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September 25, 2023

Modern trade and prospects towards Vietnam‘s consumer unicorn

According to the Center for WTO and International Trade, Vietnam Chamber of Commerce and Industry (VCCI), and in alignment with the evolving trend driven by Vietnam's consumer unicorn, the consumption behavior of Vietnamese people has been changed recently with the increase of the middle class throughout the country. Although in Vietnam about 65% of the population lives in rural areas while only 35% living in urban areas, price remains an important factor in consumer’s purchase decisions. Thanks to the Free Trade Agreements (FTAs) signed, Vietnam has expanding partnerships with countries and regions not only in Asia, but also those in Europe and America well-known for high quality products.

Navigating Vietnam's Dynamic Consumer Market: An Insight into Diverse Distribution Channels

Nowadays, Vietnam's consumer market is a dynamic landscape characterized by diverse distribution channels like other countries in the globe, primarily General Trade (GT) and Modern Trade (MT). GT, encompassing local shops and traditional markets, offers widespread accessibility, fostering personal interactions with knowledgeable store staff. This channel caters well to localized products and simpler management. In Vietnam, this channel has become popular for a long time, with participants from many individuals and corporations in 63/63 provinces of the country.

On the other hand, MT, represented by large supermarkets and retail chains with Vietnam’s consumer unicorns, provides access to a vast consumer base with advanced inventory management. It's an ideal choice for businesses targeting broader markets and mass-market products, albeit requiring significant investments and facing intense competition. Vietnam's consumer market offers opportunities for businesses of all sizes, with options tailored to their specific needs and more high technology applied like e-commerce and Vietnam’s consumer unicorn. Even though this channel has existed in Vietnam in recent decades, MT has been developing rapidly due to the industrialization and modernization expanding in cities and towns.

General Trade and Modern Trade: Pros and Cons

Firstly, let’s start with the comparisons between GT and MT via studying all aspects of the two terms.

Definition of General Trade

General Trade, often referred to as Traditional Trade, represents a conventional form of distribution. Below are the strengths and weaknesses associated with General Trade.

Advantages of General Trade

Widespread Accessibility: General Trade encompasses numerous local shops, convenience stores, and traditional markets. This extensive network makes it easier to reach consumers in various locations, even in remote areas.

Personal Interaction: Store staff in General Trade locations are often knowledgeable about the products they sell. This fosters personal interactions between customers and sellers, allowing for more personalized service, product recommendations, and aligning with the trend seen in Vietnam's consumer unicorns

Simplified Management: Due to its smaller scale compared to Modern Trade, the managing and maintaining relationships with General Trade stores is generally more straightforward.

Disadvantages of General Trade

Limited Scale: General Trade tends to have limitations in terms of scale and may not be suitable for businesses targeting larger markets or selling high-volume products.

Inadequate Tracking: Monitoring sales performance and inventory in small General Trade outlets can be challenging and less efficient compared to Modern Trade.

Definition of Modern Trade

Modern Trade, also known as Modern Retail, typically includes large supermarkets, retail chains, and shopping malls. Here are the strengths and weaknesses associated with Modern Trade

Advantages of Modern Trade

Large Scale: Modern Trade allows you to access a vast consumer base within a short span of time. This is particularly beneficial for fast-moving consumer goods (FMCG) and products meant for mass consumption.

Advertising Opportunities: Products in Modern Trade outlets often have opportunities for attractive displays and advertisements, capturing the attention of shoppers and potentially boosting sales.

Effortless Tracking: Modern Trade outlets usually employ advanced inventory management systems, making it easier to monitor sales figures and product choices.

Disadvantages of Modern Trade

High Financial Requirements: To access Modern Trade channels, significant investments are often necessary for advertising, promotion, and negotiating with large retail chains.

Intense Competition: Due to their larger scale, Modern Trade outlets attract intense competition, particularly from well-established brands.

Complex Relationship Building: Striking deals with major retail chains can be complex and time-consuming, requiring substantial negotiation skills.

Comparisons between GT and MT

Now, let's delve deeper into the comparison between General Trade and Modern Trade based on various key factors

Scale

General Trade: Ideal for small to medium-sized businesses with localized products. It's not suitable for products with high demand or broader target markets.

