The new faces of the Vietnamese consumer

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Powered by continued investments in its manufacturing sector, dynamic foreign direct investment, and rising productivity, Vietnam has been a consistent outperformer in Asia. GDP has increased at a compound annual rate of 5 percent in real terms over the past 20 years, which was 1.7 times faster than the global average.1 Even in 2020, when the COVID-19 pandemic was causing deep disruption in the global economy, Vietnam posted GDP growth of 2.9 percent.2

The country continues battling the resurgence of COVID-19 cases and navigating through this crisis. However, consumption is expected to expand and define the future as incomes rise. Swift demographic and technological changes will result in trailblazing consumer behaviors that offer new sources of growth to companies informed and agile enough to capture them. In this article, we focus on how these trends are shaping the future of Vietnamese consumers and what companies can do to win their hearts.

Vietnamese consumers enter the middle class and put midsize cities on the radar

Asia is the world’s consumption growth engine: miss Asia and you could miss half the global picture—a $10 trillion consumption growth opportunity over the next decade, according to recent McKinsey Global Institute research. Vietnam is well positioned to be a significant driver of the next chapter of Asia’s consumption story. Over the next decade, 36 million more consumers may join Vietnam’s consuming class, defined as consumers who spend at least $11 a day in purchasing power parity (PPP) terms.3 This is a major change. In 2000, less than 10 percent of Vietnam’s population were members of the consuming class, which has risen to 40 percent today. By 2030, this figure may be close to 75 percent (Exhibit 1). New consumption power is emerging not only from those who have entered the consuming class for the first time, but from the consuming class’s sharp rise within the income pyramid. The two highest tiers of the consuming class (those spending $30 or more per day) are growing the fastest and may account for 20 percent of Vietnam’s population by 2030.

Vietnam could add 36 million people to the consuming class in the next decade.

Urbanization is an important contributor to income growth. Vietnam’s urban population is projected to surge by 10 million over the next decade as the share of the country’s urban population rises from 37 percent in 2020 to 44 percent by 2030.4 Cities are likely to be Vietnam’s engine of growth, contributing roughly 90 percent of all consumption growth over the next decade.5 The story of Vietnam’s urbanization has often been centered around the populous cities of Hanoi and Ho Chi Minh City (HCMC), where each city is home to more than 10 million people and most of Vietnam’s middle class.6 However, our analysis finds that over the next decade, sources of urban consumption are likely to spread to smaller cities, including Can Tho, Da Nang, and Hai Phong, where the middle classes are set to grow.

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Five demographic shifts transforming the consuming class

Although the rising consuming class and urbanization are large drivers of Vietnam’s growth, a new chapter is being written that goes beyond scale and rising incomes. Significant demographic change and the penetration of digital technologies are likely to reinforce the diversity of Vietnam’s consumer markets, prompting sometimes surprising changes in consumer preferences and behavior. To thrive in Vietnam’s consumer markets, companies will have to consider trends that reflect the country’s evolving socioeconomic realities and those that will influence consumption: shrinking households, more spending by seniors, greater market participation by digital natives, economic empowerment of women, and wider geographic distribution of spending.

Households are getting smaller

Across Asia, households are shrinking. The size of the average Vietnamese household has decreased by around 20 percent over the past two decades, from 4.5 people per household in 1999 to 3.5 people per household in 2019.7 A large contributor of this change has been Vietnam’s declining total fertility rate, from 2.25 births per woman during the 1995–2000 period to an estimated 2.06 between 2015 and 2020.8 At the same time, new lifestyles and ways of working (especially as women make continued progress in economic empowerment) may lead to fewer multigenerational families living under one roof.

This trend toward smaller households is reinforced by urbanization, for two reasons. Firstly, the total fertility rate in cities is even lower than in the country as a whole; for instance, the fertility rate in HCMC was around 1.35 in 2020. Secondly, urban centers tend to attract young people who move away from their parents and extended families. If the experience of other Asian markets holds true in Vietnam, the declining size of households may lead to new types of demands, including smaller homes, increased ownership of pets, and new forms of entertainment.

