Vietnam’s Burgeoning Middle Class set to Double

January 2, 2014 Posted by Vietnam Briefing Reading Time: 3 minutes

HANOI – A recent survey conducted by the Boston Consulting Group (BCG) has found that the middle and affluent class (MAC) in Vietnam will greatly increase in size between now and 2020, from 2 million to 33 million.

In order to project the growth of consumers and their spending, BCG’s Center for Consumer and Customer Insight (CCCI) analyzed population and income trends in nearly 1,400 areas and surveyed 2,000 urban consumers in the country.

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The survey shows that by 2020, Vietnam’s MAC population, whose income is from VND15 million (US$714) and above a month, will be two-thirds the size of that of Thailand. Furthermore, average per capita income will rise from $1,400 to $3,400 a year.

According to Unilever Vietnam’s chairman, Marijn van Tiggelen, what really makes Vietnam a distinctive case is how quickly consumers are “leapfrogging” up the ladder.

Vietnam’s emerging middle class will continue to drive the demand for consumer goods, such as clothing and footwear, household durables, communication, education and healthcare.

The Importance of Trade

The middle and affluent class depends upon economic growth and trade integration to improve its scale position.

Vietnam’s economy has been prospering for 20 years, and dramatically surged in 2007 when the country joined the World Trade Organization, placing foreign trade as the main driver of economic growth for at least a decade.

In 2012, exports accounted for 78.2 percent of GDP, up from 68.8 percent in 2008. Exports (in dollars) grew from 66.7 percent in 2011 to 86.2 percent in 2012, maintaining a 19.3 percent annual average growth from 2008. Furthermore, by 2015, the ASEAN economic community will likely be in effect, liberalizing trade and streamlining production activities in the region.

“Growth in trade and a continuous increase in [MAC] consumers with stronger purchasing power provides an optimal condition for investors to establish their businesses and solidify their brand presence,” says Hoang Thu Huyen, Country Manager of Dezan Shira & Associates Vietnam offices. “Nevertheless, it is important that companies understand the proper way to permeate this booming market in order to bring their products into households.”

Thinking Beyond Large Urban Areas

Ho Chi Minh City has an estimated population of 8.5 to 9 million people, and is considered the economic and commercial center of Vietnam. Containing the largest concentration of MAC consumers in the country, the city attracts attention from most investors.

According to Aparna Bharadwaj, project leader at BCG, the status of MAC consumers in Vietnam is not only flourishing in urban areas but also spreading to Vietnam’s rural areas and central provinces. Companies, she says, therefore need to increase their distribution systems to other provinces and cities instead of just focusing on big cities such as Hanoi and HCM City.

Consumer Optimism

Tuomas Rinne, partner and managing director of BCG, said that along with Myanmar, Vietnamese consumers were among the most optimistic in the world: more than 90 percent of consumers in Vietnam expect to live better than their parents and expect their children to live better than themselves.

Despite short-term worries about the economy, the majority of polled consumers believe that the situation will be better, and 80 percent of them said they want to increase their net purchases in the next year.

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