.
As Nestlé currently buys about a quarter of Vietnam’s total coffee crop, it can play a key role in trying to make the whole industry more sustainable, Qureshi says.
At the same time as Nestlé is raising its game, so are local competitors such as Trung Nguyen and Thai Hoa. Masan Group, a large conglomerate backed by international private equity firms such as Kohlberg Kravis Roberts and TPG, is also getting into the coffee game.
It has made an offer to buy a controlling stake in Vinacafe Bien Hoa, another Vietnamese coffee producer. Having picked up staff and lessons from the likes of Unilever and Procter & Gamble, Masan’s consumer division has grown to be the leading producer of fish sauce and soy sauce in Vietnam.
Its likely entry into the coffee market, assuming the takeover is completed successfully, will up the ante for all concerned.
But Qureshi welcomes the challenge, arguing that increased competition will increase coffee consumption in Vietnam, rather than just leading to a situation where rivals take market share from one another.