FINDING THE NEEDLE IN VIETNAM’S TRADITIONAL TRADE HAYSTACK: WHERE TO FOCUS – THE SHOPPER OR THE RETAILER?
With more than 1.3 million traditional trade stores in Vietnam, getting products into stores and in front of the consumer can be a big challenge for manufacturers. In fact, until recently, many manufacturers had shifted their focus away from the traditional trade channel in Vietnam, opting instead to set their sights on the expanding modern trade format.
Last year, however, traditional trade in Vietnam grew faster than modern trade for the first time in the last decade. Today, traditional trade accounts for more than 85% of sales in the fast moving consumer goods (FMCG) sector, representing nearly $USD 10 billion. This trend has manufacturers taking a step back to once again review the opportunity that lies in the vast and fragmented traditional trade channel.
The reality for most manufacturers is that servicing 1.3 million outlets in Vietnam’s traditional trade channel is not realistic. Even large manufacturers with extensive sales teams only service approximately 30% of outlets directly. Given the complexity in navigating the dynamics of the traditional trade environment and the fact that consumers don’t typically even enter traditional trade outlets (instead opting to rely on the shopkeeper), a number of companies have shifted their focus to understanding how the consumer shops this channel to drive sales in traditional trade.
But understanding which stores to focus on is paramount for manufacturers. Why? A recent Nielsen study found that 30% of the stores account for approximately 80% of the total FMCG sales in Vietnam. Given that consumers plan 95% of their traditional trade purchases before they enter the store, manufacturers need to focus on consumers’ needs and what motivates them well before the shopping trip starts.
When it comes to decision influencing, however, retailers play a critical role. That’s because two out of three shoppers will ultimately buy a product because of a retailer’s recommendation. Outside of family and friends, the retailer is a key source of information when it comes to deciding what to buy.
Another unique aspect of Vietnamese shopper behavior is speed of purchase. The shopping experience in traditional trade is fast! In fact, the average transaction takes a mere 90 seconds. Consumers spend the first 10 seconds ordering and the last 20 seconds paying. That leaves one minute of idle time that consumers commonly use to check their mobile phones. This is where the opportunity lies. It’s also a prime window for partnerships between manufacturers and retailers to create engaging interactions with consumers. For example, retailers could use the time to inform shoppers about current in-store promotions, upsell programs and free product samples. Manufacturers and retailers could also deploy innovative digital marketing strategies like small screen ads to engage shoppers.
Manufacturers have traditionally used promotions in an attempt to grab consumers’ attention at point of sale. Nielsen’s recent study, however, found that only 2% of consumers recognise promotions when coming to traditional trade stores, and just 1% of retailers recommend promotions to shoppers when they visit stores. This may sound like an insurmountable obstacle for manufacturers, but it actually represents a huge opportunity to train and educate retailers on the power they hold in influencing shopper experiences and their overall basket sizes. When manufacturers execute promotions poorly, they lose money—or spend it without getting a return. However if they focus on educating retailers to maximise the shopping basket potential when consumers are in store, retailers and manufacturers alike would thrive.
In most cases, shopkeepers are also store owners. Consequently, upselling and increasing consumers’ overall basket size is beneficial to them as well as to manufacturers. Across the retail world, store owners’ primary objective is to increase the number of shoppers while maximizing their basket sizes. In traditional trade stores, many retailers have typically taken a passive role waiting for shoppers to order products. But there is immense opportunity whereby manufacturers can educate retailers about their important role in influencing product selection and overall store profitability.
In Vietnam, Nielsen’s study found that on average, 8% of products go out of stock every day of the year. This equates to a loss in manufacturers’ sales of more than $USD 500 million. In addition, only 10% of retailers offer an alternative when a shopper asks for a brand or product that is out of stock. This results in a loss for both the retailer and the manufacturer, as money is essentially walking right out the door.
The study also found that only 10% of retailers speak about new items when shoppers are in store. It also found that retailers don’t widely utilize cross-selling opportunities, representing another area where manufacturers can share best practices on the impact that cross selling can have on the bottom line. Understanding consumers is critical to succeeding in any market, but it’s even more important in the highly competitive traditional trade market of Vietnam. That’s why tight relationships between manufacturers and retailers will be a factor in who succeeds into the future.
Knowing the stores that matter is critical to navigating a fragmented landscape, and manufacturers that work collaboratively with retailers to maximise consumer engagement will help both parties prosper. Success in the future means taking a step back to basics: insure that your product is available in the right stores; make sure it’s visible; and make both retailers and shoppers know about the impact your products can have on their lives.
* We welcome the opportunity to continue the conversation with you and your team on understanding retailers as well as consumers in Vietnam, engaging them and identifying opportunities to win in this fast-growing market. We look forward to continuing our dialogue to growing your business. If you have any queries for the study, please contact our Client Service representatives or email us at [email protected]. For more English-language insights from the Asia-Pacific market overall, visit our regional site.