After a slow start, Vietnam ended 2017 with GDP growth at 6.8%, higher than the government's initial target of 6.7%. Growth was evident across a number of industries despite setbacks in areas such as severe droughts impacting farming; increasing production costs in mining and export uncertainties with the US withdrawal from the Trans Pacific Partnership (TPP) trade agreement.
Foreign investment in manufacturing has been key to Vietnam’s growth this year. Thanks to low costs, abundant young labour and easily navigated permit processes, investors from South Korea, Singapore, Japan and Taiwan have been building factories to produce goods such as electronics and apparel. In 2017, registered foreign direct investment increased 44% year-on-year to US$29.68 billion.
The service sector also saw significant growth as a result of increasing tourism and a number of government initiatives such as the delay of proposed tax increases to assist local businesses and the lowering of lending interest rates to assist Vietnamese companies that rely heavily on bank loans.
This positive economic environment is reflected in Vietnamese consumers’ confidence, with all measures job prospects; state of personal finances and being a good time to buy, higher than 2016.
In Vietnam’s urban retail environment, sales increased by 5% in 2017. However, there has been some volatility in the industry, putting pressure on organizations to drive profitability and find sustainable growth. Beverage, Food and Cigarette categories are the main drivers of FMCG sales growth. Rural regions continue to represent a potential source of growth for many manufacturers. Despite being more susceptible to fluctuations, rural areas recorded higher growth than urban areas. While Traditional Trade and Wet markets still account for nearly 83% of all FMCG sales, small format Modern Trade stores are expanding rapidly. A number of home-grown companies are gaining strong momentum, competing with multinationals to thrive in Vietnam’s competitive retail environment especially in secondary cities and rural regions.
While Vietnam’s economic growth is expected to thrive in 2018 and consumer optimism is high, the FMCG industry growth relies on how fast companies embrace the market changes from inside out. The amazing speed of change in consumer behavior, technology deployment, business models, etc. continues proving that only fast fish can be the winners. Numerous opportunities still can be found if companies invest their time and resources in understanding consumers’ changing behaviors, expectations, desires and evolving needs and by ensuring they implement the right strategy for specific regions and trade channels.