Discovering
new growth avenues

4.1 The innovation paradox

In today's hyper-competitive FMCG market, the mantra is clear: innovate or become obsolete. Manufacturers are constantly striving to stay ahead by introducing new brands, variants, and enhanced product benefits. But where is the silver lining between continuously launching new products and sustaining them?

If 10 years ago, consumers could be met with 16 new product launches per day, the number has now more than doubled to 35 launches per day. 75% of over 12,000 new launches in 2024 were delivered via new brands or new variants (new

flavours, more benefits, etc.). This sheer number is overwhelming. What must a consumer do? Faced with an increasing number of options that function and perform similarly, the value-conscious consumer is likely to choose the one that makes the most economic sense.

The evidence supports this: the Kantar Worldpanel’s Innovation Study revealed a significant decline in new product success. While 5.6% of new launches achieved 1% market penetration in the 2017-2019 period, this success rate plummeted to just 2.2% between 2020 and 2022. Competition is getting harder out there.

Launching a new product is one thing, assessing the performance of this new product is another.

Not all successful new launches are adding true incrementality to your revenue. Why is incrementality important? Because if your new product isn't bringing in new money, it's actually hurting your bottom line.

It's crucial to understand the source of growth for each new product. Is it attracting new consumers to the category (category incrementality)? Is it stealing market share from competitors? Or is it simply cannibalising sales from other products within your own portfolio?

Understanding the performance and source of growth of each new product launch is critical for informed decision-making. By carefully analysing the impact of each launch, FMCG manufacturers can optimise their innovation strategies, maximise return on investment, and ensure sustainable long-term growth.

Case Study: a soft drink brand

Soft drink brand A was launched in 2020 as a healthier soft drink option that maintains a delicious taste. In its first year of launch, it performed well above the success benchmark and achieved over 1% in accumulative penetration after 1 year.

However, a closer look revealed that 30% of the value generated from the purchases of Brand A after the first year was cannibalised from its own portfolio, which was well over the 10% benchmark. While the manufacturer aimed to attract new consumers to the soft drink category, the new incrementality to the category only reached 15%, which is below the category benchmark of 30%. To truly maximise the potential of brand A, the manufacturer needs to revisit its strategy. This may include refining the target audience, adjusting marketing communications to reach non-category buyers, and potentially re-evaluating the product's positioning to minimise cannibalisation of existing brands within the portfolio.

4.2 Meeting consumers’ complex
usage needs

People’s relationships with products have changed. With improved living standards and more disposable income, people no longer seek products only to fulfill a functional need. A consumer may choose a bottle of water not only to quench the thirst but also because the product provides them with added benefits (e.g, added vitamins, flavour, packaging, convenience).

Kantar Worldpanel's 2024 Beverage Consumption study further emphasises this shift. While basic needs like thirst quenching and hydration remain primary drivers, nearly

30% of weekly beverage consumption occasions were driven by aspirational, emotional, or health-related needs.

However, these needs are multifaceted and vary significantly across different demographic groups. For example, Gen X consumers may prioritise beverages that support immunity or aid in disease management, while Gen Z may favour drinks that enhance skin health or provide energy.

Success for FMCG brands lies not merely in creating products that taste good and function well, but in deeply understanding the specific needs and motivations of their target audience within the context of each consumption

occasion. This requires a nuanced approach that considers factors such as age, lifestyle, values, and aspirations.

4.3 The future of health

Better-for-health products are taking more advanced formats. Today, consumers seek products that align with holistic well-being, encompassing physical, mental, and emotional health. This shift is evident in the growing demand for healthier food options. A trend in reduced-sodium, reduced sugar, reduced-fat

and zero-calorie food and beverage alternatives reflects a growing awareness of the impact of excessive consumption on health.

The rise of plant-based preferences has also fuelled demand for plant-derived ingredients, from plant-based seasonings to the emergence of dried fruits and nuts as popular snack options.

Understanding these diverse and evolving health needs is crucial for FMCG success. Manufacturers must go beyond generic health claims and tailor their product offerings to meet the specific needs and preferences of different consumer segments. This requires a deep understanding of consumer motivations, including their health goals, lifestyle choices, and age-related considerations.

Case Study: Drinking Yoghurt

Drinking yoghurts, traditionally associated with digestive health, exemplifies this shift. Among all the consumption occasions for Drinking Yoghurt Probiotics, 67% of which was chosen for digestion boost and 28% for immunity boost, indexing significantly higher than the average for the Nutritional drinks category. The next generation of probiotic yoghurts addresses consumers’ evolving health needs by focusing on specific health concerns, such as reduced sugar, low-fat options, and targeted benefits like improved mental well-being for specific consumer segments, such as children.

4.4 Personal care:
A sector in bloom

The personal care sector emerged as a star driver within the FMCG landscape in 2024, with certain skincare and makeup categories leading the charge. While the penetration of the skin care and makeup subsector is relatively stable, households significantly increased their spending within the sector. This was further evidenced by an increase in the number of personal care categories purchased per household, rising from an average of 2.9 in 2022 to 3.5 in 2024.

Skincare categories, particularly sun protection, cosmetic removers, and body care, witnessed substantial growth. Vietnam once again reported record-breaking temperatures in 2024, which heightened consumer awareness of the importance of sun protection. This translated into these categories buying more brands on average. The growth of sun protection also spurred demand for complementary products like cosmetic removers, reflecting a growing emphasis on maintaining proper skincare routines.

