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Source: Financial Times

Aspiration drives sales in Vietnam

Trinh Vinh Ha is 26, carries a diamond-studded mobile phone, and last month his showroom in Hanoi sold eight Bentleys at $680,000 each.

Trinh Vinh Ha is 26, carries a diamond-studded mobile phone that complements his diamond-studded watch, and last month his showroom in Hanoi sold eight Bentleys at $680,000 each.

A Bentley on the street of Hanoi

This is the new face of the Socialist Republic of Vietnam.

“People have no problem spending money,” says Xavier Codron, the managing director of Budweiser beer in Vietnam. “They want to show they are part of the international market. This is not the image of poor Vietnam – the boat people image? They don’t want to hear it.”

Vietnam, like China, has all but jettisoned the economic dogma that condemned it to a decade of economic misery after the end of the war in 1975. It joined the World Trade Organisation three years ago, but investors who once regarded the country’s 90m people merely as a source of cheap, well-disciplined labour to build exports now see them as an increasingly lucrative market in their own right.

Over the past 20 years, Vietnam’s economy has almost quadrupled in real terms. It has averaged 7.75 per cent annual growth, and even last year, at the height of the financial crisis, managed 5.8 per cent.

This year Vietnam expects to achieve another milestone, when gross domestic product per capita passes $976 and it officially becomes a middle-income country. As incomes have grown, new opportunities have opened for international brands.

Omo, Unilever’s ubiquitous washing powder, controls some 60 per cent of the detergent market; Nokia makes almost 50 per cent of the mobile handsets sold in the country; and Heineken is the premium beer of choice. But the long-standing dominance of these first movers is being challenged.

Premium beer is one example. The Vietnamese market is expected to increase 33 per cent over the next three years, a trend that has attracted a flood of new investment.

Japan’s Sapporo is due to open a brewery this year, buying a 65 per cent stake in a brewing operation that had been set up by Carlsberg; Carlsberg has in turn raised its stake in Hanoi Brewery Company to 30 per cent; SABMiller is already selling domestically brewed beer; and Anheuser-Busch InBev’s Budweiser brand is hoping to break ground on a new brewery this year.

“The brand left Vietnam with the troops in ’75,” says Budweiser’s Mr Codron, but in spite of having no profile when it returned 18 months ago, Vietnam has become Budweiser’s largest market in south-east Asia, although Mr Codron declines to discuss volumes.

Aspirational brands like Budweiser have succeeded by appealing to the dreams of a younger generation unencumbered by the scars of the fight for independence.

“The biggest change is demographic. Some 57 per cent of the population is under 25: consumers who don’t really remember the war and the hard times,” says Ralf Matthaes, the managing director of TNS, a consultancy that monitors consumer trends.

But Mr Matthaes says the aspirational purchases by upwardly mobile youth are only part of the story of why international brands have done so well.

“The reason that foreign brands were dominating in the past is that Vietnamese companies didn’t know how to market, and Vietnamese consumers don’t trust Vietnamese products for quality, but that is beginning to change,” he says.

Until recently, the Hanoi Brewery Co, or Habeco, was content to plod along producing Bia Ha Noi, a raw, if idiosyncratic brew based on a recipe given to them by the Czechs 50 years ago. But in 2007, it diversified with Hanoi Beer, a lighter product in a smaller bottle that comes with an English-language label – and costs 50 per cent more.

But in spite of the success that many premium brands such as Hanoi Beer and Budweiser are enjoying in Vietnam, Mr Matthaes says that newcomers need to be cautious.

“Brands have become very aspirational, but people tend to overvalue the size of the market in terms of what people can afford,” he says.

“Although there is part of the population that is ordering Rolls Royce Phaetons for $1.4m each, there are still a lot of poor people.”

Content link: https://dtinews.dantri.com.vn/vietnam-today/aspiration-drives-sales-in-vietnam-20100601091928000.htm