Caution Reigns Among Vietnam’s Business Leaders and Consumers

Caution Reigns Among Vietnam’s Business Leaders and Consumers

For most of the past two years, Vietnam has been on a roll. Virtually untouched by the global economic downturn, the country posted strong GDP growth. Consumer confidence, while fluctuating quite a bit, generally ranked among the highest of the 55 countries monitored by Nielsen on a quarterly basis. The first half of 2011 tells a different story, however. Bedeviled by inflation and price increases, with the government making tough macroeconomic decisions, consumers have become slightly less confident, according to Nielsen’s most recent survey.

This decline in confidence is also seen with the country’s senior business leaders who participated in Nielsen’s Vietnam Business Barometer survey. Nearly two-thirds said that business conditions were worse now compared to a year ago, and 48 percent fewer leaders expect to beat their targets as compared to a year ago. Only one-third think that conditions will improve over the next twelve months, with the majority thinking that the status quo will prevail. Inflation and recent devaluations of the Vietnamese Dong ranked as the top concerns of these executives who, nonetheless, claimed that they had managed to achieve their targets thus far.

Consumers also feel the pressure of price increases

Top 5 Manufacturer Concerns

  1. Inflation
  2. VND devaluation
  3. Ability to pass on price increase
  4. Competitive pressure/activity/growth
  5. Low GDP Growth

Top 5 Consumer Concerns

  1. Health
  2. Increasing food prices
  3. Increasing utility bills (gas, electricity, water, etc.)
  4. Job security
  5. Children’s future/welfare

Despite these concerns, the vast majority (90%) of business leaders still expect double-digit growth in their businesses. The financial services, telecom and pharmaceutical sectors seem set to continue to grow, while FMCG is likely to be affected by consumers reducing spending in the face of inflation and will show slower growth. Most executives plan no reductions in advertising spending however, and 43 percent actually plan on increasing spending over the course of the year to capture the increasingly value-driven consumer. TV continues to be the top channel for advertising, followed by point-of-sale materials and in-store signage, while online continues to show promise.

The value-driven consumer is faced with steadily increasing prices – fuel has increased 18 percent, retail electricity prices are up 15 percent – so they are increasingly saving their money when they can and buying more goods on promotion. Almost two-thirds (64%) indicated that they would be looking for promotions, an increase from 51 percent in the second half of 2010. Half said they would do without some non-essential goods (up from 41% in the second half of 2010) while 41 percent said they would be trading down to less expensive products. Confectionary, health and beauty and beverages were deemed to be the categories most likely affected by changing consumer purchase patterns.

“GDP growth in Vietnam is set to slow this year, and macroeconomic challenges facing the country require business leaders to work even harder to achieve success. That means expanding into rural areas to capture growth, identifying new potential categories, and understanding their pricing and promotion mix better, and how much of a price increase can be passed on to customers. Understanding consumer price sensitivity is critical, and passing on price increases should only be undertaken with a solid understanding of your consumer and category said Darin Williams, Managing Director, Nielsen Vietnam.