Saving remains a priority among Vietnamese consumers but many are increasingly keen to buy products and services they like.

Vietnamese people are keen to save and also consume and the economic situation is now well and truly on the mend. 

Upon returning from a holiday in Europe that cost her VND70 million ($3,140), which is an impossible dream for many young Vietnamese without help from their family, Ms. Le Thanh Thuy, a 26-year-old office worker who earns VND7 million ($310) a month, was proud to show some photos to her friends.

“I had to save two-thirds of my salary for a year to make my dream come true,” she replied when asked how she could afford the trip. 

On many online social forums in Vietnam are topics relating to saving money to buy a house, to travel overseas, or to buy a car when you’re on a mid-level salary.

Vietnamese people are keen to save and also consume and the economic situation is now well and truly on the mend. 

Change in thinking

The latest Asian Development Outlook Update 2015 from the Asian Development Bank (ADB) released on September 22 showed that Vietnam’s economic growth will exceed expectations for 2015 and 2016.

In the report the bank revised its forecasts upwards, to 6.5 per cent this year and 6.6 per cent next year. 

Similarly, in the East Asia Pacific Economic Update released on October 5, Mr. Sandeep Mahajan, World Bank Chief Economist in Vietnam, wrote that while growth in most countries in the East Asia Pacific region has declined, Vietnam’s growth has gone against the trend.

Economic activity in the country continued to firm up in 2015, driven by strengthened domestic demand. GDP accelerated to 6.3 per cent during the first half; the fastest first half growth for five years.

The economic recovery has partially changed the mindset of Vietnamese consumers. A recent report from TNS, a market research and market information group, revealed a close relationship between GDP growth and the Consumer Confidence Index (CCI).

Managing Director of TNS Vietnam, Mr. Ashish Kanchan, explained that in 2008 the economy had started to slow down from the 2004-2007 period of golden growth, when consumers had a lot of positive sentiment. This came down sharply in 2009, together with GDP growth.

“From 2010 to 2013 we continuously saw a decline in consumer sentiment as well as the GDP growth rate,” he said.

“This was largely owing to the economic conditions in Vietnam over those three years. In 2014 we saw a rebound and it has continued in 2015, where we see consumers have come out of a pessimistic mindset and are more neutral in their sentiment compared to the past.” 

According to the recently-released Nielsen Global Survey of Consumer Confidence and Spending Intentions, while consumer confidence across a number of Southeast Asian markets dipped in the third quarter of 2015, in Vietnam it increased slightly, to 105, an increase of 1 percentage point (ppt) quarter-on-quarter and 3 ppts year-on-year, with the country’s population remaining among the Top 10 most optimistic globally.

“Vietnamese consumers continue to show their optimism in the future of Vietnam in terms of the value of the local currency, employment, the cost of living, the economy, and their future living standards,” said Mr. Nguyen Huy Hoang, Business Development Director at Kantar World Panel, an international company dealing in consumer knowledge and insights based on continuous consumer panels.

“Specifically, consumers show a strong confidence about Vietnam’s international image, the economy, transportation, and natural disaster prevention in the future.”

lingering concerns

The Nielsen report showed that intentions to change spending to save on household expenses continue to be the top priority for Vietnamese consumers.

More than eight out of ten (86 per cent) have adjusted their spending habits over the past 12 months to save on household expenses because most think the country is in an economic recession at the moment. 

Three out of five Vietnamese consumers (60 per cent) have tried to save on gas and electricity and reduced their spending on out-of-home entertainment compared with this time last year. Around half of Vietnamese consumers have cut down on new clothes (56 per cent) and telephone costs (47 per cent). 

“Our research shows that in 2015 monthly savings have picked up slightly,” Mr. Kanchan said. “Comparing monthly expenditures to savings, in 2015 consumers are saving about 21 per cent and spending 79 per cent, the same levels as in 2008, with a higher savings level than in 2011 and 2014, during which monthly savings were 17 per cent and 14 per cent, respectively.”

It seems that the shadow of the economic crisis in 2008 and afterwards still has a strong impact on Vietnamese consumers’ behavior.

“Consumers in the north tend to save more than consumers in the south, with the key reason for the overall increase being a mindset to save more for rainy days,” Mr. Hoang explained.

Though they may save more than previously they also have their eye on big ticket items. According to Mr. Kanchan, sales of LCD TVs have been steadily on the rise as older technologies are being phased out.

