Vietnam’s Urban-Rural Divide Polarizes the Market

Written by: Cynthia Luo on June 29, 2017

Vietnam’s economic development has been the cause of a widening income gap between those working in developed, urban centers and others in rural locations. The country’s income distribution is predicted to be among the most unequal in Asia Pacific by 2030.

The highly polarized nature of Vietnam’s current market means a few things:

  1. Companies can either target one particular social class and specialize or
  2. Mid-range brands have the opportunity to consolidate both a premium and more affordable product line under one umbrella

An example of a company that does this successfully is Viet Tien Garment, an apparel and footwear maker that has different brands to serve different age and income levels. For example, it launched Vee Sendy for younger shoppers and TT-up for its mature customers.

The company is valued at $50.2 million and claimed 2.3% market share in 2016, which is considered positive in Vietnam’s fragmented market.

Serving individual social classes

Source: Euromonitor

Social class E, the lowest income class is expected to remain the most prevalent in the country until 2030, which is good news for FMCG companies as they represent a large market for basic necessities.

According to Nielsen, FMCG items are experiencing a growth surge in Vietnam, especially beyond Ho Chi Minh City and Hanoi.

In 2016, nearly 6% of Vietnamese urban households shopped for FMCG items online at least once and found themselves spending 3-4X more than they would on an average shopping trip offline.

Social class A, the highest income class is expected to be the second fastest growing segment until 2030.

Luxury automaker Mercedes Benz already counts Vietnam as one of its fastest growing markets in Asia and Chanel recently opened its first flagship store in Ho Chi Minh earlier this year – demonstrating a positive step in the direction of Vietnam’s growth.

As Vietnam and US trade grows 20% annually, analysts believe that increase in income will stimulate consumption of luxury labels, especially if they are portrayed as a status symbol.

“Why would I spend $300 on something that doesn’t relate to me, and has no voice?” says Ha Nguyen Thu An, Head of Social at Ogilvy. “Everyone gets Louis Vuitton because of their brand story.”

Apart from multi-brand marketplaces such as Lotte.vn and Robins.vn (previously Zalora), consumers do not have direct access to luxury items and instead, are only exposed to fast fashion pieces or mid-tier brands such as Nike and MANGO.

The future of Vietnam’s consumer landscape

Whether these companies choose an offline, online approach, or both, the country’s classes are both showing signs of economic growth and an appetite for goods they can show off.

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