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In flux

Released at: 09:07, 11/02/2018

In flux

Photo: Viet Tuan

Vietnam’s FMCG market has exhibited a host of fluctuations over the last two years and manufacturers and retailers must take note.

by Ms. Nguyen Huong Quynh / Managing Director of Nielsen Vietnam

The upcoming Lunar New Year (Tet) holiday is for people to celebrate the festive season and enjoy a wonderful time with family and friends. It’s also a great opportunity for many businesses, as it’s important to be present in consumers’ minds during the season and convert this into a bolder bottom line. According to Nielsen Retail Measurement Data, many fast-moving consumer goods (FMCG) categories enjoy significant peaks during the Lunar New Year period. All super categories, for instance, witnessed positive growth during Tet last year and three out of six super categories - Food, Home Care, and Personal Care - experienced double-digit growth. The reasons are not hard to identify. From inside every house to the glamorously decorated streets outside is the resounding noise of firecrackers, drums, lion dances, and children wishing their grandparents longevity. This bustling atmosphere induces a change in consumers’ mentality, making their consumption and purchase behavior different from their daily behavior. More importantly, giving gifts is a special and common practice. Based on these insights, we predict that Tet 2018 will be another great time for manufacturers and retailers to push sales and gain market share. 

Consumer confidence improves

Despite the continued rise of GDP in 2017 and optimistic results in the consumer confidence index, Vietnam’s FMCG market has fluctuated over the last two years. Volatility reflected in super categories puts many local and international companies and organizations under pressure and challenges them to make sound decisions to fully seize market growth opportunities and drive profitability.

On the heels of improving consumer confidence, Vietnam’s GDP grew 7.5 per cent in the third quarter of last year. This momentum was enhanced by consumers’ optimistic perceptions of their personal finances along with their willingness to spend. Growth in FMCG bounced back nationwide in the quarter after experiencing a dip in the second quarter, with growth in FMCG reaching 6.4 per cent versus a year prior, primarily from an increase of 5.8 per cent in volume growth.  

According to Nielsen Retail Measurement Data, when looking deeper into the six super FMCG categories nationwide, beverages enjoyed a significant increase and the highest growth, of 8.5 per cent, led by a 6.4 per cent rise in volume. Cigarettes also saw positive growth in the quarter, of 5.9 per cent. Other super categories, however, fared less well and some exhibited stagnancy.
Rural regions continue to be a potential source of growth for many manufacturers. While urban areas saw moderate growth of 4.7 per cent in the quarter year-on-year, rural areas recorded more substantial growth, of up to 7.6 per cent, mainly led by 7.4 per cent volume growth, and contributed 54 per cent to total FMCG sales.  

Local brands continue to grow

Nielsen conducted an analysis in 2016 of the Top 100 FMCG players in Asia-Pacific that represent approximately 85 per cent of FMCG. We looked into four super categories: Food, Beverages, Household, and Personal. Alcohol and Tobacco were excluded. The Local vs. Global report revealed that while multinational companies (MNCs) saw stagnancy, with an increase of 2 per cent value growth versus 5 per cent in 2014, local players in Vietnam recorded growth of 7 per cent in value compared to 5 per cent two years ago. 

In general, local brands compete with global players on quality, often with more competitive pricing and more targeted marketing. They often have a strong presence on the ground and a sustained distribution network that ensures their products are readily available to all consumers, not just in the top tier cities but also in secondary cities and regions where consumption is accelerating. 

Rural continues to attract attention

Source: Nielsen Retail Measurement Data

In an increasingly global world, the battle of the brands comes down to understanding consumers’ evolving needs, behavior, lifestyles, and tastes. Any brand, be it local or global, that is able to tap into these consumer preferences will be best-placed to win the hearts and minds of consumers in the future. Furthermore, in the digital world, where brands are available via online channels and perceptions around quality, freshness, and trust are firmly rooted in globally produced products, local brands will need to increase their efforts in manufacturing, distribution, and promotion to compete with their global counterparts.

In Vietnam, the battleground for consumer goods has never been less challenging. The prestige of global brands appears to have lost some gloss in certain categories. Overall, though, they are still winning on the ground. The key reason for this is that global brands have been successfully able to leverage their scale and expertise, research and development capabilities, and strong brand equity to provide high-quality and innovative products to local markets around the world.

