Vietnam Country Profile

Market Overview:

Euromonitor reports that the Vietnamese economy slowed in 2016 but still grew impressively. Real Gross Domestic Product (GDP) grew by 6.2% in 2016 after gains of 6.7% in 2015. Growth of 6.2% is also forecast for 2017. Gains in exports supported by depreciation of the dong along with steady growth of private final consumption and strong gains in manufacturing are the main drivers. The government also plans to introduce a number of market-friendly reforms. Severe drought curbed agricultural growth in the first half of 2016 but this effect has waned in the second half of the year. Annual growth will average about 6% per year through 2020.

The real value of private final consumption rose by 6.5% in 2015 and gains of 4.9% were forecast for 2016. A youthful population, higher off-farm employment and improved consumer confidence are the main drivers. Presently, just over a third of all Vietnamese firms are integrated into export-oriented production networks, compared with nearly 60% in Malaysia and Thailand. If this gap is closed, exports should rise accordingly. In the longer term, rapidly rising public debt is a concern. Some version of fiscal consolidation will eventually be required.

Recent trade deals will play an important role in the longer term. For example, economists calculate the membership in the Trans Pacific Partnership (TPP) could add as much as much as 8% to GDP over the next 20 years. Inflows of Foreign Direct Investment (FDI) will also be important but improvements in productivity – particularly in the state-owned sector – will be required. The quality of Vietnam’s infrastructure is another constraint. Public investment is being channeled into roads, ports and power generation facilities. A US$33 billion rail link between Hanoi and Ho Chi Minh City is also under development. Finally, 11 power plant projects are planned. In all, the government estimates that investment of US$170 billion will be required during the remainder of this decade.

Total population was 94.4 million in 2016, an increase of 14.2 million since 2000. The country’s median age has been steadily rising over time. It was 30.8 years in 2016 and it will reach 37.1 years in 2030. Vietnam has experienced a remarkable drop in fertility rates. In 1980, the rate was 5 children per woman but by 2016 it had fallen to just 2 children per female – slightly below replacement level and well below the regional average. Demographers believe a number of factors have contributed to the decline. These include Vietnam’s exceptionally high rate of workforce participation for females, the country’s rapid rural-to-urban migration, and significant improvements in education and family planning policies. The country is also undergoing a gradual ageing process but it is not so pronounced as in other countries such as China, Japan or Singapore. Nevertheless, the number of elderly is growing and this upward trend will clearly continue in the near future.

U.S. exports of agricultural products grew 20% to almost US$2.7 billion in 2016 and moved up to the 9th largest market for agricultural products from the U.S. Vietnam is also the 2nd largest U.S. export market in Southeast Asia after Indonesia. Of that amount, 30.2% or US$808 million were in the consumer ready category, an increase of 7% from 2015. Vietnam is also a major importer of U.S. processed foods, totaling US$484.5 million in 2016, and a decline of 10% from the prior year. Top 2016 processed food exports to Vietnam included food preparations, processed/prepared dairy products, prepared/preserved seafood, non-alcoholic beverages, distilled spirits and other alcoholic beverages, syrups and sweeteners and processed fruit.

The Government has recently concluded negotiations for Free Trade Agreements (FTAs) with many important trading partners, including ASEAN and AEC, ASEAN-China, ASEAN-Korea, ASEAN-Japan, ASEAN-New Zealand-Australia, and ASEAN-India. Through these efforts, Vietnam has pledged not just to lower import tariffs and eliminate quotas, but also to increase market access for goods and services, strengthen IPR protection, enhance legislative and regulatory transparency, and improve its commercial dispute settlement and trade facilitation processes.  

Along with 10 other nations (The U.S. now excluded), Vietnam is also a signatory of the TPP, and as a member of ASEAN now a partner in the Asian Economic Community, AEC, which integrates economic integration with member states even further.  

Retail Sector:

According to Euromonitor, retail sales in the packaged food market in Vietnam had been estimated to reach US$10.3 billion in 2016. That represents a period growth rate of 51.4% or over US$3.5 billion since 2012. The forecast for growth in this market is also promising. By the year 2021, the retail sales in the packaged food market in Vietnam is expected to reach over US$15.7 billion, a period growth rate of 40.3% or over US$4.5 billion. High growth products in the forecast include breakfast cereals, ready meals, ice cream and frozen desserts, dairy products, sweet biscuits snack bars and fruit snacks, savory snacks and rice pasta and noodles.