Seniors are accounting for an increasing share of consumption

Vietnam remains a young country overall, with a median age of 32 in 2020. However, the number of people aged 60 and over is projected to increase by five million; seniors could account for more than 17 percent of Vietnam’s population by 2030. Spending by seniors is expected to triple in the next decade, growing at more than double the rate for the population as a whole during the same period. The expansion of relatively well-off seniors is likely to have significant impact on several sectors. For example, over the past decade, there has already been rapid growth of investments in healthcare. Local players, such as Vinmec, which runs hospitals, and Pharmacity, a retail pharmacy company founded in 2011, are growing rapidly. High-quality nursing homes are spreading, as well as assisted-living accommodations. Beyond healthcare, the housing market is seeing growth in real estate development that is increasingly focused on suburban areas where the air quality is better and there is more space for seniors and retirees.

Digital natives are becoming an increasing force in Vietnam’s consumption

So-called digital natives born between 1980 and 2012, including members of Generation Z and millennials, are expected to account for around 40 percent of Vietnam’s consumption by 2030. Members of this digitally savvy generation live online and on their mobiles. Almost 70 percent of Vietnam’s population in 2020 are internet users. Rapid digitization is changing the daily channels and communication methods used by Vietnamese people, particularly in e-commerce, where regional players, such as Shopee and Lazada, and local players, such as Tiki, are active.

The rapid emergence of digital consumers has fueled innovation in retail and purchasing behavior. For example, local social network Zalo is among the most used applications in Vietnam, with 52 million monthly active users, and has become a significant marketing channel. An estimated 55 percent of Vietnamese Gen Zers now use TikTok, driving intense competition, as evidenced in the launch of YouTube shorts and Instagram reels. Social commerce sites, such as Mio, and live-streaming platforms are reinventing consumption methods by creating new channels that attract new and often younger shoppers to a category or a brand.

These new behavioral trends have forced companies to rethink the allocation of their marketing budget. Marketers are realizing the increased importance and pervasiveness of online channels. In 2021, online ad spending is expected to hit almost $1 billion in Vietnam and to grow by about 22 percent a year until 2025.

Women’s economic empowerment presents a large opportunity

Vietnam has historically been ahead of other countries on women’s participation in the labor force. In 2019, Vietnam’s ratio of female-to-male labor-force participation was 88 percent, one of the highest in the world.9 Vietnamese consumers are accustomed to seeing female executives in leading roles at large Vietnamese companies, including PNJ, Sovico, Vinamilk, and Vingroup. Other forms of empowerment—including increased financial and digital inclusion, opportunities to raise skills and therefore transition into higher-income jobs, and a greater say in household purchasing decisions—could unleash even more female consumption. According to MGI research on the estimated GDP growth potential from narrowing gender gaps, women’s empowerment could add an additional $80 billion to Vietnam’s GDP in the period to 2030.

The rise of the small-city and suburban consumers

Consumption power has become more distributed over the past decade. While consumption had largely resided in the nation’s two major economic and financial hubs, Hanoi and HCMC, other cities are also developing into economic forces. In 2020, Hanoi and HCMC accounted for 37 percent of all Vietnamese households with income of more than $22,000 a year in 2011 PPP terms, but this share could drop to 31 percent in 2030 (Exhibit 2). Our analysis notes that growth in the number of middle-class households in smaller cities (and even rural areas) is outpacing those in Hanoi and HCMC—a compound annual rate of about 8 percent, compared with 5 percent.10 Moreover, the Mekong and Red River Deltas, densely populated but not fully urbanized, are becoming significant consumption pools, attracting the attention of consumer-goods companies and modern retailers.

Vietnam will likely have a more distributed consuming class in the next decade.

Behavioral shifts modernizing and diversifying the consumer environment

Beyond demographic shifts, Vietnam’s consumer markets are experiencing significant changes in behaviors as incomes rise and as innovation in business models and technology accelerates. Five shifts are notable: digitization’s impact on distribution channels, increasing use of consumer-facing ecosystems, a growing preference for domestic brands, greater interest in “conscious lifestyle” products, and a lessening of geographic differentiation.

New channel mix

In most consumer markets, traditional grocery stores are being replaced by modern stores, especially supermarkets and convenience stores (larger hypermarket formats are still present but growing less rapidly). But in Vietnam, beyond the traditional narrative of retail modernization, digitization is rapidly changing the way Vietnamese shop. As in several other Asian markets, leapfrogging in two arenas are under way. First, e-commerce is developing so rapidly that it is conceivably bypassing the usual development from traditional to modern store-based retail. By 2025, e-commerce in Vietnam could be almost as large as offline modern grocery retail.11 Second, traditional trade is digitizing rapidly too. Vietnam has more than 680,000 offline outlets selling basic food and fast-moving consumer goods (FCMG). Local players like Telio and Vinshop are offering digital ordering and digital payments options to these traditional food and FMCG outlets.

