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Buying revolution

Released at: 22:16, 11/02/2018

Buying revolution

Photo: Viet Tuan

The latest IFM survey reveals a changing landscape in Vietnam’s retail sector.

by Mr. Ralf Matthaes / Managing Director, Infocus Mekong

As we approach the Tet festivities in mid-February it’s time to look back at what was hot in 2017 in terms of consumer trends and what Tet 2018’s spending and purchasing behavior has in store. As we do every year, Infocus Mekong (IFM) conducted a post 2017 - Pre-Tet survey nationwide of 2,040 Vietnamese to provide insight into consumer behavior in the country. 

Buoyant Consumer Confidence

Consumers nationwide are fairly buoyant and optimistic about the upcoming Year of the Dog. The IFM consumer confidence index, conducted since 2011, indicated a six point increase from last year to 92 index points out of a possible 110. This is the highest confidence index for eight years, driven by Vietnam’s economic growth of 6+ per cent, lower interest rates, an overall positive jobs market, and low inflation. Thus, 2018 should again show steady growth similar to last year, unless outside factors impact on Vietnam’s now globally-intertwined economy. 

Change in brand perceptions 

A brand’s country of origin still holds value in Vietnam, even in today’s more brand-savvy market place. Just seven years ago, one-third of consumers believed a brand name was more important than the brand’s country of origin. Today, with many brand scares and food safety and hygiene issues, brand origin is more important than ever, with three-quarters agreeing that country of origin is more important than brand. Not every country benefits from this, however, as we know that both Chinese and Cambodian brands are typically not well received by Vietnamese consumers. 

Overall, Vietnamese brands have made huge strides forward over the last decade, with 60 per cent of consumers preferring local brands and believing them to be of the same standard as international brands, largely driven by names such as Vinamilk, Viettel, and FPT. However, this mostly depends on the category. Typically, the more expensive a category is, the more the appeal for foreign brands, while a preference for local food is driven by a spate of recent food hygiene issues. 

Millennial despondency 

Over the course of the year, many of our clients focused their research needs on Vietnam’s emerging economic power, trying to better understand the thinking and behavior of millennials (those born between 1978 and 2000). This strong focus was predicated on the fact that these millennials, or NetViet’s, comprise 38 per cent of the population and are truly the first genuine digital-savvy consumers in Vietnam and have cash to splash. 

IFM consumer confidence index

Source: General Statistics Office, 2017

What’s most interesting about NetViet’s is not their penchant for all things digital, such as Facebook, YouTube, and smartphone ownership, but rather what their fears and reservations are and how they view the future. One would think that this group, who have never experienced war, hunger, or major economic crisis, would be a happy lot. Overall, they are, but there is a strong level of despondency within their ranks. Overall, NetViet’s seem to believe that they have missed out on a lot of previously available opportunities and have strong reservations about the future. Key concerns include not achieving career goals and not being able to provide for their families. Interestingly, almost one-quarter don’t see any real future opportunity at all and have resigned themselves to their lot, with women feeling much more resolute about this. Though seemingly dire, it affords opportunities for brands to connect with consumers on a different level, such as bringing them hope and inspiration, and, above all, helping in terms of educating and informing consumer know-how; something to take note of for 2018. 

Growth in online markets

One of the fastest-growing sectors in Vietnam is the retail sector, with spending estimated at over $100 billion in 2017. Historically, retailing has been split into modern trade (convenience stores, hypermarkets and supermarkets) and general trade (Ma & Pa stores, general stores, etc.). However, with the huge growth of e-commerce in Vietnam, we now see a new retail trade sector emerging: online retailing. With 62 million internet users and 46 million smartphone owners, it’s not surprising that e-commerce is growing at 30 per cent plus each year and stands to reach $10 billion in sales two years from now. Add the fact that pricing on average is 10 per cent or more cheaper and the availability of products and categories increases daily, and e-commerce is shifting not only what people purchase but, more importantly, where and how they purchase now and in the future. 2017 saw e-commerce make up 4-5 per cent of the total retail market in Vietnam. 

E-commerce sales (est.)

Source: IFM, 2017

Add to this new services such as marketoi.com, which does the shopping for you, and while store visits may not decline purchasing certainly will, as consumers look for products in-store and then buy online at cheaper prices. If your brand is considered an impulse purchase, such as gum or candy, beware: your sales will fall soon. So, retailers take note: a huge shift is emerging in Vietnam, changing category dynamics forever. 

Growth of personal debt 

For the past three years IFM has been tracking the percentage of the population who take out loans on an annual basis. In 2015, we were alarmed to discover that one-quarter of those surveyed (over 6,000 people) had taken out at least one loan from a bank. Fast forward to 2017, and this increased to 32 per cent of those surveyed, representing almost one-third of Vietnam’s adult population. Needless to say, banks will be popping the champagne corks as consumers borrow and live beyond their means in an effort to keep pace with Vietnam and the “Nguyen’s” next door. Key purposes for loans include personal goods (42 per cent of respondents), real estate (35 per cent) and business (34 per cent), with education and car loans making up the balance. 

Private debt

Source: IFM, 2017

Though great, for consumer-based companies, this borrowing boom may have major negative impacts on both consumers and Vietnam in the longer term. Overall confidence is falsely secured at the moment, because interest rates are still fairly low, in Vietnamese terms, and the global economy is on a continued seven to ten year-long upswing, since the sub-prime disaster a decade ago, and foreign direct investment (FDI) continues to soar ($35.8 billion in 2017). In contrast, we know that global economic cycles are typically around ten years in length and we know that interest rates may or even will rise, thus reducing FDI inflows and potentially curbing spending. If and when this occurs, with so many consumers having borrowed cheap money, the cost of their loans will increase and eat into their spending, driving a wedge in Vietnam’s economic growth.

Overall, 2017 was a very positive year for Vietnam, largely driven by manufacturing, retail, healthcare, and education spending. However, on the downside, much of this spend was done with borrowed money, and now that Vietnam is genuinely part of the global economy, it is also more at risk of global influences.

Tet Spending Boom 

Consumers seem to be voting with their wallets, with 53 per cent saying they will spend more on Tet this year than last year, while only 12 per cent said they will spend less. Half of respondents said they will spend under 50 per cent of their salary on Tet, while the other half will spend more than 50 per cent. Overall, a great Tet for most companies in Vietnam is anticipated. 

Tet purchases

Source: IFM, 2017

Tet Winners

From a category perspective, alcohol is the clear winner during Tet in terms of spending upswing, followed by confectionary.

2018 tet travel plans

Source: IFM, 2017

As for industries, travel will see the greatest benefit. Seventy-six per cent of the population will travel from their current address to their hometown or travel domestically or overseas on holidays. Of these, 4 per cent plan to travel overseas, with Singapore and Thailand combined making up more than half of all overseas travel plans, followed by Japan, Hong Kong, Malaysia, and China.

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