1 June 2017
Global Brands Battle to Carve Up Robust Vietnamese Cosmetics Market
Home to increasingly affluent young consumers, who have yet to develop true brand loyalties or prejudices, it is perhaps unsurprising that Vietnam should have emerged as a keen battleground for the world's premier cosmetics companies.
With its youthful population, rapid economic growth and a consumer base as yet unwedded to particular brands, Vietnam is a temptingly blank canvas for global players looking to nurture a ready market for their particular offerings. In no sector is this more true than the cosmetics business, which goes a long way to explaining the massive overseas presence at the Cosmobeaute Vietnam 2017 trade event.
Indeed, growth prospects in the Vietnamese cosmetics sector are widely acknowledged as substantial. According to Mintel, the London-headquartered market research group, Vietnam's beauty and personal-care retail market was worth US$1.7 billion in 2016 and is expected to be valued at $2.35 billion by 2018.
Despite the relative unsophistication of the market, however, it is not without its regional variations. Highlighting the segmentation as he sees it, Frederic Charles, the Vietnamese distributor of Think Nature, a South Korean hair-care brand, said: "The Vietnamese market is roughly divided into three. Firtsly, there is South Vietnam, where most buyers are price-driven. Then there are a number in the mid-price range, typically in the hotels and resorts that cater to the kind of international clients willing to pay more for a quality product.
"Finally, there is North Vietnam, the best market for our kind of premium products. People in Hanoi understand quality and they're willing to pay higher prices for superior formulations, which is why we primarily targetted that particular area."
Regional variations aside, one area on which the overseas brands can capitalise is the relative unsophistication of the domestic cosmetic industry. Acknowledging this, Alex Chuang, Manager of UCan Biotechnology, a Taiwan-based manufacturer of skin-care and spa products, said: "Most of the local brands either operate on a smaller scale or their advertising doesn't project a premium feel. Their advantage, though, is that they clearly have a better understanding of the local market."
Chuang's view of the domestic brands was echoed by Tran Thi Thu Hien, Marketing Manager of Nanum Vietnam, which also distributes the Think Nature range. Assessing their limitations, he said: "The local brands are fine for price-conscious purchasers. They have basic formulations, come in a limited product range, are not widely distributed and tend to just use plain packaging. Of course, many buyers want something else."
As well as the lack of domestic competition, overseas brands have also benefitted from a number of advantageous trade policies. At present, Vietnam is party to 16 free-trade agreements, resulting in few import tariffs for cosmetics and a minimum of trade barriers.
Indeed, this liberalised trade regime has also proved a boon to the cosmetics sector in a number of indirect ways, at least according to Phan Van Trung Hieu, a Director of Sansho Vietnam, a distributor of premium Japanese skin-care products. Expanding on his thinking, he said: "The greater prominence of foreign brands in the clothing, electronics and other luxury sectors is exposing more and more Vietnamese people to premium alternatives. It's shaping people's brand choices and impacting on their beauty routines and preferences."
This seems to borne out by a recent report from the Ho Chi Minh City Society of Cosmetics Chemists, which shows that overseas brands currently account for a 90% share of the Vietnamese market. Breaking this down further, South Korea has a 30% share, followed by the EU (23%), Japan (17%), Thailand (13%) and the US (10%).
Such figures, however, are not only bad news for the local brands, but they are also a little daunting for the smaller overseas players, who tend to lack the promotional spend to take on their more established global rivals. One company struggling to contend with this is Thailand-based Sucha, a start-up manufacturer of 100% organic skin-care products.
Highlighting the particular challenge facing his company, Co-founder Suchavadee Wiboonongoonv said: "I firmly believe that smaller businesses, like ours, can compete directly with the big international brands in terms of product quality and service. We don't, however, have big marketing budgets, so inevitably we are lesser-known."
Yoo Jin Lee, the Brand Director of Tamlatamanu, a South Korean skin-care products business, sees part of the solution as capitalising on the established reputation of his country's products. He said: "As a Korean brand, we have the advantage of being associated with an existing range of trendy, effective and sophisticated products.
"For our part, our key strengths lie in our investment in technology. We take R&D very seriously and we know how to make our products appealing. These are resource-intensive activities so we know that others can't easily compete."