Euromonitor reports that during 2015 and 2016, convenience stores continued to show an impressive performance, with strong value growth in line with the expansion of outlet networks in big cities such as Ho Chi Minh and Hanoi. As convenience stores are a channel which targets the young population, most convenience stores are located nearby high schools and universities. In order to attract the attention of consumers, convenience store players constantly expand the ranges of products in categories in which the young generation show high interest such as ice cream, snacks and fast food.

In addition, convenience store players are also renovating outlets, installing more seating, which attracts younger consumers. High numbers of high school and university students like to visit convenience stores to buy food and drinks and then eat and drink their purchases on the premises and the popularity of this practice continues to increase as the prices of food and drinks in convenience stores are generally much lower than in consumer food service outlet. As a result, the leading players in convenience stores had solid foundations for extending their outlet network in 2016. This, combined with the rising demand for retail outlets which are within 24 hours per day, seven days per week led to convenience stores achieving the fastest value growth rates in grocery retailers in 2016.

2016 saw grocery retailers register current value growth of 7%, which was slightly slower than the growth recorded in in 2015. Although growth rates have been slowing down in grocery retailers for some years now, channel managed to maintain strong value growth in 2016 and this was mainly due to the continuously slower rates of value growth being registered in traditional grocery retailers, a channel which accounted for 95% of grocery retailers value sales in 2016. As this trend suggests, sales in grocery retailers are shifting away from traditional grocery retailers and towards modern grocery retailers.

With disposable incomes rising and the performance of the Vietnamese economy improving, consumers are allowing themselves to trade up to higher quality brands and products, including luxury goods. Moreover, time is becoming as valuable as money as life becomes busier for many Vietnamese households. Furthermore, as more women enter the workplace, the need for greater convenience and complementary products and services is being triggered. Thus, price is becoming a less important consideration in terms of the purchase decisions of Vietnamese consumers. Meanwhile, product availability, product quality, convenient outlet location and width of product assortment all play equally important roles in the in-store product selection process.

In 2016, hypermarkets witnessed double-digit current value growth, with sales rising by 16%, while supermarkets recorded slower current value growth of 8% during the year. In general, modern grocery retailers’ channels, particularly hypermarkets and supermarkets, have established better positions and generating stronger performances in term of value sales growth than traditional grocery retailers. Although value growth rates in hypermarkets and supermarkets continue to slow down, 2016 was a key year for the development of modern grocery retailers in Vietnam.

Due to the emergence of busier lifestyles and increasingly long working hours, more consumers are becoming familiar with making large weekly shopping trips to purchase all of the groceries they need for the entire week, instead of the more traditional practice of shopping daily. In addition, with more spacious and comfortable shopping environments and a more abundant variety of products, hypermarkets and supermarkets are increasingly often preferred over traditional grocery retailers. On the other hand, in line with the recently signed free-trade agreements between Vietnam and several other countries, the government of Vietnam has granted wholly foreign-invested businesses greater access to the country. For this reason, many of the country’s new international grocery retailer’s chains benefited from the more favorable environment for establishing new outlets in country in the last few years.

Saigon Union of Trading Cooperatives continued to lead grocery retailer in 2016 with 2% of value sales. With the advantage of having been one of the very first local pioneers in modern grocery retailers, Saigon Union of Trading Cooperatives has a very deep understanding of consumer needs and consumer behavior. Furthermore, the company has been increasing its nationwide distribution coverage. In 2016, the brand launched new outlets to increase its outlet coverage, scattering these new outlets all around the country. In addition, Saigon Union of Trading Cooperatives also operates in the most channels of any grocery retailer in the country, with a presence in convenience stores, hypermarkets, supermarkets and food/drink/tobacco specialists, a positioning which substantially contributes to its leading position in value terms in grocery retailers.

With its recent successful acquisition of the Vietnamese operations of Casino Guichard-Perrachon SA, Central Retail Corp became the second leading player in grocery retailers in 2016 with a 1% value share. Accordingly, the acquisition deal for the Big C chain has enabled Central Retail Corp to gain control of an extensive network of retail outlets across Vietnam. Following its acquisition, Central Retail Corp is now committed to continuing using products from local suppliers, maintaining strong relationships with existing Big C customers and local authorities and sourcing local goods for Big C stores. Thus, the acquisition represents the strength of the company’s will to continue expanding its business in Asia in general and Vietnam in particular.

