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Staying in the game

02/03/2018

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The FMCG market continues to perform strongly in Vietnam but fine-tuning will always be required.

The FMCG market continues to perform strongly in Vietnam but fine-tuning will always be required.

In the context of improved economic indicators, the fast-moving consumer goods (FMCG) market performed better in both Urban 4 cities (Ho Chi Minh City, Hanoi, Da Nang, and Can Tho) and Rural in 2017. While the Urban market retained its momentum, Rural recovered slowly but is not stable just yet. As forecast, both the Urban and Rural FMCG markets posted growth of 5-6 per cent last year and this is expected to rise to 6-7 per cent this year.

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The beverage sector remained the driver of market growth. Together with the impressive performance of beer, which continuously posts double-digit growth, we are seeing recoveries in certain beverage categories, such as soya milk, carbonated soft drinks, and energy drinks. They have put more effort into regaining buyers with several activities and promotions, mostly driven by category leaders across the year. In addition, we also witnessed the development of hygiene products and personal care items in both Urban and Rural. This shows that Vietnamese people are paying more attention to their living areas as well as their individual needs. Paper products such as box tissues, toilet tissue, or household cleaners have expanded their consumer base. Consumers are more hygiene conscious and heading towards a healthier lifestyle. Earning more money, people also tend to focus more on themselves and their personal needs become more complex and sophisticated. In skincare routines, for instance, they adopt more additional steps such as make-up removing, deep cleansing, or deep moistening. This provides an opportunity for beauty care products such as cosmetic remover, cleansing oil, or masks.

In the meantime, the dairy sector is stagnant and the competition is fiercer than ever, especially in the kid’s segment. This market is struggling to innovate and identify additional consumption. Within packaged foods, necessities such as cooking oil and fish sauce are suffering from consumption declines. This could indicate a change in cooking habits and the manner of eating and drinking. However, snacking categories that bring people enjoyment have sustained healthy growth and still have headroom for further expansion by capturing the ongoing trend of self-indulgence.

Within the greater performance of the FMCG market, 2017 was a strong year for modern trade, which increased more than 10 per cent. Modern shopping channels - both big and small formats - are now growing ahead of traditional trade. Foreign investors eye Vietnam as one of the most attractive emerging retail markets. As a result, a range of M&A deals among “giant” retailers have taken place and more investment is pouring into the retail industry. The retail market will become more dynamic from this but the battle to win will be fierce. Today’s shoppers prefer to shop in different types of stores. Some have moved from traditional stores to modern formats, and a few from bricks-and-mortar stores to online platforms or even to new hybrid formats. We need to be ready and accessible to meet new shoppers.

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Prospects in 2018

Vietnamese consumers keep changing, and at a faster pace! We continue seeing changes in their thoughts, perceptions, and shopping behavior. As such, current brands and products could find themselves obsolete and off the shelf if they don’t adapt and evolve too. Moving quickly to understand and capture these changes is essential for any business to grow sustainably. Here are some key trends we can expect in 2018.

Above all, health and well-being are always priorities of consumers. But health, today, is the new wealth in the eyes of many Vietnamese consumers, and well-being is more likely to be seen as a sign of status than being rich. A greater proportion of Vietnamese people identified being physically fit and in good health as a sign of success as opposed to being wealthy. On the other hand, the rising level of food scandals and environmental pollution issues force people to care more about their own and their family’s health. They actually turn it into action by doing exercise more regularly or choosing healthier food options with additional nutrients. Furthermore, to protect the living environment, we see more shoppers buying hygiene and cleaning products, which enjoyed outstanding growth throughout last year.

Secondly, as we witness the emergence of the middle class with improvements in living standards, people are more willing to spend on personal needs and self-pampering. The need for indulgence keeps rising, especially in Urban areas, and this is reflected in how people allocate their spending. A recent expenditure survey by Kantar Worldpanel revealed that Urban consumers spend more on entertainment, eating and drinking out, and holidays and travel. They are also upgrading consumption in indulgent products, for example make-up and beauty items, beer, biscuits, or snacks and nuts, which bring more pleasure and enjoyment into their daily lives.

