Research on Vietnam cosmetics market
According to ASEAN’s cosmetics definition, a “cosmetics product” is any substance or product that is used in contact with outside parts of human body (epidermis, hair system, nails, toenails, lips and external genitals) or in contact with teeth, oral mucosa, with a sole or primary purpose of cleansing, aromatizing, changing appearance and/or improving bodily smell and/or protecting or maintaining them in good conditions.
In modern life, cosmetics have become an essential product. Everyday, people use toothpaste to brush their teeth, use facial cleanser to wash their face, use sunscreen to protect their skin, use shampoo and conditioner to wash and smooth their hair, use shower gel… Everyone seems to need cosmetics products. The only difference is which brand they choose.
Dr. Nguyen Van Minh – Vice President – Vietnam Cosmetic – Essential Oil – Aroma Association.
Vietnam cosmetics market seems to be booming. Hundreds of thousands of cosmetic brands have been introduced in a variety of forms, such as representative office, branch, distributor, new company establishment and factory building. Almost all world-renown brands have been present in Vietnam. Of which, there are luxirious cosmetic brands like Estee Lauder, Lancome, Shiseido, Fendi, Lower, Clairins, L’oreal etc. Several domestic brands have also created a certain position in the market, such as Sai Gon, Thorakao, Lana, Biona, Xmen, Thai Duong etc.
Cosmetics made in Vietnam has become competitive due to the ability to exploit the advantages and target suitable segments. Vietnamese cosmetic products focus on affordable classes in both urban and rural areas. For example, Thorakao’s products have strength in cleanser lines, natural-herb extracted facial masks; Lana brand is popular with makeup remover, skincare masks; Xmen is famous for men products etc.
In future, Vietnam cosmetics market will require domestic enterprises to pay more attention to package, design, PR branding, promotion and product distribution.
Vietnam cosmetics market now has an approximate revenue of 15,000 billion VND/year (#700 million USD). According to Nielsen, the spending of Vietnamese consumers on cosmetics is not high, at averagely 4 USD/person/year, while this number for Thailander is 20 USD. Accounting for only 10% of market size, Vietnamese cosmetics companies are putting effort to take back over this attractive market. It makes Vietnam cosmetics market more potential for enterprises to exploit and consolidate their power. Vietnamese cosmetics enterprises (#14 enterprises) now can only maintain their position in low-price segment and export to neighboring markets (90% of cosmetics companies in Vietnam are distributing branches of foreign cosmetic products). Foreign cosmetics are prominent in all big shopping centers.
Real situation of domestic cosmetics enteprises
Sai Gon Cosmetics Company, with distribution channels mainly focusing on rural areas and wet markets, sells about 500,000 perfume bottles every year, with the average price of 60,000 VND/50 ml bottle. Export to Cambodia, Laos, Thailand… accounts for 40% of the company revenue. However, until now, perfume products of the company have yet been present in shopping centers, which is a disadvantage especially for beauty products. Similarly, Lan Hao – Thorakao Cosmetic Company in recent years has achieved a domestic sale growth of 30%, yet the main revenue source still comes from export.
Over years, Vietnam cosmetics companies have been trying to adopt technologies to develop, but due to their small and medium size that makes them unable to keep up with giant corporations. In luxirious class, foreign cosmetics are dominant, since domestic players don’t have enough budget for product development and branding activities.
Looking for reasons while Vietnam cosmetics companies are having inefficient operation
– Only focusing on quality but neglecting on package, design, branding…, Vietnamese cosmetics have lost in the very home market.
– Some brands identify export as their main target market, not domestic market, hence, they spend little money on promotion in Vietnam. Therefore, consumers have low awareness of even domestic high-quality products. Vietnamese consumers are not using local cosmetics because they don’t know any brands well enough. Are there too few advertisements? Vietnamese cosmetics brands and products are still to unfamiliar to consumers because of too small investment in wide-scale branding and promotion.
– Without a reputable brandname, distributions have limitations too. To women, cosmetics reflect their stylist and class. Meanwhile, Vietnamese cosmetics have not yet earned a high reputation. In addition, Vietnamese cosmetics quality are not really consistent between makeup and skincare products, leading to the fact that many consumers are using Vietnamese skincare products with essentially foreign makeup goods.
