Vietnam is in primetime of its demographic dividend, with a large and young population that has been driving the consuming class in recent years. According to McKinsey & Company, the consuming class is expected to welcome 36 million more people by 2030, indicating more disposable income and consumption power in the years to come.

However, as we entered 2023, Vietnam is facing headwinds that may impact consumer spending behaviour. The country’s manufacturing sector continues to suffer a decline in production orders from foreign export countries, leading to layoffs and reduced incomes. Combined with rising prices that happened as soon as Q4 of 2021, these economic factors are exerting direct and indirect impact on consumers’ ability to spend as well as changing the way they buy and consume in 2023.

In the face of inflation, shoppers employ various mechanisms to cope with the rising costs of living. On the other hand, the modern consumers have become smarter, more sophisticated, and more purposeful in their spending. They are ready to invest in products and services that offer them extra value or improve their lives. The brands that can capture the consumers’ hearts and wallets are the ones that can adapt to the changing preferences of the discerning consumers.

Key Economic Indicators and Insights

According to the General Statistics Office (GSO), Vietnam's GDP grew by 4.14% in the second quarter of 2023, outpacing the 3.28% expansion in the first quarter. This growth was primarily driven by the service sector, while trade experienced a slowdown, indicating potential challenges. Retail sales of goods and services in the 2^nd quarter 2023 recorded an 8.8% increase compared to the same period last year, accompanied by a cooldown in consumer price change. However, to achieve the target of 6.5% GDP growth by year-end, Vietnam will need to achieve an 8.9% GDP growth in the remaining six months of 2023, which is not an easy feat.

Consumer Sentiment: Shifting Concerns in Uncertain Times

Vietnamese consumers, traditionally optimistic, have been affected by recent downturns such as layoffs and income reductions. Concerns regarding household income and job security have become more pronounced, which add on to the worries about rising prices. These mounting financial pressures and uncertainties have prompted consumers to adopt more selective shopping behaviours.

Under the impacts of the economic slowdown, there has been a staggering growth in number of households struggling financially compared the pre-Covid period. As a result, more than half of families intend to reduce their spending on out-of-home activities such as eating out and entertainment while the essential categories such as food and personal care are less vulnerable, suggesting more moments will be spent at home.

Analysis of FMCG spending over the past three months reveals distinct behaviours among different consumer groups. The comfortable segment continues to spend 10% more compared to the same period last year, while the struggling segment maintains their spending levels. FMCG prices have increased by an average of 5%, indicating volume stagnation among the managing group and a decline among the struggling group.

Polarisation in Consumer spending – Key Factors

Under financial pressure, shoppers are employing various strategies to save costs, while still willing to invest on priorities that offer extra values to their modern lifestyle. What are consumers’ cost-saving strategies and what are they willing to splurge on?

1. Prioritizing the Essentials:

The number of buyers, also known as penetration, is a critical metric in evaluating the development and relevancy of any category or brand.

Approximately 40% of FMCG categories have experienced a decline in penetration over the past 12 months, affecting both small and large categories. Some large categories face buyer loss while many small and medium-sized categories have the potential to recruit more buyers.

This highlights the significance of product relevancy and emphasizes the need for all brands to focus on building relevancy during these challenging times

2. Downtrading - Consumers Shift to Lower Priced Products:

Among various factors contributing to market growth, such as promotional offers, increased store visits, and volume uplifts, the two key factors that are particularly important during this time are inflation and product mix. Inflation has been a significant driver in FMCG spend growth, while product mix trends mostly towards lower-priced choices. This behaviour is particularly evident in rural areas, where income levels are lower.

Moreover, downtrading, previously observed mainly in homecare categories, has now expanded to baby products, food, and personal care.  As downtrading becomes more prevalent, brands should focus on providing value for money through their products. This can be achieved by offering affordable options and promotion schemes, emphasizing cost-saving benefits, and communicating the value proposition effectively. By addressing consumers' concerns about rising costs and offering budget-friendly alternatives, brands can retain buyers and build loyalty.