As those digital players gradually compete with traditional business-to-business (B2B) players such as wholesalers and cash-and-carry stores, traditional trade can become increasingly connected. The process could disintermediate traditional distributors and wholesalers, which could lead to greater efficiency.

A big convergence

Consumer demand is being reshaped by a “big convergence” in which digital ecosystems are aggregating many consumer needs and serving them with varying degrees of integration. At the most integrated end of the spectrum are super apps, which offer a one-stop digital shop for customers through multiple uses, functions and complementary services. As consumer-facing ecosystems have emerged and grown rapidly, players in consumer packaged goods (CPGs) and retail have had to rethink their stance on partnerships.

There is still headroom for growth in Vietnam’s digital ecosystems. In many economies around the world, the disruption associated with the COVID-19 pandemic accelerated digital adoption across categories, including in groceries, entertainment, digital healthcare, real estate, and education. This acceleration is evident in Vietnam. From online school classes to food ordering, Vietnamese consumers have increased the pace of their digital adoption and use. One study found that 41 percent of all digital consumers in Vietnam are new consumers, and 91 percent of these new consumers said they intend to continue their use of digital tools after the pandemic.

Greater preference for homegrown brands

Asian brands are maintaining a strong position in many consumer-facing categories across Asia, including in Vietnam. In FMCG, for instance, Asian brands increased revenue at 9 percent a year, compared with 5 percent for global non-Asian brands.12 Conventional wisdom has held that the emerging middle class in Asia tends to favor buying global (Western) brands, but this does not hold true—or at least not in every category. Local players have built successful brands in Vietnam, including VinFast in the automotive sector and Masan, Nutifood, and Vinamilk in FMCG. Local players have also been successful in modern retail. Foreign retailers were amongst the pioneers of modern trade in Vietnam, but most of the fastest-growing brands of retail chains today are local players, such as Bach Hoa Xanh, Coop Mart, and VinMart.

Conscious lifestyle choices

Consumer lifestyle and behaviors that take into consideration other people, the environment, and society are often associated with more developed economies. However, surveys suggest that many Vietnamese consumers are emulating this behavior. Reusable straws and mugs in coffee shops, tote bags at supermarkets, and eco-friendly fashion brands are now common sights in cities throughout Vietnam. In one consumer survey, 91 percent of Vietnamese respondents said they were aware of and were participating in a conscious lifestyle. In contrast, 86 percent of respondents in Indonesia, 73 percent in Thailand, and 75 percent in Malaysia said the same. Notably, 84 percent of Vietnamese respondents said they were willing to pay a premium for conscious-lifestyle products. This suggests potential for premiumization in the market.

Of course, what consumers say may not predict what they actually do. Indeed, there is ample evidence that willingness to pay premiums for eco-conscious products is not yet sufficient in most Asian markets. Nevertheless, Vietnamese consumers are clearly paying more attention to sustainability, social responsibility, and labor conditions, and many are willing to take action through their wallets.

Less emphasis on geographic differentiation, including the traditional north–south divide

Vietnam has a very distinct geography and history. It has two large cities of roughly equal size, separated by more than 1,100 kilometers. These cities are Vietnam’s largest consumption centers but have very different climates (and therefore different fashion) and histories, leading to significant variations in consumer behavior and preferences. Therefore, the traditional marketing approach was to deploy tailored communications to reach the specific preferences of customers in the north, south, and cities in between. Such large differences in the consumer landscape within Vietnam could be a hurdle for brands, especially those of players who are unfamiliar with local context.

Paradoxically, however, while Vietnamese consumers are segmenting and diversifying, cultural differentiation by geography appears to be diminishing. Domestic travel is increasing and connecting Vietnam more than ever before. The flight route from Hanoi to HCMC is the second busiest in the world, with close to a million seats. Consumers across the country’s regions are becoming more affluent. Digital media are harmonizing brand communication; brands that have established a regional stronghold are now capturing other regional markets. In short, different parts of the country and different types of consumers are converging.

