Market Update: Expect more brand launches and innovation in Vietnam

Market Update is a monthly feature, in partnership with Nielsen, that provides a quick summary of key economic drivers and consumer trends in a specific Asia-Pacific market.

Vietnam has seen rapid growth in the past decade with urbanisation, higher disposable income, and increasingly discriminating shoppers. However, through 2012, growth failed to meet expectations.

Despite the slower growth, Vietnam’s double-digit FMCG volume growth remains the envy of many of its Asian, European and US counterparts. Vietnam’s growing middle class is fuelling spending. Many companies continue to see healthy growth rates, with much of this growth coming from increased investment and more tactical techniques to attract shoppers. For many manufacturers, their entry strategies into Vietnam are still in their infancy. Most companies can still look forward to a lot of growth that will be driven by geographic expansion and increased availability to all shoppers.

One cause of concern in Vietnam of the increasing use of price as a tool to attract shoppers. This approach is creating “promotional junkies”, threatening long-term profitable growth. The slower growth in 2012 exacerbated this issue.

In the coming year, however, increased innovation is anticipated as inflationary issues decrease and expansion comes back on to the agenda. Demand from Vietnamese shoppers exists, and companies focusing on innovation and strategic expansion can expect to enjoy strong gains. This expectation is based on five key trends.

1. Increased brand launches

Manufacturers significantly reduced new brand launches across a number of categories in 2012 compared to 2011 (see table below). As the government has been taking steps to reinstate business and consumer confidence, we expect to see increased innovation this year through more brand launches.

New brands as percentage of total brands available in market:

2. Expanding middle class

The middle class population is expected to increase from eight million in 2012 to 44 million by 2020, and consumption will reach US$310 billion in 2020, according to the OECD.

3. Changes in shopping behaviour

Consumers will adapt to economic pressures, with a continued transition towards modern trade and changes in shopping behaviour

• Consumer shopping frequency to supermarkets has reduced as the proportion of weekly shoppers declined from 64 per cent to 36 per cent in 2012.  Concurrently, the proportion of bi-weekly shoppers jumped from 39 per cent to 59 per cent in 2012.
• Consumers are buying more on promotion as they become more price conscious

4. Nesting and cocooning

The nesting and cocooning phenomenon has seen a growing trend in in-home dining and entertainment, driven to some extent by increasingly popular cooking shows and more product promotions catering to in-home dining and entertainment. In 2012, Vietnam saw triple-digit growth (in both value and volume) in ‘meal-maker’ products and more than 40 per cent growth in the canned beer category. 

5. Steady growth for luxury and premium goods

Luxury and premium goods to see steady growth. Average per capita income in Vietnam doubled in the past five years, and an estimated $10 billion worth of luxury products were imported last year. Looking ahead, there is much room for growth in the luxury category—many in the market for luxury goods items currently travel to nearby shopping hubs, such as Bangkok, Kuala Lumpur and Singapore, where goods are more affordable with wider selection. Over the next few years, local luxury goods purchases are expected to increase as infrastructure improves, the number of shopping destinations increases, and free trade agreements such as the Asian Economic Community come into effect.

Vaughan Ryan is managing director of Nielsen Vietnam. This article is the first in a monthly series from Nielsen that will example an Asia-Pacific market in detail.

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