A new law on drunk driving and fears about coronavirus have hit beer sales in Vietnam, but the impact on one of the fastest-growing markets in the world is unlikely to be long term.

Beer sales in the country in January reportedly dropped by a quarter after a drunk-driving ban came into effect in the new year. Experts believe that the high penalty for drunk driving, a fine of up to 40 million dong, or $1,725, and the coronavirus outbreak may keep customers away from restaurants and bars in the near term.

However, Asia's third-largest consumer of beer after China and Japan will continue to be the best bet for beer-makers seeking growth in the emerging market.

Beer comprises 91% of all alcohol consumed in the country. In 2018, Vietnam's beer consumption grew 7.1%, the biggest rise in demand among the top 10 consumers of beer in the world. The nation was No. 9 in the world in beer consumption that year, drinking 4.67 billion liters.

Analysts said the country's predominantly young demographic, economic growth and cultural preferences all point favorably toward robust growth over the next five years. Euromonitor International projected Vietnam's beer market to grow by $4 billion from 2019 to 2024.

"Beer is traditionally the main form of alcohol consumed in Vietnam for both social and business purposes. Strong projected growth in the Vietnamese beer market is expected to be driven by increased disposable income and a relatively young population," said Jarred Neubronner, a research analyst at Euromonitor.

Euromonitor estimated that disposable income in Vietnam would grow by 59% from 2019 to 2024, while 70% of Vietnam's population of 97 million is under 35.

Major brewers in Vietnam

Local brewers Sabeco, or Saigon Beer - Alcohol - Beverage Corp., a unit of Thai Beverage PCL, and Habeco together control 60% of market share in the country. With local brewers already dominating the low-cost beer market, foreign players are hoping to fill a demand for premium brews.

Global companies such as Heineken NV, Carlsberg A/S and Budweiser Brewing Co. APAC Ltd. view Southeast Asia, particularly Vietnam, as a key growth market.

Dutch brewer Heineken, which holds a 23% market share in the country, is looking to continue its double-digit growth in 2019 and cement its place as the second-largest brewer in Vietnam. The country accounted for 10% of Heineken's global sales and 3% of Carlsberg's sales, said Trevor Stirling, managing director for European beverages at Bernstein.

Budweiser Brewing APAC, which was spun off from Anheuser-Busch InBev SA in 2019, has singled out the country as a priority market and is looking to improve its small presence in the country. Media reports suggest that Budweiser is considering a partnership with the country's largest brewer, Sabeco, which holds a 40.9% market share.

Impact on Sabeco IPO

The impact of new regulations and the coronavirus outbreak on January sales could be a cause for concern for Sabeco, which already had felt a slowdown with sales falling 6% in the quarter ended Dec. 31, 2019.

The slowdown comes at a time when ThaiBev is considering an IPO for the beer unit.

While the dip in sales may not weigh heavily on the IPO plans, it will increase pressure on the company to "credibly explain to the market that it can still grow despite tougher regulations in place," said Ismael Pili, head of research at Ho Chi Minh City-based VinaCapital Fund Management JSC.

So far, Sabeco has shrugged off the initial sales slump as a knee-jerk reaction and said the drunk-driving law would have a limited impact given that its consumption channel mix is skewed toward off-trade, rather than direct-to-consumer sales.

However, any additional regulations could worsen the situation. Vietnam lawmakers failed to pass a bill to restrict the hours of alcohol sales, a regulation enacted in neighboring Thailand.

Analysts said the law is not a clampdown on alcohol consumption, like in Russia and Thailand, and sales would eventually recover and continue growing once consumer habits adjusted to the new law. It is reported that many bars already have started offering customers alternatives, including arranging for public transport to send customers home.

Data released by the General Statistics Office of Vietnam shows that beer production fell 4% year over year in January, compared to mostly high single-digit growth throughout 2019.

DBS analysts wrote in a research note that a 5% dip in total alcohol consumption in 2013 after a drunk-driving ban in the Philippines would be a good indicator on the potential impact of such a law in Vietnam. In 2018, beer consumption in the Philippines grew 8.8%, the most among the top 20 beer-drinking nations in the world.

"The big brewers are not likely to be put off by the short-term headwinds, as the long-term fundamentals remain very attractive," Bernstein's Stirling said.