– In cosmetic industry, almost all manufacturers have to purchase ingredients from particular suppliers, for example chemicals from Germany, herbal essential oils from France, or plant, flower ingredients… from India, the Phillippines. The rest relies on each enterprise’s recipes, secrecies, formulas. Above all, the determinant is still branding strategy. According to many cosmetic experts, import products instead of import ingredients as before may be more advantageous for investment strategies.
Current opportunities for Vietnam cosmetics
Vietnam has fully implemented the ASEAN Cosmetics Document, which regulates a common rule set for cosmetics management among country members. Therefore, Vietnamese cosmetics quality is not inferior compared to many other countries.
– Vietnamese cosmetic products are becoming more professional. Staffs are well-trained, knowledgeable about products, how to use and about beauty making and can give advice on any customers’ inquiry.
– Female customers use Vietnamese cosmetics mainly for their cheap price, acceptable quality and compatible to almost all Vietnamese people’ skin.
– Vietnamese cosmetics companies are attempting to set their own paths, instead of pouring money into adverstising, they quietly compete through improving quality and price. “Adverstising budget can be used to contribute more to loyal customers (with discount campaigns, thank-you gifts etc.), invest in product enhancement and improve benefits for best sales staffs.”
Vietnamese cosmetics companies need to clearly shape their competitive strategies
– Many domestic companies are catching the trend of natural cosmetics. They quickly took advantages of local natural ingredients to develop new product lines from mint, anise, turmeric, locust, ginger, lemon, grapefruit, cucumber… or extracted from vera, aloe, moringa, Sterculia foetida, mineral mud, Spirulina seaweed etc.
Vietnamese high-quality cosmetics with good price policies are suitable choices and seizing their position in domestic market.
* Sai Gon Cosmetics company “in addition to taking advantage of strength in scents, has produced new package with a modern style. Rock crystal is imported from France to ensure pure clarity, while maintaining Vietnamese spirit with shapes of girls from different countryside regions”. Typically, the company has aimed at supermarkets in big cities and opened workshops for displaying luxirious products. * In late 2013, Vinh Tan Technology Ltd. Co, invested in building a factory manufacturing melasma cream, face cleanser, cream extracted from Sterculia foetida on a modern production line imported from Japan, with capacity of 43 million products a year.
* As for TMTM Company, after having successfully utilized Moringa in producing food such as cakes, instant noodles, in 2013, the company launched Tara Moringa skin care set for both domestic and international market.
* Lately, Hoa Thien Phu Cosmeceutical Company officially joined the market by launching Sac Ngoc Khang cream. This is the pioneer in combining pillets and cream to have the highest effectiveness for skin care. The company revealed that they chose a separate distribution channel, mainly though pharmacies so as to increase product reliability. There are many foreign melasma products in the market, but very few of them approach target customers through pharma stores.
Challenges for Vietnamese cosmetics companies in future:
There are 2 visible tendencies which FDI cosmetics companies are approaching with Vietnam market. Firstly, they enter the market through direct investment, one typical example is the Korean DeBON Cosmetics company. Having joined the market since 1997 by building a factory in Vietnam, DeBON has step-by-step taken over Vietnam market share. There are times the growth rate of the company reaches 30%/year.
If import tax is reduced to 0% in upcoming years, there is a high chance it will create huge changes in cosmetic market, especially when the turnover rate is still very tempting.
The second path is to bring cosmetic products into the market directly through franchising. Shiseido is the most typical example. This is a well-known Japanese cosmetic brand which was brought in and distributed in Vietnam by Thuy Loc Company since 1997. The brand has gained its market in Vietnam through a retail store chain opened in various cities nationwide, focusing in Ha Noi and Ho Chi Minh City. After that, many small investors in Vietnam participating in expanding the retail network under Thuy Loc’s direction. Thanks to favorable policies over the last years, many FDI cosmetics companies have been facilitated to invest in production and approach to Vietnam market. However, since 2015, after Vietnam had signed and complied with a number of agreements such as ASEAN Trade in Goods Agreement (ATIGA), ASEAN-China Free Trade Area (ACFTA), ASEAN-Korea Free Trade Area (AKFTA), ASEAN-India Free Trade Area (AIFTA), Vietnam-Japan Economic Partnership Agreement (VJEPA), import tax rates of almost all products would be reduced to 0-5%. Then, investment incentives for cosmetics would be no longer attractive, because of the high cost of investment.
“When cosmetics import tax is reduced to 0%, a series of cosmetics companies will stop manufacturing in Vietnam, to focus on import and distribution. Two thirds of FDI enterprises investing in cosmetics have stopped their production in Vietnam”.
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