Synthesize and tighten into a 200-word paragraph THAT discusses the Coffee Market Trends, challenges, and opportunities in Vietnam: "Coffee In Vietnam Dec 2023 KEY DATA FINDINGS
Retail value sales grow by 6% in current terms in 2023 to VND11.3 trillion
Instant standard coffee is the best-performing category in 2023, with retail value sales rising by 7% in current terms to VND2.9 trillion
Nestlé Vietnam Co Ltd is the leading player in 2023, with a retail value share of 38%
Retail sales are set to increase at a current value CAGR of 7% (2023 constant value CAGR of 3%) over the forecast period to VND15.8 trillion
2023 DEVELOPMENTS
Demand for coffee impacted by a slowdown in the economy and elevated inflation
Sales of coffee in Vietnam have seen a small decline in retail volume terms in 2023 with the economic downturn and elevated inflation forcing consumers to show greater caution in their spending. Vietnam’s economy started to struggle in 2023 with lower demand in key export markets weighing on its manufacturing industry, while there was an intense desire to keep the Vietnamese Dong stable at the expense of business borrowing. Thus, Vietnam’s GDP growth is projected to be lower than that seen in 2022. As such, Vietnamese consumers started to tighten their budgets with many people reducing their spending on non-essential products such as coffee.

Though consumers have continued to drink coffee some people have been drinking less as a way to save money. In response to the lower demand, key players in coffee such as Masan Group Corp and Nestlé Vietnam Ltd have been constantly deploying discounting activities at modern channels such as supermarkets and hypermarkets and online as a way to simulate consumer demand.

When it comes to coffee in Vietnam sales are relatively evenly split between the retail channel and the foodservice channel. During the pandemic sales swung towards the retail channel as consumers were unwilling or unable to venture outside their home for long periods. However, now that the pandemic is over sales have been shifting back towards the foodservice channel. Nonetheless, after seeing double-digit growth in volume terms in 2022, the recovery of foodservice sales has slowed in 2023. Like retail sales, this is in part due to the slowdown in the economy and rising prices. However, foodservice sales have benefited from more consumers returning to the workplace, an increase in social engagements and a recovery in Vietnam’s tourism industry.

Production shortfall leads to a sharp rise in the price of coffee beans
Coffee production in Vietnam was negatively impacted in 2023 by high temperatures and drought which are linked to the impact of climate change. This is not just a local problem with there being a global shortage of coffee beans in 2023 due to poor yields in key regions such as India and Brazil. As such, this led to a sharp increase in the price of fresh coffee beans but which also put significant pressure on the production cost of fresh ground coffee and instant coffee. With manufacturers also facing an increase in other production costs this came at a challenging time, with there being pressure to contain price rises with locals already facing a sharp rise in the cost of living.

The Vietnamese government has reduced the rate of VAT from 10% to 8% from 1 July to 31 December 31, 2023, as part of efforts to support businesses and companies and to ease the pressure on consumers. However, this has not been enough to prevent a significant increase in the price of coffee in 2023. As Vietnamese consumers are quite price-sensitive these price rises have negatively impacted demand in 2023 and therefore players are expected to look to avoid any further significant price increases in coffee, at least in the short term.

Coffee continues to benefit from new product innovation
Despite the challenges that have faced coffee producers in 2022 and 2023 the market has continued to see various product innovations, with these mostly focusing on flavour. For example, in July 2023, The Coffee Factory, a chain of specialist coffee shops in Vietnam, launched its new mint flavoured range of instant coffee mixes. This new product can be served hot or cold and adds the chain’s existing product lineup in instant coffee mixes which also includes hazelnut and cappuccino options. To help promote its range of instant coffee mixes The Coffee Factory ran various promotions during 2023 including an offer to buy two boxes of its mint and cappuccino instant coffee mixes as a bundle offer for VND99,000.

In April 2023, Fes Vietnam Co Ltd added a new fresh ground coffee flavour to its MacCoffee Gold range to provide a stronger coffee taste. Another new launch under the MacCoffee brand in standard fresh ground coffee in 2023 was MacCoffee Cà Phê Ph? Rang Xay (street roasted coffee). Fresh ground coffee is usually sold in 200g or 500g pack sizes in Vietnam but this new product is being sold in single-portion sachets that are designed to be more affordable and convenient for consumers, which has helped to make its coffee more accessible to a wider audience.