With regards to pricing strategy, Central Retail Corp and Saigon Union of Trading Cooperatives are two grocery retailers in Vietnam which constantly offer consumers wide ranges of products at the most competitive prices as well as engaging in considerable amounts of promotional activities. With regards to store design, meanwhile, Lotte Shopping Co is one player which is focusing on offering its customers a more pleasant shopping space through better design as it seeks to target upper-middle and high-income consumers.

On the other hand, offering a particularly wide variety of imported products, especially products from Japan, is the core competitive advantage of Aeon Vietnam Co Ltd and Dong Hung Trading Service Co Ltd. Regarding loyalty schemes, most grocery retailers also offer special discounts for loyal customers. Accordingly, co-branded loyalty schemes integrated with debit cards developed through collaborations between major chained retailers and banks are becoming more popular in Vietnam as these offer consumers the opportunity to benefit from loyalty points which are exchangeable between issuing retailers and their affiliated banks.

Best Product Prospects

Post reported U.S. products that are already present in the Vietnamese market with good sales potential include tree nuts, dairy products, beef & beef products, fresh & processed fruit, prepared food, and wine & beer continue to have the best sales prospects. The next most important U.S. sales items in the retail sector are nonalcoholic beverages, snack foods, and processed vegetables. Some of the most dynamic processed food categories include: baby food, processed fruit, prepared/preserved seafood, syrups & sweeteners, and non-alcoholic beverages.

Food Service Sector:

Post reports that rising disposable incomes, urbanization, government policies encouraging market liberalization, changing consumer preferences, and growth in the tourism sector have all contributed to strong growth in the Hotel Restaurant and Institutional (HRI) food service sector making Vietnam an attractive market for U.S. consumer oriented food and agricultural products.  

Euromonitor reports that value growth within consumer food service in 2015 was slower than during 2014 due to the fact that both chained and independent consumer food service operations are becoming more mature. Moreover, higher food prices also negatively impacted disposable budgets, not only increasing the cost of running a business but also discouraging customers from eating out. However, growth was still healthy, with food service operators also helping to stimulate consumer demand by launching various promotional programs.

Due to increasing consumer health consciousness, Vietnamese consumers are becoming more and more interested in the health benefits that come from their daily intake of foods and drinks and are increasingly willing to spend more on food service outlets that comply with strict food hygiene standards and provide them with healthier options. Indeed, food safety has come into public focus due to its major impact on social health and socio-economic development, with the matter being of top priority for food operators in recent years. 2016 had been designated “the year of food safety” and a special spirit and promotion plan will be continued over a number of years in order to ensure food quality.

As a result of increasingly intensive competition, with more than 10 well-known brands operating in the area, service providers have to apply new sale methods to attract more customers. Taking advantage of the constantly rising number of internet and smartphone users, some operators will have to devise marketing strategies based on online platforms. Marketing products via social networking websites such as Facebook is one of the methods chosen by many brands as it allows food service operators not only to approach customers in various age segments, but to also create brand loyalty.

Euromonitor reports that after a strong start, many famous foreign chains such as Starbucks and McDonald’s are finding that the Vietnamese fast food market is not so easy to conquer due to a wide range of cultural and local issues. In the early days of entering Vietnam, both companies set up a plan to open 100 outlets within 10 years. On the first shop’s opening day in Ho Chi Minh City, hundreds of people queued in the sun to buy a Starbucks coffee. However, long queues were not seen when the company opened new shops in Hanoi and Ho Chi Minh City.

Similarly, during the first week of operations of the first McDonald’s restaurant in Ho Chi Minh City, Vietnamese youth, including celebrities, queued from the early morning to buy hamburgers. However, the opening of the second, third and subsequent shops took place quietly and no long queues in front of stores are seen these days. Indeed, despite its ambitions, by the end of 2015 Starbucks had opened just 16 outlets while McDonald’s had seven restaurants.

