Vietnam's cosmetics market has great potential for further growth but is very much dominated by international brands.
Sparkling advertising images for cosmetic brands seen in Hanoi department stores like Parkson Thai Ha and Trang Tien Plaza may be quite eye-catching but sales are a little less luminous. “We only sold one lipstick today,” a shop assistant at a major foreign cosmetic retailer who preferred to remain anonymous told VET. “Some days we sell nothing at all, though many people come in and ask about our products. In the last two years our turnover has fallen because of the economy.”
According to Kantar Worldpanel Vietnam, Vietnam’s cosmetics market has been growing, coming in at 5 per cent in September 2014 against September 2013, mostly due to an up-trading trend towards the super-premium segment. “The market still has big opportunities to grow further in Vietnam as the number of consumers remains quite limited with low spending per consumer,” said Mr. Nguyen Huy Hoang, Business Development Director of Kantar Worldpanel Vietnam.
Ms. Le Chau Giang, Senior Director and Head of Regulatory and Medical Affairs at Johnson & Johnson, is of a similar mind. “The market is still under developed so opportunities exist in all segments,” she told local media recently. “More than half of Vietnam’s 90 million people are aged 30 or under and this demographic tends to favor more sophisticated products and brand names.”
A report from the Chemical Cosmetic Association in Ho Chi Minh City noted that Vietnam’s cosmetic market is dominated by international brands such as Shiseido, Estee Lauder, L’Oreal, Clinique, Clarins, Maybelline, Oriflames, and The Body Shop, to name just a few. Some foreign brands also have production bases in Vietnam, like Olay, Pond’s and Shiseido. Meanwhile, only a few Vietnamese brands are visible in the market, such as Saigon Cosmetics, My Hao Chemical Cosmetics, and Thorakao of the Lan Hao Company.
Industry observers said that Vietnam’s cosmetics market has long held potential for foreign manufacturers and brands. “The simple reason is that among cosmetics users there is a tendency to research and trust brands that have history and legacy and are endorsed by well-known people,” Mr. Hoang said. These factors can be seen in the success of foreign brands from Western countries and Japan and South Korea over recent years.
Moreover, consumer tastes and preferences for more sophisticated products are maturing and shifting towards quality brand names. This is especially so with young consumers. Companies already in Vietnam recognize the market’s future potential and are advertising aggressively. To capture more market share, local manufacturers are investing in more research and development activities as well as marketing and distribution activities to compete with superior international brands. However, according to Ms. Nguyen Kim Thoa, Chairwoman of the Ho Chi Minh City Chemicals and Cosmetics Association, it is difficult for Vietnamese cosmetic brands to compete against foreign products as most domestic producers are of small and medium size and lack capital for investment in technology, product development, and trademark promotion.
Additionally, most cosmetics made in Vietnam are distributed at traditional and outdoor markets while foreign cosmetics brands are showcased in high-class commercial complexes. “In order to be able to compete with international brands, local brands need to have a long history and legacy and be able to build trust among users, proving their products scientifically and extensively distributing them to the market,” Mr. Hoang said.
The biggest advantage Vietnamese cosmetics producers have is abundant and diverse material sources - essential oils, aromatherapy, lemongrass, and anise - which are traditionally favored by Vietnamese. People all over the world nowadays favor cosmetics made from natural essences. Stories about Thorakao and Thai Duong are typical examples that prove Vietnamese brands can also succeed if they follow the right path.
Ms. Giang sees that Vietnam is home to a number of herbal and natural ingredients favored by both Vietnamese and Western consumers, so she expects to see foreign companies operating in Vietnam and domestic manufacturers using these ingredients as inspiration for innovation. “This will result in local manufacturers spending more money on the research and development of new skin care products, as they look to use their more comprehensive domestic knowledge to gain an advantage over global manufacturers,” she said. They also need effective strategic plans to be able to compete with superior international brands in the country.
Potential for growth
Compared to Thailand or other more-developed markets like South Korea and Japan in Asia, Vietnam’s cosmetics industry is still far behind regarding market penetration, complexity of cosmetics offerings, usage behavior, and spending levels.
Vietnam is predicted to continue its robust development in beauty and personal care in the future. The country has great potential for growth, with a young population and an untapped market in rural areas. Consumers, especially those living in urban areas, are expected to see greater exposure to product benefits and use and therefore have a more sophisticated demand for beauty and personal care products. Value growth and product availability are both expected to be strong in the coming years.
However, cosmetics manufacturers in Vietnam may face certain challenges, such as developing their consumer base, consumer education of the benefits of cosmetics, building regular usage habits among existing users, tackling the presence of fake cosmetics, and the effects of limited distribution networks.
With steady growth in Vietnam’s economy, more people are entering the middle class and have higher disposable incomes and a greater preference for taking care of their appearance. It is expected that the country’s cosmetics market will grow further by focusing on winning over new consumers and then enhancing education in the use and benefits of cosmetics.