Vietnamese firms must meet rural demand

Hanoi (VNA) – According to the Ministry of Industry and Trade, Vietnamese firms would benefit greatly from expanding distribution systems for fast-moving consumer goods (FMCG) in rural markets.

According to Phan Chi D u ng, the Ministry’s Director of Light Industry Department, Vietnamese firms focus predominately on urban markets, even though almost 70 percent of the population lives in rural areas with huge demands for FMCG such as processed foods, toiletries, soft drinks, and other consumables.

A report about FMCG by market research firm Nielsen published late last month revealed that 54 percent of FMCG revenues came from rural markets, a modest amount compared to the portion of the population living there.

FMCG sale growth hit three-year high at 6.3 percent in the second quarter of this year in six major cities and provinces, including Hanoi, HCM City, H a i Ph o ng, C a n Th o , Nha Trang and Da N a ng, but nation-wide FMCG sale saw slowdown, largely due to climate change impacts and worries over quality of several beverage products, the report found.

In a country where over half the population is under 30 years old, total consumer expenses are anticipated to double by 2020, which would accelerate sales of FMCG with an average growth of 20 percent, even higher than India and China. Vietnam’s FMCG market is expected to touch 140 billion USD in revenue this year.

However, amid rapid integration with trade liberalization, competition with foreign rivals in FMCG market is growing fierce, according to the Ministry’s Domestic Market Department.

Made-in-Thailand and made-in-China products are gaining traction in the local market, while foreign giant retailers from Japan, the Republic of Korea and Thailand are rapidly expanding in Vietnam .

Developing the distribution system to expand in rural markets is essential for local firms, the department said, adding that Vietnamese firms also must enhance product quality and build brand confidence in order to compete with imported products.

Moving online
Global consumer reporting company Kantar Worldpane published a story on September 5 that the value share of e-commerce within FMCG is up 3.9 percent globally but only up 0.2 percent in Vietnam.

The company predicted that e-commerce in Vietnam will grow more than fivefold by 2020 - given widespread smartphones usage in Vietnam and increasing demand for consumer convenience - and the opportunity is there for someone to jump in and take the lead.

“Yes, e-commerce is tomorrow’s reality of consumer goods products, and the offers as well as the players are going to structure themselves quickly,” Fabrice Carrasco, managing director Kantar Worldpanel Vietnam, Indonesia and the Philippines, wrote in the report.

There are opportunities for current physical retail giants to move their offerings online, although Fabrice also added that the need could be met by online retail giants like Lazada or Amazon working with manufacturers to list more FMCG online.

Fabrice wrote that another possibility is the rise of independent third party companies who actually don’t own any stores or goods. The business model of companies such as Chopp or MarketOi, who are already operating in Vietnam, is mainly based on a delivery service, acting as a middle man between the consumer and the traditional offline modern trade.-VNA