People shop at a supermarket. By 2030, up to 75 percent of Vietnam’s population could belong to the consuming class (spending more than 11 USD a day in purchasing power parity terms), up from 40 per cent today. (Photo moit.com.vn) Scalecontinues to be a key characteristic of the region’s consumption story, but anew chapter is being written based on the increasing diversity of the region’sconsumer markets. Companies need to get to know the distinct segments ofconsumers who are set to drive growth and redraw their map of consumption for Vietnamand for Asia as a whole.
JonathanWoetzel, a McKinsey senior partner in Shanghai and a director of the McKinseyGlobal Institute, said: “Asia’s consumer story over the next ten years andbeyond is not only about scale and growth, but also about growing diversity inconsumer markets (in a region that is already hugely diverse) and how consumersin the region are trailblazing new paths.”
OliverTonby, a McKinsey senior partner in Singapore, said: “Asian consumers continueto face challenges associated with the COVID-19 pandemic, but Asia continues tohave solid long-term growth potential. We may see half of all globalconsumption growth in the next decade coming from Asia.”
Thisnew research identifies ten major shifts in Asia’s consumer markets andestimates how much demand could follow new consumption curves that are quitedifferent from past models driven by rising incomes and the volume of people inthe consuming class.
Asianconsumers are expected to account for half of global consumption growth in thenext decade, equivalent to a 10 trillion USD opportunity. Globally, one ofevery two upper-middle-income and above households is expected to be in Asia,and one of every two transactions made is likely to be made by consumers in theregion.
Movementwithin the consuming class is likely to be a larger driver of consumptiongrowth than movement into it. By 2030, up to 75 percent of Vietnam’s populationcould belong to the consuming class (spending more than 11 USD a day inpurchasing power parity terms), up from 40 percent today and less than 10 percentin 2000. Over that period, consumers are expected to attain higher incomelevels than past joiners. The proportion of the population in the two highesttiers of the consuming class (spending more than 30 USD a day in purchasingpower parity terms) could rise from below 5 percent today to almost 20 percentin 2030.
Fivedemographic shifts and five behavioural shifts are transforming Vietnam’sconsuming class. One is shrinkage in the average household size that ishappening across Asia - in Vietnam a shrinkage of around 20 percent over thepast 20 years and the rise of single-person households that consume differently;today 11 percent of Vietnamese households are single-person ones. Another isseniors (aged 60 and over) whose consumption in Vietnam is expected to growaround twice as fast that of the population as a whole. Other shifts include atrend toward eco-responsible consumption, spreading personalisation, the riseof Asian brands, and new notions of ownership with the rise of the sharingeconomy, subscriptions, and the buying of second-hand goods.
Between15 and 65 percent of demand could shift from income-driven S-curve to three newmarket-specific consumption curves. In the automotive sector, the shift couldbe 40 to 65 percent of value. In financial services, 15 to 25 percent couldshift. This means that companies may put themselves at a competitivedisadvantage by waiting for countries to reach the tipping point of S-curvedevelopment, at which the growth in consumption of a given categoryaccelerates. Markets that would be deemed unripe for entry in income-drivenS-curve thinking are already being served by companies that succeed ininnovating their business model or cost structure.
Itis time for companies to redraw their consumer growth map of Vietnam and Asiaas a whole. Companies should identify new growth angles relevant to theirbusiness and take into account dynamic consumption curves. In the face of rapidchange and increasing diversity, companies should consider adopting a moreagile operating model, including bolder resource reallocation, and adopt anopen strategy based on building networks and partnerships, and participatingin, or leading, ecosystems.
MatthieuFrancois, a McKinsey associate partner in Vietnam, said: “Vietnam’s consumermarkets have had a strong momentum for a while, and it is now becoming morecomplex. The consuming class is diversifying geographically – with moreaffluent households in smaller cities – and is seeing the emergence of newsegments – such as an entire class of digital natives, or a growing group ofsenior consumers. As Vietnamese consumers become more diverse and moredemanding, companies need to raise their game in terms of channel strategy,marketing allocation and overall agility.”
JeongminSeong, an MGI partner in Shanghai, said: “In order to capture new and evolvingsources of growth, companies need to refresh the growth map in Asia. The mapcan help business executives to make effective decisions on a range ofcorporate activity, from resource allocation to what kind of ecosystem tooperate in.”/.
VNA
