This article will explore the forecast for the Vietnamese middle class. In short, the size of Vietnamese middle class households should double within the next decade, significantly increasing the average purchasing power for goods and services.
1/ Vietnam has the fastest-growing middle class in ASEAN
Vietnam’s goal is to become an upper-middle-income country by 2035 and a high-income country by 2045. This objective is already on the right track as Vietnam has the 7th fastest growing middle class in the world. As we can see on the following bar chart, the consumer class has skyrocketed in the last two decades. In addition to the current situation, Vietnam will add 36 million people to its middle class by 2030.
This is a major change for Vietnam: in 2000 less than 10% of the population spent more than 11 USD per day whereas today, this number reaches 40% and is expected to reach 75% by 2030.
2/ An economic development leading to such a demographic and social change
ASEAN has been one of the fastest developing regions for many years now, and its countries, particularly Vietnam, are pushing their development, including by signing free trade agreements. The government’s strategy is to turn the low-cost export manufacturing country into a strategic export high-skilled manufacturing country. Following this goal, Vietnam is already the second biggest labour market in ASEAN as of 2018.
Firstly, the government promoted economic zones and industrial parks to capture growth through (foreign direct) investment projects. New projects led to new jobs and increased wealth for the population.
These macroeconomic changes have led to further urbanisation around the labour centres, and in turn their demographics, all in favour of the rising middle class. Continuing the positive trends of the last ten years, the urban population is expected to increase from 37% in 2020 to 44% in 2030.
Urbanization comes with societal change, such as the average family size decreasing from 4.5 people in 1999 to 3.5 people per household in 2019. This includes that houses/apartments are getting smaller and leads to new purchase intentions and habits.
The more widespread use of 4G access is also a vital factor that helps this urbanisation process, as easier internet access increases global trade across the country. This digitalisation is also a key factor in the rising of the middle class and its new consumption trends as digital natives are becoming a rising force in consumption in Vietnam: in 2020 nearly 70% of the Vietnamese population were internet users and more than 50% of the population bought at least one item through the internet. This digitalization is moving walls in terms of communication and shopping.
Apart from all of those aspects which support the rising of middle-class evolution, the government is pushing to consolidate this dynamic and improve it by giving a better education system and training specialized workers to follow its country’s development strategy.
3/ New market opportunities thanks to the rising of this middle class
This new middle class is creating major enhancements within Vietnamese society. As the habits and ways of consumption of millions of people are changing daily, new market opportunities abound.
Attract foreign investors
Vietnam’s rapidly growing young middle-class makes the country a very appealing market for foreign brands. Thanks to continuous international investment as well as stable export growth, Vietnam successfully avoided the deeper slowdown, a situation that has been spotted in other Asian economies. The country passed its first Foreign Investment Law in 1986, allowing foreign firms to enter the country. The law has been revised several times since then, primarily to adopt a more pro-investor approach while aiming to reduce administrative bureaucracy and better facilitate foreign investment into Vietnam.
E-commerce users
As explained previously, technology plays a huge role in shifting economic trends, with internet penetration being particularly important. The Vietnamese annual household income per capita reached an all-time high in December 2019, amounting to about 2,236 million USD. Along with this rise in the Vietnamese average income is the increase in smartphone ownership and internet penetration rate, hence, the booming of online shopping. Vietnam’s e-commerce market value was projected to reach 39 billion US dollars by 2025, ranking second only to Indonesia among the Southeast Asian countries. This offers favourable conditions for e-commerce enterprises to prosper, making the country’s e-commerce market share growing quickly, and the expansion of online channels in the FMCG sector has exceeded that of modern retail channels.
Affinity to local brands
It is also anticipated that the Vietnamese people’s greater disposable income will promote domestic spending through electronic payment systems. “Vietnam’s socio economic development is significantly influenced by the country’s rapid increase of the middle class, particularly the country’s transition from an export-dependent to a domestic consumption-based economy“, said Phung Duc Tung, head of the Mekong Development Institute. A recent study has revealed that 76% of Vietnamese consumers prefer locally-branded products. Consumers are becoming more confident in domestic goods because they have a clear source and comparable quality to imported goods. Currently in Vietnam, 80-90% of the items offered in supermarket systems are domestically produced, compared to the 60-70 % as early as 5 years prior. Furthermore, the middle class in Vietnam also has a significant impact on the growth and development of small and medium-sized businesses, the creation of jobs, and the improvement of the position of the private sector, all of which support the market economy.
Affinity to sustainable products and healthy lifestyle
As the Vietnamese middle class expands and disposable incomes rise across the board, there is also a greater demand for services and higher-value products. Higher-income means larger space for premiumisation on the market. 91% of respondents to a consumer survey in Vietnam from 2021 stated that they are aware of what a conscious lifestyle entails and that they actively participate in it. Notably, 84% of respondents in the survey said they would be willing to pay more for sustainable items.
In addition, Vietnamese households in the middle class are also willing to spend extra for food that is safer to eat and in a healthier environment. People are now ready to spend a little amount on safe products that won’t endanger their health due to growing awareness of the deteriorating effects of air pollution and food safety issues over the past several years. According to a recent survey in the second quarter of 2019, 44% of Vietnamese respondents cited health as their top worry.
Consumer goods and the Retail market
Vietnam is the second leading consumer goods market in ASEAN, representing 37.5% of it and is forecasted to lead in terms of growth, with a CAGR of 10.2% from 2016 to 2030. Indeed this market is very promising for next consumer trends and offers various business opportunities thanks to its large scope.
The food and drink, apparel and footwear, and consumer electronics segments continue to remain the main sub sectors of growth within ASEAN’s consumer goods sector.
The main spending trend of the whole Vietnamese population mainly revolves around the food and beverage industry. Vietnamese people are increasing their spending on high-end products to improve their quality of life. Thus, the local appetite for some foreign luxury products is growing.
In a general way, the items which met the fastest growing expenses proportion are:
- Food and non-alcoholic drinks
- Health goods and medical services
- Clothing and footwear
Final thoughts
Vietnam’s middle class is currently growing up exponentially thanks to ASEAN and local development. The government is trying to nurture that growth and bring wealth to its citizens. Manufacturing, foreign investment, demographic changes and 4G continue to pour into the middle class. With continuing increase of the average budget expenses per household, opportunities in various sectors start to take shape. In addition to being a reliable manufacturing country, Vietnam is now on its way to becoming a reliable consumer goods market.
