Vietnam's food and beverages update

A growing middle class, urbanization and higher standards of living are expected to continue to drive long-term growth in Vietnam's food industry. Increased consumer spending, lifestyle changes and urbanization have made Vietnam an attractive retail market for food exports. Also Finnish food and beverages have been promoted in Vietnam. Potential sectors for Finnish exports include meat, fish, berries, oat drinks, alcoholic drinks and dairy products.

In April 2023, Vietnam's population reached 100 million people, ranking 15^th among the most populous countries in the world, 8^th in Asia and 3^rd in Southeast Asia (after Indonesia and the Philippines). With 100 million people, a large and growing population will inevitably lead to large-scale production and consumption. This is also one of Vietnam's main strengths in the food and beverage sector.

Besides the growing number of foreign businesses, the increase in consumer spending, lifestyle changes and urbanization have made Vietnam one of the most attractive retail markets in the world. Vietnam's retail industry is estimated to grow from USD 246.65 billion in 2023 to USD 435.59 billion in 2028. The compound annual growth rate (CAGR) of Vietnam's retail market is expected to be 12.05% in the period 2023 - 2028.

As one of the fastest growing economies, Vietnam is still predicted to grow annually at around 5.8 - 6.8% over the next few years (2024 – 2028). Income per capita will reach USD 3,062 in 2023 and is expected to increase rapidly. Strong economic growth, increased foreign investments, benefits from free trade agreements, a growth of the middle class (fastest in Southeast Asia), urbanization and higher standards of demand continue to drive long-term sustainable growth in Vietnam's food industry. 

Distribution channels and consumer behaviour

Spending in food and beverages continues to grow in the traditional and modern retail segments as well as e-commerce in Vietnam. Western-style retail is already well established in large cities so the necessary infrastructure and logistics are already in place. In April 2023 the Vietnam Trade Promotion Agency stated that the country’s food and beverage sector is expected to witness a strong growth, boosted by robust domestic consumption. To meet the rising demand the number of domestic players in the food market has increased by more than 80% since 2019 to reach more than 5,000 currently. A growing multinational presence in the food retail sector has strengthened the acceptance of modern retail best practices in Vietnam, particularly regarding added value and in-store services.

The key players in modern food and bevarage retail in the Vietnamese market are Saigon Co. Op, Central Group, AEON group, Wincommerce, Lotte Mart and MM Mega Market. Besides hypermarkets, supermarkets and department stores, convenience stores are popular places for residents to purchase everyday products. These shops are typically within the walking distance of customers. Some of the most famous convenient store chains in Vietnam are Intimex, Co.opmart, WinMart, Citimart, Circke K and L’s Place. All those convenient stores and supermarkets in Vietnam offer more or less similar items and goods for shopping. Nearly 70% of convenience stores in Vietnam belong to foreign companies. Although local brands have more stores than foreign names, their market share is much lower. Supermarkets are increasingly becoming the favorite distributor in Vietnam, and apart from Vietnamese-owned supermarkets, a growing number of foreign retailers and wholesalers are entering the Vietnamese market.

Vietnamese prefer fresh vegetables and fruits, and modern retailing outlets thus aim to offer fresh products that can compete with goods sold in the wet market. One key factor why Vietnamese consumers choose to shop in traditional markets (mostly the older generation) is because they can buy ingredients in smaller portions. In response to this, supermarkets are offering ready-to-cook packages that are better suited with the daily needs of an average consumer.

Vietnamese consumers, particularly the young and affluent, have a fairly good brand awareness by standards. As the young population with improving incomes have an increasing popular habit of buying processed foods, Vietnam is expected to rise to top 3 in Asia in terms of food and beverage development. With incomes on the rise and changing lifestyles particularly in urban areas, more Vietnamese are willing to pay higher prices for higher-quality foods at modern stores.

Given the rising income levels, consumer tastes are expected to gradually move towards higher-value food and beverage segments, which will create a growing audience for branded products. Food and beverage from Finland have opportunities to enter into the Vietnamese market in light of the fact that Finnish food and beverage have premium quality of the EU standards, which usually comes with higher prices. Ready-to-eat products and smaller packaging size items would fit well Vietnamese customer behavior trends. The targeted channels for distributing Finnish food and beverage are modern channels, such as hypermarkets, supermarkets, department stores, and e-commerce, which is largely driven by the rise in the number of smartphone users and internet penetration. Nevertheless, distributors with convenience stores should also be approached.   

Food

In 2023, the food sales in Vietnam are expected to grow by 10.6% year-on-year, on a par with the 10.7% year-on-year growth recorded in 2022. The fastest-growing food segment is projected to be fresh and preserved fruits. Spending on these products is set to increase by an annual average of over 11% year-on-year during the period of 2023 – 2028.

Vietnamese consumers are becoming increasingly health conscious, as major dietary spending shifts indicate a steady increase in spending on food items that have proven to have health benefits in scientific studies. Fresh and preserved fruits are the fastest-growing category, growing by 16.1% per year. This growth is seen in the proportion of fresh and preserved fruits of the total food spending increase. Conversely, sugar and sugar products increase at 7.1% average growth per year. The outperformance of fresh fruits spending and the relatively weak growth in spending on sugar show that consumers in Vietnam are increasingly health-conscious, with priority given to spending on healthier foods. Despite having an abundance of fruits domestically, in recent years Vietnamese consumers are consuming more imported fruits. They are perceived to be of a higher quality and safety standard than domestically produced ones, although they are generally more expensive. Finland has not entered into the negotiation protocol for market access of fresh berries. Nevertheless, frozen berries with minus 18 degree Celsius or ready-to-eat dried berries are able to enter and potential for the Vietnam market.

