COVID-19: Abnormal FMCG spend in Vietnam pre-lockdown
With the unexpected COVID-19 pandemic, Vietnam’s economic growth is slowing down at +3.82% in the 1st quarter of 2020. For consumers, the average price of a basket of consumer goods is increasing at +5.56% – the highest rate over the past 7 years.
The good news is that the battle against COVID-19 in Vietnam, has eased up, but it is not yet over. As its final impact on the economy and businesses is difficult to predict entirely, the expectation is that we will face challenges at least until July. As such, Vietnam’s full-year GDP growth is forecasted to be lower than expected, about +5% in 2020 according to Prime Minister.
Similar to China, the COVID-19 crisis will likely pivot through different phases as the situation develops. We need to understand the impact through each phase in order to respond, prepare, and predict the future.
This analysis will be focusing on the COVID-impacted period of the first 8 weeks ending 22 March (Feb+March) before the national social distancing order became effective on 1 April, which is defined as ‘pre-lockdown period’.
1. Continued behavioral changes potentially shaping new habits
At the first stage of pre-lockdown, Vietnamese consumers cut down spend in some areas such as out of home activities and luxury items, while they shifted their focus to staple needs including fresh foods and essential packaged consumer goods to survive during self-isolation time. We witness that consumer spend on FMCG, therefore, picks up strongly in the 1st quarter of 2020, hitting double-digit growth, which is mainly attributable to the abnormal spike over the first 8 weeks of COVID-19, especially in big cities. This indicates some degree of stock-up behavior among Vietnamese consumers since social distancing is increasingly reinforced to avoid exposure. While it may not be the same for all categories in FMCG, we can expect the market to return to its “single-digit growth” when the pandemic is over.
[COVID impact*: The first 8 weeks of COVID-19 – 8 weeks ending 22 March 2020 compared to an equivalent period of 8 weeks last year – 8 weeks ending 31 March 2019]
Behavioral changes have been observed among Vietnamese consumers, their response differs by region depending on the local nature. Thanks to the ongoing development of big retail formats, urban consumers make bigger shopping trips with more items to limit travel and contact, while in rural where traditional channels remain key, consumers make extra trips in order to pick up enough necessities to survive in this new way of life.
Moving towards the second stage, national lockdown will likely result in the further reduction of shopping frequency given restrictive shopping and transportation, conversely, the trip size might significantly increase. Will it be enough to compensate for the reduction? Let’s see.
Consumers focus on 4 key buckets of categories at this time with essentials, convenient foods, health-boosting and hygiene products, showing an increased preference. Besides health and hygiene products, the upsurge of cooking aids, snacks and meal replacements are demonstrating new habits potentially formed as a result of more time spent indoors. We will indeed spend more time and eat many more meals at home during lockdown periods, which will probably generate new routines and choices, and furthermore, influence future demands. It will be interesting to understand how consumers feel about their new routines and choices to be able to assess the potential impact in the coming months. Are these increases in purchasing simply purchasing brought forward, or will we see increases in consumption in the long term?
Noticeably, some areas of beauty care, particularly skincare segment, have sustained growth thanks to flextime under “stay home” campaigns. This trend is the opposite to what happened in developed countries like China and European markets where there are fewer personal care occasions because of working from home. It could be explained by the fact that makeup is still underdeveloped in Vietnam with its immature reach of one-fourth of Urban housewives. Hence, there is a small difference between usage whether people stay at home or go out to work. Yet, in the next phase of COVID-19, we may expect some impact on the beauty sector due to store closures and more limited product availability, as the country moves to quarantine and lockdown mode.
Beverages continue to struggle in March. Enjoyment drinks and sugary drinks are the most heavily affected categories amid the pandemic, such as beer, carbonated soft drinks and ready-to-drink tea. However, we start to see several actions taken from brands in order to rebound back. Embracing digital seems the most relevant and common way to deal with the situation. In China, indeed, we do see there was still one-third of consumers using delivery/ O2O (online to offline) services to order milk or herbal tea online during one month after the COVID-19 outbreak. Moving to online and offering doorstep delivery could be one step to turn things around or as least to help minimize the loss.
2. Channel dynamics to rethink retail strategy
With concerns of exposure battling against potential shortages of essential goods at home, we have seen an impact on the way people shop and thus, leading to changes in channel choices. Interestingly, all channels have been achieving double-digit growth, which has never seen over the past 7 years. It implies that the omnichannel shopping trend is more strengthened during the pandemic. Different channels serve different consumer needs, reflecting different shopping behaviors. For stock-up purpose, consumers go shopping at hypermarket, supermarket and emerging channels such as online and minimarket more frequently while making larger trips in traditional channels like street shops and wet markets.
Noticeably, by winning extra transactions, big modern formats (including hypermarket, supermarket and even cash & carry) and emerging formats outpace traditional trade during this uncertain time. In the context of COVID-19, listing a wide variety of categories, brands and pack sizes can help to attract shoppers to store, as they are confident that they can get everything they need when they are there including the availability of fresh foods – an important commodity for quarantine times. This becomes a key advantage of big retail formats, in turn driving the increase in footfall. Consumers currently visit hypermarkets and supermarkets more often than ever before, with a purchase on average made every 10 days over the last 4 weeks ending 22 March.
Moreover, COVID-19 pushes Vietnamese people to have new experiences. There is a significant number of consumers who haven’t shopped FMCG products online or at minimarkets before, now starting to make their first transactions. Consequently, both online shopping and minimart format reached a peak in terms of shopper base versus any historical 4-week period. Though these channels had already shown good progress in Vietnam recent years, it presents a chance for them to further expand if new shoppers enjoyed their experience. Understanding this and working to remove other existing barriers will be key for the continued development of these emerging channels after the crisis.
We witness that shopping behaviors are changing with various retailers benefitting from this. Big C, Bach Hoa Xanh and Mega Market are physical retailers managing to achieve an impressive surge during pre-lockdown. In terms of online shopping, incremental FMCG transactions came from both social commerce and ecommerce. Facebook - the most popular social media platform remains the most chosen platform for online FMCG purchases, followed by Shopee - the pure ecommerce player. Both of them recorded triple-digit growth.
While some of these changes and winners may be short-term, there will be many hoping to extend this opportunity into the long term, pointing to how we may behave in the next phases of COVID-19. The implications for FMCG players will be to re-think and develop growth strategies and partnerships with the key retailers in order to win the “new normal”.
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