Next steps for the consumer market

An Hodgson, head of Income and Expenditure Research at global business intelligence provider and leading market analysts Euromonitor  International, explores  the opportunities that both retailers and consumer-focused businesses in Vietnam have to offer.

Since 1990, Vietnam’s GDP per capita growth has been one of the fastest in the world. Currently ranked as the sixth-largest economy in the ASEAN, Vietnam is set to overtake Singapore to become the fifth-largest by 2030. Clearly, rapid ­economic growth has brought about an expanding middle class with rising incomes, which in turn boosts ­consumer demand.

By 2030, one in two ­Vietnamese households will have an annual disposable ­income between $5,000 and $15,000, an expansion from the current one in three.

Robust economic growth, however, is not the only factor that generates and shapes opportunities in Vietnam. Other factors are also at play including ­population change, technology, environmental shifts and pressures, and changing consumer values.

Demographic shifts such as urbanisation, higher life expectancy, falling birth rates, and the increasing population of elderly people are all combining to shape Vietnamese consumer lifestyles and purchasing ­decisions.

By 2030, over half of the Vietnamese population will still be rural, ­although this is a significant drop from the current 65 per cent thanks to rapid urbanisation. Some 12 per cent of the population will be aged 65 and over.

Technology is another key factor shaping Vietnam’s consumer market. The rate of smartphone penetration is set to reach over 95 per cent of Vietnamese households in 2030.

Technology plays a pivotal role in consumer ­decision-making as well as creating upheavals in ­consumer expectations. It also changes the ability of businesses to meet the needs of consumers, and to connect and relate with them.

Environmental issues and challenges such as ­climate change, resource ­insecurity, pollution, and waste are all becoming ­increasingly acute and ­emotive, making consumers – especially younger generations – change their ­consumption habits towards greener living and greater sustainability.

This year, some 70 per cent of ­Vietnamese respondents to Euromonitor International’s global lifestyle survey stated that they are worried about climate change, and try to have a positive impact on the environment through their everyday actions.

In addition, changing ­values are also shaping the consumer market and ­generating opportunities in Vietnam. According to the aforementioned survey, 70 per cent of Vietnamese respondents stated that they seek a way of life that is built around simplicity, experiences, and betterment.

This is indicative of an ­attitudinal shift away from the accumulation of material goods, which requires ­companies to rethink and adapt their business models to focus more on access rather than ownership.

Key areas of opportunities

Understanding the factors that shape Vietnam’s ­consumer market provides clarity to the formulation of long-term business strategy, as it allows local companies to pinpoint opportunities, innovate, disrupt before competitors, and stay relevant in today’s environment of fast-paced change and evolving consumer values and preferences.

Going forward, opportunities in the Vietnamese consumer market, shaped and generated by the above-mentioned five socio-economic factors or drivers, are expected to come from three key areas: middle-class expansion, urbanisation, and population ageing.

Vietnam’s middle class, now consisting of 10 million households, is growing fast and expected to reach 17 million households by 2030. Vietnamese middle-class consumers increasingly prioritise experiences over material possessions, and demand more choices and more tiers so they can trade up (and down) easily, whilst being more willing to pay a premium for products and services that are deemed to be healthier or of a better quality.

Whilst online shopping is not yet prevalent in Vietnam and faces stiff competition with traditional brick and mortar stores, middle-class consumers are connected, well informed, and are therefore enthusiastically embracing e-commerce and mobile payment.

Furthermore, their purchasing decisions are increasingly framed by ethics, moral values, health awareness, and environmental concerns. Insights such as these help businesses understand who their consumers are, what they want and need, and how best to win them over.

Urbanisation, with the associated concentration of income, wealth, and population, allows for greater experimentation, engagement, and commercial success. Vietnamese cities, though mostly small except for Hanoi and Ho Chi Minh City, are expanding rapidly. In 2030, the 10 largest cities will account for 43 per cent of urban population and 35 per cent of the country’s total consumer expenditure.

Changing population

Like elsewhere, Vietnamese urban households generally enjoy higher ­purchasing power and are easier to reach, an important point to note in a country where implementing an ­effective nationwide distribution network is challenging.

As well as generating greater consumer demand and spending, urbanisation brings about opportunities through the transition to smaller households and new consumption trends, such as rising demand for convenient, time-saving solutions.

The Vietnamese population is ageing rapidly, even though the country still has a relatively youthful population with a median age of 31.7 years. Over the 50-year period to 2030, the population aged 65 and over is set to rise by 354 per cent, nearly four times as fast as total population growth.

Population ageing creates many opportunities for businesses who understand this long-term demographic shift, particularly since gaps exist between the products and services that are ­currently available in ­Vietnam, and those older consumers actually want and need.

To successfully capture this growing consumer ­segment, which by the way is expected to enjoy the fastest-growing disposable income of all age groups, brands and retailers need to look beyond age branding and focus more on needs, interests, and value.

It is also important to note that value is not all about a “nice” price, but is also related to intangibles such as quality, consumer experience, convenience, authenticity, and novelty.

Looking ahead, there is no reason to believe Vietnam will not continue to enjoy ­robust economic growth and rising incomes. Between 2019 and 2030, the country’s real GDP is set to expand by 91.4 per cent.

Huge commercial success awaits those brands and marketers who understand the dynamics of socio-­economic factors beyond the booming economy in ­generating opportunities in Vietnam.