Youthful population, growing convenience and healthification trend support dairy consumption. Demand for hig-protein and high-energy food, such as dairy products, have increased over the years, as Vietnamese consumers are increasingly paying more attention to their food choices as part of the healthification trend. This awareness on the health effects of food is increasing in Vietnam, as the government rolls out initiatives to improve the general population’s knowledge of health, such as educational television programmes explaining the function of calcium intake to increase bone strength and supporting a dairy-rich diet nationwide for children’s development. Additionally, the large size of Vietnam’s youthful population will support demand for convenience products. As a result, demand for high protein and high energy food, such as dairy products, have increased significantly. Spending on dairy products will grow by an annual average of 14.1%, with an increase of total milk consumption (liquid milk and whole milk powder). Yoghurt is undergoing a similar growth trajectory, due to its relative affordability, ease of consumption and health benefits it provides. Spending on yoghurt products grows by an annual average of 14.2%. High protein drink application for aging adults, infant nutrition and dairy bases solutions are potential products from Finland to the Vietnam market. 

The lower-income group in Vietnam spends a bigger proportion of consumption on staples (bread, rice and cereals). Rice in Vietnam remains as a staple food and main source of calories due to its affordability. Wealthier households consump and spend more on meat (pork, beef and poultry). Pork remains the most consumed meat, while the consumption of poultry grows due to rising income levels and affordability. According to the Organization for Economic Cooperation and Development (OECD), Vietnam is currently one of the world’s leading pork consumers and each Vietnamese person consumes approximately 27.7 kg of pork. By 2029, this figure could rise to 32.7 kg and surpass South Korea and China to take the lead in global per capita consumption. The consumption vs production ratio of 105.4% means that domestic pork production only meets 95% of pork consumption demand. Additionally, consumer tastes and preferences are shifted towards the higher-value food, which promises a receptive and growing audience for branded products. These are opportunities for meat exports e.g. in the categories of pork and poultry from Finland to enter into the Vietnam market, once the the official authorization to export these products has been completed.

The decline in spending on fish and fish products is due to the lower annual inflation of fish prices, compared to other food products, such as meat and poultry, and not as a result of decreasing fish consumption. Vietnam has one of the largest domestic fish markets and is one of the top fish exporters in the world. Pangasius freshwater fish (catfish) is the top consumed fish locally due to its affordability. Catfish is inexpensive as it grows fast, is easily harvested and processed in factories near the farm, which helps to keep prices lower. The imported fish, mainly salmon and salmon products, is very popular in modern trade outlets (e.g. supermarkets and hypermarkets). Salmon from Norway, Australia and Chile are dominant the market. There is still an opportunity for Finnish rainbow trout to enter the market via high-end channel in the modern trade outlets due to the higher price compare to the existing imported product.   

Beverages

With a rapidly expanding middle class and massive tariff reductions from 17 existing free trade agreements, Vietnam is also poised to experience significant growth in its beverage industry. In 2023, non-alcoholic drinks spending growth is expected to come in at 9.4% year-on-year to take total spending to EUR 1.84 million. The outperforming non-alcoholic drinks segment is expected to be carbonated drinks, with spending on these products forecast to rise by an annual average of around 10% to 11%. In addition to soft drinks, bottled teas, sports drinks, oat drinks and milk represent growing subsectors of the beverage industry, particularly for a population that is increasingly health conscious. Competitive pressure is increasing rapidly in the drinks sector, which is likely to drive greater dynamism and growth in the sector. Nevertheless, these are opportunities for Finnish soft drinks and oat drinks.  

The Vietnamese consumer has historically opted for cheaper beer products over wine. Beer consumption per capita is about 68 litres in 2023, but local firms continue to dominate the beer market despite the growing presence of multinationals. The average Vietnamese adult consumes just 0.3 litres of wine per year (2023 estimate). However, with a population of 100 million, Vietnam's total wine consumption is relatively high, with the market offering the third-largest in wine in the region, at 16.4 million litres in 2023. Wealth accrual among Vietnamese consumers is shifting consumption habits towards higher-value alcoholic drink products, and this trend is particularly evident in urban centres such as Ho Chi Minh City, Hanoi and Da Nang.

In 2023, alcoholic drinks spending in Vietnam is estimated to grow by 10.7% year-on-year. Alcohol consumption in Vietnam is projected to grow by 4.6% in 2023 to 4.2 billion litres. Spirits consumption will see the fastest growth, averaging 11.0% to 12.0% a year from a low base, with sales being driven by higher-income consumers and their shift in tastes. In March 2023, the beverage sector in Vietnam called for a delay in the country’s proposed tax increase on alcohol stating that the industry is at risk from high inflation, increased material costs and low demand. Alcohol, tobacco and sugary drinks could be subject to an increased excise tax aiming to improve community health. Alcoholic drinks including gin and whisky are potentials for Finnish brands.