A similar approach has been adopted by Nutraluxe, a US treatment for growing and thickening hair, including eyelashes and eyebrows. Summarising the brand's tactics, Sales Executive Trinh Nguyen said: "Through our product design and packaging, we highlight the fact that our products are from the US and that they are effective and of a high quality. As we're targetting young people, we also keep our prices affordable."
For Charles, it is proven reliability and effectiveness that helps Think Nature build market share. He said: "The majority of our products are priced in the mid to high-end range, with our labels clearly displaying all of our relevant certifications and registrations, as well as testifying to the strict quality-control standards we comply with.
"We also use local celebrities as influencers and we market online. Recently, for example, we hired a well-known local figure who was pregnant as the brand ambassador for our baby product's range, a move designed to appeal to wealthy, health-conscious mothers."
For Hieu, it is Sansho's strong focus on internet engagement that has proved the key to its particular success. Outlining his route to delivering the brand's strong online presence, he said: "I produce product review-style videos and then publish them on YouTube. I have also been actively building our audience via Facebook.
"At this juncture, it's really all about educating the market. These channels have proved their worth in terms of affecting how our target consumers evaluate potential purchases."
Although the Vietnamese beauty market has a predominantly young demographic, the demand for solutions and services from more mature consumers is on the rise. Again, this is seen as providing lucrative opportunities for overseas brands, as well as for local companies that had previously ignored the domestic market.
Coming very much into the latter category is Lac Long Mfg, a manufacturer of high-end pedicure spa chairs. Explaining how the rise of the more mature market has impacted on her business, Regional Sales Manager Sylvia Phan Minh Thuy said: "We manufacture in Southern Vietnam, primarily for export to the US and EU.
"Of late, however, our domestic sales have increased noticeably, largely because the number of nail and beauty salons that provide high-end services to older and more affluent patrons is steadily growing. We anticipate that this is a trend that will only continue."
Another sector that is benefitting from heightened demand is tattoo-removal equipment. Indeed, for Beijing Sanhe Beauty, a Chinese supplier of spa and salon equipment, it is currently its best-selling line. Providing the context for this particular sales spike, Sales Manager Kai Liu said: "The number of young people in Vietnam having tattoos, including ones on their eyebrows or lips, has increased significantly over recent years. When they are older, they are often keen to dispense with them, making tattoo-removal machines one of our most in demand items, alongside laser hair-removal machines."
As well as devices that remedy self-inflicted blemishes, products tackling more naturally occurring phenemona – most noticeably, hair loss – are also widely sought out. Commenting on the this, Heidi Nguyen, another local distributor for the Japanese Sansho brand, said: "We've found that hair loss is an increasing problem for both sexes regardless of age. As a result, products that prevent hair loss or make hair grow thicker or faster are very much in demand."
It is sentiment shared by Mercy Phan, Manager of Global J Co, an importer of Korean hair and skin-care products. Noting that demand is growing from almost every age group, she said: "Hair thinning is a widespread problem, even for young women. As a result, hair care is taken seriously in order to ward off bigger problems later on. Many of our customers also like products that help hair survive in Vietnam's notoriously high humidity levels."
In line with growing affluence and improved product knowledge, safety has now emerged as a major issue in the domestic market. This has seen the Vietnamese authorities looking to ensure that only safe ingredients are used in locally produced cosmetic products. Last year, the Vietnam Drug Administration took action against a number of domestic cosmetics brands found to have used ingredients known to have adverse side effects.
Highlighting this new sensitivity in the market, Lanny Park, Chief Executive of Tamlatamanu, said: "We find that the wealthier, more health-conscious and discerning customers are very wary of certain ingredients now. With a better understanding of skin sensitivity, people are steering clear of parabens, artificial fragrances, colourings and certain irritants, such as mineral oil. For our part, we use only plant-derived, all-natural, hypoallergenic raw materials."
According to statistics from the International Trade Center and the World Bank, the value of Vietnam's cosmetics imports rose from $500 million in 2011 to more than $1.1 billion in 2016, a figure expected to double by 2020. In the face of such data, it is understandable why so many overseas brands are keen to stake their claims in this still volatile marketplace.
Cosmobeaute Vietnam 2017 was held from 18-20 April at the Saigon Exhibition and Convention Center in Ho Chi Minh City. The event featured 190 exhibitors, representing 15 different countries and territories.
Geoff de Freitas, Special Correspondent, Ho Chi Minh City