Convenience continues to evolve. For some Vietnamese consumers, time becomes more precious than money and people gradually accept paying more for convenient options, to simplify their lives. That’s why the top recruiters of 2017 were products offering convenience, such as rice soup, liquid detergent, and bottle water. The more a society develops, the more often consumers seek convenience and speed. If you can make life easier for consumers, they will come to you. Not only in product choices, being easy to stop by and easy to navigate are also key criteria when consumers choose a place to shop (nearly 80 per cent of total Urban shoppers agree, according to Kantar Worldpanel’s Lifestyle Survey). Therefore, street shops (medium-sized shops in the Urban 4 cities and small-sized shops in Rural), which boast proximity, still hold major power in Vietnam’s retail landscape. Smaller modern shopping formats like minimarkets and convenience stores are also enjoying rapid development and gaining shoppers’ preference thanks to meeting the need for on-demand convenience.

Moreover, convenience stores that operate 24/7 have created a new space for different shopper profiles with different shopping missions and increasingly attract younger people. These stores compete not only with street shops, hypermarkets and supermarkets, but also coffee shops and fast-food chains; which we can expect to reshape the future of modern trade. Right now, the question is what is the right direction for this channel: a well-connected hang-out place, a service provider, or a shop?

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The next potential trend is the accelerating growth of hypermarkets and supermarkets (H&S). 2017 was a good year for modern trade development in general and H&S in particular in Vietnam. Many new international chains entered or were looking to set up shops in the country, especially now that Vietnam, in line with free trade agreements, has made it easier for wholly foreign-invested business to open. Vietnam has been seeing a lot of M&A deals in the retail sector and this promises to continue heating up the retail market. This also means that H&S will have plenty of space for further growth by innovating in the long run. In order to win over more shopping occasions from traditional trade to their stores, H&S need to leverage their growth by improving their own competitive advantages and offering more in-store services and a better shopping experience to increase customer satisfaction.

Lastly, the evolution of technology and modern devices have impacted on how people live, how they are exposed and influenced, and how they interact with each other and shop between offline and online. Mobile digital consumers - those who access the internet predominantly through their smartphones - matter to FMCG brands for two very important reasons. Firstly, they represent the majority of FMCG spending, and they have higher household spending power than those who are not mobile consumers, a study by Kantar Worldpanel revealed. Secondly, they offer the opportunity to develop engagement models that can have a profound influence on their behavior as shoppers. Hence, mobile digital consumers are the shoppers that FMCG brands and retailers must influence and influence through a smartphone.

Coupled with that, increasing internet access and smartphone ownership is driving more online purchases. Vietnamese consumers are becoming more familiar with e-commerce platforms, but the share of their spending on FMCG online remains small. If e-commerce platforms and FMCG brands can develop propositions and incentives to increase online shopper frequency and return rates, we are likely to see rapid growth in online’s total share of FMCG spending. And the growth of e-commerce could drive the transformation of the FMCG retail landscape. Interestingly, the “Navigating the Future of FMCG in Asia” report from Kantar Worldpanel reveals that growth in e-commerce not only comes from channel switching (from offline to online) but also from new shopping occasions that could only have happened online. This indicates that e-commerce will not replace bricks-and-mortar stores, at least in the next few years, but it will impact on the future path-to-purchase of new shoppers, called “omni-channel shoppers”, who prefer to have a multi-channel shopping experience. Thus, being ready to meet them where they are, whether it’s in a virtual or physical space, is now more important than ever.

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Moving forward to 2018 and beyond, what lies ahead is still challenging, but with challenges come opportunities. On one side, it will be about reaching Rural consumers through traditional media and small-sized street shops, especially in deep Rural areas, which represents a huge consumer base that still remains untapped. On the other side, it will be about reaching millennials in Urban areas, with their emerging individual needs, through different types of media, including digital and through traditional and emerging channels like convenience stores and e-commerce, which are continuing to make a mark. The winners will be those who can foresee the future trends and meet consumers’ fast-changing needs.

In the next decade, current consumerism trends will prevail and further develop, not only in Urban but also in Rural in Vietnam. Let’s stay focused on the key trends to profit the most from them.

Get in touch

David Anjoubault

General Manager - Kantar Worldpanel Vietnam

 

+84-28 3930 6631

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