Fast food prices and taste are the two most important factors consumers consider when deciding to use services in this area. A typical McDonald’s burger with fries is high in calories and three to four times more expensive than a bowl of traditional noodles served with chicken or beef, with the story with Starbucks being similar. Vietnam has a rich coffee culture and there is a war between local coffee products and foreign brands selling similar products at four-times the price. Vietnamese consumers, after eating McDonald’s and drinking Starbucks to satisfy their curiosity, have come back to the things they are used to, with the result that foreign fast food chains now have to slow down expansion.

As Vietnam is an emerging market, it is still large enough for many investors, including newcomers. In order to exist in the fast food market, where competition is getting stiffer, operators should better understand customer demand and create an exciting experience for consumers. Leading players will have to work harder to maintain their value share. Meanwhile, new players will have to be innovative in their marketing strategies and brand building in order to fuel growth. To compete with brands that have been operating for a longer time in Vietnam such as KFC, Lotteria, and Pizza Hut, the newcomers should gradually change their ways to satisfy market requirements.

Most fast food products are affordable for everyone and price and taste are the two most important factors when it comes to food. Therefore, foreign investors, which can easily adapt to new circumstances, will not “sit still” but instead change their menus to satisfy Vietnamese preferences. Localized products will draw attention and attract customers to stores. In addition, new domestic players are also likely to join the category by offering traditional cuisines.

Best Product Prospects:

Post reports that the best export prospects for U.S. consumer-oriented agricultural products include dairy products, chilled & frozen beef products, frozen poultry, fresh fruit, dried fruit and nuts, snack foods, confectionary products, packaged foods (canned fruit & vegetables, canned meat), condiments and sauces, juices, seafood, and alcoholic drinks (wine, beer, and spirits).

Food-Processing Sector:

At last report from Post, the Vietnamese food processing sector continues to expand supported by rebounding economic growth and macroeconomic stability, Vietnam’s deepening international economic integration and a rapidly urbanizing, youthful population which are shifting their diets to include more processed and package food products. As foreign invested food processors continue to establish themselves in the Vietnam market, the prospects for U.S. food ingredient exporters will continue to improve, but the overall market will remain very competitive, with preference continuing to be given to regional ingredient exporters, such as South Korea, Thailand, and Malaysia.

Vietnam’s food processing and beverage industry continued to grow in 2014, expanding 5.1% in the food processing sector, versus a 6% growth rate in 2013; and 10% in the beverage sector, from 8.8% in 2013, according to data provided by Vietnam’s General Statistics Office (GSO) (at 2010 prices). At current prices, Vietnam’s food and beverage industry is growing fast at almost 21% in 2013, with food production growing at 20% and beverage production growing by almost 27%.

According to the latest statistics from the GSO, the number of food processors in Vietnam in 2012 was 7,751, of which 5,708 were registered food processing enterprises and 2,043 were enterprises manufacturing beverages. In 2012, the number of food and beverage processors in Vietnam grew 3.8%. Some firms specialize in producing only food ingredients, while others handle retail-ready products, in addition, to ingredients.

Key market drivers for the food processing industry include strong economic growth, which has averaged around five% annually with relatively low inflation, ongoing reforms, rapid urbanization, and rising disposable incomes. The continued strong inflow of overseas remittances from Vietnamese living overseas also buttresses many families’ incomes. Foreign direct investment (FDI) has been relatively stable in recent years (US$15.6 billion in 2014, US$21.6 billion in 2013, US$16.3 billion in 2012, and US$15.6 billion in 2011, respectively), and provides higher paying and skilled jobs to larger segments of the Vietnamese population, especially in the outskirts of cities and rural areas. All these factors have created a dynamic commercial environment in Vietnam.

Many food processors in Vietnam use both locally produced raw materials as well as imported food ingredients in their operations. They also have their own distribution channels to wholesalers, distributors and retailers, as well as to hotels, restaurants and other industries nationwide. In Vietnam, some large food processors prefer to purchase raw materials through local importers or distributors to avoid the complication of import procedures. Most small food processors with low sales volume utilize local wholesalers who can take care of the necessary import procedures. 

Best Product Prospects:

Post advises that U.S. food ingredients with the best prospects include dairy products (milk powder, whey and lactose for bakeries, dairy and confectionary manufacturing), seafood (for further processing and re-exports), meat (pork and chicken meat for meat processing), turkey MDM (for sausages), lysine (for meat processing), dehydrated potato powder (for snack foods), dried fruits and nuts (for bakeries), concentrated juices (for juice manufacturing), sweetening and flavorings.

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