Modern Trade: Suited for businesses aiming to reach a vast consumer base quickly. Ideal for mass-market products with high volume.

Personal Interaction

General Trade: Offers the advantage of personal interactions between customers and sellers, which can lead to better customer relationships and loyalty.

Modern Trade: While personal interactions may be limited in larger stores, Modern Trade focuses on convenience and variety.

Management

General Trade: Easier to manage due to the smaller number of outlets and simplified operations.

Modern Trade: Requires advanced systems for inventory management, which can be more complex but efficient.

Costs and Investments

General Trade: Generally requires lower initial investments, making it accessible for smaller businesses with limited budgets.

Modern Trade: Demands substantial investments for marketing, advertising, and negotiating with large retail chains.

Competition

General Trade: Faces moderate competition at the local level, primarily from similar-sized businesses.

Modern Trade: Encounters fierce competition from well-established brands and businesses vying for shelf space.

Customer Reach

General Trade: Effective for reaching consumers in various locations, including rural and remote areas.

Modern Trade: Targets urban and suburban consumers, offering convenience and a wide product selection.

Inventory Management

General Trade: Inventory tracking can be less precise and may require manual efforts in smaller outlets.

Modern Trade: Employs advanced inventory management systems, ensuring accurate tracking of sales and stock levels.

The choice between General Trade and Modern Trade of consumer depends on various factors such as your product, marketing goals, and budget. General Trade is ideal for localized businesses with limited resources, while Modern Trade suits those aiming to quickly access a broad consumer base for mass-market products and can be combined with e-commerce for prospects of Vietnam’s consumer unicorn. Understanding your target audience and aligning your distribution channel choice accordingly is crucial for success in today's competitive market.

Trends of MT in Vietnam

Overview of trading channels in Vietnam

Vietnam's economic journey has been nothing short of remarkable, with its GDP consistently outpacing global averages at 5.9% over the past ten years but less impacts from COVID-19 pandemic. This economic prosperity has led to a notable increase in disposable incomes, creating a new middle class, mostly located in urban areas, eager to embrace new consumption experiences with high quality products. According to McKinsey, over 30 million Vietnamese consumers now belong to this middle-class segment, showcasing their increased purchasing power and aspirations.

The PwC survey named Global Insights Pulse Survey: Vietnam cut – Consumers adapt to the evolving market released in April 2023 underscores this trend, revealing that 66% of Vietnamese consumers are optimistic about their future financial prospects. This optimism fuels an inclination towards spending on lifestyle improvements, such as travel, leisure activities, and premium products, making suitable conditions for the development of Vietnam’s consumer unicorn.

Vietnam's consumer market is diversified by two primary distribution channels: General Trade (GT) and Modern Trade (MT). GT, represented by traditional markets and local shops, offers wide accessibility and personal interactions with store staff. These local shop owners are mostly individuals, selling their goods at one specific location. On the other hand, MT includes large supermarkets and retail chains, providing access to a vast consumer base with advanced inventory management, attracting both domestic and international players.

Both McKinsey and PwC agree that GT is popular in rural areas, while MT appeals to urban and suburban consumers. PwC reveals that 67% of respondents prefer to shop at supermarkets and hypermarkets, indicating the development of MT in Vietnam.


Source: Cimigo

A report named Vietnam Consumer Trends 2023 by Cimigo sees the development of Modern Trade along with E-Commerce year to year, with 9,071 modern outlets in 2022. While modernity is embraced, traditional values, along with the influence of Vietnam's consumer unicorns, continue to hold sway in Vietnam's consumer market. Consumers are increasingly discerning, preferring products that align with their values and offer authentic experiences. McKinsey's research indicates that trust is a key factor in purchasing decisions, with 63% of consumers valuing brands that are reliable and transparent.

This preference for quality and authenticity extends to food and beverages, with PwC's survey revealing that 85% of Vietnamese consumers are willing to pay more for premium and organic products. This presents opportunities for brands to tap into the growing demand for healthier and ethically sourced offerings.

