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Local beauty care brands must change to compete

Released at: 08:11, 20/05/2018

Local beauty care brands must change to compete

Photo: Viet Tuan

Local brands need to change their ways to compete with foreign brands in Vietnam's beauty and personal care market.

by Huyen Thanh

Walking out of a hairdressing salon on Dao Tan Street in Hanoi, 24-year-old Ms. Ngoc Linh felt quite pleased with her new curly blonde hair, despite the VND1.5 million ($65) price tag. This was the third time in the month of April she had spent money on hair care, which she would never have done two years ago. “Japanese technology and hair care products are suitable for my hair, so I’m happy to spend money on it,” she said happily. “Everything feels better.”

Potential for foreign brands

Vietnamese are definitely spending more on hair care. Recording healthy growth annually, Vietnam’s cosmetics industry holds great promise for foreign firms seeking to expand overseas, according to Nielsen Vietnam. While nominal growth in total personal care in traditional trade increased 1.5 per cent in 2017, compared to 5.2 per cent in 2016, the personal care category saw a boom in terms of modern trade channels, up 9.2 per cent across modern stores (supermarkets / hypermarkets, convenience stores, minimarts, modern pharmacies, and personal care stores). “Our research also indicates that demand for beauty products in Vietnam remains quite modest, with per capita spending at $6 a year on cosmetics compared to $20 in Thailand,” Mr. Nguyen Anh Dzung, Executive Director of Retail Measurement Services at Nielsen Vietnam, told VET

Vietnam is a key market in the region for cosmetics companies, especially those from South Korea and Japan, he added. New players from Thailand are also on the way and will compete directly with existing local and global brands.

Behind the bling - defining the new ‘premiumness’?

Source: Premimumisation Report, 2016. Data is for Vietnamese consumers

Foreign brands dominate in all categories of the cosmetics industry. Unilever and P&G alone hold up to 80 per cent of the market share, according to a survey conducted by Kantar Worldpanel in four main cities and rural areas in 2017. Unilever Vietnam’s revenue growth in home care products in urban areas last year was estimated at 5.3 per cent and 4.4 per cent in rural areas. The rate was even higher than total fast-moving consumer goods (FMCG) growth. According to the giant, every day 35 million Vietnamese people consume its products, including shampoo and conditioner. The rising growth in the FMCG market is thanks to Vietnam’s rising middle-income earners, which has led to changes in consumption as well as the development of modern retail channels and e-commerce. 

Seeing the potential in the market, more foreign brands have acquired domestic brands via M&A deals to quickly take market share. Marico India bought an 85 per cent stake in the Vietnamese maker of the leading male-grooming brand X-Men, International Consumer Products Corporation (ICP), in 2011. Established in 2001, ICP is one of the fastest-growing personal care and home care companies in Vietnam, growing at 23 per cent per annum. Marico’s International Business Group’s CEO Vijay Subramaniam told foreign media that the acquisition strengthens its presence in the male-grooming space and is a good strategic fit. At the same time, Unicharm Corporation, through its subsidiary Uni-Charm (Thailand) Co., completed the purchase of 95 per cent of Diana JSC, a leading Vietnamese feminine hygiene brand.

The latest move came from Japan’s Takara Belmont Corporation, which purchased 97 per cent of leading hair and cosmetics maker the Ngu A Chau Service Production Trading JSC (NAC). Established in 2006, NAC is one of only a few domestic hair cosmetics producers. Its KANAC-brand products, including hair dye, shampoo, hair masks, and hair wax, account for 10 per cent of the market and are distributed in 200 agencies and 35,000 hairdressing salons nationwide. Meanwhile, with 100 years of experience in Japan, Takara Belmont is one of the leading brands in salon and spa design and salon and dental equipment. “We expect KANAC will become the No. 1 brand in the hair care industry in Vietnam and other regional countries,” Mr. Keisuke Kobayashi, CEO of the Takara Belmont - Ngu A Chau JSC, told VET

Nowadays, Vietnamese people are increasingly influenced by Korean and Japanese cultures via film, music, and game shows, and artists from the countries have become role models as well as key opinion leaders (KOLs) for Vietnamese millennials and Gen Z. Many cosmetics brands from South Korea and Japan are therefore seeking to expand or establish a foothold in Vietnam, according to Mr. Dzung. 

International franchises in Vietnam

Source: Opportunities for Organic Cosmetic Products, Nielsen, 2017

Much to do

International brands have for many years dominated beauty and personal care in Vietnam due to their strong financial capacity, broad distribution networks, and dynamic marketing strategies. Players such as Johnson & Johnson, Unilever, and P&G Vietnam, with their reliable brands, have become familiar among consumers and are perceived to offer high-quality products, according to Nielsen.

Everything seems to correlate with “organic”, “detox” & “homemade”

Source: YouNetMedia socialheat, April 2017

Though Vietnam is a market of great potential due to its huge population and growing economy, it remains difficult for domestic companies like NAC, Lan Hao (Thorakao), and Miss Saigon to compete, given their comparatively limited financial resources and product ranges. They hold advantages in understanding local consumption demand, so focus on quality, and they also possess strong distribution networks in rural areas. But they don’t use eye-catching packaging or viral communications campaign to enhance their brand reputation.

Meanwhile, intentional companies are continually launching major communications campaigns on TV and the internet and using KOLs to maximize their presence in the market. “Local brands are stuck in the traditional way of communicating with consumers and need to invest more in innovation,” said Mr. Dzung. For example, turmeric, aloe vera, coconut and other products are popular in Vietnam and considered precious commodities. However, domestic firms have only ever sold them in their raw form and neglected extracting their essence for the production of higher-end products. “Change will therefore be the keyword for local firms who want to compete directly with international companies and capture the opportunities to enhance their business,” he emphasized. 

On the other hand, goods being imported in luggage by those coming back to Vietnam from overseas became a trend in 2015 and have continued to grow dramatically due to huge demand among Vietnamese consumers and the large profits to be earned, according to Nielsen. Many are sold via Facebook and online shops. 

In the context of a tough market, the Takara Belmont - Ngu A Chau JSC, with its KANAC brand, has determined it has a lot of work to do to win the trust of Vietnamese consumers and further its business growth. Under its short-term strategy, it will focus on research and development, applying Japanese technology and operations in order to improve quality and safety. “At the same time, we also focus on education to make the industry improve and broaden our sales network close to salons,” said Mr. Kobayashi. 

With the advantages of NAC’s distribution system and manufacturing facility, as well as the well-known KANAC brand, its goals are considered perfectly feasible, according to local industrial insiders. Japanese hair is similar to Vietnamese, while Western hair is completely different, according to Mr. Nghia Tin, a Hosana hairdressing salon chain owner in Hanoi. “Hair care products from Japan are therefore more suitable for Vietnamese people than Western products,” he said. 

With rising consumer demand, the beauty and personal care market is expected to be increasingly competitive into the future. “It’s important for cosmetics companies operating in Vietnam to identify the best ways to approach consumers and make them open their purses,” Mr. Dzung said. 

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