The makeup sub-sector also experienced significant growth, with households adding more makeup items to their baskets.

Online channels played a crucial role in driving the growth of makeup and skincare, offering consumers access to an exponentially wider range of products at competitive prices from both domestic and international brands.

This surge in personal care spending reflects a growing emphasis on personal grooming and self-care among Vietnamese consumers, driven by factors such as rising disposable incomes and increased social interaction.

4.5 The value proposition showdown in Home care

The home care sector is witnessing a significant shift towards value-driven consumption. For example, liquid detergents continue to gain traction, reaching 75% penetration with a 6-percentage point increase since 2022, it's the affordable price segment that's driving this growth. Consumers are increasingly seeking out budget-friendly options that deliver comparable cleaning performance to premium brands, resulting in a notable 27% value growth for this segment. The rise of the 2-in-1 segment,

combining both detergent and fabric softener, further underscores the growing demand for convenience and multi-functionality within the home care category.

The market is also witnessing the emergence of innovative product formats, such as detergent capsules, detergent beads, specialised detergents for delicate fabrics like underwear. These new formats cater to modern lifestyle and address the increasing complexity of household chores. For instance, as household incomes improve, the rise in dishwasher ownership might fuel the demand for convenient dishwasher detergent pods.

To thrive in this dynamic home care sector, brands must closely monitor these evolving consumer needs and adapt their strategies accordingly. This includes understanding the nuances of demand within specific segments, such as the growing preference for value-driven options, the increasing demand for convenience and multi-functionality, and the emergence of new consumer needs driven by changing lifestyles (e.g., the rise of eco-conscious consumers, sensitive skin or the demand for pet-friendly products).

4.6 From street to screen: disrupting the retail landscape

The FMCG retail landscape has not become increasingly fragmented, characterised by a proliferation of brands, SKUs, blurred lines between categories but also by a growing number of modern retail channels. Shoppers are now engaging with a wider variety of retail channels than ever before, leveraging the convenience and accessibility of emerging formats.

Traditional trade, such as street shops and wet markets, continue to drop share each year, from 64% in 2019 to 55% in 2024 and we forecast this will drop further by 2026. Similarly, in rural areas, where traditional trade dominates, these channels are also experiencing declining value share contribution. However, over half of a dollar spent in urban FMCG and three quarters in rural markets still flow through traditional trade, which should remain an important focus for brands and manufacturers.

This shift has been driven by the rapid growth of modern trade and e-commerce channels, particularly in urban areas. The rise of TikTok Shop has been a game-changer for Vietnam’s e-commerce sector, experiencing exponential growth in 2024. The platform's shoppertainment model has captivated consumers, with its FMCG buyer base tripling within a year in key urban cities. Currently, 1 out of 5 households in these areas purchase FMCG from TikTok Shop at least once annually, up from 9% in the previous year.

Initially focused on non-FMCG categories like personal care and home care, TikTok Shop has attracted large and small retailers/manufacturers to jump on the bandwagon with extended offerings to include packaged food and beverages, and even fresh produce, often at significantly lower prices compared to other channels. This platform's unique features, such as live streaming, interactive Q&A sessions, strategised by extensive promotional activities, have proven highly appealing to consumers.

While TikTok Shop presents a significant opportunity for brands to reach a wider audience, particularly for smaller players, it also intensifies competition. The entry of international low-cost players into the market is further increasing competitive pressures. To navigate this intensifying marketplace, local and large FMCG brands must go beyond price and prioritise value differentiation as well as adapt product offerings to meet consumers’ evolving preferences for interactive and convenient shopping solutions.

4.7 Deconstructing the impact
of promotions

The illusion of growth

In 2024, 73% of all categories tracked by Worldpanel Vietnam recorded more trips purchased under promotions compared to the year before. But not all promotions will drive more traffic or occasions. Only 40% of these categories recorded an uptick in total trips, despite promotions bringing short-term value growth.

For example, a promotion might lead to a significant sales uplift for a particular SKU. Let's say a SKU typically sells 500 units per week in a specific retail outlet. During a promotion week, sales may jump to 700 units, indicating a 200-unit uplift. While this may seem like a success, this uplift may not be entirely incremental.

A portion of this uplift may come from "decremental sales" – sales that would have occurred regardless of the promotion. These include:

Existing customer purchases: Many of these 200 additional units may have been purchased by existing customers who would have bought the SKU that week regardless of the promotion. This effectively "rewards" loyal customers with a discount without necessarily driving new sales.

“Fast-forwarded” purchases: Some shoppers may simply be purchasing the SKU sooner than they normally would to take advantage of the promotion, leading to a decline in sales in subsequent weeks.

To truly evaluate the effectiveness of promotional activities, it's crucial to differentiate between "incremental sales" and "decremental sales". Incremental sales represent true growth, driven by new category buyers, new brand buyers, or existing customers who purchase the SKU in greater volumes due to the promotion. These sales contribute positively to long-term brand health.

Data from Worldpanel's Asia Promotion Study highlights the significance of this distinction. The study found that, on average, only 60% of sales uplift during promotions is truly incremental, while 40% represents decremental sales. This implies that a significant portion of promotional spending may not be driving sustainable growth and may even be detrimental to long-term profitability.

It's important to note that this impact varies significantly across markets, categories, pack sizes, variants, and retailers. A thorough analysis of each promotion program, considering factors such as target audience, competitive landscape, and channel dynamics, is crucial to understand its true impact and optimise promotional investments.