Vietnam has seen a steady increase in consumer spending in recent years, driven by factors such as rising incomes, growing urbanization, and increasing consumer confidence. In 2023, the country’s consumer spending is expected to continue to grow, although the exact extent of this growth will depend on some factors, including the ongoing impact of the COVID-19 pandemic, government policies, and the global economy.
Overview of Customer spending in Vietnam
Vietnam is the 4th largest economy in SE Asia, with an economy that grew 2.5% last year reaching $365 billion. With a population of 98 billion people, Vietnam has a per capita income of US$3,691.
Consumer spending in Vietnam climbed to 4736308.62 VND billion in 2021 from 4270222 VND billion in 2020, according to Trade Economics.
According to data from McKinsey, 58% of Vietnamese customers spend below 11$ per day. In 2023, The number of people who spend under 11$ per day is predicted to decrease to 57%. Besides, the number of people spending 11$-20$ will increase to 57%.
As the larger Vietnamese economy recovers and growth rates revert to a more steady and medium-term trajectory, consumer spending will increase over 2023. Both the rising local demand and the anticipated rebound in overseas travel support this. Even though inflationary pressures will increase through 2023, Vietnamese consumers’ robust real income growth will increase their propensity for household expenditure growth.
The key drivers of consumer spending in Vietnam
One of the key drivers of consumer spending in Vietnam is the country’s growing middle class. As incomes in Vietnam continue to rise, more and more people can afford consumer goods and services that were previously out of reach. This has led to increased demand for products such as smartphones, cars, and home appliances, as well as for services such as travel, entertainment, and dining out. This trend is expected to continue in 2023 as the country’s economy continues to grow, and more people are projected to join the middle-class bracket.
Urbanization is another important factor driving consumer spending in Vietnam. 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.
As more and more people move from rural areas to the country’s cities, they are exposed to new products and services and are more likely to spend money on consumer goods and services. This is particularly true for young people, who are more likely to be living in urban areas and are more likely to be interested in new and innovative products and services. The trend of urbanization is expected to continue in 2023, driving the demand for products and services that cater to the urban lifestyle.
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. However, sources of urban consumers are likely to spread to smaller cities, including Can Tho, Da Nang, and Hai Phong, where the middle classes are set to grow.
The COVID-19 pandemic has also had an impact on consumer spending in Vietnam. While the country has been relatively successful in containing the virus, the economic impacts of the pandemic have led to a decline in consumer confidence and a reduction in spending on non-essential goods and services. This is likely to continue in 2021, with many people still feeling uncertain about their financial situation and the overall economic outlook.
The key areas where consumers in Vietnam are spending their money
Electronics and home appliances: As incomes in the country continue to rise, more and more people can afford products such as smartphones, laptops, and home appliances. Additionally, with urbanization and the growing number of young people in the country, there is a high demand for these products.
Fashion and personal care products: The country’s young population is increasingly interested in fashion and personal grooming, and there is a growing demand for clothing, footwear, and personal care products. This has led to the growth of local fashion and beauty brands as well as the presence of international brands.
Food and beverage: With the growing middle class, the number of people who can afford to eat out at restaurants or order food delivery is increasing. Additionally, the urbanization trend is also increasing the demand for food delivery services and online food ordering platforms.
Travel and tourism: With the country’s growing middle class and increasing disposable income, more and more people can afford to travel, both within the country and internationally. Additionally, with the growing number of young people in the country, there is a growing interest in travel and adventure.
In addition to these areas, consumer spending on other areas such as education, healthcare, and entertainment is also growing in Vietnam. However, it’s important to note that the ongoing impact of the COVID-19 pandemic has led to a decline in consumer confidence and a reduction in spending on non-essential goods and services.
The trend of Vietnam Consumer Spending
Online shopping and transactions are becoming dominant: In 2021, the size of the FMCG online customer base had grown ten times, and in the previous seven years, the online value share of FMCG products had grown twenty times. Online plays a part at every stage of the consumer experience and is not only a sales medium. The e-commerce market in Vietnam is also expected to continue to grow in 2023. With more and more people using the internet and smartphones, the e-commerce market has been growing rapidly in recent years. This trend is expected to continue in 2023 as more and more people are expected to shop online for convenience and variety. Additionally, the government is also pushing for the development of e-commerce and the digital economy, which would give more opportunities for businesses to grow and for customers to spend.
Growing demand for personalization: Many female, Gen Z, and Gen Alpha consumers are calling for more individualized goods and services. Ho Chi Minh City is home to an ever-growing array of shopping malls and supermarkets, nevertheless, Vietnamese consumers still prefer traditional shopping outlets such as wet markets and mom-and-pop stores known as ‘tap hoa’. In fact, this type of shops provides a highly personalized shopping experience that allows residents of the surrounding neighbourhood to form friendships with the owners.
New experiences are driven by young consumers and digitalization: The rate of innovation for FMCG products is 1.5 times faster in 2021 than it was in 2014. It increases the pressure on already-existing items to draw in new customers and, more importantly, keep the ones they already have.
The Vietnamese household size is getting smaller: About 40% of household population in Vietnam has one to three members. 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. The main implication of a decreasing household size is lower consumption, and the development of delegation services and pet food.
Essential goods and services: Spending on housing, food items and transportation accounts for almost 60% of consumer expenditure (Hong Kong Trade Development Council, latest data available). Consumers, therefore, have become prudent in their spending on other items and tend to look for value-for-money and reasonable quality in order to be able to afford fashionable items.
In conclusion, consumer spending in Vietnam is expected to continue to grow in 2023, driven by factors such as the country’s growing middle class, urbanization, and increasing consumer confidence. The e-commerce market, service sector such as healthcare, education, and entertainment are also expected to see a growth in demand. However, the exact extent of this growth will depend on a number of factors, including the ongoing impact of the COVID-19 pandemic, government policies and the global economy. It is important to note that the recovery of the global economy and the roll-out of vaccines are expected to boost consumer confidence and drive more spending in the future, and the government’s policies will also play a big role in shaping the trend of consumer spending in 2023.
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