In the past decade, Vietnam has transformed from an agrarian into a modern economy. It is no doubt that the Vietnam's economy is fast growing. It recorded as the fastest growing economy in South East Asia and one of the fastest in the world in 2018.
According to Euromonitor, Vietnam is set to overtake Singapore to become the fifth largest ASEAN economy by 2030. It is currently the sixth largest economy of ASEAN. As the economy expands quickly, the disposable income of its people rises rapidly and the level of consumer spending increases.
It has a large domestic market and fast growing middle class. Its population is soon to reach 100 million. Overall, about 52% of household expenditure is spent on food and beverages.
The four urban cities recording the fastest growth in Vietnam are Ho Chi Minh, Hanoi, Da Nang and Can Tho. Middle class is especially fast-growing in these cities, which serves as a strong catalyst for increased consumer spending and retail growth.
The economy is not the only factor shaping growth of the FMCG market. Population change, particularly urbanisation and ageing, is also reshaping Vietnamese consumer lifestyles and purchasing decisions.
1) Vietnamese still purchase mostly from traditional trade. Modern trade is however growing rapidly
There is still a lot of room to grow for Vietnam's modern retail penetration. Traditional trade outlets, such as wet markets and grocery stores, are still one of the most popular channel for FMCG.
It is expected that modern retail penetration will grow rapidly as consumers become more affluent and traditional trade outlets lose standing with consumers due to hygiene and unknown source of products. Vietnam's modern retail penetration at 8 percent (comparing this regionally with Thailand’s at 47 percent).
Modern retail stores are emerging and majority are foreign owned. Ho Chi Minh City, in particular, has emerged as a particular area of focus for many retail players in Vietnam. Consolidation of key players in modern trade is also expected.
Convenience stores are also expanding outside of urban areas. The expansion of convenience stores helps in the sale of packaged food. For example, there are 1,188 outlets in 2018 as compared to only 708 outlets in 2015. Volume of food products sold in rural areas is growing.
2) Growing middle class will purchase healthier and better quality foods
There is a rapid expansion of middle-income consumer class in Vietnam. The middle class drives more than 50% of country’s total consumption. Its annual food consumption has grown at 9.68%, and it is expected to increase with growing demand for ready-to-eat foods.
In terms of geographical location, Southern Vietnam is wealthier than the North. This may impact market focus and strategies for FMCG players. One thing to note is that urbanisation has led to the change in consumer preferences, with less time for shopping and increased demand for convenient and easy-to-cook packaged fresh food.
There are efforts taken by the Government to increase trade including food. For food, the Government has entered into more agreements with EU and ASEAN making it easier to import and sell packaged food so there is lower prices than before. This will change the lifestyle of Vietnamese consumers as packaged food becomes more affordable.
3) More food manufacturers are expected to expand in Vietnam with incentives and preferential policies
There are tax incentives and preferential policies for food players investing in Vietnam. Ho Chi Minh alone is expected to experience 8.7% growth in the food processing industry in 2019. Various food processing market segments will also witness rapid growth as free trade agreement comes into force and bring about a wider consumer and investor market.
According to the Ministry of Industry and Trade Vietnam, food is one of the major area of focus in its development strategy, which will be incorporated into its Vietnam 2035 - Toward Prosperity, Creativity, Equity and Democracy Vision.
For the foodservice sector, international players currently dominate the market. International foodservice chains have greater trust in international packaged food brands, as they have the necessary certifications and documentation to prove product quality and country of origin.
Due to the increasing affluence in the country, local price-sensitive foodservice operators have been moving from sourcing their ingredients from local packaged food companies towards international brands. This is although local packaged food companies can supply ingredients at lower prices.
Vietnam is transitioning from socialist to capitalist. The economy is expected to grow at a robust pace. Consumer spending is set to soar on the back of the booming economy. The changing lifestyle of Vietnamese is expected to push the growth of the FMCG food market.
The only challenge for Vietnam is its rapidly ageing population. It is estimated that by 2020, the population between 50 and 69 will account for 20% of the total population. This figure is almost doubled as compared to 2010.
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References
Business Sweden, Vietnam Consumer Goods Point of View, https://www.business-sweden.se/contentassets/c53a2f46ff1441d4adbe1f0da140a5ad/vietnam-consumer-goods-point-of-view.pdf
Seavestor, Vietnam's Food Processing Industry: Promising for Foriegn Investors, https://www.seavestor.com/vietnams-food-processing-industry-a-promising-option-for-foreign-investors/, published 23 June 2019