Meet your new Vietnamese consumer

Powered by continued investments in its manufacturing sector, dynamic foreign direct investment, and rising productivity, Vietnam has been a consistent outperformer in Asia. GDP has increased at a compound annual rate of 5 percent in real terms over the past 20 years, which was 1.7 times faster than the global average.1 Even in 2020, when the COVID-19 pandemic was causing deep disruption in the global economy, Vietnam posted GDP growth of 2.9 percent.2

The country continues battling the resurgence of COVID-19 cases and navigating through this crisis. However, consumption is expected to expand and define the future as incomes rise. Swift demographic and technological changes will result in trailblazing consumer behaviors that offer new sources of growth to companies informed and agile enough to capture them. In this article, we focus on how these trends are shaping the future of Vietnamese consumers and what companies can do to win their hearts.

Vietnamese consumers enter the middle class and put midsize cities on the radar

Asia is the world’s consumption growth engine: miss Asia and you could miss half the global picture—a $10 trillion consumption growth opportunity over the next decade, according to recent McKinsey Global Institute research. Vietnam is well positioned to be a significant driver of the next chapter of Asia’s consumption story. Over the next decade, 36 million more consumers may join Vietnam’s consuming class, defined as consumers who spend at least $11 a day in purchasing power parity (PPP) terms.3 This is a major change. In 2000, less than 10 percent of Vietnam’s population were members of the consuming class, which has risen to 40 percent today. By 2030, this figure may be close to 75 percent (Exhibit 1). New consumption power is emerging not only from those who have entered the consuming class for the first time, but from the consuming class’s sharp rise within the income pyramid. The two highest tiers of the consuming class (those spending $30 or more per day) are growing the fastest and may account for 20 percent of Vietnam’s population by 2030.

Urbanization is an important contributor to income growth. Vietnam’s urban population is projected to surge by 10 million over the next decade as the share of the country’s urban population rises from 37 percent in 2020 to 44 percent by 2030.4 Cities are likely to be Vietnam’s engine of growth, contributing roughly 90 percent of all consumption growth over the next decade.5 The story of Vietnam’s urbanization has often been centered around the populous cities of Hanoi and Ho Chi Minh City (HCMC), where each city is home to more than 10 million people and most of Vietnam’s middle class.6 However, our analysis finds that over the next decade, sources of urban consumption are likely to spread to smaller cities, including Can Tho, Da Nang, and Hai Phong, where the middle classes are set to grow.

Five demographic shifts transforming the consuming class

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Although the rising consuming class and urbanization are large drivers of Vietnam’s growth, a new chapter is being written that goes beyond scale and rising incomes. Significant demographic change and the penetration of digital technologies are likely to reinforce the diversity of Vietnam’s consumer markets, prompting sometimes surprising changes in consumer preferences and behavior. To thrive in Vietnam’s consumer markets, companies will have to consider trends that reflect the country’s evolving socioeconomic realities and those that will influence consumption: shrinking households, more spending by seniors, greater market participation by digital natives, economic empowerment of women, and wider geographic distribution of spending.

1. Households are getting smaller

Across Asia, households are shrinking. The size of the average Vietnamese household has decreased by around 20 percent over the past two decades, from 4.5 people per household in 1999 to 3.5 people per household in 2019.7 A large contributor of this change has been Vietnam’s declining total fertility rate, from 2.25 births per woman during the 1995–2000 period to an estimated 2.06 between 2015 and 2020.8 At the same time, new lifestyles and ways of working (especially as women make continued progress in economic empowerment) may lead to fewer multigenerational families living under one roof.

This trend toward smaller households is reinforced by urbanization, for two reasons. Firstly, the total fertility rate in cities is even lower than in the country as a whole; for instance, the fertility rate in HCMC was around 1.35 in 2020. Secondly, urban centers tend to attract young people who move away from their parents and extended families. If the experience of other Asian markets holds true in Vietnam, the declining size of households may lead to new types of demands, including smaller homes, increased ownership of pets, and new forms of entertainment.

2. Seniors are accounting for an increasing share of consumption

Vietnam remains a young country overall, with a median age of 32 in 2020. However, the number of people aged 60 and over is projected to increase by five million; seniors could account for more than 17 percent of Vietnam’s population by 2030. Spending by seniors is expected to triple in the next decade, growing at more than double the rate for the population as a whole during the same period. The expansion of relatively well-off seniors is likely to have significant impact on several sectors. For example, over the past decade, there has already been rapid growth of investments in healthcare. Local players, such as Vinmec, which runs hospitals, and Pharmacity, a retail pharmacy company founded in 2011, are growing rapidly. High-quality nursing homes are spreading, as well as assisted-living accommodations. Beyond healthcare, the housing market is seeing growth in real estate development that is increasingly focused on suburban areas where the air quality is better and there is more space for seniors and retirees.

3. Digital natives are becoming an increasing force in Vietnam’s consumption

So-called digital natives born between 1980 and 2012, including members of Generation Z and millennials, are expected to account for around 40 percent of Vietnam’s consumption by 2030. Members of this digitally savvy generation live online and on their mobiles. Almost 70 percent of Vietnam’s population in 2020 are internet users. Rapid digitization is changing the daily channels and communication methods used by Vietnamese people, particularly in e-commerce, where regional players, such as Shopee and Lazada, and local players, such as Tiki, are active.

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The rapid emergence of digital consumers has fueled innovation in retail and purchasing behavior. For example, local social network Zalo is among the most used applications in Vietnam, with 52 million monthly active users, and has become a significant marketing channel. An estimated 55 percent of Vietnamese Gen Zers now use TikTok, driving intense competition, as evidenced in the launch of YouTube shorts and Instagram reels. Social commerce sites, such as Mio, and live-streaming platforms are reinventing consumption methods by creating new channels that attract new and often younger shoppers to a category or a brand.

These new behavioral trends have forced companies to rethink the allocation of their marketing budget. Marketers are realizing the increased importance and pervasiveness of online channels. In 2021, online ad spending is expected to hit almost $1 billion in Vietnam and to grow by about 22 percent a year until 2025.

4. Women’s economic empowerment presents a large opportunity

Vietnam has historically been ahead of other countries on women’s participation in the labor force. In 2019, Vietnam’s ratio of female-to-male labor-force participation was 88 percent, one of the highest in the world.9 Vietnamese consumers are accustomed to seeing female executives in leading roles at large Vietnamese companies, including PNJ, Sovico, Vinamilk, and Vingroup. Other forms of empowerment—including increased financial and digital inclusion, opportunities to raise skills and therefore transition into higher-income jobs, and a greater say in household purchasing decisions—could unleash even more female consumption. According to MGI research on the estimated GDP growth potential from narrowing gender gaps, women’s empowerment could add an additional $80 billion to Vietnam’s GDP in the period to 2030.

5. The rise of the small-city and suburban consumers

Consumption power has become more distributed over the past decade. While consumption had largely resided in the nation’s two major economic and financial hubs, Hanoi and HCMC, other cities are also developing into economic forces. In 2020, Hanoi and HCMC accounted for 37 percent of all Vietnamese households with income of more than $22,000 a year in 2011 PPP terms, but this share could drop to 31 percent in 2030 (Exhibit 2). Our analysis notes that growth in the number of middle-class households in smaller cities (and even rural areas) is outpacing those in Hanoi and HCMC—a compound annual rate of about 8 percent, compared with 5 percent.10 Moreover, the Mekong and Red River Deltas, densely populated but not fully urbanized, are becoming significant consumption pools, attracting the attention of consumer-goods companies and modern retailers.

 

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