Laptop sales have also been soaring while desktop sales have stabilized. Refrigerators, washing machines, air conditioners, and other appliances have also seen significant increases.

The Nielsen report also showed that after covering essential living expenses around two out of five Vietnamese consumers are willing to spend more on big ticket items such as holidays and vacations (42 per cent), home improvements/decorating (41 per cent), and new clothes (39 per cent). 

Future bright

The preference of Vietnamese to save more hasn’t dampened the expectations of experts about future spending.

“Vietnam still has massive potential that is yet to be fully realized,” Mr. Kanchan said. “With high consumer confidence and a positive outlook, an improved economic situation is likely.

Ninety-one per cent of Vietnamese believe that the country’s economy will improve or stay the same, and this confidence is a positive indicator.”

He added that as more and more consumers have increasing amounts of disposable income, this will help spur spending across all sectors and further improve opportunities for businesses to grow by developing new customers. 

Mr. Glenn Maguire, Chief Economist of ANZ in South Asia, ASEAN and Pacific, also noted that the combination of high levels of growth and firm increases in average monthly earnings has seen Vietnam become home to the fastest-growing consuming class in the region.

“Between 2010 and 2020, the consuming class is likely to have more than tripled from 10 million to 32 million,” he said. “Over the decade from 2020-30 we would expect it to double again from 32 million to 66 million.”

Most research shows that education, food and beverages, and healthcare will remain at the core of consumer spending. “Products that can adapt to demand in healthcare will earn their way to the top of the mind of consumers,” said Mr. Vaughan Ryan, General Director of Nielsen Vietnam.

The TNS survey also revealed that consumers throughout Vietnam are expecting to spend more in a variety of segments, primarily education, where 38 per cent expect to spend more, while food and beverages is also expected to grow, with 26 per cent likely to spend more.

Meanwhile, healthcare and household utilities are also areas of expected higher expenditures, with 18 per cent of consumers reporting expected increases in both.

It is notable that most research shows a willing attitude among Vietnamese consumers to purchase and use domestic brands.

“In the current economic situation, I think the big aspect that we haven’t seen in the past is a desire in Vietnamese consumers to buy ‘Vietnamese-made’, ‘convenient’, and good quality products,” said Mr. Ryan. 

The government’s “Vietnamese for Vietnamese Goods” program has made strong inroads in consumer attitudes, with several successful companies emerging, such as Vinamilk, Truong Nguyen, Viettel, Vietnam Airlines, Vietjet Air, FPT, and many others, according to Mr. Kanchan.

About 72 per cent of consumers now say they are “proud to use Vietnamese brands” and 78 per cent say “I choose to use local brands to support Vietnamese business”. 

He also highlighted weaknesses in domestic brands, however, such as lack of brand building skills and their low position in the minds of consumers. He suggested domestic brands focus around the changing purchase criteria of Vietnamese consumers.

“In Vietnam we have seen a shift from consumers caring only about functional benefits towards emotional drivers, which means purchases are now a form of self-expression,” he said. “Brands should focus on creating emotional hooks for the consumer and developing personal attachments to the brand.” 

“There has been a trend of volatility in Vietnam in the last two or three years. And we are seeing the same trend across Southeast Asia. What we are clearly seeing is a consumer that is worried about the immediate situation but is confident about the future, and I think that is probably the biggest issue that is surfacing today.”

Mr. Vaughan Ryan, General Director of Nielsen Vietnam

“The broadening improvement in domestic demand should support household consumption in the medium term. The prolonged low inflation environment should now enable households to start adjusting consumption patterns reflecting low oil prices. This should now start to free up incomes to consume other goods. Credit growth has also been picking up since the start of the year, suggesting that local firms are now better positioned to access credit. Meanwhile, the persistent inflow of FDI should still generate more jobs in the manufacturing sector, helping to increase local incomes.”

Mr. Glenn Maguire, Chief Economist of ANZ in South Asia, ASEAN and Pacific

“There is now a belief among consumers that Vietnamese brands can compete equally with international brands in terms of quality and are as trustworthy in several categories that are consumed regularly. For many, purchasing Vietnamese brands has become a point of pride and a ‘feel good’ purchase. However, local brands still have a lot of work to do making inroads with younger people and other consumers who still prefer foreign brands.”

Mr. Ashish Kanchan, Manager Director of TNS Vietnam