Consumption trend

Dive into the world of buying and selling in Vietnam. We'll share insights into how people shopped in 2023 – what they liked, and why. Readers also received a sneak peek into what's expected for shopping trends in 2024. It's a simple guide for foreign businesses to understand and adapt when entering the Vietnam market

Overview of Vietnam’s consumer market

1. Buy and sell behavior of the middle class

In Vietnam, the buy-and-sell landscape has witnessed significant transformations, fueled by the remarkable expansion and diversification of the middle class in recent years. Geographically widespread and increasingly diverse, this demographic has grown in both numbers and expectations. Projections suggest that by 2035, over half of Vietnam's population will join the global middle class, leading to a boost in disposable income and a substantial uptick in consumption.

The optimistic outlook of the middle-class consumers in Vietnam remains resilient, even in the face of economic challenges and a post-recession period. According to McKinsey's analysis, the economic future of Vietnam looks promising over the next decade, with anticipated GDP growth ranging from 2% to 7% between 2023 and 2030.

This economic surge is predominantly driven by Vietnam's thriving manufacturing sector, benefiting from one of the region's lowest wage rates. Additionally, the country's well-educated workforce contributes significantly to its economic strength

2. Economic challenges and inflation

Nevertheless, in the early months of 2023, Vietnam is confronted with economic difficulties that have the potential to affect the purchasing power of its citizens. Notably, there has been a decline in demand from crucial markets such as the United States and the European Union, leading to a projected decrease in the export value of Vietnam by 9-10%, as opposed to the 14% recorded in 2022.

Concurrently, it is anticipated that inflation will linger at approximately 3.8% throughout 2023. Despite already being relatively elevated, this inflation rate could pose a significant burden for individuals in lower income brackets. Consequently, the adverse impacts of inflation may be felt by the populace, potentially diminishing their purchasing capacity and putting strain on the mortgage market. Consequently, this leaves real estate developers vulnerable to liquidity pressures, which can have repercussions on overall wealth and consumer behavior.

3. The economic landscape after COVID pandemic

Despite the challenges posed by the COVID-19 pandemic, Vietnamese consumers maintain exceptionally high levels of trust and optimism. According to the McKinsey Vietnam Consumer Pulse Survey conducted in 2022, more than 60% of respondents were optimistic about the country's economic recovery, anticipating robust growth similar to the pre-COVID-19 period within the next two to three months.

This positive outlook extends into 2023, with 70% of Vietnamese consumers intending to spend the same amount or even more during the Tet holidays compared to 2022. There is a notable inclination among consumers to indulge themselves, as over 70% of survey participants express their intention to increase spending on products and services they have been saving for over the past year and a half.

4. Consumer behavior in Vietnam

Despite their positive outlook, Vietnamese consumers are becoming more discerning and cost-conscious. They are expected to modify their spending patterns in response to economic challenges and a sense of instability. Over 90% of consumers express worry about escalating prices, especially in the context of inflation, fuel shortages, rising fuel costs, and higher interest rates.

This increased financial strain and uncertainty are pushing consumers towards more careful and well-researched shopping decisions, signaling a change in their purchasing behavior.

To address the evolving consumer landscape in Vietnam, businesses might want to consider adopting effective "buy and sell" strategies that align with the preferences of the discerning yet hopeful middle-class consumers.

Overview of consumer behavior in Vietnam: among the highest worldwide

Source: McKinsey COVID-19 Consumer Pulse Survey 2022, conducted in August (for Australia, China, India, Indonesia, Japan, and South Korea), October (Philippines), and December (Vietnam).

• Optimism: Potential recovery within 2-3 months and stronger post-pandemic development.

• Economic impact over 6-12 months, followed by stabilization or slow growth.

• Pessimism: Long-term pandemic effects on the economy, predicting prolonged decline or recession.

McKinsey's research indicates no significant shift in consumer attitudes toward COVID-19 from August to December, except in China, where positive changes are expected due to the government lifting COVID-19 restrictions.

Vietnamese consumers exhibit the highest income reduction, consumption, and savings behavior in the Asia-Pacific region.

Question: How has the COVID-19 pandemic affected the following factors?

Source: McKinsey COVID-19 Consumer Pulse.

Vietnamese consumers are becoming more discerning and seem to be evolving in four key directions:

• They prioritize value.

• They prefer omni-channel platforms.

• They need to be more brand and store-loyal.

• They seek purpose in their shopping.

They aim to maximize the value of certain items but may be more extravagant in others.

Across categories, inflation, and consumer preferences, the shift to premium brands seems to drive higher spending. At the same time, a reduction in the number of items purchased seems to contribute to decreased expenditure.

• Firstly, there is a trend toward increased consumption in most categories, except for fresh food and fuel. Consumers are willing to spend more on household and personal care items, although less on outdoor activities. Categories like vitamins, over-the-counter medications, fitness products, and personal health care items are also on the rise.

• Secondly, increased spending on premium-priced items or "better value for money" packages can be expected. Meanwhile, products at average price points may face the risk of inventory buildup.