PROSPECTS AND OPPORTUNITIES
Coffee is expected to see the better performance over the forecast period
Coffee is expected to see a return to growth in retail volume terms over the forecast period while foodservice sales are projected to see a full recovery. Demand is likely to pick up as Vietnam’s economy rebounds and as consumer confidence is restored. Furthermore, sales should also benefit from the recovery of the country’s tourism industry as well as locals returning to more active lives away from the home both for work and leisure. The Vietnamese government is also expected to continue deploying initiatives to boost the economy and to encourage consumers to start spending again. For example, in October 2023 the Ministry of Finance consulted the authorities on making further cuts to VAT for the first six months of 2024, having previously reduced VAT from 10% to 8% for the second half of 2023.

Consumers expected to show higher interest in fresh coffee
Over the forecast, Vietnamese consumers are expected to show higher interest in fresh coffee including fresh coffee beans and standard fresh ground coffee. More and more fully automated coffee machines are being promoted and sold in electronics and appliance stores and through retail e-commerce platforms such as tiki.vn, Lazada.vn, and shopee.vn. These small appliances are becoming increasingly affordable, with many consumers purchasing these products during special sales events which have become increasingly common in Vietnam.

The rising availability of coffee machines has led to a rising demand for the café experience at home, which in turn is boosting sales of fresh coffee. Nonetheless, fresh coffee beans are typically only available in specialist coffee shops, while the presence of these products in the retail channel is limited due to the fact consumers need to grind the beans in small batches for immediate use, which is seen as inconvenient and time consuming. Instead, when it comes to fresh coffee Vietnamese consumers usually purchase standard fresh ground coffee when shopping in the retail channel. As the economy improves consumers are likely to be keen to invest in a higher quality cup of coffee whether at home or in the foodservice channel and thus sales of fresh ground coffee are projected to see strong growth in total volume terms.

Limited opportunities expected for pods, but local players and foodservice operators could carve out more share in the market
Over the forecast period, the presence of fresh ground coffee pods will likely remain negligible in Vietnam due to the well-established culture and preference for drip coffee. Therefore, there is likely to be a reluctance to embrace more modern approaches such as coffee pods. In addition, when considering the cost per cup, coffee pods tend to be pricier than purchasing fresh coffee beans or standard fresh ground coffee. Moreover, with the widespread availability of specialist coffee shops and a strong coffee culture in Vietnam, consumers can easily purchase fresh coffee drinks in various options from expresso, cappuccino, and latte to drip coffee, all at a cheaper price than purchasing fresh ground coffee pods. The higher cost of these products compared to other coffee options is therefore likely to remain a major deterrent to price-conscious consumers.

As Vietnam is able to grow and produce its own raw coffee beans, the forecast period is, however, likely to see the entry of more small domestic players into the market, as exemplified by newcomers such as Mr Viet, Shin Café, and Gunam. These local brands typically focus on distribution within a certain region or a niche segment, in order to differentiate themselves from their larger rivals. Indeed, an increasing demand for speciality coffee, as well as a growing consumer interest in where coffee is grown, should pay dividends for these smaller players. Foodservice operators, such as Phuc Long Coffee & Tea Co Ltd and Viet Thai International JSC (with its Highland brand) are also expected to focus on developing their offerings within their coffee shop outlets, as well as looking to take advantage of their strong brand names to expand further. | RTD Coffee In Vietnam Dec 2023 KEY DATA FINDINGS
Off-trade volume sales grow by 4% in 2023 to 3 million litres
Ajinomoto Co Inc is the leading player in 2023, with an off-trade volume share of 38%
Off-trade volume sales are set to grow at a CAGR of 7% over the forecast period to 4 million litres
2023 DEVELOPMENTS
RTD Coffee still has potential for growth in 2023
RTD coffee has continued to see steady growth in off-trade volume terms in 2023. Although RTD coffee is a relatively niche category, especially when compared to similar products such as RTD tea, it nonetheless appears to still have plenty of potential with it seemingly fitting with the increasingly modern lifestyles of Vietnamese consumers. Consumers usually purchase RTD coffee as a convenient and indulgent option to drink at home. However, the fast development and expansion of the convenience stores channel in Vietnam has also created new opportunities for the consumption of RTD coffee.

Convenience stores are becoming increasingly popular among the younger generations in Ho Chi Minh and Hanoi. For example, consumers often purchase ready meals and soft drinks from convenience stores to consume when hanging out with friends. Convenience stores also typically operate 24/7 with most stores having a chilled section. As such, many consumers tend to purchase RTD coffee at convenience stores when specialist coffee and tea shops are closed.

RTD coffee continues to face still competition fresh coffee
Although RTD coffee continues to grow and develop at a steady pace it still faces significant obstacles to wider acceptance. For example, in general, RTD coffee continues to face still competition from cafés, specialist coffee shops and street vendors which benefit from the strong coffee culture in Vietnam. It is easy to buy a fresh coffee in a wide range of options ranging from black coffee to milk coffee, along with hot and iced coffee with these options typically having very affordable prices when purchased from specialist coffee shops and street vendors, which are present on every street corner in Vietnam.