A telling example of this convergence is the beer industry. In 2015, brands distributed nationally without a local stronghold had about 32 percent of economy-wide volume, with 37 percent for brands focused on the south, such as Saigon Beer, and 24 percent for northern or central-focused brands such as Hanoi Beer or Carlsberg’s portfolio. However, by 2020, the share of national brands had risen to about 40 percent, while the share of northern and central brands had declined.13 Thus, even as Vietnam’s consumer market is diversifying, geographical stereotypes about Vietnamese consumers could become obsolete.

Beyond income: Redrawing Asia’s consumer map

Beyond income: Redrawing Asia’s consumer map

Implications for companies wooing Vietnam’s consumers

Vietnam’s consumer markets are changing rapidly—diversifying, modernizing, and digitizing. Companies can find considerable momentum to tap into, but to position themselves in a way that can win the hearts and minds of Vietnamese consumers, they need to answer questions about which markets to enter, how to communicate with consumers, and how to maintain a combination of localization and agility.

Where to play?

Companies in Vietnam need to take a broader view of where to compete than sufficed in the past. Success today requires moving beyond the two-city approach and considering new channels in light of changing technology.

In more than two cities. Except in a few sectors such as high-end luxury, the era of focusing exclusively on Hanoi and HCMC is over. Competitive local consumer-facing industries are already pursuing rural consumers over a broad geographic area. Companies that have confined themselves to serving consumers in Vietnam’s two leading cities will need to broaden their approach. To reach around 50 percent of the population with incomes of more than $22,000 per year, companies typically need to plan distribution to the top 15 cities. Major retail players are seeking to capture new opportunities by investing not only in key cities but also in a broad swath of nonurban areas whose overall population is large (Exhibit 3).

Vietnam's modern retail has expanded rapidly beyond key cities.

In more than traditional channels. Companies in Vietnam also should take a flexible distribution approach to embrace the changes occurring in channel mix. Vietnam’s hybrid and fast-changing channel mix will pose challenges. Companies need to be agile in positioning themselves for a combination of a large share of fragmented traditional trade, a rapidly growing but still unpredictable online B2B sector, a constantly recomposing modern retail landscape, and relatively new e-commerce that is one of the fastest growing in Southeast Asia. In this context, competing in Vietnam requires not only the right strategy, but also capabilities in channel management, key account management, pricing, and promotions optimization.

How to communicate with Vietnam’s new consumers?

Businesses that succeed in Vietnam will have to upgrade their messages and channels of communication to reach today’s consumers. More often than not, this involves digital channels, as well as an awareness of new norms and values.

Double down on digital engagement. Vietnamese consumers across age groups and regions are digitally connected. While online retail is just taking off, marketing and brands will need to make full use of social media, user reviews, social commerce, live streams, and online ecosystems to gain early traction.

Build relatable brands with a conscience and, if possible, a local vibe. Vietnamese consumers are adopting the kind of conscious consumption that is more prevalent in economies further down their development path. To capture their attention and their wallet, companies may consider localizing brands that “fit” the new zeitgeist. Approaches that could make brands relatable include using icons and champions of local culture and designing products that focus on local heritage. To some extent, Asian (rather than Vietnamese) brand image and ambassadors have also sometimes proven suitable; some brands recruit Korean and Japanese ambassadors with a local audience. Importantly, adopting the norms and values of the modern, socially conscious consumer is a must.

How to operate?

Talent localization and agility have become critical. In the face of rapid change, companies in Vietnam will also likely need to reinvent their operating models around four axioms:

  • Recruit, train, and promote local talent. Talent management grows in importance as capabilities needed to compete become increasingly complex (for example, to digitize businesses).
  • Update the operating model. Shape an operating model that favors the speed of local innovation and personalization, in response to the fast development of Vietnamese consumers’ behavior.
  • Reallocate resources rapidly. As conditions in the market change, companies need to move resources rapidly between product lines or distribution channels.
  • Build the ability to enter cross-sector partnerships. In an increasingly interconnected world, such partnerships are likely to become a source of performance.

In short, beyond building an effective entry strategy, companies will need to double down on forming more robust Vietnamese organizations to compete successfully.

Vietnam’s dynamic consumer markets have had strong momentum for a while, and they are now becoming more complex. The consuming class is diversifying geographically, socially, demographically, and technologically. As consumers become more diverse and demanding, companies wishing to serve them will need to refine their strategy to take account not only of income levels, but also of new channels, strategy, marketing allocation, and behavior even within their established customer bases.

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