3. Bigger Trip Size: A Budget Management Strategy

Another budget management strategy employed by consumers is buying more per trip. Compared to 2021, the year of stocking up, approximately 64% of FMCG categories have seen an increase in trip size.  This trend can be achieved through the purchase of larger packs or multi-pack offers, observed in both food and non-food sectors. Saving benefits play a key role, especially when savings are strongly emphasized on packages, in stores, and on e-commerce platforms. 

4. Promotion Seeking: Impact on Shopping Choices:

Consumers are not only comparing prices of different products but also seeking the best deals from various stores. This behavior translates into shopping choices, resulting in a 30% increase in products purchased under promotions in the period of March – May 2023. 

However, it is important to note that not all promotions are effective. Some categories experience a decline despite increased promotional efforts, while others manage to grow without a push in promotions. Understanding consumer preferences and reactions to different promotional strategies will help brands plan more efficiently.

5. Health and Wellness: A Key Consumer Focus

One area where consumers are willing to spend more on is products that deliver health and wellness benefits. Health remains a top concern for consumers, with a heightened focus following the pandemic.

Worldpanel Vietnam's annual Managing my Health survey indicates that consumers are becoming increasingly concerned about a wide range of health issues, from hair, teeth, and skin problems to more serious conditions like diabetes and high blood fat levels. Brands that can help address specific health and wellbeing concerns have a greater chance of winning consumer choice.

6. The Rise of In-home Indulgence:

Consumers have embraced more in-home experiences due to changes brought about by Covid-19. With hybrid working and studying becoming more prevalent, people are spending more time at home. In the beverage sector for example, in-home occasions have increased, now accounting for 63% of total non-alcoholic beverage consumption.

Home delivery and delegation services have become more convenient and widely available, creating more opportunities for FMCG products to be delivered to and consumed without leaving the house. This trend presents opportunities and challenges for brands to cater to consumers’ preferences to spend more time at home.

7. The Me Needs - Individualised Consumer Preferences

Driven by younger consumer groups, individualised consumer preferences have gained traction. For instance, the needs for sophisticated and personalised products are observed through an increase in the number of beauty steps adopted by families, with an average of 7.5 beauty categories per family. Similarly, consumers are trying a wider variety of beverages, and families are purchasing more products that offer advanced benefits in established categories like toothpaste and hair care. This indicates that each family member has their own preferences and choices.  

While short-term challenges may impact category and brand growth, brands and retailers that offer consumers convenience benefits and help them feel more beautiful, happier, cared for, will gain their favour in the long run. 

Brand Loyalty and Emerging Competition from Small Players

As a result of evolving habits and a wider range of avaialble options, Vietnamese consumers demonstrate lower brand loyalty and freely change their shopping patterns to optimise their purchase repertoire. This lack of loyalty is particularly prominent in the southern region, where new brands and stores first enter the market. Additionally, small brands have shown high growth performance, posing a potential threat to established brands.

In the context of inflation, small brands are prevailing across countries, from Europe to Asia. They are growing in categories that they traditionally had less of a foothold, such as food, dairy and home care.  

Gaining momentum across most FMCG sectors, small and local brands will continue to be a formidable force in the coming years as consumers are become more open to trying new brands and looking for low-cost alternatives. The challenge for bigger or global brands lies in localisation and compelling value proposition to justify the price points and stay relevant.

The Importance of Consumer Insights in Challenging Times

Developing actionable plans requires consumer insights and a holistic understanding of the factors driving consumer purchase behaviorus. Brands must identify their unique value proposition, focus on category development, break habits of current category shoppers, and emphasize premiumisation to justify a higher price.

In uncertain times, challenges and opportunities coexist. Our global Brand Footprint 2023 report indicates that 88% of brands that grew did so by increasing penetration, emphasising the importance of this metric for brand growth particularly in inflationary times. By understanding consumer behavior, leveraging insights, and tailoring growth strategies to their specific situations, brands can navigate uncertainties and position themselves for success in Vietnam's evolving market.

If you have any questions about your brand's penetration and how to further grow in times of challenges, our team is here to assist you.

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This report is a special publication in Kantar’s Brand Footprint 2023 series, a study that annually assesses the performance of the most chosen brands globally and across different markets. To see the most chosen brands in Vietnam in 2023, click here. To access the Global Brand Footprint 2023 report and Brand Rankings, visit Kantar's global Brand Footprint site.