In addition, the majority of consumers usually prefer fresh coffee instead of RTD coffee, with the perception being that the former is more natural, healthier, fresher and often tastier. Importantly, RTD coffee is also generally more expensive than fresh coffee, which given the challenging economic environment is a significant obstacle to growth. Therefore, RTD coffee has struggled to win over consumers or capture their attention with most consumers still either opting for fresh coffee or other soft drinks options such as carbonates or RTD tea, for example.

Birdy tops the rankings while e-commerce has to bring RTD coffee to a wider audience
In terms of the competitive landscape, Ajinomoto Co Inc has extended its lead in RTD coffee in 2023, with its Birdy brand topping the rankings, closely followed by Viet Thai International JSC with its Highlands brand. King Car Co Ltd with Mr Brown and Nestlé Vietnam Co Ltd with Nescafé are the other notable players in what is a highly consolidated category with the remaining players accounting for a combined off-trade volume share of 4% as of 2023. The Birdy brand benefits from its local image with it being made from 100% premium Vietnamese Robusta coffee beans. It has also expanded its reach with its RTD coffee now being available on leading e-commerce platforms.

The expansion of retail e-commerce in Vietnam has helped producers of RTD coffee to reach more consumers, with these products still having a limited presence in some areas of the country. During the pandemic more and more consumers became familiar with online shopping and although the pandemic is now over many continue to shop online, including when shopping for RTD coffee. Consumers residing in small cities and rural areas are often unable to purchase RTD coffee in their local stores and thus retail e-commerce platforms such as tiki.vn, Lazada.vn and shopee.vn have helped to expand the potential audience for these products. Many brands have official stores on these platforms through which they offer attractive discounts and promotions to encourage sales.

PROSPECTS AND OPPORTUNITIES
A positive outlook for RTD coffee
Over the forecast period, RTD coffee is expected to see a stronger performance in off-trade volume terms compared to the one seen during the review period. This partly based on key players in the market constantly working to improve the taste of their RTD coffee as they look to provide a similar taste to the fresh coffee available from specialist coffee shops. As consumers lead increasingly busy lives and spend more time working there is likely to be a growing demand for the convenience of RTD coffee in Vietnam, which can be purchased on impulse for consumption on the go or stored at home as a quick option.

In addition, RTD coffee is still a relatively immature category compared to other soft drinks categories, such as RTD tea and energy drinks, and therefore has much more potential for growth and development. Indeed, the leading players are expected to take advantage of the strong growth opportunities which will likely emerge during the post-COVID-19 period. As the Vietnamese economy rebounds and consumers become more willing to spend money on non-essential items this should encourage more people to buy RTD coffee, which could also find some appeal among tourists. Nonetheless, in actual terms, sales will still likely remain heavily restricted due to the strong competition that these products face from fresh coffee which is more affordable, more widely available and which is generally seen to be healthier and tastier.

Health and wellness expected to have a growing influence on new product development
Over the forecast period, it is likely that the burgeoning health and wellness trend will start to have a growing influence on RTD coffee. These products typically have a high sugar content and this could prove an obstacle to growth as increasing numbers of Vietnamese consumers start to pay more attention to their overall wellbeing, especially with regard to the amount of sugar they put into their body. Therefore, reduced sugar RTD coffee products are expected to be introduced into the market. In addition, cold brew RTD coffee could be launched in the market backed by the expansion of the convenience stores channel, with these outlets having chilled sections which would be capable of storing these products. Cold brew RTD coffee could appeal to those consumers who are seeking less sweet and more nuanced speciality coffee flavours.

Key players focus on product innovation to attract consumers’ interest
The demand for coffee in Vietnam is constantly increasing as consumers become increasingly sophisticated and look for a wider range of flavours and experiences. The growing competition being seen in RTD coffee has therefore led companies to prioritise product innovation as they look to stand out on retailers’ shelves. As such, during the forecast period, RTD coffee is anticipated to witness an increase in the introduction of new products looking to cater to the growing demand from consumers with more refined preferences. One potential strategy for RTD coffee brands to consider is offering flavours that are inspired by popular or trendy flavours found in speciality coffee shops. This could include unique options such as salt coffee, mint coffee, coconut coffee, and more.

Players are also likely to focus on the quality of the coffee beans used in their RTD coffee, as well as the packaging, as part of efforts to win the attention of consumers. However, with the average unit price of RTD coffee already being relatively high in comparison with other categories in soft drinks, it remains to be seen to what extent consumers will be prepared to pay extra for exotic flavours and other innovations.