A notable player in Vietnam's modern trading landscape is WinCommerce, a subsidiary of Masan Group - one of Vietnam's consumer unicorns. WinCommerce with over 3,500 WinMart/WinMart+/WIN stores across Vietnam has become one of the leading corporations in the retail industry. Interestingly, these stores are well-connected with other products and services under the Masan Group’s ecosystem from chilled meat (MEATDeli), fruits and vegetables (WinEco), banking (Techcombank), telecommunications (Wintel), medicines (Dr.WIN), F&B (Phuc Long) and more to come. With the WIN Membership program, over 6 million Vietnamese consumers now can enjoy a 20% discount on every purchase of MEATDeli and WinEco. This approach preserves the connection between consumers and the source of their products while offering the convenience of a modern shopping environment.

In terms of impact, modern trading drives economic growth by creating jobs, encouraging innovation, and contributing to the retail sector's expansion. It also facilitates the integration of local producers into larger supply chains, boosting agricultural and manufacturing sectors. WinCommerce has their promotion programs continuously throughout the years, from domestic agriculture products to imported goods. These massive business activities and wide range of products has made WinCommerce to be known as a Consumer Unicorn in Vietnam.

E-commerce in Vietnam

The tech-savvy nature of Vietnamese consumers, driven in part by the influence of Vietnam's consumer unicorns, is driving a digital revolution within the country. With the rise of smartphones and affordable internet access, e-commerce is taking center stage. McKinsey's research shows that online spending in Vietnam has been growing at an impressive compound annual growth rate (CAGR) of around 40%.

Interestingly, PwC's survey indicates that Vietnamese consumers are highly receptive to online shopping, with 87% of respondents having made at least one online purchase in the past year. This openness to e-commerce is further propelled by a young and digitally fluent population, with a median age of around 30 years.
As the digital landscape evolves, so does the role of social media and digital content in shaping consumer decisions. McKinsey highlights that Vietnamese consumers are avid users of social media platforms, using them not only for social interaction but also for product research and discovery. Around 60% of consumers in Vietnam turn to social media for inspiration on what to buy.

Furthermore, PwC's survey emphasizes the significance of influencer marketing in Vietnam. A staggering 84% of respondents stated that they are influenced by online reviews and recommendations when making purchase decisions. This underscores the importance of a strong digital presence for brands looking to capture the attention of Vietnamese consumers.

The market research GWI in their infographic shows that Vietnamese consumers has experienced their online purchases with the same or even higher ratio than the global one in some specific products. They also demand their brands to be Smart (56%), Reliable (54%) and Authentic (52%).

Vietnam's economic landscape is evolving rapidly, driven by technological advancements, and changing consumer preferences. At the forefront of this transformation is modern trading, a dynamic sector that encompasses various retail formats and online platforms, including those of Vietnam’s consumer unicorns. Apart from physical stores, consumers of WinCommerce can also purchase online with the help of customer services.


The e-commerce sector has experienced an explosive growth trajectory in Vietnam, reshaping the way people shop. Lazada, a well-established e-commerce platform, stands as a prime example of this revolution. Lazada offers a diverse range of products, from electronics and fashion to home essentials. Its user-friendly interface, secure payment options, and efficient delivery services have made online shopping accessible and appealing to millions of Vietnamese consumers.

Lazada's monthly shopping festivals like 8.8 or 11.11, modeled after the global Singles' Day event, have become a phenomenon in Vietnam. During these events, shoppers enjoy massive discounts and promotions, resulting in skyrocketing online sales. The success of events like "11.11" of Lazada and other Vietnam’s consumer unicorns highlights the significant role e-commerce plays in modern trading and its ability to captivate and engage consumers on a large scale.

Vietnam's consumer market is undergoing a fascinating transformation, fueled by rising incomes, digitalization, and a blend of traditional values and modern aspirations, with a notable influence from Vietnam's consumer unicorns. As the middle class expands and embraces e-commerce and digital content, businesses have a golden opportunity to capture the hearts and wallets of Vietnamese consumers. Understanding these trends, preferences, and behaviors is crucial for brands aiming to thrive and become a Vietnam’s consumer unicorn in this dynamic market. As Vietnam continues to evolve, its consumer market stands as a testament to the nation's journey towards prosperity and innovation.

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