by HOÀNG PHI 12/09/2021, 03:26

Why does Sabeco "burn money" on Ads?

After a stormy 2020 with headwinds from the Decree 100/2019/ND-CP and COVID-19 pandemic, it seemed that 2021 would continue to be a bad year for Sabeco when this pandemic is more serious. However, with the right strategy, Sabeco has grown again.

Sabeco has spent about VND6.88 billion per day on advertising activities.

Sabeco's 1H 2021 consolidated financial statement shows that its total advertising and promotion budget was fixed at VND 1,246.4 billion, accounting for 64% of total sales expenses. It means Sabeco spent about VND6.88 billion per day on advertising activities.

A bleak future 

In early 2020, Sabeco saw a terrible pain for Vietnam alcoholic beverage industry when it suffered a double blow from Decree 100/2019 on maximum alcohol concentration when participating in the traffic and the outbreak of the COVID-19 pandemic.

The above blow has made the demand for alcohol beverage consumption drop considerably. A report by the Vietnam Alcohol- Beer and Beverage Association (VBA) shows, in 2020, many beer and alcohol businesses reduced their output by 50%, and some restaurants saw a drop in customers by up to 80% compared to 2019.

This is an unexpected "leg loss", because over the 2016 – 2019 period, the alcoholic beverage industry strongly developed with annual production growth of 5.8% on average, of which 10.5% in 2019, but - 5.1% in 2020.

From an industry seen as the king of other ones in Vietnam, the alcoholic beverage industry has faced a bleak future. It is seen in the revenue and profit of companies in this industry.

In the first 9 months of 2020, Sabeco recorded nearly VND 20,100 billion in revenue, down 28.7%, and VND 3,403 billion in after-tax profit, down 20% over the same period of 2019. Hanoi Beer- Alcohol- Beverage Corporation (Habeco) was even more miserable with a loss of VND 98.3 billion in 1Q 2020.

In such a situation, there were rumors that Thai billionaires with over 53% of shares in Sabeco would sell their shares at Sabeco to Chinese investors. However, compared to their investment of USD 5 billion in 2017, it now dropped to less than USD 2 billion.

With many difficulties of the alcoholic beverage industry in general and Sabeco in particular, the Governmental authorities searched for ways to untangle this industry, but no convincing measures have been issued.

Expenses cut to invest in Ads

In fact, the marketing budget cut could be the easiest as compared to wages cut or costs cut to keep factories running when businesses deal with any crisis. However, a report published in a marketing research magazine showed that companies without any marketing budget cut would bounce back the most from the crisis. Because only new products promotion can help businesses grow again. The reduction in advertising costs could hinder businesses from surviving, excluding the risk of being forgotten by customers.

Despite many difficulties and challenges that Sabeco has faced, it has no marketing budget cut. Reacting very quickly to a double hit, this company temporarily closed some breweries and reduced the size of the rest; reduced electricity and water consumption, and prioritized maintenance and repair; while postponing expansion projects and unimportant investment projects. These measures helped Sabeco reduce operation costs and get more capital for new product research, sales channel conversion, and sales promotion.

Specifically, Sabeco transferred employees from on-site sales (restaurants) to take-out sales channels such as grocery stores and supermarkets and increased spending on advertising and promotions. And like other beer manufacturers, Sabeco has promoted its non-alcoholic beer- Sagota with the slogan "Undrunk beer, keep driving!".

The above strategy can be seen in Sabeco’s financial statements: Its administrative expenses decreased by 24.2% over the same period in 2020, to VND 267.4 billion in 1H 2021. Meanwhile, sales expenses increased by 43.6% over the same period last year, to more than VND 1,945.3 billion.

These measures have helped Sabeco contain the business recession and started growing again in 1Q and 2Q 2020 as well as in 1Q and 2Q 2021.

However, the 3rd and 4th waves of the COVID-19 epidemic caused Sabeco's growth to slow down. It matters that if this epidemic has developed for a long time, will Sabeco's current strategy be enough to help it maintain the current growth?