Retail in Asia

In Telligence

Market watch: Vietnam’s growing middle-class to pave the way for consumer goods and other sectors to flourish

Vietnam market landscape

Amidst a challenging economic landscape, the Vietnamese economy has continued its upward trajectory, displaying remarkable resilience throughout 2023. According to recent estimates, Vietnam’s nominal GDP has reached an impressive USD437 billion, reflecting a growth rate of 5.05 percent. 

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A notable factor in Vietnam’s economic strength is the significant surge in foreign direct investment (FDI) witnessed in the country during the same period. This growth in foreign investment underscores the confidence international investors have in the country’s potential, particularly in sectors such as real estate and manufacturing.

As Vietnam’s economy continues to evolve and diversify, sustained efforts in infrastructure development, human capital investment, and regulatory improvements will be crucial for maintaining its growth momentum. 

Retail in Asia speaks to Warrick Cleine, chairman and CEO of KPMG in Vietnam and Cambodia, on Vietnam’s growth potential and what it could mean for the retail sector. 

Vietnam market landscape
Source: Shutterstock
Retail in Asia: Looking at the big picture, Vietnam has shown to be a rising destination for foreign direct investment. What sectors are set to benefit most from this?

Warrick Cleine: Vietnam’s manufacturing sector, [which contributes] 25 percent of the country’s gross domestic product, according to World Bank in 2023, has long been one of its key drivers of economic growth. 

With its abundant workforce, strategic location, and free trade agreements, it attracts investors in industries such as electronics, textiles and apparel, and automotive who are seeking to tap into the growing demand for goods in international markets. 

Vietnam’s growing energy needs and inadequate infrastructure provide opportunities for foreign investors. The country is focusing on renewable energy sources, such as solar and wind power, and seeks to invest in power plants and distribution infrastructure to meet the increasing demand

The healthcare sector is witnessing significant growth and development, driven by aging populations and increasing healthcare needs. Investment in healthcare infrastructure and expertise in pharmaceuticals, medical devices & technologies, and healthcare services can lead to improved access to quality healthcare.

Lastly, the middle class in Vietnam has been on the rise, spreading out geographically and growing increasingly diverse. It is also estimated that more than half of the Vietnamese population will enter the middle class by 2035, creating more disposable income and fueling consumption. This presents strong potential for consumer markets, healthcare, and financial services.

Retail in Asia: What key developments or shifts are influencing Vietnam’s retail landscape?
Inside Takashimaya in Ho Chi Minh City. Source: Shutterstock

Cleine: With rapid urbanisation and a growing population, cities are increasingly investing in modern shopping centers, mega-malls, and convenient retail hubs to cater to the evolving demands of consumers. These developments not only provide a modern shopping experience. 

E-commerce has gained significant traction in Vietnam, growing at CAGR 20 to 30 percent between 2020 to 2023, with online shopping becoming increasingly popular among consumers. The growth of e-commerce platforms has revolutionised the retail industry by providing convenience and access to a wide range of products. 

Consumers now expect seamless shopping experiences across multiple channels, including physical stores, e-commerce platforms, and mobile apps. Traditional retailers have adapted by offering online shopping options or partnering with online retail platforms, integrating digital elements into their operations to provide personalised recommendations, online ordering, and in-store pickup options. 

Environmental consciousness and sustainability are increasingly becoming priority for Vietnamese consumers. Many retailers are now focusing on reducing waste, promoting eco-friendly products, and adopting renewable energy solutions. By embracing sustainable practices, retailers can attract environmentally conscious consumers and gain a competitive edge in the market.

KMPG Vietnam & Cambodia CEO Warrick Cleine. Source: KPMG
Retail in Asia: What are the growth drivers for Vietnam’s consumer market?

Cleine: Vietnam’s rapid urbanisation and rising income level – 67 million people in working ages – are significant drivers of growth in the consumer market. 

With increasing population concentration in major cities, there is a growing demand for products and services that cater to urban lifestyles. This growth translates to more job opportunities and potentially higher wages, which could fuel disposable income growth. 

As Vietnam’s growing integration with the global economy and exposure to international influences have also had a significant impact on the consumer market, consumers are becoming more exposed to global trends and products, leading to increased sophistication and demand for foreign brands.

Apart from the rise of e-commerce and online retailing as mentioned above, the evolving consumer behaviour is another key driver of growth in Vietnam’s consumer market. As consumers become more discerning and value-conscious, they are looking for innovative, high-quality products and personalised experiences. They are embracing technological advancements, seeking convenience and seamless shopping experiences, and demanding more transparency from businesses.

Government policies and initiatives also played a significant role in fostering the growth of Vietnam’s consumer market. The country has implemented favourable policies to attract foreign investment, support local businesses, and promote infrastructure development.

Retail in Asia: Which retail sectors are dominating the market in Vietnam? What opportunities are available?
Source: Shutterstock

Cleine: Across the categories – F&B, fashion, beauty and pharmaceutical products – Vietnam consumers increasingly choose chained players, as they feel more confident in the quality and origins of the products. A growing urban population will also contribute to the expansion of chained players. 

In line with Vietnam’s middle class becoming larger, more widely dispersed, and wealthier, companies competing in Vietnam may want to adjust their value propositions to tap into the increased demand. 

While Vietnam’s luxury market is smaller compared to Japan and China, it holds immense potential. Luxury brands have entered Vietnam, recognising its growing demographic of high-income individuals, for example, Dior, Louis Vuitton, Tiffany & Co., have set up shop in Hanoi and Ho Chi Minh City.

Opportunities include targeting younger consumers and focusing on marketing strategies that resonate with young consumers, such as social media influencers and user-generated content, can tap into their purchasing power.

Brands can adapt their product offerings to cater to the preferences of local consumers while still maintaining their unique brand identity. Customisation and exclusivity, or offering personalised or limited-edition products, can create a sense of exclusivity and appeal to luxury consumers.

Leveraging e-commerce platforms and social media platforms to reach affluent consumers, who may be more inclined to shop online.

[And] sustainable practices – emphasising eco-friendly packaging, cruelty-free products, and ethical sourcing can appeal to eco-conscious consumers. Prioritising organic ingredients and healthier options can attract health-conscious consumers, especially in urban areas.

Retail in Asia: How do you view brick-and-mortar and e-commerce in terms of the opportunities and challenges in Vietnam’s current retail landscape?

Cleine: E-commerce provides retailers with the opportunity to expand their customer base beyond the confines of their physical stores. It also allows customers to shop anytime, anywhere. 

Customers can browse products, read reviews, and make purchases from the comfort of their own homes or while on the go. This convenience has become particularly crucial in today’s fast-paced world, as customers increasingly prioritise convenience and instant gratification.

With lower overhead expenses such as rent, utilities, and staffing, online retailers can potentially achieve higher profit margins. Additionally, e-commerce merchants can avoid costs associated with physical inventory, as they can fulfill orders directly from a centralized warehouse.

Online platforms provide retailers with a wealth of data that can be used to gain valuable insights into customer behaviour and preferences, such as demographics, browsing patterns, and purchase history. This data-driven approach allows retailers to tailor their marketing strategies and personalise the customer experience, leading to increased loyalty and satisfaction.

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In terms of challenges, despite the rise of e-commerce, brick-and-mortar stores still offer certain advantages that cannot be replicated online. The presence of knowledgeable staff can also enhance customer trust and confidence in products. Moreover, brick-and-mortar stores can leverage physical locations for the management of returns, customer services, personalised recommendations, and customer loyalty programs.