Spotlight on Vietnam Market Landscape: Q1 2018
With GDP growth of 7.4% in Q1 2018, Vietnam’s economy recorded its strongest quarterly performance in a decade and is well on track to exceed the government’s annual target of 6.7%. Growth was fuelled by strong sector performances from services, agriculture, forestry and fisheries, industry, and construction. Within the service sector, tourism remained the key pillar of growth, up 30% year-on-year in Q1, while retail trade recorded steady growth of 10.5%.
Consumer confidence soared 9 points to 124 this quarter on the back of increased positivity about job prospects and the state of personal finances. Consumers also feel that it is a good time to spend, especially on ”big ticket” items such as travel and appliances. However, positive sentiment did not lead to strong FMCG sales, with the market up just 1.8% in Q1. Food, Beverage and Cigarette categories continued to drive FMCG sales growth. On the back of rapid store expansion, the Modern Trade channel grew 10.7%, easily outperforming Traditional Trade, which was up 2.4%.
Vietnam’s FMCG performance in first quarter is usually strong due to the Tet holiday period and Tet sales in Q1 last year were at record levels. But this year growth was slower than expected, possibly due to changing consumer behaviour toward the holiday. There are indications that consumers are looking to enjoy a simpler Tet experience. Manufacturers can either take that change as an inevitable impact on their business or seek opportunities for new and innovative ”whitespace” from which they can tailor their product offerings to ensure they stay relevant to consumers.
Across retail channels, although Traditional Trade including “wet markets” still dominates in Vietnam, Modern Trade has gained impressive momentum. Since 2012, the number of convenience stores has nearly quadrupled and Minimarts comprised the most store openings in both 2016 and 2017. Health and beauty and modern drug stores have also expanded quickly, doubling in the past two years. Modern retailers will look to continue to expand and invest in improving their stores to attract more shoppers. The future outlook of small-format modern stores is very optimistic as the growth of the Modern Trade channel is set to further accelerate. However, it will no longer be a one-size-fits-all Modern Trade strategy. The channel playbook has to be looked into at a much deeper level to reflect the diversity in shopper missions and to build efficient in-store strategies.
2018 should be a year of innovation and new launches as consumer behaviour continues to evolve. The winners will be the companies that persistently invest in better understanding of evolving desires and needs and in ensuring execution excellence.
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