However, when penetrating into Vietnam, especially in rural regions, distribution may remain a daunting task. Traditional trade channels are still where most sales are taking place in rural areas. Thus, store segmentation, or “where to focus”, is what businesses should pursue whenever thinking about expanding to this new potential market, as getting products to each and every store is almost impossible. As the rural community in Vietnam continues to evolve, transform, and take center stage as a key group for businesses, understanding who they really are, where, how, and what they are buying and their most effective touch points are prerequisites for future success. 

Upcoming prospects 

Overall, FMCG growth is expected to remain stable in the region in 2018. While some markets have felt the effects of local uncertainties, most have continued to perform well and offered plenty of opportunities, especially Vietnam, Taiwan, and India. The trump card for retail in Asia-Pacific is the vast opportunity within its own borders. This is a region with burgeoning population growth, a predominantly young workforce, improving living standards in developing markets, and a growing consumer desire to spend.

In Vietnam, the build-up and positive sentiment towards seasonal periods, including summer and Tet, will be key drivers of FMCG growth. This momentum is also enhanced by consumers’ willingness to spend. Rural importance has been visibly increasing over years, requiring manufacturers capture the emerging trends in this promising market. Beverages, including beer, will continue to dominate FMCG sales in the coming years. 

Vietnam has the fastest-growing aspiring middle class in Southeast Asia. According to a Boston Consulting Group report, it will grow 12.9 per cent per annum during the 2012-2020 period. It is also expanding geographically, with new provincial pockets of affluence beyond the key and traditional centers of Hanoi and Ho Chi Minh City. Vietnamese towns are now full of IT-savvy, brand-conscious shoppers egged on by sophisticated marketing techniques. Therefore, alongside consumer goods, middle class and aspiring middle class parents are investing heavily in their children’s education, with proficiency in English seen as indispensable in climbing the social ladder. There is also an appetite for more sophisticated financial services. These are all areas of considerable opportunities for education. 

But an aging population is just around the corner. In just 20 years, beginning from 2017, the proportion of Vietnamese over 65 will double from 7 per cent to 14 per cent. Therefore, it’s important to keep an eye on longer-term consumer needs, and catering for these needs will present economic, social, and cultural opportunities and challenges for Vietnam, most notably in healthcare, pharmaceuticals, and financial services.


Source: Nielsen Retail Index - Versus year ago; % is value contribution to Total FMCG MAT TY

Offline channels still dominate FMCG sales

E-commerce is big business and getting bigger every day because shoppers around the globe are increasingly turning to the web to buy the products and services they need. Retail e-commerce sales in Vietnam will total some $3.26 billion by 2020, constituting around 1.5 per cent of all retail sales, eMarketer estimates.  

Vietnam’s e-commerce landscape has evolved strongly over the last five years as part of the evolution of Vietnamese consumers and the retail landscape. The rate at which consumer behavior and attitudes are evolving is just as rapid. Asian consumers in general and Vietnamese consumers in particular are some of the most connected in the world. And as internet and mobile infrastructure improves and penetration increases exponentially across the region, Asia’s hyper-connected consumers are engaging with brands in a totally new way. Unfettered access to information on brands and products is giving way to a new ecosystem of e-commerce, online and mobile payments, social media, location services, shopping tools, and manufacturer and retailer websites. Many of these consumers have only recently joined the fast-growing middle class, and they are leapfrogging traditional shopping and media channels to engage directly with brands and products on digital platforms that go far beyond those in developed markets. 

Who’s seeing growth?

Nielsen Analysis: % Share 52 w/e Q3 2016 | % Value Growth 52 w/e Q3 2016 vs Q3 2014, Vietnam; Quarter By Number Q2, 2017

This evolving consumer behavior definitively affects traditional and modern trade, but these channels aren’t going to disappear or be replaced by e-commerce in the mid-term. What we can expect is an evolution of the omni-channel retail channel, with combination and interaction across channels and platforms serving different shopping missions and needs. The physical store concept needs to evolve to embrace the digital environment as a new way of connecting and interacting with consumers. These small-format stores will continue to be an important part of the daily life of Vietnamese consumers. Modern trade will continue to grow and attract more consumers with more added-value services and e-commerce will be a new channel that is complementary with the others.

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